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1、Reserve managers battle losses,stagflation and geopoliticsGLOBAL PUBLIC INVESTOR 2023Under pressure OMFIF.ORG3Contents5 Foreword Ten tough years6 Executive summary Under pressure8Key findings10 Chapter 1:Macro environmentStagflation fears loom large6244 Chapter 2:Asset allocationSearch fo
2、r safety34Chapter 3:CurrencycompositionUS dollar dominance:a slow,steady decline42Chapter 4:ESG Slow progress 50Chapter 5:Operatingmodels and data Bolstering internal capacity58Chapter 6:Databank Including regional spotlights featuring key data from survey and rankings by region and the worlds insti
3、tutions rankedGLOBAL PUBLIC INVESTOR 2023OMFIF GLOBAL PUBLIC INVESTOR 2023 4AUTHORSClive HorwoodManaging Editor and Deputy CEO Nikhil Sanghani Managing Director,ResearchTaylor Pearce Senior EconomistJulian Jacobs Senior EconomistArunima Sharan Senior Research AnalystEdward Maling Research AnalystADD
4、ITIONAL RESEARCH Katerina Liu Research AnalystEDITORIAL AND PRODUCTIONSimon HadleyDirector,ProductionWilliam Coningsby-BrownProduction ManagerSarah MoloneyChief SubeditorJanan Jama SubeditorMARKETINGBen RandsDirector of Events and MarketingJames FitzgeraldDeputy Head of Events and MarketingAmy Holde
5、rEvents and Marketing ManagerOphelia Mather Marketing Coordinatoromfif.org 2023 OMFIF Limited.All Rights Reserved.Strictly no photocopying is permitted.It is illegal to reproduce,store in a central retrieval system or transmit,electronically or otherwise,any of the content of this publication withou
6、t the prior consent of the publisher.While every care is taken to provide accurate information,the publisher cannot accept liability for any errors or omissions.No responsibility will be accepted for any loss occurred by any individual due to acting or not acting as a result of any content in this p
7、ublication.On any specific matter reference should be made to an appropriate adviser.Company Number:7032533.ISSN:2398-4236Official Monetary and Financial Institutions Forum 181 Queen Victoria St,London,EC4V 4EG.T:+44(0)20 700 27606 enquiriesomfif.org omfif.orgABOUT OMFIFWith a presence in London,Was
8、hington and New York,OMFIF is an independent forum for central banking,economic policy and public investment a neutral platform for best practice in worldwide public-private sector exchanges.ACKNOWLEDGMENTSOMFIF thanks officials from the co-operating countries and cities for this publication,which w
9、ill be joining us in launch partnerships around the world.We are grateful to many other associates and colleagues for their assistance and guidance.BOARDDavid MarshChairmanPhilip MiddletonDeputy ChairmanJohn OrchardChief Executive Officer Jai Arya,Maggie Mills,Mark BurgessADVISORY COUNCILMeghnad Des
10、aiChairmanMark SobelUS ChairmanMarsha Vande BergDeputy ChairmanHani KablawiDeputy ChairmanFrank ScheidigDeputy ChairmanBen Shenglin,Chair,OMFIF Economists Network,Michael Cole-Fontayn,Otaviano Canuto,Aslihan Gedik,Robin Hu,Zhongxia Jin,Prakash Kannan,Yougesh Khatri,John Kornblum,Norman Lamont,Rudi L
11、ang,Oscar Lewisohn,Dennis Lockhart,Leslie Maasdorp,Nicolas Mackel,Timothy Massad,Brent McIntosh,Sheila MMbijjewe,Kingsley Moghalu,Rakesh Mohan,Clestin Monga,Nora Mller,Ila Patnaik,Oystein Olsen,Danny Quah,Ivan Rogers,Ludger Schuknecht,Anne Simpson,Christopher Smart,Marc-Olivier Strauss-Kahn,Niels Th
12、ygesen,Natacha Valla,William White,Andrew Wold,Janine von WolfersdorffGLOBAL PUBLIC INVESTOR 2023 OMFIF.ORG5ForewordTen tough yearsThe tasks of the worlds reserve managers are not getting any easierIN 2014,OMFIF launched the first edition of Global Public Investor.It was a landmark moment for our co
13、mpany,but also for the world of official institutions at the heart of OMFIFs network.The aim of the GPI was to recognise the unique challenges that central banks,sovereign funds and pension funds faced as public sector asset owners and guardians of national wealth.But it also recognised their import
14、ance and influence in global financial markets as some of the worlds biggest funds and the need to consider them as generators of returns for their state stakeholders.As OMFIFs chairman David Marsh wrote in that inaugural edition:Global public investors play a seminal role in global savings and inve
15、stment.A central question is how GPIs can help channel large international pools of long-term capital into investments offering appropriate financial returns and an answer to societal challenges.The power of these public sector investors is incontestable.But so too are the risks that these major ins
16、titutions face.2023 marks the 10th edition of GPI and those opportunities,challenges and risks from 2014 remain largely the same.Foreign exchange assets held by reserve managers in 2014 were around$12tn.In our latest analysis,they stand at$15tn.That represents a compound annual growth rate of just 2
17、.3%.This reflects a number of factors over the past decade.Primary among them was the challenge these naturally cautious investors faced in generating returns in a sustained period of low or negative interest rates and quantitative easing.It also reflects losses sustained in mark-to-market fixed inc
18、ome portfolios over the past year,as inflation and interest rates rose:our 2023 analysis shows total foreign exchange reserves falling by 5%,equating to losses of almost$725bn,since late 2021.And it reflects the rise of sovereign funds,especially in the fast-growing economies of Asia and the Middle
19、East,with excess assets being transferred into institutions that can usually invest more broadly than their counterparts in central banks.The GPI report has evolved considerably in recent years.The differing approaches and challenges that central banks face compared to sovereign and pension funds le
20、d us to split the GPI in 2022.This edition looks specifically at reserve managers while Global Public Pensions,which will be published later in the year,focuses on public funds.Though we maintain the analysis of reserve managers international reserves,the core of the GPI today is the survey of centr
21、al banks on their asset allocation strategies and operating challenges.This year a record number of central banks took part in the survey.On the following pages,and thanks to the trust and support of those central banks,this report offers a unique window on the approach that reserve managers are tak
22、ing to navigate volatile and difficult markets.It reveals their concerns about how stagflation and geopolitical risks are impacting their investment strategies.It details their views on the evolution on the currency composition of their portfolios with interesting implications for the role of the eu
23、ro and the renminbi as reserve assets.It highlights how they recognise the need to improve their use of data and technology,and build their investments in sustainable assets,as well as the factors holding them back.Our thanks go to all the central banks that have helped us to put this report togethe
24、r,to our partners and to you for reading this important piece of work.This report offers a unique window on the approach that reserve managers are taking to navigate volatile and difficult markets.Clive Horwood,Managing Editor and Deputy Chief Executive Officer,OMFIF OMFIF GLOBAL PUBLIC INVESTOR 202
25、3 6OMFIFs Global Public Investor 2023 report goes further than ever before to unpack reserve managers economic views,investment plans and internal operations.This edition features insights from a survey of 75 central banks with international reserves of close to$5tn.In the 10 years of the publicatio
26、n,the role of reserve managers has never been so challenging.They are navigating difficult economic and market conditions amid high inflation,weakening global growth and financial stability concerns.Geopolitical considerations are becoming increasingly important too.Western sanctions on Russian fore
27、ign assets may call into question central banks control over their international reserves.Tensions between the US and China are adding to the uncertainty over the future of the global monetary system.In the meantime,many reserve managers are facing pressure to incorporate sustainability into their i
28、nvestment practices.And as financial markets become more complex,it is increasingly important to improve their collection and management of data.This report explores the pressing considerations and intentions of reserve managers through these challenging times.Our analysis is split across six chapte
29、rs.Macroeconomic environment highlights that reserve managers have little confidence that inflation will come under control while fears over a global economic slowdown are mounting.Meanwhile,geopolitical tensions are the biggest worry in the medium to long term.Asset allocation uncovers that reserve
30、 managers are becoming more risk averse after the vast majority experienced portfolio losses last year.Traditional reserve assets government bonds and gold are most in demand while there is little appetite to invest in riskier or alternative assets.Currency composition reveals that central banks exp
31、ect the dollar to continue dominating global reserves in the next decade,though its influence will wane slightly.The renminbi and euro stand to benefit from central banks diversification strategies over the medium term.ESG shows that sustainability is becoming more important to reserve managers,thou
32、gh integration is relatively limited in emerging markets.Data hurdles remain the biggest obstacle to further ESG adoption.Operating models and data unveils that reserve managers are struggling to acquire the right talent and many are using external managers to improve their capabilities.Improving in
33、ternal data capacity is also a key focus.Regional spotlights and databank highlights that global reserves have dropped by 3%in the past year,with broad-based falls across regions.Reserve managers battle losses,stagflation and geopoliticsUnder pressureExecutive summaryOMFIF.ORG7Given the challenges c
34、entral banks are facing with the trade-off between inflation,growth and potential crises,it will take time for inflation to fall within the acceptable target range.As the Fed cuts rates in 2024,we expect mark-to-market losses on portfolios which have suffered from duration risk to start subsiding.A
35、potential US recession or at least slowdown over the 12-24 months period will require being underweight in equities.The recent banking issues that had been unfolding would lead to a reposition of the portfolio towards less risky assets.We consider geopolitical tensions and climate change as the two
36、most important non-financial factors of the decade which potentially could have an enormous negative impact on financial markets.With the reversal of the monetary policy of the European Central Bank and positive returns in the euro,many central banks are increasing their share of reserves to the eur
37、o.We think that,although the US dollar will remain as the main reserve currency,its importance is going to diminish gradually with the rise of alternative reserve currencies such as renminbi.De-dollarisation is already visible,but the process takes time.We believe that the renminbis role as a reserv
38、e currency will increase over the next 10 years as China continues liberalising its capital account.Activities targeted at sustainable development lie within governments responsibilities and go beyond the standard mandate of the central bank.Unified definitions,taxonomy and reporting standards would
39、 make the sustainable market more transparent.The operational challenges of reserve management are related to the need for capacity building and access to effective analytical tools.75survey respondents with$4.9tn in international reserves85%consider inflation as one of the top three economic factor
40、s affecting reserve management in the next 12-24 months38%expect a global economic recession in the next 12 months64%anticipate it will take over a year to recover their portfolio losses from 202258%consider recruitment and training a key operating challenge13%share of reserves managed externally35%
41、expect to increase their allocation to conventional government bonds in the next two years63%invest in gold for purposes of diversification and 35%to protect against geopolitical risk13%will increase their allocation to renminbi in the next two years,and 39%over the next 10 years54%On average,respon
42、dents expect the dollars share of global reserves will fall to 54%in the next decade,from just below 60%now 21%anticipate increasing their allocation to the euro in the near term42%plan to increase holdings of green bonds in the next 12-24 months72%cite insufficient data as the key barrier to furthe
