Transcript Slajd 1 - Uniwersytet Warszawski

Global reserves management
Government Borrowers Forum 2007
Montreal, Canada
16 May 2007
Dr Krzysztof Rybiński*
National Bank of Poland
Deputy Governor
Email: [email protected]
Blog: www.rybinski.eu
*Views presented here are my own and they do not necessarily represent
the official position of the National Bank of Poland or the Polish Financial Services
Authority.
Paper published in September 2007 in Economista (in English)
Research motivation
• Central banks reserves exceeded 5 trillion dollars
•
•
in 2006, SWFs hold at least 1.5 trillion dollars,
cumulative reserves holding forecast to exceed
10 trillion dollars in 2010
In recent years CBs and SWF embarked on a
„collective diversification journey” (particular
attention given to Singapore, China, Japan,
Korea)
Goal: understand why this happened, what are
the likely consequences
Rybinski.eu
Putting this in perspective …
Global CB reserves
Source: Hildebrand (2007), author’s modifications
Rybinski.eu
Growth of Official Reserves
Developing and Emerging Economies, USD bln.
3 000
2 500
2 000
1 500
1 000
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
500
Sources: BIS, IMF, World Bank
Rybinski.eu
Do we have enough?
Source: flickr.com
Rybinski.eu
Reserves Adequacy: Months of
Imports
Developing and Emerging Economies, Weighted Average
9
8
7
6
5
4
3
2
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
1
Sources: BIS, IMF
Rybinski.eu
Reserves Adequacy:
Short-Term Debt Coverage (GG)
Developing and Emerging Economies, Weighted Average
3,0
2,5
2,0
1,5
1,0
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0,0
1995
0,5
Sources: BIS, IMF
Rybinski.eu
Reserves Adequacy:
Short-Term Debt Coverage
USD m
4
2000
2005
3
2
1
0
Western
Europe
CEE
Asia
Oil exporting
countries
Latin
America
Africa
Sources: IMF IFS, BIS-IMF-OECD-WB
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We have more than enough!
Source: flickr.com
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Usual costs of holding reserves
• Cost of mopping up liquidity higher than
return on reserves
• Domestic currency appreciation may lead
to huge losses amid long foreign currency
positions
• Old cost measures focused on CB balance
sheet
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New concept: OCHAR
• Opportunity Cost of Holding Ample
Reserves …
• … is a forgone GDP growth amid too
conservative central bank reserve
management
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OCHAR factors
1. The size of reserves (absolute or above GG
2.
3.
rule)
The difference of returns between optimal
strategy in the long-run and actual short-term
focused strategy pursued by CBs
The country specific ability to translate
additional income into projects with high social
rate of return
Rybinski.eu
OCHAR, second factor - strategy
Global portfolio: US, Germany, UK (actual currency shares are weights)
CB: 1-3 government bonds
Pension: 40% bonds (1-3), 60% stocks, Merill Lynch indices
500%
450%
400%
350%
Cumulative Return on a Stylized Central Bank
Portfolio
Cumulative Return on a Stylized Pension
Portfolio
300%
250%
200%
150%
100%
50%
0%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Rybinski.eu
Opportunity cost: factors 1 & 2,
% GDP (5yr average)
2,0%
1,5%
1,0%
0,5%
0,0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-0,5%
Western Europe
CEE
Asia
Oil exporting countries
Latin America
Africa
-1,0%
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OCHAR – third factor – good/bad
government
• Higher central bank profits can be wisely
invested to enhance potential output or …
• … can be wasted on potential-growth
reducing social handouts
• This factor is country specific
• We use infrastructure spending coefficient
(Munnel [1992]) of 0.39
Rybinski.eu
OCHAR, % GDP
1990-1995
1996-1999
2000-2002
2003-2006
1990-2006
Stylized pension portfolio
Western Europe
0.01%
0.23%
-0.27%
0.14%
0.04%
CEE
0.09%
0.74%
-0.91%
0.54%
0.17%
Asia
0.02%
0.43%
-0.72%
0.67%
0.14%
Oil exporting countries
0.03%
0.42%
-0.58%
0.48%
0.12%
Latin America
0.05%
0.35%
-0.42%
0.29%
0.10%
Africa
0.03%
0.32%
-0.46%
0.26%
0.07%
Rybinski.eu
Two strategies. First – keeping
reserves at the „optimal” level
Source: Green, Torgerson (2007), author’s modifications
Examples: Slovakia, Switzerland, Mexico
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Two strategies. Second – raising
marginal revenue
Source: Green, Torgerson (2007), author’s modifications
Strategy adopted by majority of CBs
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The central bank collective
diversification journey
Source: flickr.com
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XX century investing vs. XXI century
investing by CBs
16.00%
14.00%
12.00%
T-Bill
GIC, 9.5% pa.
USG1-3
Govts
10.00%
+Agcy
+ABS/MBS
8.00%
+Corps
+Hi Yield
+Equity
6.00%
+EmgMkt
+Commdty
4.00%
2.00%
0.00%
0.00%
+HedgeFunds
Very conservative central bank, capital protection strategy
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Source: World Bank Treasury, author’s modifications
Rybinski.eu
What are the implications?
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Changes is assets relative prices
• Implication 1: relative asset prices in
XXI century will change, and often will
have very little in common with historical
averages in XX century (some asset prices
may not be mean-reverting). Emerging
markets as new safe heaven???
Rybinski.eu
Some recent evidence of relative
risk re-pricing
Source: BIS quarterly, March 2007. Record low emerging market CDS spreads
suggest significant reduction of credit risk in emerging markets relative to US
corporate risk in the same credit category
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EM volatility below major markets
volatility
• In 2007 late Feb – Mar episode local and sovereign EM debt was the
most stable asset class – PIMCO (April 2007)
JPMorgan (2006)
Correlation of EM
volatility and core
markets volatility
has gone up
Rybinski.eu
Re-pricing of risk, emerging
markets
Source: IMF, „Global Financial Stability Review”, September 2007.
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From Greenspan put to Bernanke
kaput*
• Is CB action causing
massive moral
hazard?
• Is policy geared
towards stabilization
in developed world
causing EM boom?
Phrase borrowed from HSBC research note
Rybinski.eu
Other implications
• US will loose „exorbitant privilege” (Gourinchas, Rey
•
•
•
•
(2005))*
Faster developments of financial markets in Asia, maybe
leading to common currency „asian” (work on regional
financial mechanism „AMF?” already started)*
Better allocation of assets globally leading to higher
global growth
Possibly higher short-term volatility
CBs likely to use market risk reassessment periods to
accelerate diversification process
*Explained in detail in K.Rybinski „Globalizacja w trzech odsłonach”,
to by Difin, May 2007 (in Polish), current discussion of
these topics on author’s blog www.rybinski.eu (in English)
Rybinski.eu
Global risk?
• What if global four-sigma event shuts off
many markets, and liquidity is gone. Will
CBs acting as good asset managers be
able to act timely as lenders of the last
resort?
• Shocks are becoming increasingly global
(Ehrmann, Fratzscher (2006)), only
heavyweights can deal with these shocks
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Central bankers’ job is becoming
increasingly challenging
Source: flickr.com
Rybinski.eu