Добірка наукової літератури з теми "Foreign currency reserve"

Asymmetric foreign exchange intervention by the Reserve Bank of India (RBI) has resulted in a sustained accretion of India’s foreign exchange reserves. The reserve buildup in India has certainly been impressive, rising from around US$5-6 million in 1991, to nearly US$300 billion in mid 2008. In addition to addressing the issues of reserve adequacy, this paper examines the forms the reserves have taken (asset and currency composition), and the extent to which India’s reserve holdings are diversified. The issue of reserve adequacy was made apparent during the 1990s and early 2000 when rapid reserve depletion became a defining and determining feature of the series of currency crises that hit emerging economies. In order to assess the adequacy of India’s stock of international reserves, the paper considers a few standard measures used in literature and finds that India’s reserve stock is more than adequate, placing them in a much better position than many other emerging economies. The paper goes on to examine the asset and currency composition of such reserves. More than 50 percent of India’s reserve holdings have been in the form of foreign currencies and deposits as cash, followed by investments in foreign securities and gold deposits, in that order, reflecting a high degree of risk aversion by the RBI in the management of the reserves. While data on asset composition are available, the currency composition of reserves is a well-guarded secret. Hence the paper undertakes some simulation exercises to arrive at some reasonable guesstimates of such a composition. The paper also makes use of the Treasury International Capital Reporting System (TIC) data to track India’s investments in the U.S. securities, thereby assessing the weight of U.S. dollar assets in India’s reserve holdings.

SummaryWe assess the role of economic and security considerations in the currency composition of international reserves. We contrast the ‘Mercury hypothesis’ that currency choice is governed by pecuniary factors familiar to the literature, such as economic size and credibility of major reserve currency issuers, against the ‘Mars hypothesis’ that this depends on geopolitical factors. Using data on foreign reserves of 19 countries before World War I, for which the currency composition of reserves is known and security alliances proliferated, our results lend support to both hypotheses. We find that military alliances boost the share of a currency in the partner’s foreign reserve holdings by about 30 percentage points. These findings speak to the implications of possible US disengagement from global geopolitical affairs. In a hypothetical scenario where the United States withdraws from the world, our estimates suggest that long-term US interest rates could rise by as much as 80 basis points, assuming that the composition of global reserves changes but their level does not.

This article discusses the prospects of the Chinese renminbi (RMB) to expand its sphere of influence and become a full-scale reserve world currency. The methods used in the article are retrospective analysis and graphic analysis. The work is divided into three sections. The first section provides a broad overview of modern reserve currencies. The second part characterizes RMBs shaping as a reserve currency, as well as inner and outer factors that influence its status. The third section includes information about RMBs current status and its perspectives for being a reserve currency in the future. The article argues that currently RMB has already become a regional reserve currency in Asia-Pacific. Chinese government continues to make steps towards international expansion of RMB, yet these steps cannot make RMB one of the leading world currencies together with USD and EUR in the nearest decade.

Abstract The paper analyses the official use of international currencies as reserve currency (store of value) and anchor currency (unit of account). Examining the role as a reserve currency we note that the US dollar is the main reserve currency even if it recorded a decline given the decrease of the value of the US dollar reserve holdings and the gradual diversification of the currencies used. Since 2010, the euro's share decreased continuously may be due to the Eurozone crisis and the euro's depreciation against the US dollar. Then we show that the US dollar dominates as an anchor currency, though it was temporary abandoned during crisis time, having more than a regional dimension. At the same time, the use of the euro in exchange rate arrangements appears mainly in the regions that have close links with the euro area. Over the last few years, we have witnessed a gentle orientation towards a multimonetary world, especially regarding the use of the international currencies as reserve currency given the diversification of the currencies in which central banks understand to hold international reserves and the increasing share of the nontraditional currencies in total foreign exchange reserves.

The rapid growth of international reserves, a development concentrated in the emerging markets, remains a puzzle. In this paper, we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial-stability model seems to outperform both traditional models and recent explanations based on external short-term debt. (JEL E23, E43, E44, F31, F32, F34)

We develop a model that shows how the currency denomination of a country's imports influences the funding structure of its banking system, and in turn, the currency composition of its central bank's reserve holdings. The link between the dollar's role in bank funding and its role as a central bank reserve currency is stronger when the country's fiscal capacity is limited, and when exchange rates are volatile. In the data, there is a pronounced cross-country relationship between the fraction of imports that are dollar invoiced, and the fraction of central-bank foreign-exchange reserves that are held in dollars.

The freezing of Russian assets and the continued risk of new sanctions creates incentives for abandoning the currencies of unfriendly countries and expanding the use of the ruble in cross-border settlements. In addition to prestige, the advantage of the internationalization of the national currency is the reduction of transaction costs and foreign exchange risks of foreign trade participants, which will contribute to the development of foreign trade. An increase in external demand for financial assets denominated in rubles will help increase the depth of the market and reduce the cost of borrowing. The need for additional international reserves will decrease, the storage of which may be associated with the costs of depreciating the reserve currency, obtaining negative real returns on assets denominated in reserve currencies, as well as with sanctions risks.

Over the past decade emerging markets accumulated foreign currency reserves to insure against the risks of global financial integration. They were wise to do so. Countries with large reserves have fared better in the crisis of 2008/09. Yet collectively reserve accumulation had unintended consequences. It has contributed to the build-up of global imbalances and financial distortions that helped create the macroeconomic backdrop for the crisis. This article looks at recent patterns of global capital flows from the perspective of economic history, trying to set events in a longer term perspective. It argues that the crisis could mark the end of the latest attempt to manage the financial stability risks of capital market integration. Emerging markets will not consent to facing global financial flows without large foreign currency reserves, but a return to currency interventions and reserve accumulation would be equally problematic. Historically, the ups and downs of global capital market integration have been driven by varying assessments of the benefits of capital mobility. With the recent crisis the time for such a reassessment might have come.

