Foreign Reserves & Global Objectives: How The UK’s Idle FX Reserves Can Support Its Global Economic Objectives

Stephen Paduano

No 2309, FDL Policy Notes from CEPREMAP

Abstract: This paper discusses how the United Kingdom can make use of its idle exchange equalisation account to support its global economic objectives in an era of fiscal consolidation — when limited political appetite for further taxing and borrowing, combined with interest rates, have reduced the UK’s ability to finance its international interests. It does so with particular attention to the UK’s $40 billion in idle and illiquid Special Drawing Rights (SDRs). The illiquidity of these SDRs is a hindrance to the “policy-readiness†of the UK’s foreign exchange reserves. This paper discusses how rechanneling those SDRs—e.g., through the purchase of an SDR bond issued by a multilateral development bank—would serve the dual function of boosting the liquidity of the UK’s foreign-exchange reserves (a key objective of the UK’s reserve managers) whilst supporting the UK’s global economic interests (providing additional financing to the MDBs). This paper also draws lessons from how other countries have made use of their idle foreign-exchange reserves to support global economic objectives, such as the United States with its Exchange Stabilization Fund in the 1980s and 1990s.

Keywords: Public debt; sustainability; Private sector; Social outcomes; International Monetary Fund; World Bank; Special Drawing Rights; foreign aid; global development; international financial architecture; United Kingdom; Bank of England (search for similar items in EconPapers)
Pages: 15 pages
Date: 2023-09
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:notfdl:2309

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