Chapter 5: Conclusions

Bernard Lee

Chapter 5 in Evolving Roles of Sovereign Wealth Managers After the Financial Crisis:Past, Present and Future, 2014, pp 93-97 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This relatively concise book should have demystified some common misconceptions about sovereign wealth management for its audience: Sovereign Wealth Funds are symbols of national strength — Countries create sovereign wealth funds only when they are accumulating massive excess reserves in the form of claims on other countries. Usually, these claims significantly exceed what may be deemed necessary as foreign exchange reserves to maintain the stability of a country's currency. As these claims represent future promises by other countries to repay, they can be both a blessing and a curse. Although British authorities are proud of the fact that there has been no default on British government debts over the last three centuries, ultra long-term debts (such as those with maturity of 50 years) often face rapid depreciation on the values of their principals (in terms of purchasing power) when finally repaid. In 1923, France and Belgium occupied the Ruhr when Germany fell behind on war reparation payments, under the French belief that they had the right to extract the reparations themselves in the form of coal and steel. Historically, claims on real assets have always been seen as more superior than counting on paper promises…

Keywords: Sovereign Wealth Fund; Central Bank Reserves; Global Imbalance; Financial Crisis; Market Constraints for Mega-Sized Investors (search for similar items in EconPapers)
Date: 2014
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