Abstract Does democracy affect foreign exchange reserves? This paper identifies four possible explanations for the determinants of foreign exchange reserves. Using the relationship between public goods provision and political regime types as a conceptual centerpiece, it offers a theoretical framework in which these four arguments are pit against each other. The “insurance” and “social cost” arguments posit monotonously positive and negative relationships between democracy and reserves, respectively, each citing democratic governments’ propensity to provide public goods such as financial stability and public spending. The mercantilist and rentier state arguments together put forth a conditional hypothesis that autocracies serve particularistic interests of outwardly (inwardly) oriented elites more than democracies do through weak-currency/large-reserve (strong-currency/small-reserve) policies. Utilizing panel data covering 127 countries from 1975 to 2012, I find that more democratic regimes are associated with larger (smaller) volumes of reserves when the size of exporting sectors is considerably small (large).

Can the Russian ruble become an international reserve currency? By identifying the key determinants of the international status of national currency this paper estimates possibilities of the ruble. The significant determinants include: the size of the home country, inflation rate, exchange rate volatility, the size of the relevant home financial market, and network externality. The author believes that several factors are in favor of the Russian currency, in particular the turnover and liquidity of foreign exchange market, the size of foreign trade, the development of international market of debt securities in Russian ruble. The paper discusses some important policy implications of internationalization of the ruble for the Bank of Russia and the Russian economy in general.

Доступ до роботи тільки на території бібліотеки ОНЕУ, для переходу натисніть на посилання нижче
У роботі розглядаються теоретичні засади, формування та використання золотовалютних резервiв центрального банку країни, правовий режим процесу формування та використання золотовалютних резервiв. Проведено аналіз структури та динаміки золотовалютних резервів НБУ, оцінка валютних інтервенцій НБУ, достатності золотовалютних резервів України. Досліджено зарубіжний досвід формування та використання золотовалютних резервiв центральних банкiв та розглянуто можливість його імплементації у вітчизняну практику, розроблено шляхи удосконалення процесу формування та використання золотовалютних резервів.
The paper considers the theoretical principles, formation and use of gold and foreign exchange reserves of the central bank of the country, the legal regime of the process of formation and use of gold and foreign exchange reserves. An analysis of the structure and dynamics of the NBU's gold and foreign exchange reserves, an assessment of the NBU's foreign exchange interventions, and the adequacy of Ukraine's gold and foreign exchange reserves was conducted. The foreign experience of formation and use of gold and foreign exchange reserves of central banks is studied and the possibility of its implementation in domestic practice is considered, the ways of improvement of the process of formation and use of gold and foreign exchange reserves are developed.

У роботі наведено теоретичні аспекти, що стосуються даної теми, а також охарактеризовано способи формування та використання офіційних резервних активів НБУ; проведено аналіз складу, динаміки та структури ЗВР, валютних інтервенцій НБУ, а також досліджено достатність золотовалютних резервів за різними критеріями; проаналізовано світовий досвід формування та використання офіційних резервних активів, визначено проблеми, що виникають у цих процесах. Розроблені теоретичні та практичні положення, що ґрунтуються на міжнародному досвіді, можуть бути використані Національним банком України для формування та використання офіційних резервних активів. Під час проведення дослідження використовувалися методи: аналізу;yзaгaльнення;системaтизaцiя; пoрiвняння;кореляційно-регресійний метод.
The work presents theoretical aspects related to this topic, as well as describes the methods of formation and use of official reserve assets of the NBU; an analysis of the composition, dynamics and structure of foreign exchange reserves, foreign exchange interventions of the NBU, as well as the adequacy of gold and foreign exchange reserves by various criteria; the world experience of formation and use of official reserve assets is analyzed, the problems arising in these processes are defined. The developed theoretical and practical provisions, based on international experience, can be used by the National Bank of Ukraine for the formation and use of official reserve assets. During the study, the following methods were used: analysis;generalization; systematization; comparison, correlation-regression method.

Дипломна робота присвячена питанням формування та управління золотовалютними резервами. В дипломній роботі здійснено аналіз ефективності управління золотовалютними резервами України, розглянуто світові тенденції у формуванні резервів країн, визначено напрямки вдосконалення управління золотовалютними резервами; запропоновано напрямок вдосконалення організаційної структури НБУ щодо управління міжнародними резервами; здійснено оцінку адекватності резервів України.
The master’s thesis is devoted to issues of formation and foreign exchange reserves management. The paper analyzes the effectiveness of foreign exchange reserves management in Ukraine, describes global trends in foreign exchange management, measures of improving the reserves management in Ukraine according to international experience; proposes directions for improving the organizational structure of the National Bank of Ukraine with a purpose to provide optimal reserves management; assesses the adequacy of international reserves of Ukraine.

