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The paper explores the interconnections between foreign capital flows and the exchange rate regime switching in developing countries. We formulate the exchange rate regime switching as annual time series of binary/ordered variables employing de facto classification of exchange rate arrangements and regress them on the financial account capital flows for a panel of 28 developing countries which experienced change in their exchange rate regime during the period 2000-2016. Employing probit and logit regression, we discover the FDI, portfolio flows and changes in reserve assets to precede and/or coincide with switching. Specifically, accumulation of foreign reserves increases the probability of switching from floating to peg, while their spending coincides with exits from pegged regimes; at the same time, outflows of FDI and portfolio investments tend to accompany exchange rate regime liberalization, although the evidence on that is less consistent. [ABSTRACT FROM AUTHOR]

Digitalization and geopolitical challenges are increasingly being viewed as preconditions for the transformation of global monetary order towards stronger multipolarity. However, according to traditional approaches, current status quo is more viable because of the technological neutrality of reserve currency status. At the same time, alternative approaches point to technological opportunities for the internationalization of the renminbi, which would heighten the competition between the main currencies and hurt the U.S. dollar. Critical overview of new theoretical approaches indicates that putting retail CBDC at the heart of changes in global monetary order is too categorical. It is likely that digitalization will affect the technology of international transactions and thus enhance competition between leading currencies in how they support payment services for clients. Meanwhile, CBDC design issues and cooperation between central banks in transborder digital payments create new trade-offs that support the more traditional approach on global monetary competition. Recent demand trends of reserve assets also contribute to stronger rigidity of the international currency system. [ABSTRACT FROM AUTHOR]

This paper examines the quantile relationships between the Saudi Riyal (SAR) exchange rate pressure, Credit default swap (CDS) spreads, total reserve assets, and oil prices. Using the available monthly data ranging from 2008 to 2018 and employing the error correction model, the results show a negative and significant relationship between the long-run coefficient of the SAR exchange rate pressure and the long run coefficients of both the CDS and the oil price. However, the long run coefficient of the foreign reserves is statistically insignificant, thus indicating that the exchange rate pressure, CDS spread and oil price variables are cointegrated. As for the short-run coefficients, we find that the lag SAR pressure affects the current pressure. Moreover, the short-run coefficient of the foreign reserves affects negatively the SAR pressure. Moreover, using the quantile ARDL (QARDL) model, we find a significant relationship particularly in the extreme quantiles, regardless of the level or the log level series. Under the long-run coefficients, the positive (negative) relationship characterizes the nexus of the reserves-pressure and the CDS-pressure (oil-pressure) on the SAR. As for the short-run coefficients, we find that an increase in the lag SAR pressures contributes to the current pressure across all quantiles, whereas an increase in the reserves reduces the pressure in the extreme quantiles. These results have important implications for policy makers. [ABSTRACT FROM AUTHOR]

Döviz kuru seviyesi reel ve finansal piyasalar üzerinde etkili olurken, bazı reel ve finansal faktörler de döviz kurları üzerinde belirleyici olmaktadır. Birbirini etkileyen dinamik bir döngü içerisinde, döviz kurları ile ekonomik faktörler arasındaki ilişkileri açıklayabilmek, tüketicilerden yatırımcılara, özel sektörden kamu sektörüne, finans sektöründen dış ticaret sektörüne kadar her kesimin ilgisini çeken bir konudur. Bu kapsamda, seçilmiş bazı ekonomik faktörlerin reel efektif döviz kuru (REER) üzerindeki etkilerinin irdelenmesi amaçlanmaktadır. BRICS ülkelerinden Brezilya, Rusya, Çin, Güney Afrika ile Türkiye’ye yönelik bir panel veri analizi yapılarak söz konusu ilişkiler 2008-2018 yılları arasındaki dönem için araştırılmıştır. Rezerv varlıklar, tüketici fiyat endeksi ve petrol fiyatlarının bağımsız değişkenler olarak belirlendiği çalışmada, bulgular ülkeden ülkeye değişim göstermektedir. Genel olarak değerlendirildiğinde rezerv varlıklardaki artışın reel efektif döviz kurunu pozitif yönde etkilediği, fakat tüketici fiyat endeksi ile petrol fiyatlarındaki hareketlerin bazı ülkelerde pozitif yönde bazı ülkelerde negatif yönde etkiler yarattığı görülmektedir. Ekonomilerin itici güçlerinin farklı olması ülkeler bazında farklı sonuçlar elde edilmesine neden olmuştur. Her ülkenin kendi reel efektif döviz kurunu etkileyen faktörleri doğru değerlendirebilmesi, ekonomik birimlere ve politika yapıcılarına fayda sağlayacaktır.

