Balancing risk and reward - Best practices in managing central bank reserves post-Covid-19 - OMFIF
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Balancing risk and reward Best practices in managing central bank reserves post-Covid-19 21 July 2021
Welcome
remarks
Clive Horwood
Managing Editor and Deputy
Chief Executive Officer
OMFIF
@OMFIF
Welcome
remarks
Marcus Pratsch
Head of Sustainable Bonds and
Finance
DZ BANK
@OMFIF
Keynote
speaker
Jean-Claude Trichet
Former President European
Central Bank
@OMFIF
Presentation of key findings
Pierre Ortlieb
Head of Policy Analysis
OMFIF
@OMFIF
#GPI21
Figure 1: Capital preservation increasingly challenging
'What is/has been the main reason for the diversification of portfolios?’, % of total
responses
70
60
50
40
30
20
10
0
Increasing risk- Risk/volatility Capital Bigger reserves Follow my leader Other – please
adjusted returns reduction preservation specify
2021 2020
Source: OMFIF GPI survey 2021
#GPI21
Figure 2: Low rates and low growth the central concern
‘What do you see as the most important channels through which the pandemic and
associated policy action is affecting reserves management?’, % of total responses
80
70
60
50
40
30
20
10
0
Protracted Rising levels of Debt defaults or Major central Geopolitical Increased focus Other
slowdown in real public debt in haircuts in banks tensions and on sustainable
economic activity developed emerging entering/moving protectionism investments
economies economies further into
negative rate
territory
Central banks Sovereign funds Pension funds
Source: OMFIF GPI survey 2021
#GPI21
Figure 3: Concern about central banks' sway in the marketplace
Responses to, ‘Do you believe that monetary policy is now having an excessive influence on financial
markets and pricing?,’ % of total responses, and ‘Do you think monetary policy needs to be actively
reconsidered to remove this influence?’
100
90
80
70
60
50
40
30
20
10
0
Yes No Yes No
Do you believe that monetary policy is now having an excessive influence Do you think monetary policy needs to be actively reconsidered to remove
on financial markets and pricing? this influence?
Central banks Sovereign funds Pension funds
Source: OMFIF GPI survey 2021
#GPI21
Figure 4: Moving up the risk curve?
'In the next 12-24 months do you plan to increase, reduce or maintain your allocation to
the following?,' % of central bank responses
Government bonds
Corporate bonds
Equities
Gold
Cash
Real estate
Private equity
Infrastructure
Other
0 10 20 30 40 50 60 70 80 90 100
Significantly increase Increase Stay the same Reduce Significantly reduce
Source: OMFIF GPI survey 2021
#GPI21Figure 5: Searching for yield within government bonds
'In the next 12-24 months do you expect to increase, reduce, or maintain your allocation to
government bonds in the categories below?,' % of central bank responses
Non-AAA, IG sovereign
Supranational
Emerging market sovereign
1-5 years maturity
Developed market agency
Developed market sovereign
5-10 year maturity
0-1 year maturity
USD-denominated sovereign
AAA-rated sovereign
10+ year maturity
EUR-denominated sovereign
Emerging market agency
JPY-denominated sovereign
Junk sovereign
0 10 20 30 40 50 60 70 80 90 100
Increase Stay the same Reduce
Source: OMFIF GPI survey 2021
#GPI21Figure 6: Growing appetite for sustainable bonds
'Are you planning to increase your allocation to ‘green’ asset investments over the next 12-24
months?,' % of total responses
100
90
80
70
60
50
40
30
20
10
0
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Green bonds Green/sustainable Climate-aligned Sustainable ETFs Sustainable mutual Other
equities bonds funds
Significantly increase Increase Stay the same Reduce Significantly reduce
Source: OMFIF GPI survey 2021
#GPI21Figure 7: More change in currency system expected
'Over the next 12-24 months, are you planning to increase, reduce or maintain your
exposure to the following currencies?,' % of total central bank responses
100
90
80
70
60
50
40
30
20
10
0
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
CNY USD EUR GBP JPY EMFX CHF Other
Significantly increase Increase Stay the same Reduce Significantly reduce
Source: OMFIF GPI survey 2021
#GPI21Figure 8: GPIs turn to APAC
'Over the next 12-24 months, are you planning to increase, reduce or maintain your
exposure to the currencies from the following regions?,' % of total central bank
responses
100
90
80
70
60
50
40
30
20
10
0
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Asia Pacific North America Europe Africa Middle East Latin America
Significantly increase Increase Stay the same Reduce Significantly reduce
Source: OMFIF GPI survey 2021
#GPI21Figure 9: Sustainability increasingly appreciated as institutional priority
Ranking of ‘climate change' in response to ‘How would you rank the following issues
in terms of priority for your central bank now as compared to the past 10 years?,’ %
80
70
60
50
40
30
20
10
0
1 - most important 2 3 4 5 - least important
Now Five years ago 10 years ago
Source: OMFIF GPI survey 2021
#GPI21Figure 10: Central banks increasingly integrating ESG
'In which of the following ways do you implement ESG?,' % of central bank
responses
We do not implement ESG
Investment in sustainable finance assets e.g. green bonds
Exclusions/negative screening
ESG integration
Positive screening / best-in-class strategies
Thematic investing
Active ownership/corporate engagement
Impact investing
Others, please specify
0 10 20 30 40 50 60
2020 2021
Source: OMFIF GPI survey 2021
#GPI21Figure 11: Signalling effect of reserves?
