Foreign Reserves Research Articles

Divergent Relationships between Exchange Rate Pass-through and Policy Rates Across Economies: An Extension of the Taylor Rule

Although central banks often prioritize exchange rate stability, its role is frequently overlooked in the monetary policy analysis and simple interest rate rules do not comprise exchange rate arguments even in small open economies. This study extends the traditional Taylor rule by incorporating exchange rate deviations to determine their influence on monetary policy conduct across various economies. Our findings reveal heterogeneous impacts of exchange rate deviations on policy rates. Specifically, exchange rates significantly influence monetary policy in economies with fixed exchange rate regimes, higher foreign reserve ratios and lower levels of financial development.

Crude Price Changes and Nigeria’s Foreign Reserves, 2008-2023

The study investigated the correlational association between crude price and foreign reserves using the Nigerian economy as the jurisdiction of interest. The study covered the period 2008 to 2023 representing a 25year period. Bivariate pairwise correlational matrix was used to find that a highly significant positive linear association exists between crude price and foreign reserves. Following the findings arising from this study, it is recommended that the country should take advantage of crude price movement in building its foreign reserves given that increase in crude price will likely lead to a rise in revenue from crude sale. A high foreign reserve can act as stabilization fund for exchange rate, debt management and other shocks from international financial flows. Building foreign reserves can be beneficial in managing such exposures to the advantage of the Nigerian economy.

Punjab Tar-1: A New Short Duration, High Yielding and Disease Resistance Long Melon Variety (Cucumis melo) Released in Pakistan.

The development of new crop varieties with favorable features is a continuing effort. With the passage of time, a cultivated variety becomes subjected to various biotic and abiotic plant stresses. This article describes development of an innovative and imaginative long melon cultivar called "Punjab Tar-1."This article discusses creation of a novel and inventive long melon variety known as "Punjab Tar-1." Current long melon varieties in Pakistan are sensitive to climatic conditions and susceptible to pest and disease attack. A New Short Duration, High Yielding and Disease Resistance Long Melon Variety (Cucumis melo) is released in Pakistan to address these current issues of long melon varieties A high yielding and early maturing variety of long melon “Punjab Tar-1” has been developed by Vegetable Research Institute, Faisalabad, Pakistan through mass selection. Plants were selected from an open pollinated indigenous source population with main emphasis on earliness, fruit shape, color and taste and yield. Selection intensity was 15% in 1st three selection cycles and 30% in subsequent four selection cycles whereas yield trials were started from 8th selection cycle. The fruit of this variety has a strong longitudinal rib that makes it difficult for eating by caterpillars. This variety has wide adaptability and exhibits stable yield across multiple environments. Notably, "Punjab Tar-1" contains 10.59 % crude protein and 1.08% crude fat content. Genetic uniformity and distinctiveness of this variety was confirmed through SSR polymorphism. Punjab Tar-1 variety has been approved by Punjab Seed Council in its meeting held on 2021 and was recommended for general cultivation in Punjab, Pakistan. Its certified seed is available for farmers at Vegetable Research Institute, Faisalabad. This newly approved variety will aid to save the precious foreign reserves by reducing vegetable seed import bill. In Pakistan, seed market of long melon is occupied by improved varieties. In multi-location evaluation, one said variety has exhibited high yield and stability than exotic germplasm. This is the first variety developed in Pakistan having good taste, early maturity, long shape, and high yield potential. DNA fingerprinting has further confirmed that it is distinct from local material, having novelty and diversity.

The Effects of Climate Change on Kenya’s Economic Growth

Changes in the climate and natural disasters have hampered Kenya's growth in economy, as seen by periodic droughts, floods, and shifts in rainfall and temperature patterns. The research investigated the effects of climatic change on Kenya's GDP growth. Modeling was done using Autoregressive Distributed Lag (ARDL) model estimation technique while analyzing data from 1990 to 2023. Climate change was represented by annual rainfall fluctuations, carbon emissions, and forest depletion, with inflation, exchange rates, and government spending serving as the controlling factors. The regression results indicated that at 5% level of significance short run carbon emissions affect growth negatively but the long run results indicated a positive effect. Forest depletion positively impacts growth in the long run period. Government expenditure, changes in the exchange rate and economic growth had an inverse relationship. Inflation did not have potential long term impact on GDP. This study recommended that the government to balance economic growth with environmental sustainability by promoting cleaner technologies and renewable energy projects. Investments advanced irrigation and drought resistant crops are crucial. Sustainable forest management should involve controlled logging and reforestation to ensure long term health. Reducing exchange rate volatility through foreign reserves and diversified exports will stabilize the economy. Enhancing government expenditure efficiency by focusing on high return investments and minimizing waste will boost GDP stability.

