Central Bank Reserves Research Articles

Central Bank Policies of Fragile Five Countries in the Covid-19 Process

The Covid-19 pandemic has been a trouble and deeply affected the economic conditions of countries. Economy administrators and particularly central banks have been tested seriously in this period. In this period, one of the essential tasks of central banks is to provide the need of liquidity of markets. However, the main objective of Central Banks is price stability. Monetary policies should be applied sensitively by central banks, especially in crisis periods. While liquidity needs of markets taking place, central banks intervene and effort to support declining liquidity. This study examined central banks' monetary policies in the fragile five countries (Turkey, Brasil, India, Indonesia, and South Africa). We investigated these countries' central bank policies, including interest rate, inflation, central bank reserve, exchange rate, and fragile states index in the pandemic period. We determined that the most fragile country among the five countries is Turkey according to the fragile states index, inflation, interest rate, and central bank reserve in the pandemic period.

Restrictions on the Emission of a Digital Currency in a Central Reserve Bank for Minor Transactions

The objective of this study was to identify the challenges that the Central Reserve Bank of Peru has faced with the issuance of a digital currency that can be used as a substitute for cash in retail transactions. The study was carried out by using the hypothetical-deductive method with a basic descriptive approach rather than an experimental one. To estimate the probability of creating the Digital Currency of the Central Bank and the economic variables that explain its challenges and cross-sectional information obtained from the 2020 National Household Survey with the discrete choice model (Logit). According to the research results, i) the possibility of using a digital currency increases by 46.83% if you have a formal job compared to an informal job. ii) If the individual has an internet connection, the probability of using digital currency is 8.54%. iii) If he lives in a rural area, the probability of using digital currency is 1.79. iv) The educational level influences the probability of the use of digital currency by 1.47% if they have secondary education 16.34% have no higher education and 26.44% having university education. v) Individual’s age is important for the use of a digital currency. Older people are less likely to adapt to technology than people between the age of 18 and 24 with 8.74% use of digital currency. vi) People considered poor will have a probability of reduction of 2.26% by the use of digital currency. These findings allow the researcher to conclude that public policies should be undertaken to increase financial inclusion, close connectivity gaps and create alliances with private investment to enhance people's digital skills and the adoption of digital means of payment.

A Portfolio Model of Quantitative Easing

This paper presents a portfolio model of asset price effects arising from central bank large-scale asset purchases, or quantitative easing (QE). Two financial frictions — segmentation of the market for central bank reserves and imperfect asset substitutability — give rise to two distinct portfolio effects. One is well known and derives from the reduced supply of the purchased assets. The other is new, runs through banks’ portfolio responses to reserves expansions, and is independent of the types of assets purchased. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases.

The stealth erosion of dollar dominance and the rise of nontraditional reserve currencies

We document a decline in the dollar share of international reserves since 1999. This decline reflects active portfolio diversification by central bank reserve managers, rather than changes in exchange rates and interest rates, reserve accumulation by a handful of central banks with distinctive balance sheets, or changes in coverage of surveys of reserve composition. Strikingly, the shares of the euro, yen and pound sterling have not concurrently increased. Instead, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role in reserves. The evolution of the international reserve system in the last 20 years is thus a gradual movement away from the dollar, a modest rise in the role of the renminbi, and changes in market liquidity, relative returns and reserve management enhancing the attractions of nontraditional reserve currencies.

