Core Focus: The principles of transparency in reserve management, the public disclosure of policy objectives, data on foreign exchange reserves, and the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies.
In-Depth Notes:
Transparency is a cornerstone of accountability in reserve management. It ensures that the public, markets, and policymakers can assess the soundness of reserve management practices and hold the reserve management entity accountable for its performance. The main issues of transparency in the context of good governance and accountability in reserve management are addressed in the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies .
The Principles of Transparency:
The IMF’s Code identifies several key principles for transparency in reserve management :
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Clear Allocation of Responsibilities: The allocation of reserve management responsibilities, including agency arrangements, between the government, the reserve management entity, and other agencies should be publicly disclosed and explained .
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Clear Objectives: The broad objectives of reserve management should be clearly defined and publicly disclosed, and the key elements of the adopted policy explained .
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Open Process for Market Operations: The general principles governing the reserve management entity’s relationships with counterparties should be publicly disclosed .
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Public Availability of Information: Information on official foreign exchange reserves should be publicly disclosed on a pre-announced schedule .
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Accountability and Assurances of Integrity: The conduct of reserve management activities should be included in the annual audit of the reserve management entity’s financial statements .
Public Availability of Information on Foreign Exchange Reserves:
Information on official foreign exchange reserves should be publicly disclosed on a pre-announced schedule . The Special Data Dissemination Standard (SDDS) Data Template on International Reserves and Foreign Currency Liquidity is designed to provide information on the amount and composition of reserve assets and other foreign assets held by the central bank and the government, short-term external liabilities, and related activities that can lead to a demand for reserve assets .
The Reserve Management Strategy and Accounting Framework:
The reserve management strategy should be consistent with the fundamental objectives set by the monetary authorities and supported by an appropriate reporting framework and accounting conventions . The reserve holdings should be properly represented in the monetary authority’s financial statements, using valuation methods that reflect the nature of the holdings and the reserve management objectives .
Financial Statement Disclosures:
Reserve management entities should follow guidance on financial reporting and disclosure. Disclosures by a reserve management entity on its reserve-related assets and liabilities would likely form a large part of the more general annual financial statement disclosures required by IFRS . Two relevant standards in this regard are IFRS 7, Financial Instruments: Disclosure, and IFRS 13, Fair Value Measurement. These standards require, inter alia, financial statement disclosures relating to exposures to interest rate and credit risks, and the fair or market-based valuation of financial assets .