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Reserve management and sustainability: the case for green bonds?

Author

Listed:
  • Ingo Fender
  • Mike McMorrow
  • Vahe Sahakyan
  • Omar Zulaica

Abstract

Central banks' frameworks for managing foreign reserves have traditionally balanced a triad of objectives: liquidity, safety and return. Pursuing these objectives involves explicit trade-offs. More of an emphasis on returns, for instance, may require central banks to sacrifice some of the safety and liquidity of their overall holdings. Most recently, central banks have shown significant interest in incorporating environmental sustainability considerations into their policy frameworks, including their reserve management. This paper first explores whether sustainability considerations would support a tetrad of reserve management objectives, by drawing on the results of a recent BIS Survey on Reserve Management and Sustainability. It then illustrates how central banks might analyse (and weigh) all four objectives in allocating part of their foreign exchange reserves to green bonds using currently available market data.

Suggested Citation

  • Ingo Fender & Mike McMorrow & Vahe Sahakyan & Omar Zulaica, 2020. "Reserve management and sustainability: the case for green bonds?," BIS Working Papers 849, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:849
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    References listed on IDEAS

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    1. Dikau, Simon & Volz, Ulrich, 2021. "Central bank mandates, sustainability objectives and the promotion of green finance," Ecological Economics, Elsevier, vol. 184(C).
    2. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
    3. Ingo Fender & Mike McMorrow & Vahe Sahakyan & Omar Zulaica, 2019. "Green bonds: the reserve management perspective," BIS Quarterly Review, Bank for International Settlements, September.
    4. Torsten Ehlers & Frank Packer, 2017. "Green bond finance and certification," BIS Quarterly Review, Bank for International Settlements, September.
    5. Olivier David Zerbib, 2019. "The effect of pro-environmental preferences on bond prices: Evidence from green bonds," Post-Print halshs-02008641, HAL.
    6. Zerbib, Olivier David, 2019. "The effect of pro-environmental preferences on bond prices: Evidence from green bonds," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 39-60.
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    Cited by:

    1. Gergely Hudecz & Edmund Moshammer & Alexander Raabe & Gong Cheng, 2021. "The euro in the world," Discussion Papers 16, European Stability Mechanism, revised 27 Oct 2021.
    2. Torsten Ehlers & Benoit Mojon & Frank Packer, 2020. "Green bonds and carbon emissions: exploring the case for a rating system at the firm level," BIS Quarterly Review, Bank for International Settlements, September.
    3. Mertzanis, Charilaos, 2024. "Central bank policies and green bond issuance on a global scale," Energy Economics, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    central banks; green bonds; reserve management; sustainability;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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