У дисертації обґрунтовано поняття і концепцію функціонування валют-ного ринку, охарактеризовано суб’єкти і об’єкти його регулювання із застосуванням системного підходу, формалізовано механізми та інструменти регулювання валютного ринку за умов європейської інтеграції, обґрунтовано необхідність і напрямки розвитку механізмів регулювання валютного ринку України. Проведено оцінку фрактальності і циклічності розвитку валютного ринку України, визначено фактори нестійкості і кризового стану валютного ринку, розвинуто механізми інтервенційної політики НБУ і урівноваження платіжного балансу України в системі регулювання стійкості валютного ринку. Валютний курс розглядається у роботі як об’єкт макроекономічного регулювання і механізм дедоларизації грошово-кредитного ринку України. Удосконалено науково-методичні підходи до управління офіційними валютними резервами НБУ і валютного курсоутворення в системі таргетування інфляції на основі кошика валют. Визначено передумови і наслідки інтеграції України в європейський валютний ринок, удосконалено механізм валютного регулювання зовнішньоекономічної діяльності резидентів України, стану зовнішнього боргу держави. Обґрунтовано напрями лібералізації механізму валютного нагляду на основі залучення незалежного аудиту. Виявлено проблеми регулювання валютних операцій банків України і проведено оцінку їх ризиків, удосконалено методичний підхід до регулювання валютних операцій банків на основі адаптації до вітчизняних умов Базельських стандартів валютного саморегулювання. Визначено проблеми формалізації валютної політики суб’єктів господарювання і удосконалено методичні підходи до управління валютними ризиками суб’єктів господарювання. The dissertation studies the essence and concepts of functioning of the foreign exchange market, characterizes the subjects and objects of its regulation, formalizes mechanisms and instruments of the exchange market regulation in terms of the European integration, substantiates the necessity and development of the mechanisms of regulation of the foreign exchange market in Ukraine. It conducts the analysis of fractal and cyclical development of the foreign exchange market of Ukraine, identifying the factors of instability and crisis of the foreign exchange market, developing the mechanisms of interventional policies by the National Bank of Ukraine and the balance of payments in Ukraine within a system of regulatory stability of the foreign exchange market. It develops scientific and methodological approaches to the management of foreign currency reserves and formation of foreign exchange rates in the system of inflation targeting based on the basket of currencies. It determines preconditions and consequences of Ukraine’s integration into the European foreign exchange market, improves the mechanism of currency regulation of the foreign economic activity of Ukrainian residents and the country’s foreign debt. It substantiates the areas of liberalization for the mechanism of currency supervision on the basis of independent auditing. The author identifies the problems of regulation of currency transactions of Ukrainian banks, assessing their risks and improving the methodical approach to the regulation of foreign exchange transactions of banks on the basis of adaptation of the national conditions to the Basel standards of foreign exchange selfregulation. The author defines the problems of formalization of the monetary policy of companies, improves the methodical approaches to the management of their foreign exchange risks.

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This paper aims to compare different methods of forecasting cash needs in overnight, to ensure that the liquidity of a particular financial product - in this case, the Call Deposits (Demand Deposits Account, in foreign currency) - are sufficient to cover the liquidity risks of a financial institution and, in other hand, optimize the profit provided from the remaining balance that exceeds the outputs of the models. Here, the Cash Flow model of Schmaltz (2009), which segregates the model in different components (deterministic and stochastic), is applied to determine the cash needs and, through the Monte Carlo method for predicting different cash flows, is stipulated an average value of balance to be used in overnight. As a contrast, the deterministic model of Ringbom et al (2004) is used to provide the "Profit-Maximizing Reserve Ratio" to finally compare both of them historically, between Jan/2009 and Dec/2013, in order to conclude which of models of cash reserve shows to be more satisfying. The database used replicate balances and withdraws of a commercial bank, to this specific financial product, and it is also used for parameters estimation.
Este trabalho tem como objetivo comparar diferentes métodos de previsão de necessidades de caixa no overnight, que assegurem que a liquidez de um produto financeiro específico – neste caso, o Call Deposits (Depósito à Vista, em moeda estrangeira) – seja suficiente para cobrir os riscos de liquidez de uma instituição financeira e, em contrapartida, otimizem o lucro oriundo do saldo restante que ultrapasse o valor de saída destes modelos. Para isso, o modelo de Fluxo de Caixa de Schmaltz (2009), que segrega os diferentes componentes do caixa (determinísticos e estocásticos), será utilizado para determinar as necessidades de caixa e, através do método de Monte Carlo para a previsão de diferentes caminhos, chegamos a um valor médio de saldo para ser utilizado no overnight. Como comparativo, será utilizado o modelo determinístico de Ringbom et al (2004), que oferece a 'Taxa de Reserva de Maximização de Lucro', para, enfim, compará-los historicamente, entre Jan/2009 e Dez/2013, a fim de concluirmos qual dos modelos de reservas de caixa se mostra mais satisfatório. A base de dados utilizada replica os saldos e saques de um banco comercial, para o produto financeiro em questão, e, também, é utilizada para a estimação dos parâmetros.

Kadangi neigiami šalies mokėjimų balanso rodikliai gali būti būsimo šalies ekonominio nuosmukio ar krizės priežastis, todėl būtina suvokti, kokia šių rodiklių įtaka šalies daromiems sprendimams bei nustatyti, ar šių rodiklių pagalba galima prognozuoti būsimas šalies valiutų krizes, kitaip dar vadinamas mokėjimų balanso krizėmis. Atsižvelgiant į tai, magistro baigiamajame darbe analizuojama mokėjimų balanso krizės situacija bei jos pasireiškimo tikimybė Lietuvoje. Atliktas tyrimas aktualus, nes mokslinėje literatūroje Lietuvos mokėjimų balanso krizės susidarymo rizikos analizės per pastaruosius metus nepasitaikė. Ypač Lietuvai tai aktualu dėl pastarųjų metų pasaulinių įvykių, nulėmusių Lietuvos ekonomikos smarkų smukimą. Taip pat pažymėtina, kad užsienio šalyse vis daugėja atvejų, kai šalis dėl išeikvotų užsienio valiutos rezervų patiria mokėjimų balanso krizę, priverčiančią šalį imtis drastiškų veiksmų siekiant išgelbėti šalies ekonomiką. Atsižvelgiant į aukščiau minėtą, iškeliama mokslinė darbo problema klausimu „Ar galima prognozuoti apie Lietuvos mokėjimų balanso krizės reiškinį remiantis mokėjimų balanso sąskaitų pokyčiais bei pagrindiniais makroekonominiai rodikliais, įtakojančiais mokėjimų balanso sąskaitas?“ Darbo tikslas – atlikti Lietuvos mokėjimų balanso krizės rizikos analizę ir ištirti, pagal kuriuos šalies ekonominius ir statistinius rodiklius galima prognozuoti šį reiškinį. Tyrimo objektas – Lietuvos, Latvijos ir Estijos detalūs statistiniai mokėjimų balanso... [toliau žr. visą tekstą]
As the country's negative balance of payments indicators may signal the country's future economic downturn or causes of the crisis, it is necessary to understand how these variables influence country’s decisions and determine whether these characteristics can help predict future currency crises in the country, also known as the balance of payments crisis. The paper of master degree analyzes the balance of payments crisis situation and its likelihood of occurring in Lithuania. A study carried out is relevant because the scientific literature does not provide any analysis regarding the Lithuanian balance of payments crisis over the past few years. It is especially relevant in Lithuania as the worldwide events in the recent years have led to a rapid decline of the Lithuanian economy. It should also be noted that there is a growing number of cases of foreign countries experiencing balance of payments crisis, subjecting the country to take drastic action to save the country's economy. According to the above mentioned, the problem is formulated: "Is it possible to predict the Lithuanian balance of payments crisis phenomenon on the basis of balance of payments accounts, and key developments in macroeconomic indicators, influencing the balance of payments accounts?" The main goal is to analyze the Lithuanian balance of payments crisis risk and determine which country's economic and statistical indicators can predict this phenomenon. The object of the research - the detailed... [to full text]

