As calls for greater financial autonomy grow, African states face choices about entrusting Pan-African commercial banks with their FX reserves and enabling domestic banks to manage FX risks. Both moves could reduce Africa’s exposure to offshore financial systems – easing reliance on foreign clearance networks and bringing home reserves parked predominantly in US Treasuries, Eurozone bonds, and foreign banks. But can domestic banks meet the credit standards, clearing requirements and governance benchmarks needed to safeguard sovereign assets? Is repatriating reserves a risk worth taking?
Key points
- How can governments and central banks build a framework for top-tier African banks to take custody of FX reserves?
- What strategies can local banks deploy to manage and allocate sovereign FX reserves under a compliant and risk-controlled framework?
- Regional swap agreements, pooling of reserves and PAPSS: How can central banks ease commercial banks’ forex exposures?