Gold as a Factor of Change in Central Bank Reserves in Periods of the Financial Markets Turbulence: the Case of Kazakhstan

Abstract The article examines the impact of changes in the gold part of the reserves of the National Bank of Kazakhstan on their total volume with an emphasis on the factor of changes in the price of gold. The value of the factor of the price of gold increases during periods of global financial crises when Kazakhstan, as an oil exporting country, is under strong pressure on the current account and the exchange rate of the tenge due to a decline in oil prices. During these periods, the National Bank conducts foreign exchange interventions to support the tenge exchange rate and spends its reserves, which increases the relevance of their safety. The paper tests the hypothesis that in such periods, the rise in the price of gold, due to its function as a safe haven asset, can compensate expenditures on foreign exchange interventions for the central banks and increase the stability of reserves. From this point of view, the article examines three periods of high turbulence in world markets of the 2000s and changes in the National Bank’s gross reserves, as well as the influence of the gold factor on these changes. It was revealed that during the crisis periods, the rise in the price of gold contributed to the stability of the gross reserves of the National Bank, and the effectiveness of this factor was directly proportional to the gold share in the reserves.

Analysis of the causal relationships between Central Bank reserves, economic activity, and inflation

Analysis of the causal relationships between Central Bank reserves, economic activity, and inflation

Liquidity, Liquidity Everywhere, Not a Drop to Use: Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity

Liquidity, Liquidity Everywhere, Not a Drop to Use: Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity

Liquidity, Liquidity Everywhere, Not a Drop to Use – Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity

Liquidity, Liquidity Everywhere, Not a Drop to Use – Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity

Влияние внешнеэкономических санкций 2022 года на развитие регионов России

The article shows the importance of foreign economic sanctions in terms of ensuring socio-economic development effectiveness of both business entities and regional systems. The main directions of the February–March 2022 sanctions impact against the national economy of the Russian Federation by the United States, the EU states and a number of other countries on regional development are systematized. The main directions of this kind of impact are related to the effect of such consequences of the 2022 sanctions pressure as blocking the accounts of a number of large corporations of the Russian Federation in foreign credit institutions, blocking the Central Bank reserves, sharp devaluation of the national currency against dollar and euro, a significant interest rates increase in the financial market, withdrawal of a number of large foreign corporate structures from the national market of the Russian Federation.

Cost of credit and interest rate caps in a covid-19 pandemic situation

For some years now, the government, mainly from the legislature, and a large part of the population have questioned the application of high interest rates to credits granted to lower-income sectors; considering measures such as the cap on interest rates to curb these high rates called usury and charged by financial institutions. The application of measures like this is not a new economic recipe, since many developed and developing countries - such as Peru - carried it out with mostly disastrous results and to the detriment of the sectors that were precisely intended. to attend. In this sense, the theory of the credit market is exposed, the same that in conditions of perfect competition determines the market interest rate. In other words, applying limits to these rates only lead to credit contraction, harming and excluding from the financial system the lower-income sectors, considered those with the highest credit risk. Finally, alternative measures are presented that can lead to the objective of providing the most vulnerable sectors with better interest rates and contributing to their growth. Finally, a good example of interest rate reduction is presented, particularly in a situation of financial and economic crisis with the measure applied by the government and the Central Reserve Bank of Peru -Reactiva Perú-, which allowed the lower income sectors income to enjoy low interest rates at levels never seen before.

Competition of the world leading currencies: Features of the current stage

Subject. The article analyzes the competition of the world leading currencies in the global economy, specifics of the current stage, trends in the role of particular currencies in the global market. Objectives. The purpose is to review the current positions of the U.S. Dollar, Euro and Yuan in the global financial markets, assess prospects for maintaining the leading role of the U.S. Dollar, development trends in the position of Euro and Yuan. Methods. I applied the content analysis of available sources, provide a historical overview of issues under consideration, scrutinized the estimates of financial analysts. Results. The paper unveils reasons for increased competition of the leading currencies (U.S. Dollar, Euro, Yuan) in the global foreign exchange market, which include an increase in the scale of payment transactions in the global financial and commodity markets. It also reveals trends in the use of particular currencies in foreign trade and financial transactions, evaluates prospects for the use of specific world currencies in the global economy. Conclusions. At present, U.S. Dollar maintains its leading positions. However, in the future, an increase in the use of Euro- and Yuan-denominated transactions should be expected in the commodity and financial markets due to enlarged presence of Chinese companies in the global economy. Further development of European integration can ensure the expansion of the single European currency in the global financial market. The share of Yuan in foreign exchange reserves of central banks tends to increase. Private investors' demand for Yuan is also expected to grow.

