Official Reserve Transactions

3 Key excerpts on "Official Reserve Transactions"

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  eBook - ePub

  The European Monetary Union

  A Commentary on the Legal Foundations

  • Helmut Siekmann, Helmut Siekmann(Authors)
  • 2021(Publication Date)
  • Hart Publishing

    (Publisher)

  6 C. Specific Annotations

  I. Foreign Reserve Assets

  7 The official foreign reserves of a country can generally be defined as external assets that are readily available and designated to be held in reserve – typically by the country’s central bank – for specific public purposes, in particular, exchange rate policy operations, monetary policy operations or to ensure the international solvency of a country and thus, quite generally, for the purpose of building and maintaining trust in its currency and economy.7 The term typically includes gold, gold receivables, foreign currency deposits held with national central banks, special drawing rights (SDRs) and reserve positions with the IMF.8 Article 31 Statute seems to be based on the same understanding: since Article 31.1 Statute refers to the fulfilment of national central bank obligations with foreign reserve assets held by them in accordance with Article 23 Statute , the term “foreign reserve assets” within the meaning of Article 31 Statute at least includes the foreign reserve assets mentioned in Article 23 Statute .

  8 Pursuant to Article 31.1 Statute in conjunction with Article 23 2nd indent Statute, foreign reserves within the meaning of Article 31 Statute are thus, first of all, “all types of foreign exchange assets and precious metals,” whereby the term “foreign exchange assets” includes “securities and all other assets in the currency of any country or units of account in whatever form held.” They may thus be held not only in cash accounts or in the form of sight deposits in foreign currency at central banks, financial institutions and international organisations (“foreign exchange reserves” in the narrow sense), but also in the form of investments, e.g. government bonds. According to the fourth indent of Article 23 Statute , they can also be invested in “borrowing and lending operations” in relations with central banks in third countries, financial institutions and international organisations. These operations include, for example, the long-term provision of capital in relations with the IMF – as long as the respective use is compatible with the nature of foreign reserve assets.9

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  eBook - ePub

  Economics of the International Financial System

  • Sukumar Nandi(Author)
  • 2017(Publication Date)
  • Routledge India

    (Publisher)

  Since the late 1950s, many papers have been written on the theme of international reserve, and these come under broadly two categories: The world reserve problem and how the IMF would solve the problem of inadequate world-level liquidity, so that rising trade among the member countries are not adversely affected; the second channel of research continued regarding the optimal level of reserve from the stand point of a single country. The latter problem has assumed importance in view of the floating exchange rate regime established after the collapse of the Bretton Woods Agreement in the early 1970s. There are at least eight reviews of the literature on the subject since 1960 and these are: Clower and Lipsey(1968), Niehans (1970), Salant (1970), Grubel (1970), Williamson (1973), Aizenman and Marion (2003), and Aizenman and Lee (2007).

  Almost all the studies explain that countries hold international reserve so that they can meet sudden temporary excess demand for foreign exchange and/or to meet short-run adjustment in the balance of trade. The central banks often intervene in the foreign reserve market by selling/buying foreign exchange. International reserves are defined to be assets or credits which can be used directly for intervention, or which can be converted into foreign exchange quickly and with certainty. In practice, it has been necessary to pick up arbitrary cut-off point on such a scale, and define international reserve as assets which are acceptable at all times to foreign economic agents (Machlup, 1966). IMF has to forward estimates of international reserve and these estimates have been widely used in literature for different purposes (Clark, 1971; Flanders, 1971; Kelly, 1970).

  A country can have international reserve at the macro level and also private liabilities towards foreign exchange. Some authors consider whether international reserve should be adjusted for such private liabilities (Brown, 1964; Kenen and Yudin, 1967). In the monetary theory literature, portfolio theory and financial intermediation have been developed and these tools have been used to explain the movement of international reserve in Kane (1965). Such a framework has some relevance with the discussion in Machlup (1966) and the studies of reserve assets composition (Hageman, 1969; Kenen, 1963). The portfolio model employed in Hageman computed stock-adjustment equation for 11 major countries on quarterly data of the 1950s and early 1960 and the study found good evidence that adjustment was far from instantaneous.

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  Macroeconomic Foundations of Macroeconomics

  • Alvaro Cencini(Author)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  To counter this objection it is enough to observe that if the official reserves were an account for the sum of residents, some residents would necessarily be entitled to it. To illustrate this, let us take again the example of a current account surplus increasing a country's official reserves. Suppose country A ’s exports to be greater than its imports, the difference being equal to ten million dollars. Since A is defined as being the sum of its residents, the ten million dollars that flow into A ’s official reserves account are the very amount of dollars earned by some of A ’s exporters. Only two logical possibilities appear open to us. Either we claim that the increase in official reserves is entirely made up of the amount earned by our exporters, or we maintain that the exporters are paid by their commercial banks and that the dollars transferred into the official reserves account are owned by the country as the set of its residents. The first possibility would lead us to the conclusion that official reserves are in reality owned by some residents, which is openly in contrast with the very conception of official reserves (country's reserves as opposed to private reserves) as well as with the way exporters are actually paid by their banking system. In fact, as shown in Table 12.1, the ten million dollars entered into A ’s official reserves are converted into an equivalent amount of money A by A ’s central bank, which thus backs the payment of the exporters carried out by commercial banks. The example of A ’s net commercial exports is particularly useful, since it clearly shows that a nation can be a creditor independently of the creditor position of its residents

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