'What is the maximum share of your reserves you would be willing to
use in the event of a currency crisis?,' % of central bank responses
70
60
50
40
30
20
10
0
0-5% 5-10% 10-15% 15-20% 20-30% 30%+
Source: OMFIF GPI survey 2021
#GPI21Figure 12: Asset managers crucial to fixed income diversification
'If you use external managers, which asset classes do you use them for?,’ % of
central bank responses
90
80
70
60
50
40
30
20
10
0
Equities Government Corporate Infrastructure PE RE Cash Other
bonds bonds
Source: OMFIF GPI survey 2021
#GPI21#GPI21
Speakers
Balancing risk and reward: Best
practices in managing central bank Didier Borowski Daniela
reserves post-Covid-19 Klingebiel
Head of Global Views, Manager, Reserve
Amundi Advisory and
Management
Moderator Partnership, World Bank
Treasury
Juan Carlos Hariyadi
Pierre Ortlieb Piantini Ramelan
Head of Policy Analysis, OMFIF
Head of Financial Head of Monetary
Markets Analysis, Banco Management, Monetary
Central de Chile Operations, Bank
Indonesia
Sandra Christine
Švaljek Mikolajuk
Deputy Governor, Europe, Middle East and
Croatian National Bank Africa Chief Operating
Officer, Global Client
Management, BNY
Mellon
Please submit your questions via the slido function on the right,
@OMFIF or visit www.sli.do/ using the code GPI2021.OMFIF
Global Public Investor 2021
Panel discussion
Daniela Klingebiel
Manager, Reserve Advisory and Asset Management Partnership (RAMP)
July 21, 2021Details on survey
Survey participants
119 central banks representing all geographic regions, income groups and levels of reserves
Distribution of respondents
Income level Region Size (US$ billion)
40% 40% 30%
34% 27%
33% 34% 26%
32%
24% 24%
Percentage of respondents
Percentage of respondents
Percentage of respondents
30% 30%
27%
20%
20% 19%
20% 20%
10%
10% 10%
0% 0% 0%
Lower middle & Upper middle High income Americas & Europe & Middle East South & Less than 3 3 to 8 billion 8 to 60 More than
Low income income Caribbean Central Asia & Africa East Asia billion billion 60 billion
and Pacific
N = 119.
Source: Third RAMP Survey on the Reserve Management Practices of Central Banks.
24Key survey findings
Currency composition
U.S. dollar retains its predominance. At same time, average allocations across all major reserve currencies
decrease, while CNY average allocation increases
Distribution of all respondents’ allocations to individual currencies
Source:
Third RAMP
Survey on
the Reserve
Management
Practices of
Central
Banks.
25Key survey findings
Asset allocation
Central banks maintain overall preference for highly liquid and low-risk asset classes while increasing
average allocation to MBS and corporate credit
Distribution of all respondents’ allocations to individual asset classes
N = 71.
Source: Third
RAMP Survey
on the Reserve
Management
Practices of
Central Banks.
26Key survey findings
Credit ratings
Reserve managers continue to be cautious with lower-rated issuers and securities. We do not see search for yield
by move down in credit rating
Minimum credit ratings by asset class
Source: Third RAMP Survey
on the Reserve Management
Practices of Central Banks.
27Observations Results of Survey and RAMP Experience ● COVID black swan event. Economic and human costs of COVID crisis significant. Central banks focused on providing liquidity to markets. Particularly EM central banks concerned about reversal of flow of remittances and capital outflows. ● With government yields in major economies still at historically low levels, central banks have continued to diversify by increasing number of eligible currencies and scope of eligible asset classes. ● Compared to previous surveys, average allocation to USD and other major currencies has decreased (however USD remains predominant currency) while the average allocation to CNY has increased. ● Asset composition of central bank balance sheets also broader. Institutions have reduced share of reserves in short term deposits and money market instruments and increased allocations to bonds, MBS, and corporates. ● Also observe a shortening of average duration in investment tranche due to low yield environment (through increase in allocation of bonds with shorter average duration). 28
Disclaimers This presentation and associated comments by speakers should be treated confidentially and not shared or disclosed to any parties outside of your institution. Any interpretations, conclusions, views or opinions expressed are those solely of the authors and speakers and do not represent those of the World Bank or its Board of Directors. The information provided herein and associated comments from speakers are not intended, and should not be interpreted, as constituting investment advice. The World Bank does not take responsibility for the accuracy of any data included or referenced in this presentation. Rights and Permissions The material in this presentation is copyrighted. Copying and/or transmitting portions or all of this work to any party outside of your institution without permission may be a violation of applicable law. ©2021 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 For permission to photocopy or reprint any part of this work, please contact E-mail: csorg@worldbank.org, Reserves Advisory and Management Partnership (RAMP), World Bank Treasury.
Closing
remarks
Clive Horwood
Managing Editor and Deputy
Chief Executive Officer
OMFIF
@OMFIFYou can also read
