ETFs in reserve management focus report 2022

Exchange traded funds (ETFs) have risen in popularity among investors and may be of interest to central bank reserve managers in pursuit of safety, liquidity and returns. Central bank mandates vary, but all reserve managers must navigate a new, complex economic environment.

In the wake of the Covid-19 pandemic, providing self-insurance against external shocks remained the most important investment objective for reserve managers. Conducting foreign exchange policy and servicing external debt came second and third. Now, as the climate crisis deepens, more central banks are adding sustainability as one of their key objectives. ETFs may be a way of gaining exposure to assets in pursuit of this aim.

Ultimately, ETFs, in terms of their thematic design and the arbitrage mechanisms that rule their behaviour, also reflect the principles of their issuers. This report is a valuable source of information for central bank reserve managers when considering whether using ETFs can help them meet their mandates.

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