43、r ESG adoptionKey numbersKey quotes from survey respondentsOMFIF GLOBAL PUBLIC INVESTOR 2023/KEY FINDINGS80246802002200420062008200022Asia PacificEuropeMiddle East and North AfricaLatin America and CaribbeanNorth AmericaSub-Saharan AfricaKey findings1.Losses mean les
44、s ability to interveneTHE LATEST data show total international reserves stand at$15.0tn,down from their peak of$15.8tn in late 2021.This is mainly due to valuation effects and,in some cases,foreign exchange intervention.International reserves fell across almost all regions last year,the main excepti
45、on being the Middle East and North Africa which benefitted from the windfall of higher commodity prices.Difficult macroeconomic and market conditions have left 10%of central bank respondents with insufficient reserves,all of them in Asia Pacific and sub-Saharan Africa.Reserve managers are now unwill
46、ing,or unable,to intervene.A significant portion(39%)would deploy less than 5%of reserves in the face of further market volatility.The emphasis appears to be on rebuilding rather than deploying reserves.International reserves dip across most regionsTotal international reserve assets,$tnSource:Intern
47、ational Monetary Fund,World Gold Council,Refinitiv,OMFIF analysis OMFIF.ORG92.Stagflation risk overtakes inflation concernsRESERVE managers have little confidence that their colleagues on monetary policy committees will get inflation under control.Inflation is one of the three biggest near-term econ
48、omic concerns for 85%of respondents broadly unchanged from a year ago.And not a single respondent expects inflation to fall to target in major economies in the next 12-24 months.Its not simply inflation but stagflation thats the key concern this year.Almost 70%count a global economic slowdown among
49、their top three concerns over twice the share from 2022.Those concerns are more acute among emerging market respondents.Moreover,38%expect a global economic recession in the next 12 months.Accordingly,reserve managers are pessimistic about the propescts for a soft landing.Stagflation concerns growin
50、gWhat are the three most important economic challenges affecting your investment approach over the next 12-24 months?Share of respondents,%Source:OMFIF GPI survey 2022-23*Note:Rising policy rates not included as an option in 2022.86856934588555InflationGlobal economic slowdownRising polic
51、y ratesGeopolitical tensionsQuantitative tighteningHigh public debt levelsOther 2022 2023OMFIF GLOBAL PUBLIC INVESTOR 2023/KEY FINDINGS103.Geopolitics becomes a longer-term concernWHEN OMFIF ran the GPI survey last year,shortly after Russias invasion of Ukraine,85%of respondents listed geopolitics a
52、mong their top three concerns affecting reserve management in the next 12-24 months.That share has dropped to 51%this year.But geopolitics is the biggest concern over the medium to long term.Geopolitical tensions were considered the number one factor affecting reserve management in the next five to
53、10 years and 83%listed it in their top three concerns.Several survey participants mentioned US-China tensions and the possible fragmentation of trade and capital flows as sources of concern.These will probably have a major bearing on their dollar and renminbi holdings in the years to come.Geopolitic
54、s the primary longer-term concernWhat are the most important economic factors affecting your investment approach over the five to 10 years?Share of respondents,%Source:OMFIF GPI survey 2023MOST IMPORTANTSECOND-MOST IMPORTANT THIRD-MOST IMPORTANTLow equilibrium interest ratesOtherDemographic trendsTe
55、chnological changeClimate changeInflationGeopolitical tensions3628303104-OMFIF.ORG114.Long road to recover investment lossesIN OUR sample,80%of reserve managers experienced portfolio losses in 2022.And they dont expect them to be recovered quickly.Almost 40%expect it will take
56、one to two years to recoup the losses from 2022,while nearly a quarter think it will take two to five years.This pessimism is linked to the expectation of challenging economic conditions.It is also a reflection of reserve managers more cautious investment approach.Capital preservation is the primary
57、 investment objective for 69%of respondents,up from 61%in 2022.And only 14%are actively looking to take on more risk in the coming months.Most reserve managers are looking to minimise further losses rather than bolster returns.No quick recovery from 2022 investment lossesHow long do you anticipate t
58、hat it will take to recover any portfolio losses from 2022?Share of respondents,%Source:OMFIF GPI survey 2023 0-12 months 17%1-2 years 39%2-5 years 24%5+years 0%No portfolio losses in 2022 20%OMFIF GLOBAL PUBLIC INVESTOR 2023/KEY FINDINGS125.Bonds and gold benefit from risk-off approachTRADITIONAL r
59、eserve assets are seeing renewed demand.A net 32%of respondents plan to increase their allocation to conventional government bonds and 20%to quasi-government bonds in the next two years.Higher yields seem to be drawing reserve managers into fixed income.Its also a reflection of an intended flight to
60、 safer assets,consistent with the finding that gold is the asset with the third-highest net demand.Moreover,appetite for riskier assets is waning.In net terms,less than 7%of respondents now expect to add to equity and corporate bond allocations in the coming years,compared to 20%to 25%of respondents
61、 in 2021 and over 10%in 2022.There is also little demand for alternative assets.Traditional reserve assets most in demandOver the next 12-24 months,do you expect to increase,reduce or maintain your allocation to the following asset classes?Share of respondents,%Source:OMFIF GPI survey 2023-30-20-100
62、10203040Government bonds conventionalQuasi-government bondsGoldGovernment bonds inflation-linkedEquitiesAsset-backed securitiesReal estateCorporate bondsInfrastructureCashOther Increase Decrease Net OMFIF.ORG136.Renminbi rise will evolve graduallyIN THE NEAR term,most reserve managers plan to take a
63、 cautious approach to China.The share of respondents looking to increase renminbi holdings over the next two years more than halved to 13%,from over 30%in 2021 and 2022.The majority cited market transparency and geopolitics as the main barriers to investment.But there is serious demand for the curre
64、ncy further down the road.Close to 40%of central banks plan to increase their holdings of renminbi over the next 10 years higher demand than for any other currency.Respondents stated diversification and Chinas growing role in the global economy as the main motivation to invest in the renminbi.The ri
65、se of the renminbi in reserves is probable,but it will be gradual.Short-term caution,long-term rise in renminbiOver the next 12-24 months,are you planning to increase,reduce or maintain your exposure to the renminbi?Share of respondents,%Over the next 10 years,are you planning to increase,reduce,or
66、maintain your exposure to the renminbi?%Source:OMFIF GPI survey 2021-23 Increase Maintain Decrease Increase Maintain Decrease Do not invest?2021 202220230 204060801000 0708090100OMFIF GLOBAL PUBLIC INVESTOR 2023/KEY FINDINGS147.Dollar will stay dominant but influence to waneA NET 6%of res
67、pondents expect to reduce their dollar holdings over the next 10 years.But this shift will be in line with the slow,decades-long trend of de-dollarisation.On average,respondents anticipate a decrease in the dollars share of total reserves to 54%in the next decade,from just under 60%now.The renminbi
68、will benefit,but will not be the only beneficiary.On average,respondents expect it will reach 6%of global reserves in 10 years time,from just under 3%now.Overall,central banks overwhelmingly predict the dollar to remain dominant and that the renminbi is unlikely to gain significant traction as a res
69、erve asset anytime soon.Slow and steady de-dollarisation and the rise of the renminbi Historical and predicted shares of global reserves,%Source:OMFIF GPI 2023 survey,International Monetary FundNote:Figures for renminbi first available in 2016.Interquartile range based on survey respondents estimate
70、 of share of global reserves in 2033.807060504030201002000 2005 2010 20152020 2025 2030Dollar interquartile rangeRenminbi interquartile rangeDollarDollar medianRenminbiRenminbi median OMFIF.ORG158.Euro is likely to benefit from diversificationTHE EURO is gaining interest among reserve managers.A net
71、 14%of central banks are planning to increase their euro holdings over the next two years,compared to a net zero saying they would do so in 2021 and 2022.No other currency has higher net demand in the near term.It seems that rising interest rates in Europe are making fixed income assets there more a
72、ttractive.Moreover,a net 9%of central banks expect to increase their euro holdings over the next 10 years,suggesting the currency may play a key role in diversification strategies away from the dollar in the medium to long run.Euro most in demand over the next two yearsOver the next 12-24 months,are
73、 you planning to increase,reduce or maintain your exposure to the following currencies?Share of respondents,%Source:OMFIF GPI survey 2023EUR RMBUSDCAD AUDGBPJPYOther Increase Decrease Net 25 20 15 10 5 0 -5 -10-15OMFIF GLOBAL PUBLIC INVESTOR 2023/KEY FINDINGS506070Green bonds Social bonds
74、 Other ESG bonds(e.g.transition,blue)Green/sustainableequities Sustainable ETFs Biodiversity-linkedassetsEuropeAsia PacificMiddle East and North AfricaSub-Saharan AfricaLatin America and Caribbean9.Europe still leading on ESG investingGREEN BONDS are the most held sustainable asset class primarily b
75、y reserve managers in advanced economies and this trend is set to continue.Currently 59%of respondents hold green bonds and,in the next 12-24 months,over 40%plan to increase their allocation compared to less than 30%for other sustainable assets.Future demand for green bonds is present across all maj
76、or regions.That includes the Middle East and North Africa where no respondent currently invests in any sustainable asset class.The strongest appetite is among European central banks and 61%stated they will add to green bond holdings.European respondents also show relatively high demand for other sus
77、tainable assets such as social bonds and other ESG bonds.Europe shows strongest demand for sustainable assetsShare of respondents who expect to increase allocation to sustainable asset classes by region,%.Source:OMFIF GPI survey 2023OMFIF.ORG1710.Recruitment and training a core concernRESERVE manage
78、rs are struggling to find the right people with the necessary skills to perform an increasingly onerous job.The most commonly reported operational challenge is recruitment and training,selected by 58%of survey respondents.Accessing effective analytical tools and access to relevant data or informatio
79、n are the next biggest operating concerns.Many central banks are turning to external managers to address gaps in their internal capacity.Three-quarters(74%)of respondents reported using external managers,with an average of 13%of reserves being managed externally.This share has remained consistent ov
80、er the past several years.Over two-thirds(68%)reported using external managers for knowledge transfer and 50%use them to access complex asset classes which increasingly entails sustainable assets.People and technology top list of operating challengesWhat are your main operating challenges?Share of r
81、espondents,%Source:OMFIF GPI survey 2023Recruitment/training Access to effective analytical tools Access to relevant data/information Organising internal processes Trade execution/order management External communication Other 584933301277OMFIF GLOBAL PUBLIC INVESTOR 2023/MACRO ENVIRONMENT181.Macro e
82、nvironmentStagflation fears loom large1.Reserve managers have little confidence that inflation will come under control.Half of survey respondents listed it as their primary concern in the next two years and none expects inflation to fall within 2%targets in major economies in this time.2.Respondents
83、 selecting a global slowdown among their top three concerns more than doubled to 69%this year,and almost 40%expect a global recession in the next 12 months.3.Geopolitical tensions are a long-term concern.Over one-third identified this as the biggest risk factor over the next five to 10 years,and 83%
