Foreign Exchange Reserves, Exchange Rate, Intervention

Currently, there is a need for reform of global monetary circulation and credit, which in a sense has stalled. The key is to restore the connection between monetary circulation and real production. In the first part of this study, I provide a brief analysis of the catastrophic consequences that the current design of reserve currencies has led to for the world economy. At the same time, the transition from the dollar to other reserve currencies operating on the same principles, the ethos of which is now being actively promoted in the West, will not improve the situation. In the second part, I demonstrate the efforts being made to de-dollarize settlements by both the BRICS, the EU, and the EAEU countries. The third part shows the successful historical experience of the transferable ruble as an international currency that functioned in 1960-1980 on non-discriminatory principles within the Council for Mutual Economic Assistance (CMEA). In the fourth part, the international currencies already functioning in the world are described, as well as some existing proposals for the introduction of new international currencies. I argue that reliable physical access to reserves in basic food and medicines in controlled warehouses is becoming a matter of great importance. The transition is necessary from the ideology of reserve currencies to the ideology of reserves of critical goods. Such an incentive of a new BRICS currency on the demand side will be food and healthcare security. On the supply side, for all states that have established a currency, there should be a clear vision of how they can develop their exports using this currency. In order to secure currency, such goods must be pledged to international BRICS warehouses that correspond to the main export directions of the project countries and/or are critical for their import. These are basic foods such as grains, then medicines, fuel and energy resources, and metals.

We proposed a strategic asset allocation framework in which forward-looking views on various fixed income asset-classes are developed on volatilities rather than returns. Such methodology rely on some powerful and practical tools such as asymmetric and non-linear univariate GARCH models linked by elliptic copulas. In such scheme, the portfolio construction process is fully driven by the new information brought by the data without any restriction on the calibration of the dynamic matrix of volatilities.

We think that such approach has the advantage of bringing flexibility to asset managers to strategically adjust their portfolio compositions in a timely fashion with an effective control on the tail risks. The robustness of the proposed methodology was controlled by Cholesky Monte-Carlo simulations and various VaR and CVaR computation. That said, the classic framework of Mean-Variance optimization could be very restrictive practically due to its well-known drawbacks, and other frameworks of optimization should be explored.

Key words: Dynamic Strategic Asset Allocation; GARCH; EGARCH; COGARCH; Copula; Value-at-Risk; tail risk; Portfolio construction; Quantitative strategies;

Crises in the 1990s revealed major shortcomings in the management of foreign debt and liquidity in emerging market economies. Possible responses include an integrated approach to managing risks in a broader national balance sheet and reforms to the government’s own asset and liability management practices. Another important topic was how far the adequacy of foreign exchange reserves should be judged in relation to short-term foreign debt.

In the competitive environment, today, communication System plays an important role in the growth of any bank .The present age customer due to busy schedule are interested in bank at fingertip to save time and hence banks are expected to maintain upgraded communication to maintain customers. Loyalty of the customer depends on speedy delivery of service, security and privacy of data and hassle free services and these are possible only by having advanced technology for E-banking, Electronic Clearance System, Internet banking, Messing facility and timely communication between banks and customers. The customers of today are hell bent on 24*7 *365 days of quality service at affordable price matching standard of industry. Information technology has transformed the business environment all over the world. It has had a major impact on banking sector with the introduction of number of e-channels like ATMs, ECSs, EFTs, credit cards, internet banking, mobile banking, Tele banking etc. It has bridged the gaps in terms of the reach and coverage of the systems, and enabled better management of banking business Banking, Tele-banking etc 1. Statement of the problem: The scheduled urban cooperative banks are competing against the hugely resourceful commercial public sector and private sector banks having modern and costly core banking solutions software ,experienced professional and a large workforce with giant network of banking branches in every nook and corner of cities across India and the similar facilities offered by scheduled urban Cooperative banks become costly and unaffordable as these are short of fund to hire experienced professional , system analyst and anytime banking solution .The expansion of branches and ATM machines on offsite become costly for these banks .The research has identified the core problems faced by Scheduled urban Cooperative