The weight of the U.S. Dollar and the Euro on world reserves is unquestionable. Both these currencies are the most important currency-faces that represent world economy given their significance in terms of reserves. The U.S. Dollar is, in terms of world economy‟s assets transactions, economy funding and currency representativeness, the most important and dominant international currency. This dominion is real and will not change in the near future regardless of the efforts suggested in this thesis. The Euro is looking forward to challenge the pre-eminence of the U.S. Dollar and has achieved a more solid position as an international currency but it is not enough. The Euro has potential and aptitude to become a reserve currency. However, the Euro has to improve its liquidity, gain visibility, attract foreign investment and fight the recently sharp widening of yield spreads of sovereign debt within the Eurozone first. This thesis suggests a creation of a joint-partnership between Europe and P.R. China in order to allow the Euro to emerge as a reserve currency through the real conception of common Eurobonds. This cooperation would solve existing problems within the Eurozone, carry a more important role for P.R. China as a vital player in world economy and finance and, in the long-term, turn the Euro into a more serious reserve currency on par with the U.S. Dollar.
O elevado grau de importância do Dólar Americano e do Euro nas reservas mundiais é inquestionável. Estas duas moedas são as mais importantes faces cambiais que representam a economia mundial, dado o seu significado em termos de reservas. O Dólar Americano é, em termos de transacções de activos na economia mundial, financiamento económico e representatividade cambial, a mais importante e dominante moeda internacional. Este domínio é real e nada mudará num futuro próximo, independentemente dos esforços que esta tese sugere. O Euro tem como objectivo desafiar a hegemonia do Dólar Americano e tem conseguido alcançar uma posição mais sólida enquanto moeda internacional, mas por si só não é suficiente. O Euro tem o potencial e a capacidade para se tornar numa moeda de reserva. No entanto, o Euro tem primeiro que conseguir melhorar a sua liquidez, ganhar visibilidade externa, atrair investimento externo e combater a recente disparidade de yields das dívidas soberanas dos países da zona Euro. Esta tese sugere a criação de uma parceria conjunta entre a Europa e a R.P. da China com vista à ascensão do Euro como uma moeda de reserva através da concepção real de obrigações comuns Europeias. Esta cooperação resolveria os problemas existentes na zona Euro, daria um papel mais importante à R.P da China como uma nação vital na óptica económico-financeira mundial e, no longo prazo, tornaria o Euro como uma moeda de reserva mais séria, ao mesmo nível do Dólar Americano.

Saudi Arabia, one of the Group of Twenty (G20) economies, has fascinated the world with its increase of foreign currency reserve based on oil revenues. The sharp rise in Saudi foreign currency reserves is one of the most important features of the nation’s rapid wealth accumulation. Foreign reserves are viewed as a national source of economic growth security and financial stability. However, since the 2014–2016 oil price decline, foreign reserves have largely been spent; the depletion has been attributed to sustained government expenditure and declining oil revenues. This study addresses the financial management of the composition of Saudi Arabia’s foreign currency reserve (SFCR) during the 2014–2016 oil price decline. During this period, the Saudi government used its foreign currency reserve to cover government expenditure. Therefore, there is a need to develop a financial management strategy to mitigate foreign currency reserve depletion. The aim of this study is to identify the optimal foreign currency composition that provided a higher return during the examined period. Two approaches are considered regarding foreign currency reserve composition: univariate and multivariate generalised autoregressive conditional heteroscedasticity (GARCH) models for institutional management. The focus of this work is the portfolio composition management viewpoint during the 2014–2016 oil price decline; it considers the suggested distribution of SFCR only during this period. In particular, the research examines SFCR allocation across three groups of currency pairs: major currencies; commodity currencies; and emerging countries’ currencies. The currency groups are analysed and simulated to identify the optimal foreign currency reserve composition. Optimal weights and hedging ratios are used in this study to mitigate risk exposures of oil price volatility by adding currencies that negatively correlated with oil in the SFCR portfolio. This study provides recommendations as general comprehensive guidelines for strategic asset allocation options for consideration by Saudi Arabian Monetary Authority (SAMA) portfolio management authorities. The study uses the GJR-GARCH model, proposed by Glosten, Jagannathan and Runkle (1993) and Lamoureux and Lastrapes (1990), to understand the dynamic behaviour for each currency pair and estimate the persistence in variance using the univariate mean-variance analysis. Further, it employs the multivariate VAR(1)-GARCH(1,1) model, including the Baba, Engle, Kraft and Kroner, constant conditional correlation and dynamic conditional correlation models, to understand the interaction between oil prices and foreign currencies. In addition, cross-correlation function, introduced by Cheung and Ng (1996), also incorporates the univariate GARCH model in two steps to confirm the results of multivariate GARCH and test for the causes in variance between oil and currency pairs. Third, and finally, the optimal weight of the foreign currencies in this study is determined as suggested by Kroner and Ng (1998). The hedge ratio follows Kroner and Sultan’s (1993) approach as a policy recommendation to the SAMA to rebalance the composition foreign currency reserve portfolio. Using the above econometric models, this study will identify and select the possible currencies that can be combined with existing currencies in SAMA’s foreign currency reserve portfolio. Using the result of univariate GARCH analysis for oil and each currency will help SFCR portfolio managers in SAMA to understand the dynamic behaviour of oil and currency exchange rates. Further, it will allow SAMA to introduce an efficient currency-selection strategy that mitigates the risk of depletion by investing in foreign exchange markets. Moreover, it enhances SFCR portfolio composition and maximises dynamic asset allocations when estimating the effect of volatility spillover between oil and the currencies. In this research, SAMA seeks to protect its foreign currency reserve portfolio against price fluctuation by investing in chosen foreign currencies. In addition, the results of the multivariate GARCH models estimate portfolio weights and hedge ratios by using variances and covariances matrices. The results of the multivariate analysis reveal that based on the optimal weights and hedge ratios estimation, SAMA portfolio diversification should increase its focus on some commodities and emerging countries’ currencies to rebalance SFCR composition. This study recommends that, for example, the Japanese yen, Swiss franc, Swedish krona and Polish zloty be added to the current major currencies to reduce the impact of oil volatility.