84、put it in their top three.4.Central banks are unwilling or,in some cases,unable to significantly draw down their foreign exchange reserves in the face of market volatility.With persistently high inflation,heightened risk of recession and prolonged geopolitical tensions,central bank reserve managers
85、face another challenging yearKey findings OMFIF.ORG19OMFIF GLOBAL PUBLIC INVESTOR 2023/MACRO ENVIRONMENT20WHEN OMFIF conducted the GPI survey a year ago,shortly after Russias invasion of Ukraine and the surge in commodity prices,unsurprisingly inflation was mentioned as the biggest concern for reser
86、ve managers.Over 85%listed inflation in their top three concerns.A year later,although there are signs inflation has peaked,reserve managers are just as worried about price pressures.This year,inflation remains the biggest challenge for reserve managers.Half of survey respondents listed it as their
87、primary macroeconomic concern in the next two years.This is particularly the case for reserve managers in advanced economies.It was noted by 65%as their biggest concern,compared to 43%of respondents in emerging economies.Overall,85%include it in their top three economic concerns more than any other
88、economic factor(Figure 1.1).This suggests that high inflation is not just a lingering issue for monetary policy committees but also reserve management teams at central banks.Related to this,it appears that reserve managers have little confidence that price pressures will abate anytime soon.Not a sin
89、gle survey respondent expects that inflation in major economies will drop within 2%targets over the next two years.Most expect it to hover between 2%to 4%while almost half(48%)think that it will be between 4%and 6%(Figure 1.2).As one respondent in Asia Pacific stated,Given the challenges central ban
90、ks are facing with the trade-off between inflation,growth and potential crises,it will take time for inflation to fall within the acceptable target range.Growing fears of global recessionWhile inflation was the main concern last year,this year it is stagflation.More than two-thirds of respondents(69
91、%)counted economic slowdown among their top three concerns over twice the share in 2022,when it was noted by a third(34%)of respondents(Figure 1.3).These fears disproportionately come from emerging markets.While none of the reserve managers in advanced economies listed global economic slowdown as th
92、eir primary concern,it was chosen by 28%of those in emerging economies.Many reserve managers have expressed doubts over the ability of central banks to engineer a soft landing.As many as 38%expect there to be a global Given the challenges central banks are facing with the trade-off between inflation
93、,growth and potential crises,it will take time for inflation to fall within the acceptable target range.Central bank reserve manager from Asia PacificMOST IMPORTANTSECOND-MOST IMPORTANT THIRD-MOST IMPORTANT1.1.Inflation remains the most pressing challengeWhat are the most important economic challeng
94、es affecting your investment approach over the next 12-24 months?Share of respondents,%Source:OMFIF GPI survey 2023Geopolitical tensionsOtherHigh public debt levelsQuantitative tighteningRising policy ratesGlobal economic slowdownInflation5018247-223114201.2.Inflation to stay well ab
95、ove targetWhat do you expect that the rate of inflation in most major economies will be over the next 12-24 months?Below 0-0-2 -2-4 514-6 48Above 6 1Source:OMFIF GPI survey 2023EXPECTED INFLATION RATE(%)SHARE OF RESPONDENTS(%)38%of survey respondents believe there will be a global economic recession
96、 in the next 12 months OMFIF.ORG21economic recession in the next 12 months.As one respondent explained,We believe that bringing back inflation to the target level in the next 12 months will require a recession.Financial stability concerns,in the context of multiple bank failures in the US and Europe
97、,are adding to recession fears.As one respondent put it,Global economic growth is projected to slow down Whether there will be a recession will depend on adverse impact on economic activity relating to events such as the banking sector crisis.This uncertainty was echoed by a handful of other respond
98、ents.The effects are somewhat circular,as the slowdown in economic activity could also have negative consequences for financial stability.One respondent observed that,Global economic slowdown(also under the scenario of persistent or recurrent inflation)may significantly deteriorate credit conditions
99、 and threaten the stability of the financial system.Financial risks were also voiced as a concern by a handful of reserve managers.The third-most important risk factor is global financial stability,which may directly affect the investment approach and counterparty lists of central banks,said one res
100、pondent.Liquidity scarcity and market volatility even in major markets associated with the shaky banking sector were the primary factors mentioned with regard to financial stability risks.Geopolitics moves from short-term to long-term riskGeopolitics is fading as a near-term concern compared to stag
101、flation.Fewer respondents(51%)listed geopolitics among their top three concerns affecting reserve management in the next two 1.3.Growing fears of a global slowdownWhat are the most important economic challenges affecting your investment approach over the next 12-24 months?Share of respondents,%Sourc
102、e:OMFIF GPI survey 2022-23*Note:Rising policy rates not included in 202286856934588555InflationGlobal economic slowdownRising policy ratesGeopolitical tensionsQuantitative tighteningHigh public debt levelsOther 2022 2023TOP THREE SHORT-TERM CONCERNS:1 Inflation2 Global economic slowdown3
103、Rising policy ratesTOP THREE LONGER-TERM CONCERNS:1 Geopolitical tensions2 Inflation3 Climate changeWe believe that bringing back inflation to the target level in the next 12 months will require a recession.Central bank reserve manager from sub-Saharan AfricaOMFIF GLOBAL PUBLIC INVESTOR 2023/MACRO E
104、NVIRONMENT22years compared to 85%in 2022,when the survey was run shortly after Russias invasion of Ukraine.But it is the biggest factor affecting reserve management over the medium to long term.For more than a third(36%),geopolitical tensions is their number one longer-term factor affecting reserve
105、management and 83%listed it in their top three(Figure 1.4).Competition between the US and China is concerning many reserve managers.One respondent expressed fears that the geopolitical tensions between the US and China and Chinas attempt to de-dollarise the global economy could have a major impact o
106、n asset prices and,therefore,reserve management strategies.In terms of how geopolitical tensions impact reserve management operations,survey comments reveal concern about fragmentation of trade and capital flows.The escalation of geopolitical tensions could have far-reaching consequences with furthe
107、r disruption of supply chains,deterioration of macroeconomic conditions as well as risk-off market sentiment,capital outflows from certain(mainly emerging)markets and increased volatility,noted one respondent.Inflation is also posing a long-term risk for reserve managers:72%report it as a top-three
108、concern over the long term,reinforcing the point that there is little confidence it will be reined in soon.One respondent is particularly wary of a premature shift to monetary easing in this regard:We are of the view that,despite the Fed hiking rates to curb inflation,the rate hikes would at some po
109、int have to be reversed through loose monetary policy and quantitative easing which again results in inflationary pressures.Climate change and low equilibrium interest rates are also important challenges for reserve managers over the long term.Over half(52%)list climate change as a top-three long-te
110、rm risk factor,compared to 42%of respondents who pointed to low equilibrium interest rates.In the face of difficult macro conditions,though,concerns around climate change have taken a back seat relative to other medium-to long-term challenges(see Chapter 4).Reluctance to draw down reservesAgainst th
111、is backdrop of stagflation fears and uncertainty over geopolitics,reserves may come under pressure again this year.Global reserves declined by 6.5%last year,falling to$14.8tn by the end of 2022 from$15.8tn the year before.This was linked to the broad-based sell-off in asset prices,valuation effects
112、weighing on non-dollar holdings and,in some cases,intervention measures to bolster currencies against a strong dollar.18%Central banks reporting a less than adequate level of reserves saw their reserves drop by 18%on average compared to last year.MOST IMPORTANTSECOND-MOST IMPORTANT THIRD-MOST IMPORT
113、ANT1.4.Geopolitics a longer-term concernWhat are the most important economic factors affecting your investment approach over the five to 10 years?Share of respondents,%Source:OMFIF GPI survey 2023Low equilibrium interest ratesOtherDemographic trendsTechnological changeClimate changeInflationGeopolit
114、ical tensions3628303104-The escalation of geopolitical tensions could have far-reaching consequences with further disruption of supply chains,deterioration of macroeconomic conditions as well as risk-off market sentiment,capital outflows from certain markets and increased volat
115、ility.Central bank reserve manager from Europe OMFIF.ORG231.5.Reserve managers wary of drawing down reservesWhat is the maximum share of reserves you would be willing to deploy in the event of further market volatility(e.g.a repeat of 2022 conditions)?Share of respondents,%1.6.Fewer central banks se
116、e effectiveness of drawing down reservesWhich of the following elements of the global financial safety net do you think is the most effective during a period of stress?Share of respondents,%Source:OMFIF GPI survey 2023Source:OMFIF GPI survey 2021-23This pressure on reserves has left some countries i
117、n fragile positions.The majority(80%)of survey respondents reported their level of reserves as adequate.However,10%reported having less than adequate reserves.These institutions,which are all in Asia Pacific or sub-Saharan Africa,saw their reserves drop by an average of 18%compared to last year.As a
118、 result,central banks are unwilling or,in some cases,unable to draw down from their reserves.Of survey respondents,39%stated that they are unwilling to deploy more than 5%of reserves in the face of further market volatility.There was variation,though,with 10%willing to deploy over 30%of their reserv
119、es(Figure 1.5).In any case,its clear that many reserve managers are looking to rebuild their reserves rather than draw them down.This is consistent with the point that 35%of reserve managers now see drawing down foreign exchange reserves as the most effective safety net in times of crisis,down from
120、47%last year.Swap lines are perceived as the most effective element of the global financial safety net,with 37%listing this as their top choice after they became available from the Federal Reserve and European Central Bank following recent financial stability concerns(Figure 1.6).As one survey respo
121、ndent noted,During a period of stress,usually a dollar shortage is the main issue,which the Fed can alleviate with the swap lines.A few reserve managers(13%)reported International Monetary Fund facilities as the most effective element of the global financial safety net during a period of stress.Thes
122、e institutions are primarily located in Latin America and sub-Saharan Africa,two regions which saw the steepest fall in reserves last year,meaning they can no longer rely on further draw down of their own foreign exchange reserves and may need to turn to the IMF for bailouts.0%-5%39%6%-10%17%11%-15%
123、14%16%-20%12%21%-30%8%31%+10%Swap lines from major central banksDraw down foreign exchange reservesInternational Monetary Fund facilitiesRepurchase facilitiesOther 2021 2022 20232921132016114OMFIF GLOBAL PUBLIC INVESTOR 2023/ASSET ALLOCATION242.Asset allocationSearch for safety1.More than
124、 three-quarters(80%)of reserve managers experienced portfolio losses in 2022 and most are cautious about the outlook for financial markets.Almost 40%expect it will take one to two years to recoup their losses,while nearly a quarter think it will take two to five years.2.Demand is strongest for tradi
125、tional reserve assets.A net 32%of reserve managers will increase their allocation to conventional government bonds and 20%to quasi-government bonds in the next two years as they seek higher yields and safer assets.3.A net 14%of respondents will increase their allocation to gold.This is mostly for di