The article reports ‘Black Wednesday', the conservative government abandoned the European Exchange Rate Mechanism (ERM) on 16 September, 1992 including a system in which each country committed to maintain its exchange rates within a target bandwidth around a centrally defined parity, and in order to maintain the parity of the pound, the Bank of England and the Treasury has spent 28 billion dollar of reserves on buying up sterling to defend its value.

In October 1982 the FOMC de-emphasized M1 and moved to what is commonly referred to as a borrowed reserves operating procedure. Sometime thereafter the FOMC switched to a funds rate targeting procedure but never formally announced the change. Given the close correspondence between a borrowed reserves operating procedure and a funds rate targeting procedure, Thornton (1988) suggested that the FOMC went immediately to a funds rate targeting procedure. Others date the switch to the funds rate procedure later. Meulendyke (1998) suggests the switch came in late 1987, while others suggest the change occurred later. This paper reviews the verbatim transcripts of the FOMC meetings to establish the timing of the switch. The verbatim transcripts suggest that the FOMC effectively switched to a funds rate targeting procedure in 1982. The documentary evidence is supported by an analysis of the spread between the funds rate and the funds rate target, which suggests that the differences in the behavior of the spread before October 1979 and after October 1982 are relatively small and economically unimportant. [ABSTRACT FROM AUTHOR]

In this paper we investigate how well banks manage their reserves. The optimal policy takes into account expected foregone interest on excess reserves and penalty costs for going below required reserves. Using a unique panel data set on daily clearing house settlements of a cross-section of Mexican banks we estimate the deposit uncertainty banks face, and in turn their optimal reserve behavior. The most important variables in forecasting the deposit uncertainty are the interbank fund-transfers of the day, certain calendar dates, and the interest rate differential between the money market rate and the discount rate--a measure reflecting the bank's opportunity cost of money holdings. For most banks, the model's prediction accord relatively well with the observed reserve behavior of banks. The model produces reserve costs that are significantly smaller relative to the case when reserves are set via a simple rule of thumb. Furthermore, alternative motives for holding reserves (such as liquidity and reputation effects) do not seem to explain why certain banks hold relatively large reserves. [ABSTRACT FROM AUTHOR]

Economists have long believed that, absent any public withdrawals of high-powered money, an unregulated, closed banking system can expand its assets and liabilities without encountering any shortage of reserves so long as its members act in concert. Notwithstanding its popularity, this "in-concert overexpansion" doctrine is inconsistent with standard theories of the precautionary demand for bank reserves. Unless these theories are themselves incorrect, concerns that complete removal of legal restrictions on the competitive supply of bank money must result in an unstable or indeterminate bank-money multiplier are misplaced. [ABSTRACT FROM AUTHOR]

The actuality of the given research is determined by the importance of establishing the adequatevolume of international reserves held by the Central Bank. The main purpose of the article is investigationof new methods of calculating the adequate level of international reserves for emerging economies,proposed by the IMF and those existing in international practice. The main research methods weresystemic analysis and logic synthesis. The main result obtained in this article, as a result of the research,is proposing a special approach in applying the IMF methodology in the Republic of Moldova,considering the dependence of the economy on the export of labor. The conducted calculations show asignificant decrease in the level of international reserves of NBM over the past two years and theirapproach to the critical value. To overcome internal imbalances, the international reserves managementshould suppose the accumulation of a higher volume than the average, which would partly compensate theshortcomings in implementing reforms of transforming the economy of the Republic of Moldova,improving their efficiency and quality of domestic policy.

This article presents empirical evidence of a reserve-induced transmission channel of quantitative easing to long-term interest rates. Reserve-induced effects are independent of the assets purchased and run through the impact of reserve expansions on bank balance sheets and the resulting bank portfolio rebalancing. For evidence, we analyse the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities. The data suggest that declines in long-term yields following the announcements mainly reflected reduced term premiums, consistent with reserve-induced portfolio balance effects. [ABSTRACT FROM AUTHOR]

In this article the author focuses on how the Gresham's Law apprehensions emphasized by R.Z. Aliber and J.H. Makin are very unnecessary because they are based on a misconception of the special drawing rights (SDR) arrangements. Presented and discussed are some models summarizing the use of SDRs during their first 37 months of existence. Also provided is an explanation on why the International Monetary Fund's Committee of Twenty is working on several reforms that would lessen the dollar's role as a reserve asset.

The article provides an econometric analysis of the reserve-asset behavior of the outer countries over a time span of the international monetary system, between 1958, the year the system entered its "crisis zone" and 1967, when an agreement on the special drawing rights (SDR) reform of the system was reached. Tested are the changing reactions of these countries as the system drew closer into the crisis zone. Additional topics include an outer country's economic dependence on the U.S., U.S. foreign aid, and U.S. diplomatic activity.