AbstractIn this chapter we turn to representing flows of funds in alternative international monetary frameworks, and what global liquidity these different frameworks provide. We first recall some arguments in favour of and against fixed exchange rate systems. We then introduce two international monetary arrangements of the past which imply fixed exchange rates, namely the gold standard and the Bretton Woods system, and recall why both eventually failed. We then turn to three international monetary frameworks in the context of the current paper standard, i.e. fixed exchange rate systems, flexible exchange rate systems, and the European monetary union. We explain the role of an international lender of last resort and related solutions, and how these allow for more leeway in running fixed exchange rate systems. We also show how banks and central bank balance sheets are affected by international flows of funds and the balance of payments. Finally, we briefly review recent developments of foreign currency reserves, being the key central bank balance sheet position in this context.

This chapter assesses why Joseph Stalin needed Torgsin. The analysis of Soviet foreign trade data, foreign debt, gold and currency reserves, and gold production shows a direct and tight correlation between the opening of Torgsin and the currency needs of industrialization. The year 1931, when Torgsin began its large-scale operation of buying up gold from the population, marked the high point of industrial imports. The country was deep in debt and had little with which to pay it off: exports had failed to bring in the expected currency earnings, and the gold reserve of the Russian Empire had been exhausted. The acute gold and hard-currency crisis defined the moment when the elite “for foreigners only” Torgsin began to turn into a people's enterprise. The urgent need for Torgsin was also determined by the fact that the country's gold mining industry had yet to be created.

This concluding chapter argues that the policy makers' vade mecum laid out in the previous chapter raises broader issues for the global monetary system. Notwithstanding the fact that some of the emerging markets may have liberalized their capital accounts prematurely, it questions whether emerging markets have further to gain from opening up, or indeed whether they would not be better off retaining restrictions on at least the riskiest forms of foreign liabilities and transactions. This is particularly pertinent since most of these countries do not enjoy the liquidity insurance provided by swap facilities let alone the reserve currency status. They are forced to self-insure through reserve accumulation, which is costly both to the country and to the international monetary system. Alternative forms of insurance could arguably yield favorable benefit–cost trade-offs, particularly if they result in a safer mix of flows that makes economies less prone to risks from changes in global push factors.

The results of the simulations shown in Chapter 10 clearly show the consistent pattern of operation of the Grondona system, buying and selling reserves of commodities in response to changes in market prices as reliably as under a gold standard. This has a range of direct and indirect effects which are discussed in this chapter, including the reliably counter-cyclical timing of changes in the quantity of the CRD's reserves, and the parallel changes in the national money supply, the system's contribution to resisting inflationary pressures, and the effect of a CRD's reserves of a commodity falling to zero. Some remaining uncertainties about the system's operation are also discussed, notably about the foreign exchange market's likely response to the system expanding the money supply when commodity prices are falling.

Abstract This chapter describes how emerging economies rebounded from the late 1980s and reentered the global debt market, building on their experience with Brady bonds. However, the 1997–98 East Asian crisis was a brutal reminder that external borrowing had to be carefully managed. Among the lessons from the crisis was a realization that currency and maturity mismatches exposed governments and banks to serious risks in the event of capital flight. Following the crisis, policymakers in emerging economies accumulated foreign exchange reserves and sought to create local-currency markets for public debt. This addressed some structural fragilities but ignored others, such as excessive dependence on domestic banks, a problem that would return with a vengeance in the new millennium.

Foreign direct investment (FDI) is the engine of growth of all countries, contributing to the inflow of financial capital, technology, skills, employment, to the establishment of production of modern goods and services, which enables a national economy to become more competitive in the global market. However, the developing or transition countries often lack the capital to finance their own development. Analysis of 21 developed and developing oil-producing countries from 2008 to 2014 show that the most important factors for attracting investment in the oil and gas sector are the discovery of attractive fields, the creation of a developed and modern infrastructure, increases proven reserves of hydrocarbons, and of corruption. Less important but still factors are a stable currency, an open trade regime, favorable business conditions, as well as lower taxes on oil-producing business.

