Column : Questions about sovereign wealth funds
The growing size of these reserves prompt many questions on optimal management. Many of these focus on the advantages/disadvantages of forming an SWF and the merits/demerits of having a central bank versus an SWF- managed reserves. Joshua Aizenman and Reuven Glick of the IMF answer some of these questions in a working paper. They explore three specific questions—what are the institutional and political factors that lead to the formation of SWFs, what are the main differences in the management of forex reserves by a central bank versus an SWF and which form of management is more advantageous.
Using a sample of 29 SWFs across the world, they identify the main factors that drove the formation of SWFs to be the rise in commodity prices and current account surpluses in emerging economies. They make a distinction between commodity funds (SWFs that are funded by commodity exports, either owned or taxed by government, such as Norway’s Government Pension Fund) and non-commodity
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