A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities

An asset and liability management framework for managing risks arising from sovereign foreign exchange obligations requires a joint analysis of (i) the external financial liabilities resulting from a country's sovereign debt and (ii) the forei...

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Main Authors:	Cangoz, M. Coskun, Sulla, Olga, Wang, Chun Lan, Dychala, Christopher
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2019
Subjects:	EXCHANGE RATE RISK ASSET AND LIABILITY MANAGEMENT PUBLIC DEBT SOVEREIGN DEBT MANAGEMENT SOVEREIGN ASSETS HEDGING PORTFOLIO MANAGEMENT INTERNATIONAL RESERVES
Online Access:	http://documents.worldbank.org/curated/en/351021549390632151/A-Joint-Foreign-Currency-Risk-Management-Approach-for-Sovereign-Assets-and-Liabilities http://hdl.handle.net/10986/31232

id	okr-10986-31232
recordtype	oai_dc
spelling	okr-10986-312322022-09-19T12:17:33Z A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities Cangoz, M. Coskun Sulla, Olga Wang, Chun Lan Dychala, Christopher EXCHANGE RATE RISK ASSET AND LIABILITY MANAGEMENT PUBLIC DEBT SOVEREIGN DEBT MANAGEMENT SOVEREIGN ASSETS HEDGING PORTFOLIO MANAGEMENT INTERNATIONAL RESERVES An asset and liability management framework for managing risks arising from sovereign foreign exchange obligations requires a joint analysis of (i) the external financial liabilities resulting from a country's sovereign debt and (ii) the foreign exchange assets of its central bank. Governments often issue sizable amounts of debt denominated in foreign currencies, subjecting their fiscal positions to foreign exchange volatilities. Prudent management of a sovereign’s foreign exchange position under an asset and liability management framework enables governments to mitigate risks at the lowest possible cost, hence increasing resilience to external shocks. Based on the challenges associated with the implementation of an asset and liability management framework, this study recommends a practical approach that includes analysis of the foreign exchange positions of central bank reserves and central government debt portfolios and optimization of the net position. The proposed model is tested, using the foreign exchange reserve and external debt data of seven countries (Albania, Ghana, FYR Macedonia, South Africa, the Republic of Korea, Tunisia, and Uruguay). The paper employs quantitative methods to explore the impact of an overarching asset and liability management strategy and integrated approach on the efficient management of foreign exchange risk. It provides policy recommendations on ways to minimize the risk of foreign exchange mismatches and increase the return on foreign exchange reserves. 2019-02-07T18:00:46Z 2019-02-07T18:00:46Z 2019-02 Working Paper http://documents.worldbank.org/curated/en/351021549390632151/A-Joint-Foreign-Currency-Risk-Management-Approach-for-Sovereign-Assets-and-Liabilities http://hdl.handle.net/10986/31232 English Policy Research Working Paper;No. 8728 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Albania Ghana Korea, Republic of Macedonia, former Yugoslav Republic of South Africa Tunisia Uruguay North Macedonia (Formerly the Former Yugoslav Republic of Macedonia)
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	EXCHANGE RATE RISK ASSET AND LIABILITY MANAGEMENT PUBLIC DEBT SOVEREIGN DEBT MANAGEMENT SOVEREIGN ASSETS HEDGING PORTFOLIO MANAGEMENT INTERNATIONAL RESERVES
spellingShingle	EXCHANGE RATE RISK ASSET AND LIABILITY MANAGEMENT PUBLIC DEBT SOVEREIGN DEBT MANAGEMENT SOVEREIGN ASSETS HEDGING PORTFOLIO MANAGEMENT INTERNATIONAL RESERVES Cangoz, M. Coskun Sulla, Olga Wang, Chun Lan Dychala, Christopher A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities
geographic_facet	Albania Ghana Korea, Republic of Macedonia, former Yugoslav Republic of South Africa Tunisia Uruguay North Macedonia (Formerly the Former Yugoslav Republic of Macedonia)
relation	Policy Research Working Paper;No. 8728
description	An asset and liability management framework for managing risks arising from sovereign foreign exchange obligations requires a joint analysis of (i) the external financial liabilities resulting from a country's sovereign debt and (ii) the foreign exchange assets of its central bank. Governments often issue sizable amounts of debt denominated in foreign currencies, subjecting their fiscal positions to foreign exchange volatilities. Prudent management of a sovereign’s foreign exchange position under an asset and liability management framework enables governments to mitigate risks at the lowest possible cost, hence increasing resilience to external shocks. Based on the challenges associated with the implementation of an asset and liability management framework, this study recommends a practical approach that includes analysis of the foreign exchange positions of central bank reserves and central government debt portfolios and optimization of the net position. The proposed model is tested, using the foreign exchange reserve and external debt data of seven countries (Albania, Ghana, FYR Macedonia, South Africa, the Republic of Korea, Tunisia, and Uruguay). The paper employs quantitative methods to explore the impact of an overarching asset and liability management strategy and integrated approach on the efficient management of foreign exchange risk. It provides policy recommendations on ways to minimize the risk of foreign exchange mismatches and increase the return on foreign exchange reserves.
format	Working Paper
author	Cangoz, M. Coskun Sulla, Olga Wang, Chun Lan Dychala, Christopher
author_facet	Cangoz, M. Coskun Sulla, Olga Wang, Chun Lan Dychala, Christopher
author_sort	Cangoz, M. Coskun
title	A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities
title_short	A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities
title_full	A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities
title_fullStr	A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities
title_full_unstemmed	A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities
title_sort	joint foreign currency risk management approach for sovereign assets and liabilities
publisher	World Bank, Washington, DC
publishDate	2019
url	http://documents.worldbank.org/curated/en/351021549390632151/A-Joint-Foreign-Currency-Risk-Management-Approach-for-Sovereign-Assets-and-Liabilities http://hdl.handle.net/10986/31232
_version_	1764473850195607552

A Joint Foreign Currency Risk Management Approach for Sovereign Assets and Liabilities

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