The lifetime of human being has lengthened out depending on the developing medical technology and the incredible development of life conditions in accordance with the past. Subject to the lengthening lifetime, high expenditures are excessively spent for the health service in order to keep and develop their health level by both the individuals and the states that reserve high shares for health from their budgets. Through the direct flow of foreign currency into the economies of the States, the field where the easiest money transfer is performed is tourism. In the 21st century, the name of the meeting field of health sector and tourism. The Turkish States located just in the middle of the European Economic Region and the Arabian Economies and the developing Chinese Economy, will have the inarguable advantages at the field of health tourism in the years 2030 intended for being the countries whose 65+ population will reach at the 25% level of their whole populations where the health expenses of the current powerful economies are carried out by their population structures, the short distance of flight which effects the healing process of the ones getting treated, and also by their magnificent geographies. Turkish States will be able to have a say in the market of health service in the world of future providing huge economic acquisition by creating new employment areas for their young ones through health tourism. Turkish States should develop the policies to encourage their investors in order to investon this field.

The Eurasian Economic Union, which was officially established five years ago, faced many financial and economic problems in this period. After 2014, when sanctions against Russia began, all members’ national currency suffered serious depreciation and central banks had to actively intervene in the foreign exchange market. In fact, Russia and Kazakhstan have changed regime and switched from the fixed to the flexible exchange rate system. Since the foreign exchange market has been more stable in recent years, central banks are trying to complete the reserves that had been lost that period. Therefore, with the change of foreign reserves, money supply is also changing. The aim of this study is to examine and compare the relationship between exchange rates, reserves and money supply in five EAEU countries. Quarterly data for the period 2010-2019 was used to achieve the goal. Toda-Yamamoto causality and ARDL cointegration approach were used as a method. It was concluded that more coordinated execution of monetary and exchange rate policies would be in favor of all members. However, the basic principle should be that all members benefit equally from the cooperation.

After the 2008 crisis International Monetary System (IMS) entered a period of change. The system under hegemony of dollar criticized in financial markets with regards to instability and lack of confidence. Whereas IMF argued that the IMS should be restructured in emerging markets, in the report of World Bank it was estimated that in the future of IMS a multipolar multiple currency system which includes Dollar, Euro and Renminbi (RMB) will improve (World Bank, 2011: xii). BRICS countries wanted diversify, especially, the Chinese reserves, but the Executive Board of IMF rejected SDR basket to be expanded until 30 November 2015. With the decision taken on this date, it took Chinese national currency RMB into SDR basket since the date of 1 October 2016. After this decision, the value of SDR has been composed of the sum of the currencies of US dollar, Euro, Chinese RMB (yuan), Japanese yen and pound sterling. Thereby, in SDR basket Chinese national currency ranked thirdly by weight. The purpose this paper is to discuss the ever-increasing importance of Chinese national currency RMB in IMS. In this direction, at first, the formation and development of SDR will be informed, then the direction of RMB towards the SDR basket will be discussed, after that, the appearance of the idea of RMB’s internationalization and the period of internationalization of RMB will be addressed. Finally, an assessment will be made about RMB’s being a means of payment and international financial asset in foreign trade.

Abstract The 74th step of "100 Concrete Step of Nation Plan" initiated by the first president of the Republic of Kazakhstan (RoK) Nursultan Nazarbayev states that Kazakhstani reserves reporting system must be changed to the international standards. One of them actively proposed is the SPE-PRMS. Therefore, the main goal of the paper is to show challenges of the transition, discuss possible problems, their solution and, eventually, advantages for the companies. In the paper the main aspects of the current State Committee of Reserves (SCR) system or well-known as GKZ system inherited from the Soviet system and used in Kazakhstan are reported. Especially, we try to highlight the reserves categories of A, B, C1 and C2 and their impact on further field development in details. Also SPE-PRMS and SEC rules are shown in terms of differences and similarities with the current system. Importantly, authors demonstrate how the SPE-PRMS standards are wide-spread around the globe. Finally, details of planned shift, some recommendations and simplification of reporting process are exhibited. As the result of the study the following points are investigated. Firstly, what will be with reports just recently approved by the SCR. Especially, for the big fields whose preparation takes up to several years. Secondly, what the frequency is for the reporting. Thirdly, whether the reports will be handled through several approval stages or just submitted. Moreover, how close to SPE-PRMS the new system should be adopted taking into account Kazahstani realities and if the reports should be composed in English along with Russian, since the main purpose of the transition is to be clear and transparent for the foreign investors. Otherwise, unfamiliar language and big deviation from the well-known standards may ruin the efforts. Despite the complexity of these issues the benefits of the new system are obvious and there are several reasons. The main advantage is that the SPE-PRMS is all about economically recoverable reserves without any ties with fixed recovery factor. In addition, report is done in short time and less volume. Finally, if the norm of the report's submission without going to tedious approval process is accepted, that will ease work of the subsoil users’ because it accelerates further preparation of field development project. The study is done due to recent changes of the RoK subsoil usage regulations, where the requirement for reserves reporting system's transition to the new international standards is mentioned. However, the issue is not much highlighted in technical publications from the operating companies’ point of view. Thus, having experience with GKZ, SPE-PRMS and SEC systems the authors take this opportunity to show challenges and benefits of the decision.

