Changing Sentiments Return Versus Liquidity

Official foreign reserves are key national assets and poor governance and management may put economic policy tools at risk. Managing reserve assets differ than managing public pension money and sometimes even sovereign wealth fund assets. Their similarity lies in that they are public assets or assets owned by a public group. In most cases, reserve assets are invested in a conservative manner because of their possible purposes. Nations typically utilize reserves as policy tools to influence economic sentiment, trade, and outcomes. Popular policy tools include exchange rate intervention and morphing monetary policy. The global financial crisis in 2008 emphasized the critical need for the availability of economic policy tools. Political leaders and policymakers were caught off guard. Reserve managers were tasked with the probability to quickly gather liquidity in portfolios to meet foreign currency demands of financial institutions or support foreign exchange value of their currency.

This unstated liability puts pressure on government stakeholders to conservatively manage assets to make sure they are readily available when needed.

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