Abstract
Central banks play an important role in financial system and are an essential part of overall public sector finances. Monetary policy responsibilities are common to all central banks. Financial stability is another area of central bank activity. Central banks provide financial stability by controlling the actions of the commercial banks. Central banks also are as lenders of last resort and payment mechanism managers. But the key issue in this article is to concentrate on foreign reserves management as a source of bank profit. The aim of this research is to create a performance valuation framework which could help to compare foreign reserves management results in different central banks. Quantitative and qualitative reasearch methods are used in this article. For quantitative analysis various statistical techniques are used and for qualitative analysis the main method is a case study. There are a lot of measures for commercial banks sector valuation but in practice we see a lack of analysis tools for central banks performance measurement. Foreign reserves management is an ongoing process aimed at maximizing expected return over a defined investment horizon. Valuing foreign reserves management results we should concentrate on specified risk budget and the opportunity to have different kind of assets in the investment portfolio.
Highlights
Despite the fact that central banks control a substantial sum of wealth there is little published about the asset allocation process for foreign reserves management
After analysing different central banks the results have shown that some central banks have diversification and reputational principles
This paper presents the main issues in central banks’ performance valuation
Summary
Despite the fact that central banks control a substantial sum of wealth there is little published about the asset allocation process for foreign reserves management. Those mentioned authors described political and public pressure in the cases when central bank discontinues profit distribution to the government. The main limitations were that central banks do not disclose enough information about foreign reserves management process and especially they do not want to disclose investment performance results. It is not a good practice and centrtal banks should be more opened to society. The methods used in this research are analysis of scientific literature, statistical data analysis, case studies
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