This paper studies from an empirical and theoretical perspective the systemic and bank-level effects of imposing reserve requirements (RR) in foreign currency in an economy with a heavily dollarized financial system. The paper empirically characterizes banks responses to the RR carried out by the Peruvian Central Bank since 2008 with the objective of stabilizing the financial market and meeting its policy targets. The results suggest that the RR is effective in reducing the overall level of credit in the economy and that banks response in terms of credit and deposits is very heterogeneous depending on their ex ante preference for foreign funding ratio, i.e., the ratio of deposits in dollars to total loans. Motivated by the empirical insights, the paper builds a DSGE small-open-economy model with financial frictions à la Gertler-Karadi-Kiyotaki, where bank heterogeneity and financial dollarization are introduced to evaluate the effectiveness of the differential RR in reducing financial dollarization and improving financial resilience.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.

The Board of Directors of Banco de la República, in accordance with the provisions of article 5° of Act [“Law”] 31/1992, submits to the Congress of the Republic of Colombia a Report on the macroeconomic performance of years 2014 and 2015 to date. Similarly, targets adopted for the current year by the Board of Directors and prospects of the different macroeconomic variables are shown. The last two chapters report the composition of foreign reserves and the projection of Banco de la República’s financial situation for year 2015.

The Colombian financial system has not suffered major structural disruptions during these months of deep economic contraction and has continued to carry out its basic functions as usual, thus facilitating the economy's response to extreme conditions. This is the result of the soundness of financial institutions at the beginning of the crisis, which was reflected in high liquidity and capital adequacy indicators as well as in the timely response of various authorities. Banco de la República lowered its policy interest rates 250 points to 1.75%, the lowest level since the creation of the new independent bank in 1991, and provided ample temporary and permanent liquidity in both pesos and foreign currency. The Office of the Financial Superintendent of Colombia, in turn, adopted prudential measures to facilitate changes in the conditions for loans in effect and temporary rules for rating and loan-loss provisions. Finally, the national government expanded the transfers as well as the guaranteed credit programs for the economy. The supply of real credit (i.e. discounting inflation) in the economy is 4% higher today than it was 12 months ago with especially marked growth in the housing (5.6%) and commercial (4.7%) loan portfolios (2.3% in consumer and -0.1% in microloans), but there have been significant changes over time. During the first few months of the quarantine, firms increased their demands for liquidity sharply while consumers reduced theirs. Since then, the growth of credit to firms has tended to slow down, while consumer and housing credit has grown. The financial system has responded satisfactorily to the changes in the respective demands of each group or sector and loans may grow at high rates in 2021 if GDP grows at rates close to 4.6% as the technical staff at the Bank expects; but the forecasts are highly uncertain. After the strict quarantine implemented by authorities in Colombia, the turmoil seen in March and early April, which was evident in the sudden reddening of macroeconomic variables on the risk heatmap in Graph A,[1] and the drop in crude oil and coal prices (note the high volatility registered in market risk for the region on Graph A) the local financial markets stabilized relatively quickly. Banco de la República’s credible and sustained policy response played a decisive role in this stabilization in terms of liquidity provision through a sharp expansion of repo operations (and changes in amounts, terms, counterparties, and eligible instruments), the purchases of public and private debt, and the reduction in bank reserve requirements. In this respect, there is now abundant aggregate liquidity and significant improvements in the liquidity position of investment funds. In this context, the main vulnerability factor for financial stability in the short term is still the high degree of uncertainty surrounding loan quality. First, the future trajectory of the number of people infected and deceased by the virus and the possible need for additional health measures is uncertain. For that reason, there is also uncertainty about the path for economic recovery in the short and medium term. Second, the degree to which the current shock will be reflected in loan quality once the risk materializes in banks’ financial statements is uncertain. For the time being, the credit risk heatmap (Graph B) indicates that non-performing and risky loans have not shown major deterioration, but past experience indicates that periods of sharp economic slowdown eventually tend to coincide with rises in non-performing loans: the calculations included in this report suggest that the impact of the recession on credit quality could be significant in the short term. This is particularly worrying since the profitability of credit establishments has been declining in recent months, and this could affect their ability to provide credit to the real sector of the economy. In order to adopt a forward-looking approach to this vulnerability, this Report presents several stress tests that evaluate the resilience of the liquidity and capital adequacy of credit institutions and investment funds in the event of a hypothetical scenario that seeks to simulate an extreme version of current macroeconomic conditions. The results suggest that even though there could be strong impacts on the credit institutions’ volume of credit and profitability under such scenarios, aggregate indicators of total and core capital adequacy will probably remain at levels that are above the regulatory limits over the horizon of a year. At the same time, the exercises highlight the high capacity of the system's liquidity to face adverse scenarios. In compliance with its constitutional objectives and in coordination with the financial system's security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions that are necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth operation of the payment systems. Juan José Echavarría Governor

