The Case for Macro Risk Budgeting and Portfolio Tranching in Reserves Management
The set of objectives in reserves management are normally predefined and include: protecting the economy against potential external shocks on the current account or on capital flows; invest the reserves minimizing the potential of a loss and ensuring the availability of international liquidity when necessary. Whereas the adoption of a floating exchange rate in theory reduces the need for reserves to protect against external shocks, in the context of free capital movements it will be a function of the efficiency of international markets.
Recently, given the increase in the size of the foreign reserves in recent decades for some central banks, as a result and in response to globalization and more volatility on currency flows, portfolio foreign investment and other related factors as contagion effects, the pressure to generate long-term returns has increased. However, the goal of increased returns is subdued to the security and liquidity objectives in international reserves management. As a result, the process of asset allocation and the construction of an efficient set of investment guidelines, as well as a risk policy, must be framed by a liquidity policy and, generally, to an asymmetric exposure to risk where capital loses are to be avoided in specific time horizons; i.e. a fiscal year.
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Fuente:
Biblioteca Virtual Banco de la República
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