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Foreign Exchange Reserves and the Reserve Bank’s Balance Sheet

Author

Listed:
  • Christian Vallence

    (Reserve Bank of Australia)

Abstract

The Reserve Bank of Australia holds and manages the nation’s foreign exchange reserve assets in order to meet its policy objectives. While Australia’s foreign exchange reserves are relatively modest by international standards, they nonetheless constitute a sizeable portion of the Bank’s balance sheet, and variations in the Australian dollar value of these reserves are usually the most volatile component of the Bank’s profit and loss statement. This article discusses some of the key decisions faced by the Bank in holding and managing Australia’s foreign exchange reserves, including the appropriate size of reserve holdings, the way in which they are acquired, and risk management strategies. Each of these decisions involves a trade-off between policy capacity, and financial costs and risks to the Bank’s balance sheet.

Suggested Citation

  • Christian Vallence, 2012. "Foreign Exchange Reserves and the Reserve Bank’s Balance Sheet," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 57-64, December.
    • Handle: RePEc:rba:rbabul:dec2012-07
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2012/dec/pdf/bu-1212-7.pdf
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    References listed on IDEAS

    as
    1. Emily Poole, 2012. "Australia’s Financial Relationship with the International Monetary Fund," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 65-72, December.
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    Cited by:

    1. Adam Hawkins & Jyoti Rahman & Thomas Williamson, 2014. "Is the global financial safety net at a tipping point to fragmentation?," Economic Roundup, The Treasury, Australian Government, issue 1, pages 1-20, April.
    2. Miss Yinqiu Lu & Yilin Wang, 2019. "Determinants of Currency Composition of Reserves: a Portfolio Theory Approach with an Application to RMB," IMF Working Papers 2019/052, International Monetary Fund.
    3. Anthony Rush & Dena Sadeghian & Michelle Wright, 2013. "Foreign Currency Exposure and Hedging in Australia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 49-58, December.
    4. Md. Zahangir Alam & Muhammad Abdur Rahim, 2013. "Foreign Exchange Reserves: Bangladesh Perspective," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 2(4), pages 01-12, October.
    5. Soesmanto, Tommy & Selvanathan, Eliyathamby A. & Selvanathan, Saroja, 2015. "Analysis of the management of currency composition of foreign exchange reserves in Australia," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 82-89.
    6. Emily Poole, 2012. "Australia’s Financial Relationship with the International Monetary Fund," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 65-72, December.

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