Introduction
This paper examines financial risk in the Fund and the level of precautionary balances. At the 2002 review of the Fund’s policy on precautionary balances, Executive Directors supported a doubling of the target for precautionary balances to some SDR 10 billion, and the maintenance of the present system of accumulating these balances. Also at that time, the Board called for a further review to determine whether a more analytical approach for assessing the appropriate level of precautionary balances in the General Resources Account could be formulated. The rationale for holding precautionary balances and for assessing their adequacy depends heavily on the Fund’s risk containment policies and characteristics of the Fund’s exposure. Thus, the decision taken by the Board in 2002 on the target for precautionary balances is examined in this broader context.
Published Date: February 2004
Prepared by: the Finance Department (In consultation with other departments)
Approved by: Eduard Brau
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FEB
2004