126、versification purposes,while over a third will invest in gold to protect against geopolitical risk.4.Appetite for riskier assets is waning.The share that expects to add to equity or corporate bond allocations has halved to less than 10%this year.And there is little interest in alternative or digital
127、 assets.Reserve managers seek higher yields and safety in government bonds.Gold will be the main asset to provide diversification ahead of risky or alternative assetsKey findings OMFIF.ORG25OMFIF GLOBAL PUBLIC INVESTOR 2023/ASSET ALLOCATION262.1.Preservation over liquidity or returnsWhat is your mos
128、t important investment objective?Share of respondents,%2.2.No quick fix for investment lossesHow long do you anticipate that it will take to recover any portfolio losses from 2022?Share of respondents,%RESERVE managers are relatively conservative,with fixed income and cash products dominating their
129、portfolios.In our sample,on average,respondents invest 40%in government bonds,11%in quasi-government bonds and 16%in cash.In an environment of rising interest rates,the value of these assets was hit hard and 80%of respondents experienced portfolio losses in 2022.The question is how they will respond
130、.In many cases,reserve managers are approaching turbulent macroeconomic and market conditions with increased caution.The vast majority will maintain or reduce risk in their portfolios,while only 14%of respondents will take on more risk in the coming years.One survey respondent from sub-Saharan Afric
131、a noted,The recent turmoil in the banking sector following the collapse of banks in the US and crisis of confidence in Credit Suisse calls for being more conservative in managing reserves.Consistent with this trend towards consolidation,capital preservation was selected as the primary investment obj
132、ective by 69%of respondents,up from 61%in 2022(Figure 2.1).With the search for returns taking a backseat and market conditions remaining choppy,reserve managers arent expecting major investment gains in the near term.Almost 40%expect it will take one to two years to recoup the losses from 2022,while
133、 nearly a quarter think it will take two to five years(Figure 2.2).In line with this,one participant highlighted that,Historically,on average it has taken under two and a half years to recover market losses when severe declines occurred during the worst bear markets.There is some tentative optimism
134、that the worst of the market turmoil is over.A survey participant said,We believe that the financial market is heading to stability.Some suggested that an unwinding of Source:OMFIF GPI survey 2022-23Source:OMFIF GPI survey 2023Note:No respondent selected 5+years.The recent turmoil in the banking sec
135、tor following the collapse of banks in the US and crisis of confidence on Credit Suisse calls for being more conservative in managing reserves.A survey respondent from sub-Saharan Africa 0-12 months 17%1-2 years 39%2-5 years 24%5+years 0%No portfolio losses in 2022 20%Capital preservationEnsuring li
136、quidityTarget returnReference portfolioOther 2022 2023635 OMFIF.ORG272.3.Traditional reserve assets in demandOver the next 12-24 months,do you expect to increase,reduce or maintain your allocation to the following asset classes?Share of respondents,%-30-20-Government bonds conv
137、entionalQuasi-government bondsGoldGovernment bonds inflation-linkedEquitiesAsset-backed securitiesReal estateCorporate bondsInfrastructureCashOtherIncreaseDecreaseNetSource:OMFIF GPI survey 2023central bank policy tightening will prop up fixed income asset prices.Another stated,As the Fed cuts rates
138、 in 2024,we expect mark to market losses on portfolios,which have suffered from duration risk,to start subsiding.That echoes the view of a respondent who observed that unrealised losses are expected to trend downwards as interest rates normalise.The lure of traditional assetsCentral banks cautious a
139、pproach is reflected in their intention to increase holdings of traditional reserve assets.A net 32%of respondents will increase their allocation to conventional government bonds and 20%to quasi-government bonds in the next two years.Net demand for other assets is lower,though the only clear downsca
140、ling will be in cash holdings,with a net decrease expected by 16%of respondents(Figure 2.3).Fears of persistently high inflation are presumably linked to reserve managers desire to move away from cash.Pessimism over the long-term inflation outlook may be linked to reserve managers intention to move
141、away from longer-dated government bonds.A net 7%expect to decrease government bond holdings at maturities over 10 years.In contrast,a net 41%of respondents anticipate adding to holdings at two-to As the Fed cuts rates in 2024,we expect mark to market losses on portfolios,which have suffered from dur
142、ation risk,to start subsiding.OMFIF GLOBAL PUBLIC INVESTOR 2023/ASSET ALLOCATION282.5.Gold provides diversification and protection from geopoliticsWhy do you invest in gold?Share of responses,%five-year maturities(Figure 2.4).The lure of higher yields seems to be drawing reserve managers towards the
143、 shorter end of the curve.One respondent stated,Given the inversion of the US yield curve,the central bank has a preference for investments in short-dated US Treasuries/money market instruments.Preference for shorter-dated bonds is also consistent with some reserve managers expectations that the pea
144、k in policy rates is near and monetary easing may soon be on the cards.Safety firstAs well as the return of higher yields on government bonds,demand for these assets reflects a flight to safety.Its notable that 40%of central banks anticipating a global recession in the next 12 months expect to add t
145、o government bond holdings,compared to 25%of those who are less pessimistic about the global outlook.One respondent mentioned that,The recent banking issues that had been unfolding would lead to a reposition of the portfolio towards less risky assets,with a preference for bonds issued by sovereigns,
146、supranationals and statutory boards.This risk-off sentiment is consistent with reserve managers preference for the highest-rated government bonds.A net 27%of respondents signalled they will add to the AAA-AA rated government bonds,compared to a net zero for lower-rated investment grade and sub-inves
147、tment grade debt.Moreover,there is continued demand for gold as a safe haven.Data from the World Gold Council show that central bank net purchases of the precious metal hit the highest on record in 2022 at 1,136 tonnes.And central banks arent done yet.A net 14%of respondents expect to add to gold ho
148、ldings 2.4.Greater demand for shorter maturity bondsIn the next 12-24 months do you expect to increase,reduce or maintain your allocation to government bonds/bills in these categories?Share of respondents,%-20-500-1 year 2-5 year 6-10 year 10+yearIncreaseDecreaseNetSource:OMFIF GPI survey
149、 202327%A net 27%of respondents signalled they will add to the AAA-AA rated government bonds,compared to a net zero for lower-rated investment grade and sub-investment grade debtSource:OMFIF GPI survey 2023Diversification Protect against geopolitical riskInflation hedge Liquidity Uncertainty over in
150、ternational monetary system Expectation of high relative returnsWe do not invest in gold Other 6335251815-1524 OMFIF.ORG292.6.Waning demand for riskier assetsNet expected increase in allocation towards the following assets over the next 12-24 months.Share of respondents,%Source:OMFIF GPI survey 2021
151、-230%In our survey sample,not a single central bank invests in digital assets and only 4%are even considering it.in the coming years,with the majority coming from emerging markets.This is mostly driven by the need to diversify,but over one-third(35%)mentioned investing in gold to protect against geo
152、political risks(Figure 2.5).Thats more than those who cite investing in gold due to its properties as an inflation hedge(25%).The flipside of the expected flight to safety is that there is waning appetite for riskier asset classes.While anticipated demand for government bonds is much stronger this y
153、ear than was indicated in our 2021 or 2022 surveys,the opposite is true for equities and corporate bonds.On net,less than 7%of respondents now expect to add to equity and corporate bond allocations in the coming years,compared to 20%to 25%of respondents in 2021 and over 10%in 2022(Figure 2.6).One re
154、spondent observed that,A potential US recession or at least slowdown over the 12-24 month period will also require being underweight in equities.Low appetite for new assetsThe vast majority of reserve managers has little desire to diversify towards new or alternative assets.Only 10%of reserve manage
155、rs surveyed invest in real estate and just 2%in infrastructure.Despite their properties as inflation hedges,less than 5%of respondents expect to increase their exposure to real estate and none expects to increase infrastructure allocations in the next 12-24 months(Figure 2.3).Thats in stark contrast
156、 to other public investors.In OMFIFs survey of global public pension and sovereign funds conducted in the second half of 2022,over 40%of respondents expected to increase exposure to these alternative assets.Its a similar story when considering regional allocations.Less than 2.5%of reserve managers a
157、ssets,on average,are based in Africa,the Middle East or Latin America.And yet only a net 8%will increase allocations to Africa and 3%to the Middle East in the next few years,while a net 3%will reduce their allocation to Latin America.Accordingly,exposure to these emerging market regions will remain
158、limited.Finally,almost all reserve managers remain hesitant over digital assets.In our survey sample,not a single central bank invests in digital assets and only 4%are even considering it.One respondent stated:We do not invest in assets that are not tied to a series of measurable cash flows or backe
159、d by a real asset.As a result,many reserve managers have little interest in diversifying towards riskier or new asset classes amid heightened economic and geopolitical risks.In the near future,they would prefer to increase their exposure to government bonds and,to a lesser extent,gold.Government bon
160、ds GoldEquitiesCorporate bonds 2021 2022 20235223223193OMFIF GLOBAL PUBLIC INVESTOR 2023/ASSET ALLOCATION30OMFIF GLOBAL PUBLIC INVESTOR 2023/ASSET ALLOCATION30In conversationEmbracing equities as a hedge to fixed incomeJan Schmidt,executive director,risk management at the Czech National B
161、ank,spoke with OMFIFs Taylor Pearce about the banks diversification strategies,high exposure to equities and his views on the renminbi as an alternative to the euro and dollarTaylor Pearce:The Czech National Banks reserves are highly diversified across 34 portfolios.What was your experience diversif
162、ying your asset allocation over the past several years?Jan Schmidt:There is a large number of portfolios which are dedicated to diversification as we have nine currencies currently.We can diversify the tactical approach to the management of the portfolio and diversify the managers themselves.What in
163、itiates the diversification?In some cases,its a modelled analytical background.That was behind the equity portfolio as a diversifier to fixed income.Sometimes events drive diversification.Both are natural,but one kind of diversification is in our control.Others with external factors are not.For inst
164、ance,we saw credit risk after the 2008 financial crisis which led us to diversify from fixed income into equities.We had several downgrades of very important countries like the US and France.The downgrade of the US led us to diversify into Canadian and Australian dollars and the downgrade of France
165、led us to diversify away from the euro into the Swedish krona.Otherwise,we hired several external managers,which is a kind of diversification.We have four mandates,but the strategies are different.Two portfolios are more active,the other two are purely passive.The same could apply for anything else,
166、even services we also diversify the custodians.Operationally,it is very difficult to manage so many portfolios.There are a lot of new things to do in new markets,new systems,new settlements.But also there is a limit to diversification.For everything above a certain limit,it is basically impossible t
167、o measure the diversification effects nine currencies means that there are plenty of correlations between the bilateral currency pairs,and the same applies for assets.TP:You mentioned that the CNB has significant exposure to equities.What is the reasoning behind that and what was your experience wit