1.1 Macroeconomic summary In September, headline inflation (11.4% annually) and the average of core inflation indicators (8.6% annually) continued on a rising trend, and higher increases than expected were recorded. Forecasts increased again, and inflation expectations remained above 3%. Inflationary surprises in the third quarter were significant and widespread, and they are the result of several shocks. On the one hand, international cost and price shocks, which have mainly affected goods and foods, continue to exert upwards pressure on national inflation. In addition to these external supply shocks, domestic supply shocks have also affected foods. On the other hand, the strong recovery of aggregate demand, especially for private consumption and for machinery and equipment, as well as a higher accumulated depreciation of the Colombian peso and its pass-through to domestic prices also explain the rise in inflation. Indexation also contributes, both through the Consumer Price Index (CPI) and through the Producer Price Index (PPI), which continues to have a significant impact on electricity prices and, to a lesser degree, on other public utilities and rent. In comparison with July’s report, the new forecast trajectory for headline and core inflation (excluding food and regulated items) is higher in the forecast horizon, mainly due to exchange rate pressures, higher excess demand, and indexation at higher inflation rates, but it maintains a trend of convergence towards the target. In the case of food, a good domestic supply of perishable foods and some moderation in international processed food prices are still expected. However, the technical staff estimates higher pressures on this group’s prices from labor costs, raw material prices, and exchange rates. In terms of the CPI for regulated items, the new forecast supposes reductions in electricity prices at the end of the year, but the effects of indexation at higher inflation rates and the expected rises in fuel prices would continue to push this CPI group. Therefore, the new projection suggests that, in December, inflation would reach 11.3% and would decrease throughout 2023 and 2024, closing the year at 7.1% and 3.5%, respectively. These forecasts have a high level of uncertainty, due especially to the future behavior of international financial conditions, external price and cost shocks, the persistence of depreciation of the Colombian peso, the pace of adjustment of domestic demand, the indexation degree of nominal contracts, and the decisions that would be made regarding domestic fuel and electricity prices. Economic activity continues to surprise on the upside, and the projection of growth for 2022 rose from 6.9% to 7.9% but lowered for 2023 from 1.1% to 0.5%. Thus, excess demand is higher than estimated in the previous report, and it would diminish in 2023. Economic growth in the second quarterwas higher than estimated in July due to stronger domestic demand, mainly because of private consumption. Economic activity indicators for the third quarter suggest that the GDP would stay at a high level, above its potential, with an annual change of 6.4%, and 0.6% higher than observed in the second quarter. Nevertheless, these numbers reflect deceleration in its quarterly and annual growth. Domestic demand would show similar behavior, with a high value, higher than that of output. This can be explained partly by the strong behavior of private consumption and investment in machinery and equipment. In the third quarter, investment in construction would have continued with mediocre performance, which would still place it at levels lower than those observed before the pandemic. The trade deficit would have widened due to high imports with a stronger trend than that for exports. It is expected that, in the forecast horizon, consumption would decrease from its current high levels, partly as a consequence of tighter domestic financial conditions, lower repressed demand, higher exchange rate pressures on imported goods prices, and the deterioration of actual income due to the rise in inflation. Investment would continue to lag behind, without reaching the levels observed before the pandemic, in a context of high financing costs and high uncertainty. A lower projected behavior in domestic demand and the high levels of prices for oil and other basic goods that the country exports would be reflected in a reduction in the trade deficit. Due to all of this, economic growth for all of 2022, 2023, and 2024 would be 7.9%, 0.5%, and 1.3%, respectively. Expected excess demand (measured via the output gap) is estimated to be higher than contemplated in the previous report; it would diminish in 2023 and could turn negative in 2024. These estimates remain subject to a high degree of uncertainty related to global political tension, a rise in international interest rates, and the effects of this rise on demand and financial conditions abroad. In the domestic context, the evolution of fiscal policy as well as future measures regarding economic policy and their possible effects on macroeconomic imbalances in the country, among others, are factors that generate uncertainty and affect risk premia, the exchange rate, investment, and the country’s economic activity. Interest rates at several of the world’s main central banks continue to rise, some at a pace higher than expected by the market. This is in response to the high levels of inflation and their inflation expectations, which continue to exceed the targets. Thus, global growth projections are still being moderated, risk premia have risen, and the dollar continues to gain strength against other main currencies. International pressures on global inflation have heightened. In the United States, core inflation has not receded, pressured by the behavior of the CPI for services and a tight labor market. Consequently, the U.S. Federal Reserve continued to increase the policy interest rate at a strong pace. This rate is expected to now reach higher levels than projected in the previous quarter. Other developed and emerging economies have also increased their policy interest rates. Thus, international financial conditions have tightened significantly, which reflects in a widespread strengthening of the dollar, increases in worldwide risk premia, and the devaluation of risky assets. Recently, these effects have been stronger in Colombia than in the majority of its peers in the region. Considering all of the aforementioned, the technical staff of the bank increased its assumption regarding the U.S. Federal Reserve’s interest rate, reduced the country’s external demand growth forecast, and raised the projected trajectory for the risk premium. The latter remains elevated at higher levels than its historical average, within a context of high local uncertainty and of extensive financing needs from the foreign sector and the public sector. All of this results in higher inflationary pressures associated to the depreciation of the Colombian peso. The uncertainty regarding external forecasts and its impact on the country remain elevated, given the unforeseeable evolution of the conflict between Russia and Ukraine, of geopolitical tensions, and of the tightening of external financial conditions, among others. A macroeconomic context of high inflation, inflation expectations and forecasts above 3%, and a positive output gap suggests the need for contractionary monetary policy, compatible with the macroeconomic adjustment necessary to eliminate excess demand, mitigate the risk of unanchoring in inflation expectations, and guarantee convergence of inflation at the target. In comparison with the July report forecasts, domestic demand has been more dynamic, with a higher observed output level that surpasses the economy’s productive capacity. Headline and core inflation have registered surprising rises, associated with the effects of domestic and external price shocks that were more persistent than anticipated, with excess demand and indexation processes in some CPI groups. The country’s risk premium and the observed and expected international interest rates increased. As a consequence of this, inflationary pressures from the exchange rate rose, and in this report, the probability of the neutral real interest rate being higher than estimated increased. In general, inflation expectations for all terms and the bank’s technical staff inflation forecast for 2023 increased again and continue to stray from 3%. All of the aforementioned elevated the risk of unanchoring inflation expectations and could heighten widespread indexation processes that push inflation away from the target for a longer time. In this context, it is necessary to consolidate a contractionary monetary policy that tends towards convergence of inflation at the target in the forecast horizon and towards the reduction of excess demand in order to guarantee a sustainable output level trajectory. 1.2 Monetary policy decision In its September and October of 2022 meetings, Banco de la República’s Board of Directors (BDBR) decided to continue adjusting its monetary policy. In September, the BDBR decided by a majority vote to raise the monetary policy interest rate by 100 basis points (bps), and in its October meeting, unanimously, by 100bps. Therefore, the rate is at 11.0%. Boxes 1 Food inflation: a comparison with other countries