Wednesday, April 29, 2015

IMF unveils new way of assessing countries’ reserves


The International Monetary Fund (IMF) said it has developed a new framework for determining the appropriate level of international reserves held by its member countries. The fund also emphasised the need to take account of the specific needs of different types of economies. 
Reserves—the assets denominated in foreign currency, plus GOLD, held by a central bank—occupy an important place in the policy toolkit of most economies. Together with sound policies, they can help reduce the likelihood of balance of payment crises and preserve economic and financial stability. In addition to these important benefits, reserves also have costs.
Although the global financial crisis highlighted the importance of adequate reserves, there is little consensus on how to determine the desired level of reserve holdings for a given country.
A new IMF report aims to fill this gap by outlining a framework for discussing reserve adequacy issues in the context of the IMF’s regular “health checks” of its members’ economies, also known as Article IV consultations.
For each country group, the paper proposes frameworks to help assess the appropriate level of reserves based on its circumstances. To achieve this, the report also provides further reserve assessment guidance for specific country types within these categories—for example, countries with capital controls, commodity-intensive countries, and dollarized economies.

Because there are both costs and benefits to reserves, the report proposes that Article IV consultations include a fuller discussion of the authorities’ stated objectives for holding reserves, an assessment of the reserve needs for precautionary purposes, and a discussion of the cost of reserves.

2 comments :

  1. This is a welcome development.
    www.alabekee.blogspot.com

    ReplyDelete
  2. This is a welcome development.
    www.alabekee.blogspot.com

    ReplyDelete