Devaluation is a modern monetary policy tool used by countries with fixed exchange rate or managed exchange rate system to cautiously lower the value of its’ currency against a referenced currency, usually a major currency, group of currencies or standard. It is an economic tool used to combat trade imbalances. In developed economies, currencies are devalued to encourage exports, and discourage imports. This indicates that locally made goods and services become cheaper for foreign buyers, while foreign goods and services become expensive for local buyers. Similarly, economists see devaluation as a means to protect indigenous manufacturers from unhealthy competition from foreign rivals. However, local producers may become less efficient as a result of lack of competition/pressure from foreign producers.

Our hard work and implementation of prudent policies which resulted in the long and arduous journey from the agony of 1991 to the comfort of today has been widely recognised in the international forums such as International Monetary Fund. In fact the emerging world is looking upon our model as a respected model worthy of emulation in their foreign exchange reserve management exercises.

Does this mean that all is well in our reserve management policies and practices? What is the impact of this burgeoning foreign exchange reserves on our economy? What can be done to mitigate this impact?

American money bags won against British brains. Its general meaning is that, if we are to adopt a power politics approach such as that used by historians like Skidelsky , Keynes's revolutionary ideas about the post-war order could not compete with the rise of the United States as a political and financial world power, destined to impose the weight of her money bags on the future international architecture. Undoubtedly the economist who did more than anybody else in his life, on both a theoretical and practical level, to reform the global order, Keynes was convinced that "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else" (The Collected Writings of John Maynard Keynes, hereafter CW; CW 7: 383). He believed that "the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas" (ibid.).

World international reserves holdings have accelerated sharply in recent times. Countries particularly developing ones are competitive enough to hoard these reserves and top 10 major holders are mostly from Asia. Interestingly India comes only ninth among them. Developing countries, particularly India, are in line to hoard foreign reserves and there are certain factors that affect international reserves holdings. This study analysed the impact of few macroeconomic factors on these reserves. Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) tests were employed to check the stationarity of the variables on the time series data that were of annual frequency. It was found that all variables were co-integrated signalling long-run relationship. Error correction mechanism (ECM) was implemented to get short-run dynamics for which a negative relation was established for trade openness (TRDOP) which contradicts previous studies. The negative relationship of TRDOP with international reserves in India could be due to the outcome of sustained trade deficits of Indian balance of payments. The economic growth variable exhibits a positive relationship which is consistent with previous studies. All variables were found significant at a 5 per cent level. The ECM suggested the same results as its long-run counterpart.

Investors invest in a foreign market to reap the benefits of currency differences. The change in the value of underlying assets affects these hedged funds and, at the same time, restricts investors from higher return possible in unhedged funds. This study aims to examine the performance of most actively traded shares in Exchange Traded
Fund and any influence, along with tracking the information from the index. This study also analyzes the currency fluctuation and its impact on returns and volatility of ETF and index. The equity ETF, which tracks NASDAQ (NDX 100), is chosen for the study, and the data analysis is carried out using statistical methods such as correlation, regression, and GARCH model. The study utilizes the currency rate data from 2013
to 2018 of USD, GBP, and INR and examines its effect on the NDX (NASDAQ). The study emphasizes whether the ETF as a basket of securities is insensitive to currency rate fluctuations. It is found that the response of ETF to the currency movements is likely due to its underlying index. The study concludes that Motilal Oswal shares in
NASDAQ 100 ETF are highly sensitive to the NDX 100 movements; thus, there is no direct impact between ETF and index performance through exchange rate fluctuation.

