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STATE BANK OF PAKISTAN

FOREIGN EXCHANGE RESERVE MANAGEMENT - GOVERNANCE
STRUCTURE AND MANAGEMENT STRATEGY
1.

Objective

The Foreign Exchange Reserves of Pakistan are managed by the State Bank of Pakistan, as mandated by the Central Board:
The Bank directly or indirectly purchase, hold, and sell currencies, financial and capital instruments issued by governments, agencies, local authorities, corporate, and supranational in approved countries and whose currency has been declared as approved foreign exchange. The Bank may appoint managers, custodians, consultants, and any other professional advisors for the effective management of Foreign Exchange Reserves of the country 2.

Reserve Management Investment Parameters

Management philosophy for reserve management functions is based on three broad investment parameters. These are:
a) Safety
Safety of principal is the foremost objective given Foreign Reserves are a public asset and have strategic role in furthering economic policies and objectives. Investments are undertaken in a manner that seeks capital preservation over the investment horizon subject to the appropriate constraints
b) Liquidity
The management shall seek to ensure that adequate reserves are available to meet obligations as they fall due. In order to maintain sufficient liquidity, investments shall be made primarily in securities with active secondary markets
c) Optimal Returns
Subject to the capital preservation and liquidity constraints, the reserves shall be invested with the objective of maximizing risk adjusted returns.
With the significant accumulation in the Pakistan’s reserves over the recent years, the
Central Board of the State Bank of Pakistan – the final decision making authority for the
Reserves – deemed it necessary to bring the Reserve Management process in line with international best practices. With the institutional reforms taken up at the State Bank,
Reserve Management function has acquired a

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