168、h equity exposure?JS:Yes,the equity exposure is relatively large 20%is a large exposure compared to our peers.Originally,the reason was to decrease the risk and keep the performance of the expected return more or less the same.For instance,this 10%equity exposure which we started with delivered the
169、same expected return,while the value at risk would decrease,because of the low or negative correlations.Over time,and taking into account external factors like bond yields dropping to zero or below zero,it increased the importance of equities as a source of returns.Between 2013-17 reserves increased
170、 by almost four times and we started thinking about equities as a source of return at the price of high risk.So,we gradually increased the portion of equities from 10%up to 20%of the reserves.TP:Has the CNBs experience of negative equity changed your strategic allocation to equity?JS:Obviously negat
171、ive equity is an important question internally.Externally,I think that the central bank can run its duties with negative equity or losses.We do everything we can to minimise the losses and,if they are on our balance sheets,to compensate them.The results are always designed to cover the losses from e
172、xpected future returns.Even if we had a positive return every year and were able to pay dividends to our government,we would still diversify into equities because we found that it is a natural hedge to fixed income and government bonds.Thats what I always say:the bonds are to be repaid by the govern
173、ment,so the government OMFIF.ORG31 OMFIF.ORG31needs to be receiving taxes and the taxes usually come from corporates.So,the corporates must survive and deliver profits.This motivates us to own equities rather than government bonds to a small extent.If the laws on negative equity didnt exist,then may
174、be we wouldnt be so aggressive in increasing the portion of equities in our reserves.With positive returns for the central bank,maybe this process would be slower.Maybe the pressure on the performance of our assets would be lower.But I dont feel the pressure is material we create it for ourselves.Of
175、 the losses we make,99%are made in accounting when the reserves are valuated into domestic currency.Because the currency appreciates over time,it leads to negative performance.Regardless of whats happening,the reserves are measured in a foreign currency.TP:Last year,the CNB suffered losses.How have
176、you adjusted your tolerance and are you taking on more risk to plug this gap?JS:Yes,monetary policy has its costs.In our case,the cost is basically the current interest rate of 7%on our liabilities,which is too high for a developed country like Czechia.So,we believe that it will be not long-standing
177、 with us.The other fact is that the assets,which are primarily euros and dollars,will never have such high yields.Thats something we have to consider as an external factor.This is motivation for searching for a higher return.On the other hand,the central bank lives on coupons and dividends.So,as lon
178、g as the yields on bonds are high,the coupons are high and the performance of the reserves in the long run is high.We could either believe that our own yields on our interest rates and liabilities will go lower,or the European Central Bank and Federal Reserve will increase the yields.The solution is
179、 not to increase the equities to 50%.But in the long run,the interest rate differential shouldnt be that high.TP:Around 50%of your foreign exchange reserves are held in the euro,20%to 25%in the dollar and a sizeable amount in renminbi in addition to six others.What were the causes of this diversific
180、ation?Where do you see the dollar versus the renminbi as a reserve currency in the coming years?JS:We have an economy which is very closely linked to western Europe.So thats why the euro is the intervention currency and why we have so many euros,which is the opposite to the global benchmark where th
181、e dollar is dominant.We also have Swedish krona,Canadian dollars and Australian dollars.During our quantitative easing,we were looking for further currency diversification.We started thinking about China,because it is a large economy and the country was running quite well in terms of credits and sta
182、bility.It was also aiming to internationalise the renminbi.So,we agreed to buy or use part of the reserves and diversify into some kind of Asian emerging market.Because other markets are so small,we ended up in China with more than$2bn invested in a Chinese portfolio.The country is big,the market is
183、 big and the International Monetary Fund included renminbi into the special drawing rights basket,which basically proved that it could be a good candidate for a reserve currency.In the future,I dont know.Some of the processes have slowed down a bit.I dont hear that much now about China opening its m
184、arket,which was the case several years ago.Also,while the nominal yields in China were higher over the last decades,today the US nominal yields are higher.And the geopolitical situation is changing.Thats why,when you ask what would be a good candidate for diversification,Im not sure about China toda
185、y.The West would perhaps have to wait until China is clearer about its foreign policy.TP:Are there any other currencies that you think will gain from this diversification away from the dollar?JS:Its always a question of the size of the market compared to the size of the reserves.We saw it in Austral
186、ia,we saw it in Canada those markets are large,but once the reserves are too high,the weight of the portfolio in these currencies couldnt be the same as euros or dollars.There are smaller markets like Sweden,Denmark,Norway I would say those are good candidates.But it will be better to have a basket
187、of these currencies rather than a single exposure.Emerging markets?I dont know.Everyone can remember Brics.And what exists today?China,maybe?The rest is out of question at the moment for reserve managers.Then we have the large economies like Japan and the UK.Japan basically has no interest rate and
188、the interventions are much larger than in any other reserve currency economy.They intervene on fixed income,they intervene on the stock exchange.So Im not sure whether this could be called a free market.And Im not talking about the currency itself,because its driven primarily by the interventions.Th
189、en theres the monetary policy in Japan.So thats why I question Japan,despite the fact that the economy is large enough to qualify for a reserves currency.The UK is fine,but slightly lost its position after Brexit.It will hopefully get it back but there are still some risks.Otherwise,it would be like
190、 Japan:big enough,both market economies,but the stability is in question.When you ask what would be a good candidate for diversification,Im not sure about China today.OMFIF GLOBAL PUBLIC INVESTOR 2023/ASSET ALLOCATION32THE turn of the 21st century brought a fundamental reordering of how economic bat
191、tles are waged.After 9/11,the US Treasury recognised that global dollar dominance gave Washington control over the critical plumbing of global finance.A new breed of financial sanctions emerged which could precisely cut individual targets terrorists,foreign government officials,state institutions,fi
192、rms off from the dollar system.Smart financial sanctions revolutionised economic warfare.American presidents responded to the new tool with enthusiasm,deploying sanctions with increasing frequency over the past two decades.In 2000,just four countries were targeted under a US financial sanctions prog
193、ramme.By 2020,this had risen to 21,meaning roughly one in 10 sovereign states was facing some level of pressure from a financial sanctions programme.In several cases,foreign central banks were targeted.In Libya,Venezuela,Iran and most recently Russia,official money managers found their dollar reserv
194、es frozen as a result of sanctions.These acts have implications for official portfolio decisions.In Bucking the Buck:US Financial Sanctions and the International Backlash Against the Dollar,I argue that Washingtons growing use of the dollar as a tool of economic coercion has generated political risk
195、 in the international currency system.Political risk,in this context,is the potential for a political act to raise the expected cost OpinionGeoeconomics will loom large in reserve manager decisionsWhile increased use of financial sanctions has generated political risk in the international currency s
196、ystem,it does not jeopardise dollar supremacy,argues Daniel McDowell,associate professor of political science,Maxwell School of Citizenship and Public Affairs,Syracuse University.Golds rising appeal has much to do with its emergent role as a hedge against sanctions risk.of using the dollar as a stor
197、e of value or medium of exchange.The USs penchant for financial sanctions does not jeopardise dollar supremacy.The currency retains undeniable economic and political advantages over all rivals.US Treasury bonds will remain the fundamental component of most central bank portfolios for the foreseeable
198、 future.However,monetary authorities in states with adversarial relations with the US are exploring ways to hedge against the risk of asset freezes.That will intensify in the near term in the wake of the most recent sanctions against the Central Bank of Russia.Monetary gold is a key beneficiary in t
199、he current environment.After two decades of declining popularity as a reserve asset in the 1990s and 2000s,gold has experienced a revival since 2010.Some of this relates to economic considerations.The metal is a popular hedge against dollar weakness.However,golds rising appeal has much to do with it
200、s emergent role as a hedge against sanctions risk.Bullion held in a national vault cannot be seized by Washington short of a military invasion.Central banks in states that are targets of US sanctions as well as those that are at higher risk of facing sanctions purchased more gold on an annual basis
201、between 2008-20 compared to unsanctioned states.Notably,central bank demand for gold in 2022 following severe sanctions targeting Russia for its invasion of Ukraine was the highest on record,with China as a major buyer.Yet,there are limits to how much gold central banks will want to hold.Targeted an
202、d at-risk states are likely to make additional efforts to sanction-proof their portfolios.Shifting the geographic distribution of reserve assets,including dollar reserves,out of the US is one such tactic.Russia did this in 2018 following a major tranche of US financial sanctions,cutting its share of
203、 reserves custodied at US institutions to about 5%that year,down from around 30%.Brad Setser,senior fellow at the Council on Foreign Relations,has pointed out that China has most likely moved some of its US Treasury holdings to places like Belgium in an effort to escape US legal jurisdiction and imp
204、rove resilience to future sanctions.Finally,among sanctioned and at-risk countries,there may be some marginal movement of official foreign exchange reserves into the renminbi.Beijings willingness to deepen its economic relationship with Russia signals to other states that the worlds second-largest e
205、conomy can serve as an economic and financial lifeline to blacklisted economies.Though renminbi reserves are of limited usefulness,lacking full convertibility,they can be freely used in current account transactions with China.As the shadow of geoeconomics looms ever larger over the world economy,exp
206、ect political considerations to shape reserve manager decisions in new and meaningful ways even as the dollars fundamental position atop the global currency hierarchy remains stable.OMFIF.ORG33 OMFIF.ORG33Sponsors commentInvestors need to consider the implications of the green transition on portfoli
207、os and long-term growth,writes Monica Defend,head of Amundi Institute,Amundi.THERE IS global consensus on the need to combat climate change,but uncoordinated government responses to energy price spikes highlight challenges in transitioning to a greener economy.Investors must integrate climate change
208、 considerations into asset allocation by assessing risks and returns of various asset classes.In the near term,the energy transition may cause inflation due to higher carbon and commodity prices,but these pressures are not expected to persist.In the medium to long-term,shifting away from fossil fuel