The Law of Central Bank Reserve Creation

AbstractThis article explores legal and constitutional dimensions of central banks’ powers to create money, ‘central bank reserves’, through monetary policy operations. Despite the prominence of monetary authority since the Financial Crisis, the law supporting the creation of central bank reserves is very obscure, as is the role of law in structuring constitutional authority over money. We de‐mystify those important matters in three steps. First, we explain, for a legal audience, the role of central bank reserves in the financial system and broader economy. Secondly, we analyse the legal basis for the creation of central bank reserves in three prominent ‘North Atlantic’ monetary jurisdictions: the US Dollar, Euro and Sterling systems. Thirdly, we show how the legal structure of central banking intermediates the constitutional state's authority over money through parts of the financial system, focusing on high‐profile policy proposals, including ‘QE for the people’, and the creation of central bank digital currencies.

A Study on Perception of Financial Market Professionals in Turkey Towards Gold

Gold becomes an important central bank reserve in Turkey, gold savings accounts and gold investment funds begun to increase with the increasing interest of the financial sector in last years. The risk appetite for gold is increasing both in Turkish and international financial markets. The importance of gold as a financial instrument is growing. Within this framework, the aim of this study is to analyze the perception of gold among the professionals in the Turkish financial market as a central bank reserve, a mean of payment and an investment instrument. The analysis was done by a survey made among the employees of the banks, broker firms and portfolio management companies in the Turkish financial sector, mainly among treasury departments, fund and portfolio managers. A perception score was calculated from the statistical data.

Determinants of Sterilization using a Trilemma Policy: A study in Qatar, Kuwait, Indonesia and Japan

Trilemma policy refers to a concept of international economics that states it is impossible to gain all three variables at one time, which is also known as Mundell-Fleming framework. The trilemma policies consist of independent monetary policy, exchange rate stability, and free capital mobility. Pursuing any two of the variables will shadow the other one. Sterilization, on the other hand, reflects the policy set by Central Bank to limit the effects of inflow and outflow of capital money supply. Trilemma policy may influence sterilization, proxy by Central Bank Reserve, as the latter depends on the former. This study determined the relationship between trilemma policy and sterilization by placing focus on four nations, namely Qatar, Kuwait, Indonesia and Japan. Monthly data were gathered from 2009 to 2017. At the end of this research, the findings verified if it is “possible or not possible to maintain all the three variables in the trilemma policy to achieve a stable economic condition by way of sterilization.”

Determinants of Sterilisation using Trilemma Policy: A study in Qatar, Kuwait, Indonesia, and Japan

Trilemma policy is a concept of international economics in which it is impossible to gain all three variables at once or also known as Mundell-Fleming framework. Trilemma policies consist of independent monetary policy, exchange rate stability, and free capital mobility. By pursuing any two of the variables, it will shadow the other one. On the other hand, sterilisation is the policy which is set by the central bank to limit the effect of inflow and outflow of the capital money supply. Trilemma policy affected the sterilisation, which is the proxy by central bank reserve due to the latter that depends on the former. The purpose of this study is to find the relationship between trilemma policy and sterilisation. The sample of the study focused on four countries such as Qatar, Kuwait, Indonesia, and Japan by collecting monthly data from the year 2009 to 2017. At the end of this study, the findings will verify whether it is possible to maintain all the three variables in trilemma policy to achieve a stable economic condition by sterilisation.