In this paper we explore the 'Mrs. Machlup's Wardrobe' hypothesis to understand the growing trend of Latin American economies amassing large stocks of international reserves. Using annual data from 1980 to 2007, we examine the relevance of the argument that economies continue to add to their existing reserves stock in order to keep up with the Joneses. We find strong evidence of presence of the Joneses effect. The effect is robust to the inclusion of traditional determinants of reserve accumulation as well as region specific factors including commodity exports that set the Latin American economies apart from other emerging economies.

We assess the motive and effectiveness of foreign exchange intervention in stabilizing exchange rate in Indonesia. High volatility of exchange rate and capital flows since the global crises have forced central banks to complement its interest rate response with foreign exchange intervention in managing domestic objectives of inflation and economic growth. Using Two-Stage Least Squares (2SLS) and Generalized Autoregressive Heteroskedasticity (GARCH) models with monthly data from January 2004 to December 2018, we find that the motive of managing volatility of exchange rate is more visible than of managing the exchange rate changes and its misalignment to its fundamental level. We also find that foreign exchange rate intervention has been effective in Indonesia for managing exchange rate in both volatility and its misalignment to the fundamental levels. The results of this paper provide evidences of the efficacy of foreign exchange intervention in dealing with monetary policy trilemma in small-open economy.

Previous work has established that an appreciation of the real exchange rate (REER) con-tributes to premature deindustrialization, less productive investment and dependence on commodity booms and busts in emerging markets economies (EME). From the literature, it is less clear, however, what the most important drivers for the cyclical REER movements in EME are. The main aim of this study is to provide empirical evidence about the determinants of the REER movements of 15 emerging markets during the last two decades, using statistical analysis and a dynamic panel fixed effects model approach. Our analysis shows that although “commodity” and “industrial” EME are heterogeneous, REER volatility tends to be higher among the former. Yet, REER volatility between emerging and advanced countries does not differ very much, apart from a few countries. EME that had more stable REER fared better than those that had a depreciating or appreciating trend (with the notable exception of China). As theoretically expected,
commodity prices are an important structural driver of REER movements in “commodity EME”. Moreover, the results confirm the existence of the Harrod-Balassa-Samuelson effect, and show the importance of financial inflows. Further, the interventions of central banks were partially successful to avoid more substantial appre-ciations (depreciations).
Finally, we find that lower country risk and, at least in some peri-ods, growing broad money in OECD countries has led to REER appreciations in our sample countries.

Authoritarian regimes have surpassed democracies in foreign reserve accumulation since the Asian Financial Crisis. Two prominent institutionalist theories could explain this diverging trend in reserves: First, the political business cycle theory, suggesting that reserves are reduced before an election. Second, the veto player theory, implying that a high number of veto players increases the de facto independence of central bankers, who are reluctant to invest in reserves. A time-series cross-sectional analysis for up to 182 countries over the period 1990-2013 shows that democratic governments tend to reduce their reserves before elections. While veto players do not affect reserves directly, a high number of veto players tends to limit a political business cycle before an election. Elections and veto players do not have an influence in authoritarian regimes. Election cycles tend to explain why democracies have relatively fallen behind in a period of massive reserve accumulation.

The objectives of reserve management vary across countries, and IMF survey of reserve management practices of select countries (IMF guidelines, 2001) provides good insights on the subject. The essence of portfolio management of reserves in India by the RBI is to ensure safety, liquidity and optimization of returns. In this write-up, I have made an attempt to analyse some of the risks involved in reserve management and try to respond with certain pro-active un-obvious solutions to manage them

The currency board arrangement (CBA) in Bulgaria will soon mark its twenty fifth anniversary, a period full of important policy challenges and difficult choices for the policymakers. This paper summarizes the evolution of Bulgaria's macroeconomic policy set under this monetary and exchange rate regime and the way forward. It concludes that Bulgaria's long experience with the CBA has been generally positive so far. However, it is not straightforward and unambiguous in view of the growing global and domestic development challenges ahead.