209、s,technological changes and initially lower productivity could dampen domestic demand and result in subdued economic growth.Central banks are likely to be cautious about reducing their balance sheets but may use short-term interest rates aggressively to counteract inflationary swings.Emerging and fr
210、ontier economies will be most affected by new legislation aimed at decarbonising energy supply.Developed economies can cope by diversifying their exports.Investment plans should accompany the phasing-out of fossil fuels in countries and sectors with a strong legacy.Investors should consider the impl
211、ications of a shift towards a net-zero world driven by new policies,technology and changing consumer preferences.Equity returns are expected to be lower over the next decade compared to the previous one in the era of urgent yet less coordinated transition.Government bond yields are approaching their
212、 long-term trend,reviving the role of bonds as a portfolio risk diversifier.However,higher volatility is anticipated due to greater uncertainty and a weaker economic outlook.Investment-grade credit is likely to benefit from higher government bond valuations.Emerging market bonds may face challenges
213、due to potentially higher default rates.Real and alternative assets,as well as commodities,will play a crucial role in building inflation-resilient portfolios.Central banks actively integrate climate considerations into their objectives,operations,balance sheets and asset allocation.The Network for
214、Greening the Financial System exemplifies their commitment to sharing best practices and managing climate and environment-related risks.Initiatives and regulatory evolutions aim to mitigate climate-related risks affecting the economy,central bank balance sheets and financial system stability.In term
215、s of reserve management,most central banks have shorter liabilities compared to other investors.While the impact of the climate transition on asset class expected returns will become significant in the coming years,for now,this trend particularly affects institutions with medium-to long-term investm
216、ents.Surveys indicate that most central banks are already active in environmental,social and governance investing,implementing various strategies from negative screening to impact investing.Central banks are expected to play a proactive role in the future climate transition,aiming to combat inflatio
217、n while supporting the transition.Rising carbon prices could trigger inflation episodes,and central banks will need to incorporate climate issues into stress tests,collateral policies and balance sheets to support green investments.Short-term interest rate management will continue to be a key tool i
218、n combatting inflationary swings.Central banks could stay dovish on balance sheets but hawkish on short-term rates.These developments will have multiple investment implications.First,yield curves should be flatter over the long run,assuming policy-makers adjust interest rates to control inflation in
219、 the short term while trying to keep long-term rates at historically low levels.Second,sectors closely linked to the green transition will benefit from central bank support and policies aimed at achieving net-zero objectives,creating a green dividend,particularly on the investment and credit fronts
220、and in terms of yields adjusted for default risk.The green bond market has already experienced impacts from these policies,with a slightly negative green bond premium overall,which is expected to diminish further.Factoring in climate changeSectors closely linked to the green transition will benefit
221、from central bank support and policies aimed at achieving net-zero objectives,creating a green dividend,particularly on the investment and credit fronts and in terms of yields adjusted for default risk.OMFIF GLOBAL PUBLIC INVESTOR 2023/CURRENCY COMPOSITION 343.Currency compositionUS dollar dominance
222、:a slow,steady declineDiversification efforts towards the euro and renminbi will reduce the dollars global share of reserves,even as it remains the dominant reserve currencyKey findings1.The dollar is the only currency in which survey respondents plan to reduce their holdings over the next 10 years.
223、Yet most expect the dollars share of global reserves to remain above 50%.2.Respondents are more cautious of Chinese investment.The share looking to increase renminbi holdings in the next two years more than halved to 13%this year,from over 30%in 2022.Market transparency and geopolitics are cited as
224、the main deterrents.3.Almost 40%of central banks still expect to add to their renminbi holdings in the next 10 years,though the shift will be small.Most expect the currencys share in global reserves will only increase to around 6%by 2033.4.The euro is likely to benefit from reserve managers diversif
225、ication plans.The anticipated shift towards the euro is higher than any other currency over the next two years,and 17%expect to add to euro allocations over a 10-year period.OMFIF.ORG35OMFIF GLOBAL PUBLIC INVESTOR 2023/CURRENCY COMPOSITION 363.1.Dollar continues to dominate reservesWhat percentage o
226、f your total portfolio is invested in the following currencies?Share of respondents,%THE dollar is clearly the dominant reserve currency.On average,among the 75 central banks surveyed,the dollar makes up 59%of reserves,up from 56%in 2021 and 57%in 2022.This is likely to be a result of the flight tow
227、ards safety following of Russias war in Ukraine and the global inflation scare.Valuation effects from the broad-based strengthening of the dollar in 2022 plays a role too.The share of euro holdings in reserves has edged down to 23%,from 27%,while the share has been broadly steady at under 3%for othe
228、r currencies including the Chinese renminbi(Figure 3.1).Accordingly,the picture from reserve management data collected by OMFIF over the last few years does not point to a trend of de-dollarisation.The dominance of the dollar is underscored by its status as the main reserve currency across almost al
229、l regions.The dollar makes up 93%of reserves in Latin America and over 60%in both sub-Saharan Africa and Asia Pacific.The main exception is in Europe where 48%of reserve assets are in euros driven by non-euro area central banks.Even so,the dollar comprises of 37%of reserves held by European central
230、banks.Meanwhile,the renminbi has yet to gain substantial traction in any region its share in reserves is highest in sub-Saharan Africa at merely 5%(Figure 3.2).Source:OMFIF GPI survey 2021-23 Source:OMFIF GPI 2023 survey6%A net 6%of central bank reserve managers plan to decrease dollar holdings over
231、 the next 10 years3.2.Dollar reigns across most regions What percentage of your total portfolio is invested in the following currencies?Share of respondents,%USD EUR RMBGBP AUD JPYCAD CHFOther 2021 2022 2023706050403020100?00708090100Latin AmericaAfricaAsia PacificMiddle East&North Africa
232、Europe USD EUR GBP JPY RMB OtherOMFIF.ORG37In the near term,there is waning appetite to add to dollar holdings.Last year,over 20%of reserves managers expected to increase their exposure to the dollar in the next 12-24 months,likely due to a flight to safety spurred in part by Russias war on Ukraine.
233、While reserve managers asset allocation intentions signal a further flight to safety this year,16%now plan to increase USD holdings in the next one to two years,while as many as 10%expect to reduce allocation to the dollar in this time.Longer-term central bank expectations clearly signal plans to di
234、versify away from the dollar.A net 6%of central bank reserve managers plan to decrease dollar holdings over the next 10 years.Such movement away from the dollar is particularly pronounced among Latin American and European central banks,where 25%and 14%of respondents respectively indicate a shift awa
235、y from the dollar.There are no regions in which central banks signalled net planned movement towards the dollar over the next 10 years,suggesting the currencys dominance is likely to wane across the world.That said,reserves managers anticipate that the shift away from the dollar will be gradual and
236、in line with the slow,decades-long trend of de-dollarisation.Data from the International Monetary Fund show the dollar has fallen from a share of around 60%of global reserves in 2023 from over 70%in 2000.Looking ahead,while no survey respondents expect this share to increase,on average they anticipa
237、te only a slight decrease in the dollars share of global reserves to 54%of the total over the next 10 years.On average,Latin American and Asia Pacific expect a slightly steeper decline to around 50%in this time.Diversification away from the currency will probably remain a consistent and slow-moving
238、phenomenon.As one European central bank commented,De-dollarisation is already visible,but the process takes time and the dollar will remain the dominant reserve currency for the time being.The rise of the renminbi Which currencies will benefit from diversification strategies?The renminbi is one obvi
239、ous candidate given the growth of Chinese economic power and the swiftness with which Chinese financial markets have developed.However,reserve managers expect that the shift towards the renminbi will be gradual.In the near term,there is much more caution on Chinese investment.Over last three years,t
240、he growth of the renminbi seems to have been partly stymied by concerns over deglobalisation and geopolitical conflict,which may have been brought into sharper focus from the Russia-Ukraine war.The impacts of such dynamics can partly explain the slowed growth in renminbi holdings the share of respon
241、dents looking to increase holdings over the next two years more than halved to 13%,from 3.3.Near-term dollar demand continues to hold up Over the next 12-24 months,are you planning to increase,reduce or maintain your exposure to the dollar?Share of respondents,%De-dollarisation is already visible,bu
242、t the process takes time and the dollar will remain the dominant reserve currency for the time being.A central bank from Europe?Source:OMFIF GPI 2021-23 surveyOMFIF GLOBAL PUBLIC INVESTOR 2023/CURRENCY COMPOSITION 38over 30%in 2021 and 2022(Figure 3.4).For the first time,some respondents-albeit just
243、 3%-anticipate a decline in their renminbi reserves.Reserve managers cite market transparency as the biggest barrier to investment in China,noted by 75%of respondents.This factor was shortly followed by geopolitics(63%)and regulatory environment(59%).Yet these factors do not appear to be deterring m
244、any reserve managers from shifting towards the renminbi over the longer term.Close to 40%of central banks plan to increase their holdings of renminbi over the next 10-years higher demand than for any other currency(Figure 3.5).Such planned movement is particularly pronounced in regions with high exp
245、osure to Chinas economyover 60%of Asia Pacific and Sub-Saharan African central banks plan to increase renminbi holdings,compared with a quarter of European central banks.The key reasons for increased investment in Chinese assets by central banks are diversification(71%of respondents)and Chinas growi
246、ng importance within the global economy(57%).This is reflected in reserve managers comments in this years survey,including perceptions that China will liberalise its financial markets.One European central bank commented that,We believe that renminbis role as a reserve currency will increase over the
247、 next 10 years as it continues liberalising its capital account.Another central bank remarked that,due to recent and current geopolitical tensions we believe the dollar will continue to lose its share in global reserves and simultaneously with Chinas gradually increasing financial and political role
248、 and geographic location,renminbi will gain.As with the trend of de-dollarisation,the rise of the renminbi is expected to be gradual.The renminbis share of global reserves has grown from just over 1%in 2016 to a little over 2%in 2023 3.4.Short-term caution on renminbi holdingsOver the next 12-24 mon
249、ths,are you planning to increase,reduce or maintain your exposure to the renminbi?Share of respondents,%3.5.Renminbi key to long-term diversification Over the next 10 years,do you anticipate increasing,reducing or maintaining your exposure to the following currencies?Share of respondents,%Reserve ma
250、nagers cite market transparency as the dominant barrier to investment in China,noted by 75%of respondents.This factor was shortly followed by geopolitics(63%)and regulatory environment(59%)Source:OMFIF GPI 2021-23 surveySource:OMFIF GPI 2023 surveyRMBEURUSDCADGBPAUDJPYCHF Increase Maintain Decrease
