This is the process that makes sure that the foreign assets of the official public sector are available to and they are controlled by the authorities to meet specific objectives. This means that the reserves management is responsible for managing the reserves and for all the associated risks.
The job of reserve management
The main point of this kind of management is to maintain and support the confidence in the policies of the exchange and monetary rate management. This also involves being able to support the union or national currency.
The responsibility of corporate foreign exchange banks also involves limiting the external vulnerability through maintaining the liquidity of foreign currency to be able to absorb he shocks in case of a financial crisis when the possibilities of borrowing are limited.
This kind of management has to make sure that the foreign investors have confidence in the domestic market. The domestic currency has to be backed up by foreign currency and this is one of the duties of reserve management. It has to assist the government to meet the foreign exchange needs and the external debt obligations.
Reserve management is supposed to make sure that there are adequate reserves in foreign exchange that can be used to meet given objectives. In the same time it has to control market, liquidity and credit risks and it must make sure that the earnings are generated on the long term.
These reserves consist of the foreign assets of the official public sector that are available and that are under the control of the monetary authorities. This kind of management may also be connected to liabilities’ management, foreign exchange positions that are short and different kinds of derivative financial instruments.
Coordination and strategy
The strategy used should be suitable for the policy environment of the given country or union especially when it comes to the exchange and monetary arrangements. In this case it might be crucial to have cost-efficiency analysis done regarding the reserves. When it comes to strategy it is important to take into consideration the management of the external debt to reduce the country’s external vulnerability.
All information regarding reserve management should be available for the wide public. New information should appear according to a schedule. Besides public disclosure, the objectives of the management have to be clearly defined and the most important elements of the strategy should be explained.