Central Bank Reserve Management and International Financial Stability-Some Post-Crisis Reflections

Motivated by the tension first revealed during the global financial crisis between thedomestic and international financial stability obligations of central bank reserve managers,this paper offers some reflections along four main lines. First, the paper highlights howofficial reserve management has evolved to mirror important aspects of privateinstitutional investor behavior over time, and addresses the policy relevance of thisconvergence. Second, evidence is documented of procyclical portfolio behavior by reservemanagers during the crisis, which added to the stabilization burden shouldered by centralbanks in reserve currency-issuing countries. Third, in appraising the evolution of relatedvulnerabilities since the crisis, the paper finds grounds for both cautious optimism andlingering concern, the balance of which points to an uncertain future resolution. Fourth,some potential remedies are presented to help dampen the procyclical impulses of reservemanagers in future periods of international financial turbulence