251、Do not invest00708090100?Over last three years,the growth of the renminbi seems to have been at least partly stymied by concerns over deglobalisation and geopolitical conflict OMFIF.ORG39Dollar dominance is here to stayIts role may decline slightly,but there is no alternative for the fore
252、seeable future,writes Mark Sobel,US chair,OMFIF.THE dollar will remain the worlds dominant currency for the foreseeable future,but that doesnt mean its role might not decline gradually.A range of measures dollar in international claims,liabilities,securities and foreign exchange reserves all suggest
253、 the dollar accounts for 60%of global finance.Regarding foreign exchange reserves,the dollars roughly 60%share is the same as in the mid-1990s.The euro makes up around 20%,while sterling and yen are 5%each and the renminbi is under 3%.The Australian and Canadian dollars have small shares.Gold purcha
254、ses have risen.Some commentators suggest the international monetary system is heading towards multipolarity,away from dollar dominance.But the meaning of multipolar isnt clear.If the dollar accounted for 49%and the renminbi and euro 20%each,would the system be multipolar or would the dollar still be
255、 dominant?Maybe both are true.Dollar dominance reflects the size of the US economy,the depth,liquidity and openness of its capital markets,convertibility and decent property protections.US macro policy,hardly stellar,is often less ugly than others.US banks dominate globally and worldwide financial n
256、etworks use them.Inertia reigns if it aint broke,why fix it?The euro area has many of these properties but the euros role hasnt grown because there is a limited market for euro assets,as distinct from bunds or French Treasury bonds.The Next Generation EU fund is a beginning,but its likely to remain
257、largely a one-off,especially given German attitudes.Capital markets union is at best a work in progress.China has capital controls and is more control orientated than in past years.The renminbi isnt convertible.At best,China will only hesitantly liberalise,fearing rapid opening would launch a wave o
258、f capital outflow.China seeks to build its cross-border interbank payments system,but that system remains extremely small in global comparisons.There isnt a deep foreign exchange market for renminbi and other bilateral currency pairs,save the dollar.Nor is it clear whether an investor would still us
259、e renminbi as a store of value if they received it in settlement.Oil priced other than in dollars has been bandied about for decades,but the Saudi riyal is still pegged to the dollar.A digital renminbi wont change the picture.Its main rationale is to take back the payments system from Alipay and Ten
260、cent.Nor would it make China The meaning of multipolar isnt clear.If the dollar accounted for 49%and the renminbi and euro 20%each,would the system be multipolar or would the dollar still be dominant?Maybe both are true.an open system.The renminbis global role is likely to rise in coming years,espec
261、ially on the back of increased China-Russia trade to circumvent sanctions,but not significantly.Western steps to block Russian central bank and oligarch assets have surely caught the attention of Chinese and Middle Eastern officials and funds.It will make them reflect,instill caution and could dimin
262、ish willingness to hold dollars and euros.Still,US and European capital markets are too big to avoid.To the extent the US(and allies)avoids overuse of sanctions,deploys them multilaterally rather than unilaterally and steers clear of secondary sanctions,the use of sanctions will be less concerning t
263、o the rest of the world.The dollars dominant systemic role is a net benefit to the US,but hardly an exorbitant privilege.Lower interest costs,seignorage and US agents being shielded from foreign exchange risks are pluses.But that dominance is associated with persistent trade deficits,currency overva
264、luation and some adverse impacts on US jobs and growth.If the US abuses financial sanctions,closes itself off,runs bad macro policies and undermines trust in America,the US will shoot itself in the foot.The dollars role a messenger of US failings in this scenario could decline at an accelerated pace
265、.In contrast,if the US runs sound policies and others open up,boosts domestic demand and pursues responsible policies,dollar dominance would most likely gradually decline,but the global and US economies might benefit.OpinionOMFIF GLOBAL PUBLIC INVESTOR 2023/CURRENCY COMPOSITION 40(Figure 3.6).Almost
266、 all surveyed central banks expected this share to grow over the next 10 years.On average,they anticipate it will grow to around 6%of global reserves in this time,which is broadly in line with the historical trend.The highest estimate is still 12%of all foreign currency holdings,suggesting no centra
267、l bank expects the renminbi to gain significant traction as a reserve asset anytime soon.The euro may benefit from diversificationGiven the political and market transparency limitations central bankers cite to Chinese financial assets,other currencies may be more attractive.In particular,the euro ap
268、pears to be gaining renewed interest among reserve managers.Despite limited movement over the last three years,a net 14%of central banks are planning to increase their euro holdings over the next two years(Figure 3.7).Thats higher net demand than for any other currency in this period,and it marks a
269、substantive increase from the zero net planned movement over signalled in our 2021 and 2022 surveys.Part of this growth may stem from rising real interest rates in Europe,which has helped make European bonds more attractive.As one sub-Saharan African central bank commented,with the reversal of the m
270、onetary policy of the ECB and positive returns in the euro,many central banks are increasing their share of reserves to the euro.Some of this movement towards the euro may represent reduced pessimism on the economic outlook,as the euro area seemed to avert recession and stabilise much of its economy
271、 despite the war in Ukraine.A shift towards the euro among central banks appears likely over the longer term.A net 9%of central banks will increase their euro holdings over 3.6.Slow and steady de-dollarisation and the rise of the renminbi Historical and predicted shares of global reserves,%3.7.Euro
272、most in demand over the next two yearsOver the next 12-24 months,are you planning to increase,reduce or maintain your exposure to the following currencies?Share of respondents,%the next 10 years.This suggests its not just near-term economic factors which are drawing many reserve managers towards the
273、 currency.Rather,these survey results suggest that the euro may play a key role in future currency diversification strategies away from the dollar in the medium to long run.Source:OMFIF GPI 2023 survey,International Monetary Fund.Note:Figures for renminbi first available in 2016.Interquartile range
274、based on survey respondents estimate of share of global reserves in 2033Source:OMFIF GPI 2023 surveyEUR RMBUSD CAD AUD GBP JPYOther Increase Decrease Net 25 20 15 10 5 0 -5-10-030201002000 2005 2010 20152020 2025 2030Dollar interquartile rangeRenminbi Interquartile rangeDollarDollar media
275、nRenminbiRenminbi median OMFIF.ORG41DESPITE near-constant predictions of its looming and imminent demise,the dollar remains king for many reasons.These include the size of the US economy,historical inertia and the deeply embedded hierarchical network structure of the international monetary system.Th
276、e US has its share of economic and political problems,and other currencies such as the Chinese renminbi are beginning to play a larger role in global finance.Yet dollar hegemony rests on far deeper and more durable foundations than the sceptics realise.Chief among these are the unparalleled deep,liq
277、uid private financial markets of the US,and its willingness to act as the lender of last resort in global financial crises.Beyond its structural advantages,the dollar remains dominant because none of the supposed competitors are remotely close to meeting the criteria necessary to replace it.Despite
278、Americas problems that have raised uncertainty about US political and economic hegemony the increasing extremism of the Republican party and President Donald Trump threatening to withdraw from Nato the dollar remains unchallenged as the centerpiece of the international monetary system.To see why thi
279、s is the case,one need only look at the possible alternatives.First,the euro the number two international currency by a wide margin is a currency without a government.The European Union is the worlds largest OpinionWhy the contenders are(still)pretendersDespite the US political problems,the dollar w
280、ill remain dominant because there is simply no other alternative for now,writes Mark Copelovitch,professor of political science and public affairs,University of Wisconsin Madison.Until the euro area and its member states finally resolve the festering structural problems within the monetary union,the
281、 euro will remain a distant second to the dollar at the global level.economy,but the euro area is neither a fiscal nor a political union,and this makes it difficult to persuade others that they can really rely on the euro in hard times.The euro was set up to minimise its role as a safe haven during
282、crises.The euro areas no bailout clause guarantees limited transfers from surplus to deficit countries with the monetary union during times of stress.This serves the internal political purposes of the euro areas most powerful countries(most of all Germany),but it does not serve the external purpose
283、of making the euro a viable option as the dominant global reserve currency.Until the euro area and its member states finally resolve the festering structural problems within the monetary union,the euro will remain a distant second to the dollar at the global level.Second,the renminbi is not even clo
284、se to rivalling the euro or Japanese yen,let alone challenging the dollars monetary hegemony.China lacks deep and liquid private financial markets,does not allow free flows of capital and President Xi Jinpings government has shown no sign that it will accept the political economy trade-offs necessar
285、y for the renminbi to lead in the international monetary system.Moreover,as an authoritarian regime,China lacks the credibility and transparency to play the role of the international lender of last resort.The day may come when the renminbi challenges dollar hegemony,or at least becomes a major playe
286、r as one of the big three global reserve currencies.But that remains many years,if not decades,away.Finally,despite the evangelism of their aficionados,cryptocurrencies such as bitcoin simply cannot fill the role played by the government-based reserve currencies that dominate global finance.Cryptocu
287、rrencies perform none of the three functions of money(medium of exchange,unit of account,store of value)domestically,let alone at the international level.Instead,they are merely speculative assets,without the political backing or foundations they would need to become reserve currencies,especially du
288、ring episodes of financial instability.The world economy cannot function with a monetary standard that is not backed by sovereign political power,and which cannot be rapidly increased in supply to provide global liquidity in times of financial crises.Until and unless the EU becomes a true fiscal and
289、 political union or until China becomes an accountable liberal government,develops its private financial markets and finally accepts the free movement of capital flows the dollar will remain dominant in global finance.The international monetary system,for better or worse,will continue to be backed b
290、y American dollars for years to come.OMFIF GLOBAL PUBLIC INVESTOR 2023/ESG421.Reserve managers are implementing a more diverse set of ESG criteria than last year.Actions are concentrated in advanced economies,with more than 80%implementing ESG measures compared to half of emerging market central ban
291、ks.2.Green bonds will continue to dominate ESG portfolios with 40%of respondents set to increase allocations to the asset in the next two years.3.Insufficient data is the main barrier to ESG implementation,reported by over 70%of respondents.Reserve managers are implementing a more diverse range of e
292、nvironmental,social and governance criteria and will invest more in sustainable assets,with progress primarily driven by advanced economies4.ESGSlow progressKey findings OMFIF.ORG43OMFIF GLOBAL PUBLIC INVESTOR 2023/ESG444.1.More reserve managers implementing ESGIn which of the following ways do you
