IDEAS home Printed from https://ideas.repec.org/a/nzb/nzbbul/sep201204.html
   My bibliography  Save this article

Foreign currency reserves: why we hold them influences how we fund them

Author

Listed:

Abstract

This article reviews New Zealand’s approach to funding foreign currency reserves: a mix of holding foreign currency assets funded by outright purchases of foreign exchange, borrowing foreign currency long term to fund foreign currency assets, and swapping local currency assets for foreign currency assets for a long term. The use of borrowed and hedged reserves is unusual, but not unique, among floating exchange rate countries with liberalised financial markets. We consider the reasons for holding reserves, and the connection between these reasons and the costs and benefits of each of the funding options that New Zealand has chosen.

Suggested Citation

  • Anella Munro & Michael Reddell, 2012. "Foreign currency reserves: why we hold them influences how we fund them," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 75, pages 35-45, September.
    • Handle: RePEc:nzb:nzbbul:sep2012:04
    as

    Download full text from publisher

    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2012/2012sep75-3munroreddell.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 423-438, August.
    2. Michael Gordon, 2005. "Foreign reserves for crisis management," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, March.
    3. Patrick McGuire & Goetz von Peter, 2012. "The Dollar Shortage in Global Banking and the International Policy Response," International Finance, Wiley Blackwell, vol. 15(2), pages 155-178, June.
    4. Anella Munro & Philip Wooldridge, 2011. "Motivations for swap-covered foreign currency borrowing," BIS Papers chapters, in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 19-56, Bank for International Settlements.
    5. Kelly Eckhold & Chris Hunt, 2005. "The Reserve Bank of New Zealand’s new foreign exchange intervention policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 231-41, Bank for International Settlements.
    6. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March.
    7. Baba, Naohiko & Packer, Frank, 2009. "Interpreting deviations from covered interest parity during the financial market turmoil of 2007-08," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1953-1962, November.
    8. Kelly Eckhold & Chris Hunt, 2005. "The Reserve Bank's new foreign exchange intervention policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ding Ding & Mr. Werner Schule & Ms. Yan M Sun, 2014. "Cross-Country Experience in Reducing Net Foreign Liabilities: Lessons for New Zealand," IMF Working Papers 2014/062, International Monetary Fund.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Claudia Buch & Catherine Koch & Michael Koetter, 2016. "Crises and rescues: liquidity transmission through international banks," BIS Working Papers 576, Bank for International Settlements.
    2. Rose, Andrew K. & Spiegel, Mark M., 2012. "Dollar illiquidity and central bank swap arrangements during the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 326-340.
    3. Bertrand Blancheton & Christian Bordes & Samuel Maveyraud & Philippe Rous, 2012. "Risk of liquidity and contagion of the crisis on the US, UK and Euro Zone money markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01098954, HAL.
    4. De Socio, Antonio, 2013. "The interbank market after the financial turmoil: Squeezing liquidity in a “lemons market” or asking liquidity “on tap”," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1340-1358.
    5. Claudio Borio & Piti Disyatat, 2011. "Global imbalances and the financial crisis: Link or no link?," BIS Working Papers 346, Bank for International Settlements.
    6. Guonan Ma & Robert N. McCauley, 2014. "Financial openness of China and India- Implications for capital account liberalisation," Working Papers 827, Bruegel.
    7. Emmanuel Carré & Laurent Le Maux, 2018. "The Federal Reserve's Dollar Swap Lines and the European Central Bank during the global financial crisis of 2007-2009," Post-Print hal-02570211, HAL.
    8. Bank for International Settlements, 2010. "The functioning and resilience of cross-border funding markets," CGFS Papers, Bank for International Settlements, number 37, december.
    9. Eguren-Martin, Fernando, 2020. "Dollar shortages and central bank swap lines," Bank of England working papers 879, Bank of England.
    10. Irfan Akbar Kazi & Hakimzadi Wagan, 2014. "Are emerging markets exposed to contagion from U.S.: Evidence from stock and sovereign bond markets," Working Papers 2014-58, Department of Research, Ipag Business School.
    11. D. Essers & E. Vincent, 2017. "The global financial safety net :In need of repair ?," Economic Review, National Bank of Belgium, issue ii, pages 87-112, september.
    12. Filipe, Sara Ferreira & Nissinen, Juuso & Suominen, Matti, 2023. "Currency carry trades and global funding risk," Journal of Banking & Finance, Elsevier, vol. 149(C).
    13. Valentina Bruno & Hyun Song Shin, 2014. "Assessing Macroprudential Policies: Case of South Korea," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 128-157, January.
    14. Bernanke, B.S., 2011. "International capital flows and the returns to safe assets in the United States 2003-2007," Financial Stability Review, Banque de France, issue 15, pages 13-26, February.
    15. Brei, Michael & Gambacorta, Leonardo & von Peter, Goetz, 2013. "Rescue packages and bank lending," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 490-505.
    16. Carmela D'Avino, 2015. "Net Interoffice Accounts of Global Banks: The Role of Domestic Funding," IJFS, MDPI, vol. 3(3), pages 1-17, June.
    17. Andrej Sokol & Michael Kumhof & Marco Pinchetti & Phurichai Rungcharoenkitkul, 2023. "CBDC policies in open economies," BIS Working Papers 1086, Bank for International Settlements.
    18. Galariotis, Emilios C. & Makrichoriti, Panagiota & Spyrou, Spyros, 2016. "Sovereign CDS spread determinants and spill-over effects during financial crisis: A panel VAR approach," Journal of Financial Stability, Elsevier, vol. 26(C), pages 62-77.
    19. Jorg Bibow, 2015. "The Euro's Savior? Assessing the ECB's Crisis Management Performance and Potential for Crisis Resolution," Economics Working Paper Archive wp_845, Levy Economics Institute.
    20. Maylis Avaro & Henri Sterdyniak, 2014. "Banking union: a solution to the euro zone crisis?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 193-241.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nzb:nzbbul:sep2012:04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Reserve Bank of New Zealand Knowledge Centre (email available below). General contact details of provider: https://edirc.repec.org/data/rbngvnz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.