The results of most recent econometric studies of the banking sector which employ quarterly data suggest that commercial banks close less than half the gap between their actual and "desired" levels of excess and/or borrowed reserves per quarter. At this rate, the banking system would take a full year to close nine-tenths of the gap. The length of this lag has been regarded as implausible by many researchers. Among the skeptics, many have expressed suspicion of the statistical techniques underlying the estimates. This paper investigates two commonly-proposed statistical sources of bias. The investigation reveals that one of them, temporal data aggregation (averaging over time), does exaggerate the lag. Nonetheless, even after correction for this bias, the estimates indicate a full adjustment period of a quarter or more. The primary purpose this paper is to explain the remaining lag. The major hypothesis of this study is that the lag in the aggregate is caused by lagged interactions among banks in different regions. As this paper demonstrates, when Federal Reserve Member Banks are disaggregated by region, estimated adjustment speeds rise dramatically. Moreover, the lag in the aggregate is well explained statistically by the impact of some regions' reserve adjustments on other regions. The more important of these interregional effects are identifiable and statistically significant, and they are shown to be useful in analyzing the timing of the regional impacts of monetary policy. [ABSTRACT FROM AUTHOR]

The article examines the problem of the coexistence of reserve currency and substitute dollar reserves (SDR) in the United States. It is explained that there are two important considerations regarding SDRs, which the coexistence problem does not acknowledge. The first consideration is that no attention is given to the question of just how large the amount of SDRs created ought to be. Another consideration is the "link" proposal, which is the idea to have new SDR allocations placed first in the hands of developing countries.

Purpose After the collapse of the Bretton Woods fixed exchange rate system in 1971, countries moved towards floating exchange rates, and the expectation was that the requirement for foreign reserves would decrease. However, central banks currently hold more foreign exchange reserves to enhance the credibility of exchange rate policies. The demand for gold, which was the main reserve asset prior the collapse of the Bretton Woods system, has increased as a reserve asset once again following the global financial crisis (GFC) of 2008, given gold’s characteristics as a safe haven asset and a store of value. This study aims to analyse official reserves of four countries, namely, Malaysia, Turkey, KSA and Pakistan. The Black–Litterman model was used to build a new strategic portfolio with optimal allocation to gold. This study shows that all countries under the analyses should increase their gold holdings to preserve the value of the portfolio during times of financial turmoil.Design/methodology/approach The Black–Litterman model has been used to build a new strategic portfolio with optimal allocation to gold. The study shows that all countries in our analyses suggested increasing their gold holdings to preserve the value of the portfolio during times of financial turmoil.Findings The study found that countries under the analyses, namely, Turkey, Malaysia, KSA and Pakistan, suggested increasing their official gold holding given the outstanding performance of gold during the GFC.Research limitations/implications Research can be further extended by including few more countries from Organisation of Islamic Cooperation such as Qatar and Indonesia.Originality/value Emerging economies such as China, India and Russia started to sharply increase their official gold holdings in the aftermath of the GFC. According to recent statistics, central banks of China and Russia have been adding to their gold reserves. Of note, only in few European countries and in the USA, is the share of gold in foreign reserves more than 50%. In the rest of the world, this figure is about 3-5%. The paper elaborates the aforementioned subject and suggests the strategic weight of gold reserve for each country under analysis. [ABSTRACT FROM AUTHOR]

We propose a simple model of the international monetary system. We study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios: a hegemon versus a multipolar world; abundant versus scarce reserve assets; and a gold exchange standard versus a floating rate system. We rationalize the Triffin dilemma, which posits the fundamental instability of the system, as well as the common prediction regarding the natural and beneficial emergence of a multipolar world, the Nurkse warning that a multipolar world is more unstable than a hegemon world, and the Keynesian argument that a scarcity of reserve assets under a gold standard or at the zero lower bound is recessionary. Our analysis is both positive and normative. [ABSTRACT FROM AUTHOR]

This article focuses on the political economy that shaped the Special Drawing Right (SDR) by examining the three drivers of reform that influenced the creation of the SDR and resulted in changes in the international monetary system (IMS) and the International Monetary Fund (IMF). The three factors examined are, first, informal intergovernmental forums working outside the framework of the IMF; second, the eclipse of the IMF as the central institution of the IMS; and finally, the lack of reference to the private sector in the discussions, even though capital movements were the central cause of strains in the IMS. The article concludes that the resulting limitations of the SDR solution-an institutional change brought about by the compromise between parties to the discussions-meant that major imperfections in the IMS remained unresolved. [ABSTRACT FROM AUTHOR]

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The policy measures since the financial crisis have greatly expanded the size of the Federal Reserve's balance sheet, and have thus also raised the level of aggregate bank reserves. Over the same time period there has been a significant shift in the timing of payments over the Federal Reserve's Fedwire Funds service toward earlier settlement. This paper documents this timing change and presents regression results that suggest that the increase in overall reserve balances explains the vast majority of this development. This paper also discusses the benefits of high aggregate reserve balances for the robustness of the payment system and its potential implications for policy going forward. [ABSTRACT FROM AUTHOR]