293、implement ESG criteria?Share of respondents,%CENTRAL bank reserve managers are implementing a broader range of ESG criteria than ever before.Globally,investing in sustainable financial assets remains the most popular approach,increasing to 57%of respondents from 49%in 2022.There has also been a nota
294、ble increase in the adoption of other criteria such as negative screening,internal integration and impact investing(Figure 4.1).This shift indicates a growing recognition of the importance of ESG when making investment decisions.ESG implementation is highest among central banks in advanced economies
295、.In our survey sample,80%of advanced economy central banks implement some form of ESG criteria,compared to half in emerging markets.The discrepancy between advanced and emerging market economies also aligns with the divergent concerns regarding climate change in investment approaches.When asked abou
296、t economic factors that will impact investment approaches in the long run,52%of central banks in our survey classify climate change as one of their top three factors(see Chapter 1).Advanced economies have shown a higher level of concern regarding climate change,with 73%of respondents in these econom
297、ies ranking it among their top three priorities.In contrast,only 43%of respondents from emerging market economies regarded climate change as a top-three concern.Our survey results show that reserve managers who consider climate change to be a key concern are more likely to implement ESG criteria and
298、 invest in sustainable assets.Broader sustainable asset holdingsCentral banks have diversified their investment portfolios,as indicated by the increased allocations to social bonds,sustainable equities and sustainable Source:OMFIF GPI survey 2021-23Investment in sustainable financial assetsNegative
299、screening/exclusions for investmentsInternal ESG integrationImpact/thematic investingPositive screening/best-in-class strategies for investmentsActive ownership/corporate engagementOther 2021 2022 2023007043%of respondents in emerging market economies include climate change in their top t
300、hree priorities73%of respondents in advanced economies include climate change in their top three priorities OMFIF.ORG45Source:OMFIF GPI survey 20234.3.Emerging markets lag in allocations to sustainable financial assetsShare of respondents that invest in sustainable financial assets,%exchange-traded
301、funds(Figure 4.2).Green bonds remain the most popular choice for central banks,despite a slight decrease in the share of respondents investing in them,to 59%from 64%in 2022.This mainly reflects differences in survey samples,rather than reserve managers divesting from green bonds.Social bonds rank as
302、 the second-most common option with 38%of respondents investing in this asset class,up from 28%in 2022.Although there has been an overall increase in investment,more than one-third(38%)of central banks do not invest in sustainable assets.It is notable that less than half of reserve managers in emerg
303、ing economies invest in sustainable assets,compared to 91%of those in advanced economies(Figure 4.3).This may be due to the high barriers to accessing ESG assets,particularly on the data front,as well as the resource constraints facing some central banks.Looking ahead,green bonds are expected to rem
304、ain the most common sustainable asset class,with 42%of respondents planning to increase their allocation in the next 12-24 months.There is an intention to increase allocations to other asset classes as well,with only one central bank indicating a decrease in allocation to social bonds during the sam
305、e period.Within advanced economies,European central banks are leading the investment in sustainable asset classes.This trend is expected to continue as 61%of reserve managers in Europe said they intend to increase investment in green bonds.Central banks in Europe also comprise the highest share of r
306、espondents planning to increase their investment in other sustainable asset classes(Figure 4.4).Some central banks in the region,such as the National Bank of Belgium,have integrated sustainability as an explicit part of their reserve management strategy Looking ahead,green bonds are expected to rema
307、in the most common sustainable asset class,with 42%of respondents planning to increase their allocation in the next 12-24 months.Advanced economiesEmerging market economies Other ESG bondsSustainable ETFsGreen/sustainable equitiesSocial bondsGreen bondsInvest in sustainable financial assets919150272
308、7234233948464.2.Central banks investing in more diverse sustainable financial assetsWhich sustainable assets do you invest in?Share of respondents,%Source:OMFIF GPI survey 2021-23Note:Biodiversity-linked assets included as a new option in 2023.Green bondsSocial bondsOther ESG bondsGreen/sustainable
309、equitiesSustainable exchange-traded fundsBiodiversity-linked assetsOther 2021 2022 202367014156OMFIF GLOBAL PUBLIC INVESTOR 2023/ESG464.5.Data is still the key barrier for ESG adoptionWhat are the main barriers to ESG adoption/further integration in your portfolio?Share of resp
310、ondents,%0 10 20 30 40 50 60 70 80OtherHigher costLegal/regulatory restrictionsLack of suitable projects/investmentsExpectation of lower returnsMore complex than traditional assetsDoes not fit with fund investment strategyInsufficient data or informationSource:OMFIF GPI survey 2021-23 Note:Expectati
311、on of lower returns was included as a new option in 2023.0070Green bonds Social bonds Other ESG bonds(e.g.transition,blue)Green/sustainableequities Sustainable ETFs Biodiversity-linkedassetsEuropeAsia PacificMiddle East and North AfricaSub-Saharan AfricaLatin America and CaribbeanSource:O
312、MFIF GPI survey 20234.4.Demand for ESG assets highest in EuropeShare of respondents expecting to increase allocation to the following assets in the next 12-24 months,%(see page 47 for more details).However,ESG concerns are still not a priority for many monetary authorities.Another European reserve m
313、anager said that activities targeted at sustainable development lay within governments responsibilities and go beyond the standard mandate of the central bank.Central banks in other regions intend to increase allocations to sustainable assets,but to a lesser extent and for fewer asset classes.Reserv
314、e managers in all regions responded with the intention to increase allocation to green bonds.This is especially encouraging in the case of the Middle East and North Africa as none of the banks in the region that responded to the survey currently invest in any sustainable classes.For the trend toward
315、s sustainable investing to continue,it will be necessary for central banks particularly those in emerging markets to address the barriers they face when investing in sustainable financial assets.Data challenges persistWhile the implementation of ESG criteria is increasing across categories,insuffici
316、ent data remains a significant barrier to ESG adoption.According to the survey,72%of respondents identified insufficient data as the biggest hurdle to ESG investment,2021 2022 2023 OMFIF.ORG47THE benefit of integrating sustainable and responsible investment principles into reserve management is twof
317、old:we can support the transition to a sustainable and inclusive net-zero economy,while helping to address the impact of environmental,social and governance-related risks on our own investments.Investing in thematic assets and disclosing climate-related risks are two examples of how to do so.SRI pri
318、nciples are increasingly guiding the National Bank of Belgiums activities.For its non-monetary policy portfolios,the bank recognises sustainability as a fourth objective of its strategic asset allocation policy,alongside liquidity,safety and return.In line with its journey so far,in early 2023,the b
319、ank took two important steps to support the transition to a sustainable and inclusive net-zero economy by publishing its Sustainable and Responsible Investment Charter and first climate-related disclosures.The charter lays out a high-level framework for the inclusion of SRI in the management of the
320、banks reserves.It is based on a double materiality perspective,meaning it is concerned with both how sustainability issues affect companies in which the bank invests and the impact of these companies on society and the environment.The charter incorporates international insights and experience,such a
321、s guidance by the Network for Greening the Financial System and global standards for green or social OpinionCommitting to sustainable and responsible investingThrough the integration of sustainable and responsible investment principles,central banks can support the green transition while addressing
322、sustainability-related risks,writes Michiel De Smet,sustainable investment expert,National Bank of Belgium.bonds.The SRI Charter consists of five pillars,which will guide the gradual integration of sustainability into the banks reserve management(see below).While all five pillars play a role in a co
323、mprehensive SRI strategy,ranging from climate-related targets to human rights-based exclusions,I will focus here on two of them:financing and disclosing.In 2021,the bank created a dollar-denominated portfolio which is invested solely in thematic bonds.To ensure that the proceeds from issuing these b
324、onds are allocated to further the transition,the bank selects securities aligned with international standards and guidelines(such as those provided by the International Capital Market Association and the Climate Bonds Initiative),as verified by a second party.Purchasing these types of securities als
325、o supports the United Nations sustainable development goals,which is often laid out explicitly in the bond framework.At the end of 2022,the bank had around 10%of its aggregate portfolio invested in thematic assets(amounting to around 2bn),and it aims to continue growing this share.In the future,othe
326、r relevant frameworks,such as the European Union taxonomy,can be considered.Adequate disclosure is equally important when it comes to furthering the transition to a net-zero economy.As is the case with financial information,transparency on sustainability-related risks helps investors and other stake
327、holders take informed decisions.Sustainability disclosure initiatives,such as the EU Corporate Sustainability Reporting Directive and the International Sustainability Standards Board,are increasingly driving voluntary and mandatory transparency.In 2023,the NBB published its first annual disclosures
328、on climate-related risks to inform the public of the impact of such risks on its own portfolio management.The report provides information on the greenhouse gas emissions related to the banks non-monetary policy portfolios.The disclosures are coordinated within the Eurosystem,with the methodology bas
329、ed on the recommendations of the Task Force on Climate-related Financial Disclosures.The SRI Charter reflects the banks commitment to the transition to a sustainable and inclusive net-zero economy but should be read in context.Successful implementation of the objectives will depend on the global eco
330、nomys transition progress.For example,achievement of the banks net-zero target will depend on whether and to what extent governments are able to meet the targets defined in the 2015 Paris agreement,as the bulk of the banks portfolio is currently invested in sovereign bonds due to the nature of centr
331、al banking activities.With that in mind,the NBB remains committed to the integration of SRI principles.The five pillars of the banks SRI CharterOpinionOMFIF GLOBAL PUBLIC INVESTOR 2023/ESG48marking an increase from 63%the previous year.Insufficient data is a prevalent challenge for both advanced and
332、 emerging economies,and is an obstacle across all asset classes,rather than being specific to any individual category.The share of respondents citing high costs,legal restrictions or a lack of projects as barriers to ESG investment has decreased over the years.Only 9%of respondents mentioned high co
333、sts as a barrier,compared to 23%in 2022.This suggests that cost-related challenges are becoming less of a concern.However,the lack of suitable investment options is a more pressing issue for central banks in emerging markets.While there is interest in ESG,the limited knowledge of viable investment opportunities,compounded by data challenges,hampers adoption.This sentiment was echoed by one central