By John Nugee
For many countries, especially in the emerging markets, the official foreign exchange reserves are both a major national asset and a crucial tool of monetary and exchange rate policy. It is vital therefore that this national resource is used and managed wisely and effectively.
Management of reserves is a complex and time-consuming business. It requires clear objectives, extensive delegation, strong control systems, open and transparent reporting and a realistic appreciation of the constraints faced. If conducted properly, openly and successfully it will greatly strengthen the public's respect for and confidence in official policy, and can make a material contribution to successful macro-economic management.
The Handbook is not, and does not set out to be, a guide to the details of the market or of portfolio management. Still less is it a primer on bond mathematics. Information on these can be found from many sources, not least the market itself. Rather it explores the strategic issues facing those who set their country's policy for the official reserves. A correct and appropriate policy framework for the official reserves is the most important element of successful reserves management; without it, even the most technically accomplished portfolio management operation will fail to be strategically successful.