Imports, Exports and Foreign Reserves in Nigeria: Exploring the Long and Short-Run Relationships from the Vector Error Correction Model (VECM) Approach

The imports of goods and services, a component of international trade, can boost economic progress when carried out on productive commodities. However, excessive imports of goods and services also stifle the growth of indigenous industries. Understanding the short- and long-run relationships between imports and other macroeconomic factors is necessary for planning by managers of the economy. This study examined the relationship between imports, exports, and foreign reserves in Nigeria for 10 years spanning from 2012 to 2021. Monthly time series data were tested for stationarity using the augmented Dickey-Fuller test, which showed that all the variables were integrated at order I (1). The Johansen co-integration test showed a stable long-run relationship between imports, exports, and foreign reserves. The regression estimates from the vector error correction model showed a long-run causal relationship (negative) between imports, exports, and foreign reserves. Furthermore, the foreign reserve has a significant short-run causal relationship with imports. Exports did not show any short-run causal relationship with imports. Both imports and foreign reserves do not have any causal relationship with exports in the short run. However, an insignificant causal relationship exists in the short run between exports and foreign reserves, while imports do not have any causal relationship with foreign reserves. The study recommends an optimum level of foreign reserve, which can be used to check the tendency of excessive importation, which is detrimental to the growth of local industries.

The Role of the U.S. Dollar in Global Trade Finance: A Study of Its Dominance and Future Prospects

This paper digs deep on what reason has led the U.S. dollar to be a dominant force for years mainly due to its stability, liquidity, and greater usage within international markets. It has made it the world's reserve currency did not just serve as an enabler for far-flung international trades and investments but also led to the establishment of the United States in terms of standing in economic and geopolitical standing. Historical factors concerning the dollar's increasing popularity over time are addressed in this paper-from the post- WWII establishment of the Bretton Woods system to the moments well after the death of the gold standard. It further explores shifting threats to the supremacy of the dollar and key drivers that might change the financial environment in the world. These are the economic ascension of emerging markets, particularly China, seeking to internationalize the yuan; extension of the BRICS bloc, composed of Brazil, Russia, India, China, and South Africa, and their joint thrust toward depolarization. Digital currencies and blockchain technology provide an emerging alternative that would allow countries to bypass traditional banking systems or lessen their dependency on the dollar when making cross-border transactions. The discussion explores how geopolitical stress - whether a trade war or the imposition of sanctions, as examples - may push the shift away from the dollar, based on a focus on increasing foreign reserves' diversity and insulation against the over-reach of the US. In addition, the paper went through how adjustments in global financial regulation, technological innovation, and central banks' policies may have an impact on the safe-haven status the dollar enjoys. Through a combination of both quantitative and qualitative methods, this paper examines the continued relevance of the dollar at the international level in terms of trade and finance. Indeed, it envisions possible scenarios: the continued reign of the dollar, the emergence of rival currencies, and the new politics of global economic crises over currency dynamics. But if nothing else, it provides a more refined and multi- dimensional view of what is going on with the dollar today and what may go on in the future in an increasingly multipolar world economy. These insights will be critical when policymakers, financial institutions, and global businesses negotiate their way through uncertainty in changing currency landscapes. Keywords: U.S. dollar, global trade, finance reserve, currency economic, uncertainty emerging economies, digital currencies, geopolitical shifts currency competition.

Exchange Rate Volatility and Foreign Remittances in SAARC Countries

This study explores the relationship between exchange rate volatility and foreign remittances on the economies of SAARC countries over the period 2000 to 2023. With the ongoing debate among policymakers and researchers on this subject, the study employs the Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) model to analyze data from eight SAARC nations. The variables considered include remittances, foreign reserves, trade, foreign direct investment (FDI), political stability, and GDP growth, sourced from the World Development Indicators (WDI), while exchange rate volatility is calculated using the GARCH method. The analysis involves two models. In the first model, remittances serve as the dependent variable, with exchange rate volatility, GDP growth, trade, inflation, and political stability as independent variables. In the second model, exchange rate volatility is the dependent variable, with remittances, GDP growth, trade, inflation, foreign reserves, and FDI as the independent variables. The results indicate both long-run and short-run relationships between exchange rate volatility and foreign remittances in SAARC countries. The findings show that remittances are positively associated with GDP growth and inflation, while exchange rate volatility, trade, and political stability have negative relationships with remittances. Additionally, exchange rate volatility has a positive association with inflation, while GDP growth, remittances, trade, FDI, and foreign reserves exhibit negative associations with exchange rate volatility. Granger causality tests reveal complex bidirectional and unidirectional causal relationships among the variables. These insights offer valuable implications for policymakers aiming to manage exchange rate volatility and enhance remittance inflows in the SAARC region.