Central banks of major advanced economies have maintained a very accommodative monetary policy stance in the last few years. However, concerns have surfaced that the transmission of low policy rates to lending rates has been weaker than in the past. Has the transmission of policy rates to lending rates been impaired by the global financial crisis? To answer this question, we first estimate standard cointegrating equations linking policy and lending rates for non-financial firms in Italy, Spain, the United Kingdom and the United States. We then test for structural change in the cointegration parameters, finding strong evidence of a break after Lehman Brothers' default. Such a structural break is owed to a strong increase in the mark-up of the lending rate over the policy rate that standard models assume constant in the long run. The structural shift is explained by compounding the lending rate equation with measures of risk. [ABSTRACT FROM AUTHOR]

The first Report of the Deputies of the Group of Ten and the parallel Report of the IMF from 1964 reached unanimous consensus on the basic deficiencies of the international monetary system and the general nature of the revolutionary reforms required for its satisfactory performance in the future. The three years that have elapsed since then have unfortunately failed to elicit any similar agreement on the concrete measures and commitments needed to implement the broad recommendations of the two reports. The present paper first summarises the already familiar considerations regarding the impact the existence of three types of reserve assets upon the growth of world reserves. It is then largely devoted to its equally important, but less generally perceived and understood, impact on the balance of payments adjustment process. In the concluding section the author offers answers to broader policy issues. JEL: E42, F31, F33

The author considers recent developments in international monetary system reform. He highlights this disagreements, especially on the side of France, with in the Group of Ten. He therefore foresees a general scarcity of reserve assets and proposes a plan for reserve creation to be activated under conditions of a better balance of payments equilibrium between members and a better working of the adjustment process. JEL: E42, F32, F33

The first Report of the Deputies of the Group of Ten and the parallel Report of the IMF from 1964 reached unanimous consensus on the basic deficiencies of the international monetary system and the general nature of the revolutionary reforms required for its satisfactory performance in the future. The three years that have elapsed since then have unfortunately failed to elicit any similar agreement on the concrete measures and commitments needed to implement the broad recommendations of the two reports. The present paper first summarises the already familiar considerations regarding the impact the existence of three types of reserve assets upon the growth of world reserves. It is then largely devoted to its equally important, but less generally perceived and understood, impact on the balance of payments adjustment process. In the concluding section the author offers answers to broader policy issues. JEL: E42, F31, F33

The author considers recent developments in international monetary system reform. He highlights this disagreements, especially on the side of France, with in the Group of Ten. He therefore foresees a general scarcity of reserve assets and proposes a plan for reserve creation to be activated under conditions of a better balance of payments equilibrium between members and a better working of the adjustment process. JEL: E42, F32, F33

The article reports that the emerging market (EM) central banks are the largest sector buyers of gold. The EM central banks from 2008 through 2013 have been adding to gold reserves. EM central banks added about 56 million ounces to their official gold reserves, while the central bank official reserves liquidated about 10 million ounces.

Textbooks explain that the Federal Reserve's (Fed's) open market purchase results in the multiple creation of loans and deposits (i.e., "reserves make deposits"). However, post Keynesian economists have long argued that banks make loans first, create deposits in the process, and then look for reserves. Hence, "deposits make reserves." The study revisits this post Keynesian theory with a new insight into large New York banks that act as intermediaries (as primary dealers in the textbook case, and as correspondent banks in the post Keynesian case) between the Fed and the nation's banking sector. The Granger causality tests and estimated short-run adjustment dynamics provide unambiguously strong empirical evidence in favor of the post Keynesian theory and the study's new insight, that is, the deposit creation process begins at banks, and large New York banks are indeed effective intermediaries between the Fed and the nation's banking sector. [ABSTRACT FROM AUTHOR]

Sovereign wealth funds (SWFs) are increasingly powerful actors in the international political system and world economy. The current discourse often focuses on SWFs as political versus market actors. In this exploratory article, however, it is shown that SWFs may be both. They may be employed as a means to increase a state's relative economic power, even when their individual investments are generally made on the basis of economic, market-driven, logic. After a brief overview of SWFs, and literature review of the issues that attend them, I examine the traditional neorealist understanding of internal balancing and argue that there is evidence to support the claim that SWFs can be employed as tools of this state strategy. Four methods, and two cases (Singapore and China), of internal balancing through SWFs are then examined. I find that some SWFs are used for internal balancing purposes in the conventional sense, but that the phenomena may be better captured by the newer concept of non-military internal balancing (in which a state's relative economic power is enhanced without damage to the overall relationship they currently maintain with the target state). [ABSTRACT FROM PUBLISHER]