The sovereign credit and the limited foreign exchange outflow and the liquidity management of foreign exchange reserves

Abstract

In this paper, we use the models of the commercial bank liquidity management to study the liquidity of foreign exchange reserves. We build a model for the liquidity management of foreign exchange reserves, which includes the sovereign credit and the limited foreign exchange outflow, and we propose an optimal proportion with which the central banks hold their foreign exchange reserves in the form of liquidity and an accuracy measurement of the whole gains of foreign exchange reserves.

Keywords:

• Sovereign credit
• limited foreign exchange outflow
• foreign exchange reserves
• liquidity management