Source: Reserve Bank of New Zealand
25 January 2023 – The Reserve Bank of New Zealand – Te Pūtea Matua and the Minister of Finance have agreed to a new framework for managing foreign reserves.
We hold and manage foreign reserves in order to be able to intervene in the New Zealand dollar (NZD) market for financial stability or monetary policy reasons. Foreign reserves are safe and liquid assets held in currencies such as United States dollars, Euros, and Australian dollars.
Our chairman Professor Neil Quigley says a well-functioning foreign exchange market is critical to New Zealand’s economy with many people — including exporters, importers, borrowers and investors — reliant on these markets to exchange New Zealand dollars for foreign currency.
“While foreign reserves are rarely used, it is important for us to be prepared to support the foreign exchange market in exceptional circumstances to maintain financial stability and ensure essential transactions can continue to occur.”
As part of the framework, both the Reserve Bank and the Minister of Finance are required to agree to a level of foreign reserves that we should hold in order to meet our objectives. The level of foreign reserves had been largely unchanged since 2007.
Given the growth in the economy and foreign exchange market since then, the Minister of Finance and our Board have agreed that an increase to foreign reserves holdings is needed.
“The transition to this higher level of foreign reserves will take place over a number of years, in order to minimise the market impact,” Governor Adrian Orr said.
Due to market and policy sensitivities, we do not intend to make public any further details on the size or composition of this increase. However, our foreign reserves holdings will continue to be published on our website on a monthly basis.
The Framework maintains the Monetary Policy Committee’s right to intervene in the exchange rate when the New Zealand dollar has moved to exceptionally low or high levels that cannot be justified by economic fundamentals. Interventions are expected to be rare and consistent with the Reserve Bank’s monetary policy objectives.
New Zealand is committed to maintaining a free-floating currency. We do not seek to maintain a certain level of the exchange rate and we will continue to only intervene in the foreign exchange market in extreme circumstances to support our policy objectives.
More information on foreign reserves https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=a0736d937f&e=f3c68946f8
About the Framework
The Framework is a new requirement under the Reserve Bank of New Zealand Act 2021. It also recognises both the Reserve Bank and the Crown’s interest and roles in relation to the use and management of foreign reserves.
Read more about the Foreign Reserves Management and Co-ordination Framework https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=4ea94b55ee&e=f3c68946f8
Download the Foreign Reserves Management and Coordination Framework in full (PDF, 380 KB) https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=bd4a94c316&e=f3c68946f8
