Foreign Exchange Reserve Management

Foreign exchange reserve management refers narrowly to the allocation of foreign exchange reserves across currencies, asset classes and instruments. Reserve management practices have evolved substantially over the first decade of the twenty-first century, with a tendency for processes to converge to those in the private asset management industry. There has been a greater tendency to focus on return, a more structured allocation process, and a greater focus on risk management, including reputational as well as pure financial risks. Decisions on the currencies in which to hold reserves and to designate as numeraire (currency of account) are also receiving increasing attention.