core sector communique

IMF Convenes Third Roundtable of Sovereign Asset and Reserve Managers

February 4, 2011

The International Monetary Fund (IMF) held its third Roundtable of Sovereign Asset and Reserve Managers in Washington, DC on January 20–21, 2011. The Roundtable—which is designed to facilitate the exchange of ideas and experiences in sovereign asset and reserve management—was attended by high-level delegates from central banks and ministries of finance from 29 countries, representatives from select international institutions, as well as private sector representatives.

The theme of the third Roundtable, organized by the IMF’s Monetary and Capital Markets Department, was Financial Crisis and Reserve Management: Outlook for the Future. The policy discussions covered reserve management and procyclicality in investment behavior, optimal reserve levels in light of the crisis, reserve management in a low-yield environment, and holdings of emerging market currencies .

Mr. John Lipsky, the IMF’s First Deputy Managing Director, who addressed the roundtable, noted that the IMF is currently engaged in international efforts to build a more robust post-crisis framework and a more resilient financial sector, and is enhancing bilateral and multilateral surveillance to strengthen crisis prevention. He invited the Roundtable participants to share views on where reserve management worked well and what could have been done better, both from the perspective of individual countries and for the global economy.

The delegates agreed that reserves played a vital role during the crisis and welcomed the ongoing work on assessing reserve adequacy in light of the changes in the economic environment. They urged that the work should be deepened, and emphasized that the crisis has brought to the fore the important role of reserve management in ensuring that reserves are available when needed, and that reserve management objectives can sometimes conflict with financial stability. Reserve managers were also of the view that to the extent possible, it is important to avoid procyclical investment behavior and that the best way to achieve this is through a combination of reducing cyclical assets in good times and a sound governance framework. They acknowledged that this can be particularly challenging in the current low-yield environment but that a solution would involve managing reserves over a longer investment horizon. The delegates also felt that further work by IMF staff with emerging market countries to improve the investability of their currencies for reserve management purposes would be a useful step.

The Roundtable felt that some aspects of the IMF Guidelines for Foreign Exchange Reserve  Management (2001) could be refined and further clarified to reflect recent international experiences with reserve management during the crisis.

A technical workshop was held on approaches for deriving the optimal currency composition of reserves, and the outlook for gold and other instruments for hedging inflation risks. An open discussion was held on the reserve management services that central banks provide and offer to each other and the role the IMF staff can play in matching supply and demand and improving transparency.

In his concluding remarks, Mr. José Viñals, Financial Counsellor of the IMF, stressed that countries must make sure that they hold the right quantity of reserves, but also that the quality of these reserves, and of reserve management, is beyond doubt and is guided by a properly designed framework. He emphasized that that asset allocation and currency composition must be right and tailored to the specific needs of the country, that a sound risk management framework is in place, that reserve managers are given the right incentives, and that the authorities are willing to be more transparent about their reserve management operations.

The next Roundtable will be held in January 2012.