Tier 1 reserve assets with abundant liquidity but low profitability include demand deposits, short-term deposits and short-term government bonds.
Secondary reserve assets have higher returns than primary reserves, but their liquidity is not as good as primary reserves, such as medium-term treasury bonds with a maturity of 2-5 years;
The profitability of tertiary reserve assets is higher than that of secondary reserves, but the liquidity is lower than that of secondary reserves, such as long-term public bonds.
Ordinary drawing rights are similar to tier 1 reserves, because member countries can withdraw and use them from the IMF at any time. Special Drawing Rights (SDR), because it can only be used for other payments, must apply to the IMF, and the IMF will designate the countries participating in the SDR account to provide the currency needed by the applicant country. Obviously, this process will take some time to complete. Therefore, the SDR can be regarded as a secondary reserve. Gold reserve can be regarded as a third-class reserve because the monetary authorities of various countries generally convert it into reserve currency only when the market price of gold is favorable to them.
The primary reserve is a reserve asset that monetary authorities can make up the balance of payments deficit and intervene in the foreign exchange market at any time, that is, as a trading reserve. Secondary reserves are used to supplement current assets. The tertiary reserve is mainly used to expand the profitability of reserve assets. A country should reasonably arrange the structure of these three-tier reserve assets in order to obtain as much income as possible under the premise of maintaining a certain liquidity.
(II) Currency structure management of foreign exchange reserves The structure management of foreign exchange reserves mainly focuses on the currency selection of reserve currencies, that is, reasonably determining the proportion of various reserve currencies in a country's foreign exchange reserves. The basic principles for determining the currency structure of foreign exchange reserves are:
(1) The currency and quantity of reserve currency should be roughly the same as that of external payment. That is to say, the currency structure of foreign exchange reserves should be consistent with the country's demand structure for foreign exchange, or it should depend on the currency used in the country's foreign trade payment, the currency structure of the current total debt service and the foreign exchange needed to intervene in the foreign exchange market, so as to reduce foreign exchange risks.
(2) Eliminate the single currency structure and implement a diversified currency structure dominated by strong currencies. The diversified currency structure in foreign exchange reserves can protect the purchasing power of foreign exchange reserves from being relatively stable, thus maintaining a general balance when the exchange rates of these currencies rise and fall, so that the losses suffered by some currencies when they depreciate can be compensated from the gains brought by the appreciation of other currencies, and the ability to maintain and increase the value of foreign exchange assets can be improved. In foreign exchange positions, we should hold as many hard currency reserves with strong exchange rate as possible, and hold as few soft currency reserves with weak exchange rate as possible, and adjust and rearrange the currency structure in time according to the trend of hard and soft currencies.
(3) Adopt active foreign exchange risk management strategy and arrange preventive reserve currency. If a country's monetary authorities have a strong ability to predict the exchange rate, they can arrange the monetary structure of preventive reserves according to the interest rate parity without offsetting (the expected exchange rate change rate is equal to the interest rate difference between the two countries). For example, if the spread is greater than the expected depreciation rate of high-interest currencies, holding high-interest currencies can enhance the profitability of reserve assets; If the spread is less than the expected depreciation rate of high-interest currencies, holding low-interest currencies is conducive to enhancing the profitability of reserve assets.
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