The Bulgarian experience is an example of how a currency board can function in present circumstances as global monetary systems evolve. The Bulgarian macroeconomic policy under the CBA facilitated macroeconomic stability, economic growth, and integration in the global value chains. Bulgaria has not experienced a systemic financial crisis too. However, it failed to deliver the expected income convergence to the EU average levels in the past decade. Although low, inflation is still volatile, and inequality has increased. Bulgaria’s integration in the global supply chains and trade has also been slower than one of the peers. Thus, the country urgently needs a detailed, well-designed, and credible medium-term policy framework in line with the evolving European laws to better guarantee the ultimate macroeconomic objective of the Bulgaria’s development. An important policy trade-off is to set a predictable path towards the euro adoption or the governments to continue non-transparently implement monetary policy under the CBA.

The article examines the impact of changes in the gold
part of the reserves of the National Bank of Kazakhstan on their
total volume with an emphasis on the factor of changes in the price
of gold. The value of the factor of the price of gold increases during
periods of global financial crises when Kazakhstan, as an oil exporting country, is under strong pressure on the current account and the
exchange rate of the tenge due to a decline in oil prices. During these
periods, the National Bank conducts foreign exchange interventions
to support the tenge exchange rate and spends its reserves, which
increases the relevance of their safety. The paper tests the hypothesis
that in such periods, the rise in the price of gold, due to its function
as a safe haven asset, can compensate expenditures on foreign exchange interventions for the central banks and increase the stability
of reserves. From this point of view, the article examines three periods of high turbulence in world markets of the 2000s and changes
in the National Bank's gross reserves, as well as the influence of the
gold factor on these changes. It was revealed that during the crisis
periods, the rise in the price of gold contributed to the stability of
the gross reserves of the National Bank, and the effectiveness of this
factor was directly proportional to the gold share in the reserves.

SDRs do not constitute money thrown from a helicopter, as in the famous image used by Nobel Prize-winning economist Milton Friedman
in 1969. But one cannot deny that this allocation came at a good time for
economies struggling with a shortage of reserves and immediate needs for external financing.

I argue that the “Dutch disease” is an effect of the changes in
relative prices both domestically and internationally, a situation that can only be explained a) under the current monetary arrangements, when the monetary authorities allow the real foreign exchange rate to appreciate, and b) when the institutional arrangements in regard to a booming economic sector permit rents to be extracted and distributed through the political process.

The paper points to the conceptual definition of foreign exchange reserves, the role, importance and objectives for holding foreign exchange reserves as well as evaluating the required amount of foreign exchange reserves, or adequacy of foreign exchange reserves. Foreign exchange reserves are important assets in each country and they are significantly affected by monetary policy, exchange rate policy or regulation and external instability and the impact of the crisis that may come from the environment. This paper presents a simple way of estimates of adequacy and optimality of foreign exchange reserves, which are basis for the analysis of foreign exchange reserves, as well as in the construction of statistical and mathematical models that detail the optimal level of international reserves. Special review was paid to the assessment of the adequacy of foreign exchange reserves of Bosnia and Herzegovina, and the Central Bank of Bosnia and Herzegovina. Keywords: foreign exchange reserves, optimal level of foreign reserves, the central bank JEL clasiffication: E51 Резиме: У раду се указује на појмовно одређење девизних резерви, улогу, значај и циљеве због којих се девизне резерве држе као и оцјену потребне количине девизних резервих, односно адекватност девизних резерви. Девизне резерве су значајна актива у свакој земљи и њима се значајно утиче на монетарну политику, политику девизног курса али и регулацију спољних нестабилности и удара кризе који могу долазити из окружења. У раду је приказан једноставан начин оцјене адекватности, оптималности девизних резерви, од којег се полази у анализама девизних резерви, али и у изградњи статистичких и математичких модела који детаљније одређују оптималан ниво девизних резерви. Посебан осврт је дат на оцјену адекватности девизних резерви Босне и Херцеговине, односно Централне банке Босне и Херцеговине. Kључне ријечи: Девизне резерве, оптималне девизне резерве, центрaлнa бaнкa.