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Follow the Swiss for reserve management success

The weakness of the yen since the Bank of Japan's recent decision to expand its quantitative easing programme has fuelled expectations of beggar-thy-neighbour currency wars around the world. A consequence is that central banks that seek to weaken their currencies for competitive advantage will see their foreign exchange reserves balloon. This will pose a huge challenge for reserve managers. After a bull market in bonds that has lasted for more than 30 years, government IOUs - the traditional home for official reserves - look horribly expensive by historic standards. Central bankers hate exposing their balance sheets to that kind of market risk. At the same time liquidity in fixed interest markets has decreased significantly as a result of a tougher regulatory regime since the financial crisis. With market makers' balance sheets shrinking central banks will be even more vulnerable to large price movements in the event of adverse shocks. Private sector fund managers ... Show more

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