Card Acceptance by Small Merchants: An Application of the Tourist Test to Peru

Abstract This paper presents a first estimation of the tourist test threshold for interchange fees that makes Peruvian small merchants indifferent between accepting cash and debit cards at the point of sale. We use the tourist test model (initially proposed by Rochet and Tirole), including tax evasion (Aurazo and Vasquez’s model) as an extra factor in the merchants’ decision between cash and card payments. Also, we revisit the existing empirical approaches and propose a new empirical approach, coined as the cash-flow approach, which assumes that small merchants estimate the overall cost in terms of the average ticket related to cash and card payments. Using a Survey on private costs of payment instruments conducted by the Central Reserve Bank of Peru in 2019, our estimates suggest that the tourist test threshold for debit cards is lower than the current interchange fee until 2019, even if tax evasion is not considered. Also, this study helps policymakers to better understand the factors around the merchants’ decision that may be considered to foster digital payments.

The Rise of Digital Money

Payment systems around the world are evolving with the emergence of digital money issued by private firms and central banks. We provide a conceptual framework to compare and contrast traditional forms of money with their new digital equivalents. We suggest that some forms of digital money, while less stable as a store of value, could be rapidly adopted given their advantages as a means of payment. We review the benefits and risks that would emerge. One approach to managing risks would be to require full backing of selected digital money with central bank reserves. We call the arrangement synthetic central bank digital currency (sCBDC), a private-public partnership that combines the advantages of private sector innovation and customer orientation with the safety and stability of central bank–backed money. We offer policy considerations, directions for research, and an overview of the literature to date. The analysis of digital currencies is an exciting new field crossing into monetary and financial economics that will reshape the monetary and financial systems for many years to come.

Foreign Exchange Reserves of Central Banks and European Central Bank as an Important Element of the Concept of Sustainable Development

The aim of the article is to analyze the foreign exchange reserves of the European Central Bank in connection with the concept of sustainable development. The concepts of sustainable development are described in literature broadly and, for example, it is worth pointing to international and European concepts for sustainable development. The challenge for the international community has become the need to secure the environment for both present and future generations (implementation of the principle of intergenerational justice). As a result of the study, it was proven that, when implementing the foreign reserve management policy, the European Central Bank and national central banks should pursue the objectives of the current monetary policy for future generations. The interdisciplinary character of the articles implies different research methods: the importance and impact of sustainable development on a given country / region can be analyzed using a variety of methods, including statistical, surveys or dogmatic law. The analysis carried out as part of the study indicates that management of foreign exchange reserves of ECB has impact on the sustainable development and intergenerational justice.

Bank lending in an emerging economy: How does central bank reserve accumulation matter?

Purpose - The paper examines the impacts of the central banks foreign exchange reserves on bank lending, captured by the dimensions of quantity (loan growth) and quality (credit risk).Methods - This research analysis is based on bank-year observations in Vietnam during 2007–2019 and employs the two-step system Generalized Method of Moments in dynamic panels.Findings - This study finds that banks tend to increase their loan growth rate in response to reserves accumulation. Banks also expand loans and cash items on their asset structure while subsequently slashing total security investments and disaggregate government bond holdings. Our results also indicate that the central bank reserves accumulation is associated with less credit risk and more financial stability of the banking system.Implication - This paper supports the notion that reserve accumulation could be a complementary monetary policy tool for lending navigation and economic growth. Besides, reserve interventions may be used for financial stability, given the finding that it is found to curtail bank credit risk and financial instability.Originality - This paper contributes to the literature by focusing on critical aspects of bank lending, including quantity and quality, to paint a bigger picture of the benefits and costs of reserve accumulation and decompose bank asset portfolios into disaggregate components, thereby providing more insight into bank responses.

Global Stablecoins: Monetary Policy Implementation Considerations from the U.S. Perspective

<ns3:p>This note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, we map out cash flows of GSC transactions among financial sector entities using a stylized set of 't-accounts'. By analyzing these individual transactions, we infer aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, we also consider how these balance sheet changes could affect monetary policy implementation, the demand for central bank reserves, and the market for U.S. dollar safe assets.</ns3:p>