Has the pandemic fundamentally changed reserve management? Insights from 119 central banks

The World Bank Treasury’s Reserve Advisory and Management Partnership (RAMP) launched the Third RAMP Survey on reserve management practices in 2021, with a record of 119 participating central banks. The survey builds upon another two biennial RAMP surveys (the survey in 2018 followed by the second survey in 2019), allowing central banks to benchmark their practices against peer institutions and their evolution over time.

The Third RAMP Survey was conducted at the height of the COVID-19 pandemic when reserve managers faced unprecedented challenges. With economic activity ground to a halt worldwide, central banks implemented unparalleled monetary policies, ultimately lowering their policy rates to historically depressed levels, even below zero. Simultaneously, some countries struggled to meet their liquidity needs in foreign currency. Besides, lockdowns globally forced these institutions to adjust to a remote working environment. We observed several trends since previous RAMP surveys as institutions responded to the challenging environment and long-term changes wrought by the pandemic.

First, central banks put more weight on safety and liquidity than on return to respond to the potentially higher reserve need . Furthermore, a modest increase (7%) of respondents indicated that saving for intergenerational equity is not relevant. Although self-insurance against external shocks remains the primary objective for holding reserves, conducting foreign exchange policies and servicing international debt obligations have become more relevant (see Figure 1).

Figure 1. Changes in investment objectives from the previous RAMP Survey

A bar chart with labels "hilghly relevant" "Somewhat relevant" "not relevant" representing Figure 1. Changes in investment objectives from the previous RAMP Survey

Second, central banks reduced their duration by an average of seven months likely to seek protection from the potential increase in interest rates once the economic impact of the pandemic subsides . They also have increased their risk tolerance levels during 2020, probably in response to the low-yield environment and the elevated market volatility. Whether these trends manifest into a durable trend remain to be seen.

Third, reserve managers have considerably expanded their eligible currencies, with the largest increase (15%) in the Chinese renminbi (CNY)  (see Figure 2). In both prior RAMP surveys, about half of central banks allowed CNY investments, but now two-thirds of central banks have expanded their eligibility to CNY. The then-interest rate differential between China and other countries may explain this phenomenon. The Chinese renminbi offers the highest nominal yield among the leading reserve currencies and is the second largest economy in the world, which may continue to drive this trend for years to come. Lastly, other currencies, such as the Australian dollar, Canadian dollar, Singapore dollar and Korean won, expanded their eligibility.

Source: https://blogs.worldbank.org/allaboutfinance/has-pandemic-fundamentally-changed-reserve-management-insights-119-central-banks