Abstract

723. Reserves at the Bank of Latvia are managed according to three primary requirements: stability, liquidity, and income. Clearly, there are trade-offs between income versus stability (or capital protection) and liquidity. In practice, the Bank of Latvia has set an investment benchmark that represents and communicates the Board of Governors’ views on these three conflicting goals. The specific aspects of this strategy will be discussed later; but it is important to note at the outset that the Bank of Latvia puts relatively significant emphasis on the income portion of reserves management.