Integration of Sustainable Investments in the Management of Foreign Reserves Held by Central Banks

Motivated by both risk considerations, such as the impact of climate changes on asset prices, and the desire to support sustainable investments that contribute to global environmental goals, central banks are stepping towards the integration of sustainable investments in their Foreign Reserves management activity. This can be performed explicitly or implicitly, via a series of channels, such as the investment in labelled bonds, or the intertion of ESG metrics at portofolio level (e.g. portfolio carbon footprint). In the case of central banks, in general, the goal of sustainability can be integrated into the activity of managing reserves, without jeopardizing security and efficiency. The security and yield of green bonds support their incorporation into reserve portfolios, but some constraints could emerge in terms of accessibility and liquidity. Given the oversupply of green bonds in primary markets but reduced trading in secondary markets, the liquidity of green bonds may be limited, especially if investors keep these bonds to maturity. However, the persistence of excess demand should facilitate the sale of such assets, if necessary.

Determinants and international transmission of interest rates: Do foreign reserves and sovereign debt matter?

AbstractWe analyze the role of international reserves and sovereign debt in the determination and international transmission of interest rates. We develop a model that describes the money market equilibrium with capital account openness. It predicts that higher levels of international reserves lead to lower interest rates whereas the effect of higher government debt is ambiguous. We then test empirically these predictions on a panel of 128 countries over 1985–2019. We find that: (i) the transmission of U.S. interest rates to domestic interest rates is stronger in emerging market economies (EMEs) than in advanced economies (AEs) for short‐term interest rates (STIR), and vice versa for long‐term interest rates (LTIR); (ii) international reserves help counteract the transmission of the U.S. policy rate on STIR in EMEs; (iii) a higher sovereign debt level is associated with lower interest rates in EMEs (liquidity effect), but higher interest rates in developing economies (risk premium effect).

What leads some countries to experience larger decreases in foreign flows during low-flow episodes? Evidence from international portfolio flows

This paper investigates the drivers explaining the heterogeneous responses of foreign portfolio investors across 43 emerging markets and developing economies (EMDEs) during low-flow episodes. Our investigations reveal several findings: (a) During low-flow episodes, EMDEs with stronger macroeconomic/institutional fundamentals—e.g., larger foreign reserves, less public indebtedness, and better institutional quality—suffer fewer reductions in foreign inflows. (b) EMDEs with more open/developed financial markets attract more portfolio inflows during surges but suffer larger declines during stops. Hence, we provide evidence supporting the foreign investor differentiation (according to fundamentals) and the mixed blessing of financial sectors hypothesis.

Central Bank Operations Under Foreign Exchange Accumulation: The Case of the Macedonian Central Bank (2005–2022)

ABSTRACT The present article analyses the balance sheet composition and the evolution of the operational framework of the Macedonian central bank. It shows that the compensating movements on its balance sheet could not be attributed exclusively to domestic liquidity management operations, as in the absence of substantial foreign currency inflows, the central bank has increased foreign reserves through the proceeds arising from the issuance of government bonds denominated in foreign currency on international financial markets. Despite retaining some of the characteristics of a currency board, the absence of a strict commitment to such a regime has allowed the central bank to employ a range of instruments of domestic liquidity management and to maintain relatively tight control over its policy rate. The level of the policy rate under a rigidly fixed exchange rate parity meant to be sustained over time, would however continue to depend on the ability of the authorities to ensure a sufficient level of foreign exchange reserves.

Foreign Reserve and Economic Growth: A Comparative Analysis of Nigeria and Ghana

This paper examined the comparative analysis of the effect of foreign exchange reserve on the economic growth of Nigeria and Ghana. The foreign reserve was proxy by country external reserve, while economic growth was equally proxy by Gross Domestic Product. Data extracted for the sampled period were analysed using descriptive and inferential statistics. An ex-post facto research design was adopted for the study. Data were obtained for sixty-four (64) years (1960-2023) from the reports of World Bank for Ghana and Nigeria. Regression test for the hypothesis was set at a significance level of 5%. The findings showed that external reserve was jointly positive and significant on the economic growth of Nigeria and Ghana (p-value = 0.0000; <0.05) and (p-value = 0.0000; <0.05) respectively. The findings also showed that Ghana had a stronger positive relationship between external reserve and economic development. The Adjusted R-Square of Ghana and Nigeria stood at 0.95 and 0.77 respectively. This implied that 5% and 23% are factors outside foreign reserve that are responsible for economic growth. This study recommends that the leaders of the two countries under consideration should pay more attention to developmental policy that will lead to accumulation of reserve, since it enhanced economic growth and currency stability of the two countries.

