Asia's Sovereign Wealth Funds and Reform of the Global Reserve System

This paper explores the potential contribution of Asia’s sovereign wealth funds (SWFs) to the reform of the global foreign exchange reserve system. By diversifying the investment of Asia’s huge reserves into non-dollar denominated assets, Asian SWFs can help to dilute the dominant role of the US dollar as the global reserve currency. At the same time, by exposing reserve managers to a more diverse mix of currencies and asset classes, SWFs will better prepare them for the less dollar-centric global reserve system of the future. In addition to SWFs, other innovative policy options for more active reserve management include transferring some surplus reserves into national pension funds or into exchange traded funds which are distributed among local investors. Regardless of the exact form of more profit-oriented reserve management, it will require that countries build up a critical mass of skills and expertise in wealth preservation and management.