This accompanying document to the Guidelines for Foreign Exchange Reserve Management, which the IMF published in 2004, presents case studies prepared by reserve management entities in 20 countries. These sample case studies illustrate how a range of countries from around the world, at different stages of economic and financial development and institutional structure, have developed their capacity in reserve management in the areas covered by the Guidelines. The various strategies adopted by the countries, which are based on the country-specific policy environment, offer useful insights and suggestions to countries seeking to strengthen their policy frameworks for reserve management.
156. Australia’s foreign currency reserves are managed by the Reserve Bank of Australia (RBA). At the end of June 2002, the gross value of the reserves portfolio was US$20 billion, representing around half of the central bank’s assets. The primary role of the reserves portfolio is to fund foreign exchange market operations that arise as part of the Bank’s broader monetary policy function. Reflecting this, the reserves are managed in a manner that gives priority to low levels of credit risk, limited exposure to market risk, and maintaining a high degree of liquidity. Subject to these objectives, the Bank also seeks to earn a positive return on the portfolio.
16. This document has been developed to accompany the Guidelines for Foreign Exchange Reserve Management that were approved by the Executive Board of the International Monetary Fund in September 2001.1 The work in this area has been undertaken by the Fund as part of the broader work program to strengthen international financial architecture, promote policies and practices that contribute to stability and transparency in the financial sector, and reduce external vulnerabilities of member countries.
597. The Indian approach to determining adequacy of foreign exchange reserves has evolved over the past few years. Various factors, ranging from the pioneering Report of the High Level Committee on Balance of Payments (Chairman: Dr. C. Rangarajan) to Governor Jalan’s exposition of the combination of global uncertainties, domestic economy, and national security considerations in determining liquidity at risk and thus assessing reserve adequacy (Paragraphs 23 and 24 of Statement on Monetary and Credit Policy, April 29, 2002), have contributed toward the process of development of such an approach.
631. Israel’s foreign-exchange reserves are owned and controlled by the central bank, Bank of Israel (the Bank), which is therefore the “reserve management entity,” as defined by Guidelines. Within the Bank, the Foreign Currency Department (Department) is responsible for performing the reserve management function, under the direction of the Governor of the Bank.
680. The Bank of Korea (BOK) holds foreign exchange reserves to maintain a capacity for intervention in the foreign exchange market, to cope with internal and external shocks, and to preserve the value of the national wealth. Therefore, the BOK puts the focus on safety and liquidity, while also endeavoring to generate high returns.
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.
745. The main objective for Banco de Mexico (the Bank) in the management of its reserves is the maximization of returns subject to liquidity needs and constraints. With the implementation of a floating exchange regime in 1995, the Bank has been increasing the weight that it places on return enhancement, while also placing high attention on other risks involved in its investment decisions.
767. This report outlines the framework for managing foreign reserves in New Zealand. We cover matters raised in the IMF’s guidelines on reserves management under two broad themes: developing a sound governance and institutional framework and establishing a capacity to assess and manage risk.
811. At the end of 2001, Norway’s central bank, the Norges Bank (the Bank), managed funds worth NKr 795 billion (US$88 billion) in the international capital markets. The bulk of this capital was the Government Petroleum Fund (NKr 613 billion/ $68 billion), which is managed on behalf of the Ministry of Finance, and the Bank’s international reserves (NKr 170 billion/$19 billion). Norges Bank’s international reserves comprise the foreign exchange reserves, gold reserves, and claims on the IMF. In addition, the Bank manages the Government Petroleum Insurance Fund (NKr 11 billion/$1 billion) on behalf of the Ministry of Petroleum and Energy.47