Reserve Management and Sustainability: The Case for Green Bonds?

23 Pages Posted: 15 Apr 2020

See all articles by Ingo Fender

Ingo Fender

Bank for International Settlements (BIS)

Mike McMorrow

Bank for International Settlements (BIS)

Vahe Sahakyan

Bank for International Settlements (BIS)

Omar Zulaica

Bank for International Settlements (BIS)

Date Written: March 30, 2020

Abstract

Central banks' frameworks for managing foreign reserves have traditionally balanced a triad of objectives: liquidity, safety and return. Pursuing these objectives involves explicit trade-offs. More of an emphasis on returns, for instance, may require central banks to sacrifice some of the safety and liquidity of their overall holdings. Most recently, central banks have shown significant interest in incorporating environmental sustainability considerations into their policy frameworks, including their reserve management. This paper first explores whether sustainability considerations would support a tetrad of reserve management objectives, by drawing on the results of a recent BIS Survey on Reserve Management and Sustainability. It then illustrates how central banks might analyse (and weigh) all four objectives in allocating part of their foreign exchange reserves to green bonds using currently available market data.

Keywords: central banks, green bonds, reserve management, sustainability

JEL Classification: E58, F31, G11, G17

Suggested Citation

Fender, Ingo and McMorrow, Mike and Sahakyan, Vahe and Zulaica, Omar, Reserve Management and Sustainability: The Case for Green Bonds? (March 30, 2020). BIS Working Paper No. 849, Available at SSRN: https://ssrn.com/abstract=3571408

Ingo Fender (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

HOME PAGE: http://www.bis.org

Mike McMorrow

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Vahe Sahakyan

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Omar Zulaica

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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