Effect of Macroeconomic Variables on Economic Growth in Nigeria

The study examined the effect of macro-economic variables on economic growth in Nigeria between 1990-2022. Specifically, the paper examined the effect of Exchange rate on Economic growth in Nigeria and determined the effect of interest rate on Economic growth in Nigeria. The paper employed ex-facto research design, using secondary data and adopted SVAR model. The paper found out that interest rate has a significant effect on Economic growth (RGDP) in Nigeria, and found that exchange rate has a significant effect on Economic growth (RGDP) in Nigeria. The study concluded that macroeconomic variables has a significant effect on Economic growth in Nigeria. Based on the study’s findings and conclusions above, the following recommendations were made: the government should improve on her foreign reserves as an absolute measure that will stabilize exchange rate to boost economic environment for effective investment to thrive and contribute to gross domestic product in Nigeria, and interest rate is found to have increased the potentials of Economic growth in Nigeria. It is therefore important to note that since interest rate have significantly affected the Economic growth in Nigeria, the CBN should improve on discount rate to stabilize interest rate to boost economic environment for effective investment to thrive and contribute to gross domestic product in Nigeria.

Does Greylisting Affect the Workers’ Remittances to their Home Country? A Case Study of Pakistan

Inward forward remittances are an important source of foreign reserves for Pakistan and they are also conducive in maintaining the current account deficit at a manageable level. In this article, the author has attempted to gauge the impact of FATF grey listing on the inward foreign remittances of Pakistani workers employed abroad. The time series data spanning from 2001-2022 has been used to estimate these effects using the ARDL time series estimation method and bounds testing technique for cointegration. It has been estimated that no statistically significant effect of greylisting on workers’ remittances exists either in the short or in the long run. This is in tandem with various studies that have found that FATF listing does not necessarily have a conclusive or negative effect on the economic variable(s). However, the estimates suggest that there exists a statistically significant relationship between the exchange rates and the workers’ migration stocks in the short and the long run. The result(s) of the study adds to the existing literature because to the author's knowledge, no prior work has been done regarding the impact of greylisting on the workers’ remittances sent to the home country and this effect has not been studied individually in the case of a developing country like Pakistan. Furthermore, the available literature suggests that in general, not much work has been done to estimate the impact of greylisting or blacklisting on the country’s economy; the results available in the existing literature are also mixed; where some studies report unconclusive impacts whereas other studies report a negative impact of greylisting on the economic aspects they analysed.

Lebanon’s Economic Development Risk: Global Factors and Local Realities of the Shadow Economy Amid Financial Crisis

The shadow economy’s size and impact remain subjects of extensive research and debate, holding significant implications for economic policy and social welfare. In Lebanon, the ongoing crisis since 2019 has exacerbated severe economic challenges, with the national currency’s collapse, bank crisis, and foreign reserve deficits. The World Bank reports Lebanon’s financial deficit surpassed $72 billion, three times the GDP in 2021. Despite a drastic decline in GDP, imports have surged to near-pre-crisis levels, exacerbating economic woes and indicating a constant outflow of foreign currencies. Considering such contracting facts, this paper aims to investigate global factors influencing the shadow economy and discern their manifestations in Lebanon during financial crises. Our methodology involves a comprehensive literature review, alongside a case study approach specific to Lebanon. This dual-method strategy ensures a detailed understanding of the shadow economy’s impact and the development of actionable insights for policy and economic reform. Through this approach, we seek to contribute to a nuanced understanding of Lebanon’s economic landscape and provide valuable guidance for policy decisions aimed at reducing corruption, promoting transparency, and fostering a robust formal economy. The increase in the shadow economy raises the formal economy risk, as resources and activities diverted to informal channels hinder the growth and stability of the official economic sector. Although focusing on Lebanon, this analysis deepens the comprehension of the economic landscape and provides valuable guidance for policymakers, researchers, and stakeholders, aiming to address the root causes of informal economic activities and promote sustainable growth in developing countries in general.

