Upgrading the Global Financial Safety Net: Implications of a Synthetic Reserve Deposit

Giovanni Dell'Ariccia, Pascal Farahmand, Pierre-Olivier Gourinchas, Istvan Mak, Adrian Peralta-Alva and Francisco Roldan

No 2026/135, IMF Working Papers from International Monetary Fund

Abstract: Sovereigns self-insure via reserve accumulation, prioritizing liquidity over yield. This practice imposes opportunity costs and can amplify the convenience premium on traditional reserve assets. This paper evaluates Synthetic Reserve Deposits (SRDs), a pooling mechanism designed to improve the return-liquidity trade-off. Participants would hold floating-value claims on a vehicle comprising a settlement buffer, an investment portfolio, and, in some designs, an optional collateralized liquidity window. The architecture separates the allocation of portfolio risk from the provision of short-term foreign-currency liquidity: market risk remains with SRD holders, while liquidity is provided through redemption at contemporaneous executable value or through secured advances. Simulations illustrate that the structure can shift the return-liquidity frontier outward under explicit downside-risk constraints. General equilibrium modeling suggests that, if implemented at sufficient scale and under appropriate conditions, reallocating reserve demand through this mechanism could increase the effective supply of reserve claims and affect the global financial cycle, creating aggregate welfare gains and possibly Pareto improvements depending on initial global asset positions.

Keywords: International Reserves; Global Financial Safety Net; Safe Asset Scarcity; Reserve Management (search for similar items in EconPapers)
Pages: 58
Date: 2026-06-29
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=577328 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2026/135

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().