A GIS-based land suitability assessment of wheat production in Kano using selected physical parameters

Wheat is the second largest contributor to Nigeria's food import bill and puts pressure on the foreign reserve of the nation. Land suitability assessment is a prerequisite to achieving optimum utilization of the available land resources. Lack of knowledge on best combination of factors that suit production of wheat has contributed to the low produce. The study aims to assess land suitability of wheat production in kano using selected physical materials with the objectives to map out existing locations for wheat production in kano state, determine other areas that may be suitable for wheat production. The study utilized Landsat 8; Shuttle Radar Topography Mission (SRTM) Multi-criteria Evaluator (MCE) integrated with GIS. Spatial factors for wheat cultivation such as soil texture, soil type, soil slope, rainfall range, geology map, elevation, land use land cover and their attribute were identified and were processed into spatial data. The factors were weighed according to their relevance. Land suitability model was constructed in ArcGIS software and spatial data were imported into (SRTM) and link to the land suitability model constructed. The spatial data integrated were computed and final visualization of land suitability map was produced and using ArcGIS 10.3 to identify potential areas. The result obtained showed that 16% were unsuitable, 19% were moderately suitable, 25% were highly suitably and then 40% were most suitable in the study area. Based on this finding, it is recommended that wheat cultivation should be practiced in a large scale in Kano state.

Analysis of the Causal Relationship between Money Supply, Foreign Reserves and Bank Credit in Oil Countries: Evidence from Iraq

This study investigates the causal relationships among money supply, foreign reserves, and bank credit in Iraq, a major oil-producing economy. Understanding these interconnected variables is crucial for effective monetary policy formulation and macroeconomic stability. this study employs the Toda-Yamamoto approach to Granger causality testing and quarterly data spanning from 2004 to 2022 to capture the dynamics following the Iraq War and explore the post-conflict economic landscape. Granger causality tests are conducted to determine the direction of causality among the variables. Impulse response functions and variance decompositions provide insights into the magnitude and persistence of shocks, shedding light on the relative importance of each variable in influencing the others. The empirical findings reveal a bidirectional causal relationship between money supply and foreign reserves, indicating that changes in one variable significantly influence the other. Additionally, a unidirectional causality is observed, running from foreign reserves to bank credit, highlighting the significance of foreign exchange reserves in facilitating bank lending. However, no causal link is detected between money supply and bank credit, suggesting that monetary policy may have limited direct impact on credit expansion in Iraq’s banking sector. These results have important policy implications for the Central Bank of Iraq in managing monetary policy tools and navigating the challenges of an oil-dependent economy. The study contributes to the literature on monetary economics in resource-rich countries and provides valuable insights for policymakers and researchers alike.

Optimal Foreign Reserves and Central Bank Policy under Financial Stress

Optimal Foreign Reserves and Central Bank Policy under Financial Stress

Analyzing Impact of Money Supply and Foreign Reserves on Economic Growth in Iraq for 2004-2021

Monetary policy is one of the most important economic policies in various countries. Its importance is evident through its basic variables and the effectiveness of its impact on economic activity. The focus in this study has been on the money supply and foreign reserves as independent variables and their impact on economic growth rates in Iraq for the period 2004-2021. Based on the ARDL standard model, through which the path of the relationship between these variables and economic growth and its reflection on growth rates was determined. And effective monetary policies are those policies that are characterized by transferring their effects to the economy with the least risks. The analytical approach was followed to clarify the impact of these variables on economic growth, represented by the variable of gross domestic product. And then extract the most important main results and important recommendations.

Exchange rate, external reserves and current account balance nexus in oil-dependent countries: A Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) approach

The international monetary authorities have been consistently advising oil-dependent countries to change their exchange rate policy from a fixed to a floating exchange rate regime. While some of these countries including Nigeria have announced their adoption of a free-floating exchange rate system, evidence shows that the majority are suffering from “fear of floating”, hence operating an abridged exchange rate system. This study employs the Toda-Yamomoto-based Panel Vector Autoregressive (PVAR) model to use the causality approach to determine the exchange rate system that best explains the de facto exchange rate policy system operating in these countries. This is explained by the dynamic causality between exchange rates and foreign reserves. The dynamic causality between the exchange rate and current account balance also explains the potential effect of devaluation to improve the external trade balance, which implies the J-curve and Marshall Lerner condition. The results show that there is no significant causality from foreign reserves and trade balance to the exchange rate, suggesting that oil-dependent countries are more aligned to a fixed exchange rate regime than a floating exchange rate regime. We also find significant negative causality from the exchange rate to foreign reserves, while foreign reserves have a positive causal effect on the current account balance. This implies that the expected devaluation gains that may be prompting oil-dependent countries to stick to fixed exchange rate regimes are not there, as currency devaluation tends to worsen trade performance and foreign reserves rather than improve them. While oil-dependent countries are not benefiting much from a fixed exchange rate system, it is recommended that appropriate policy to boost private sector generation of foreign exchange should be put in place before the adoption of a full-fledged floating exchange rate system.