INSPIRE Central Banking Toolbox – Policy Briefing no. 6

Central banks are playing an increasingly active role in promoting the move towards a sustainable global economy. One key motivation is the need to mobilise funds for the large-scale public sector investment required to reach the goals of the Paris Agreement on climate change. This paper explores the role central banks’ foreign exchange (FX) reserves portfolios can play in this context.

Main messages

  • Central banks’ frameworks for managing FX reserves have traditionally balanced a triad of objectives: liquidity, safety and return. Incorporating sustainability requires expanding this usual triad into a tetrad.
  • The growing interest in sustainability reflects two main perspectives: ‘risk’, whereby sustainability-related risks may call into question a central bank’s ability to achieve its objectives; and ‘impact’, which relates to the intentional design of central bank’s activities to help promote the transition to a more sustainable world.
  • Sustainability can be brought into reserve management either explicitly, by introducing new economic uses of reserves, or implicitly, by recognising the ways in which sustainability affects existing policy objectives – or through a combination of both approaches.
  • Regardless of the approach, introducing sustainability into reserve management implies additional trade-offs.


  • Reserve management should not be seen in isolation. Central banks’ sustainability responses ultimately depend on their mandates, so, leading on from this, sustainable reserve management could quite naturally become part of an institution-wide approach.
  • To build expertise and make best use of resources, central banks could take a ‘stepwise’ approach to sustainable management, starting with other portfolios or with particular asset classes that may more easily lend themselves to implementation.
  • Central banks are ideally placed to lead by example and generate positive externalities for the entire finance community. Reserve management can be seen as one of the building blocks towards greening the financial system, one portfolio at a time.

This paper is part of the INSPIRE Sustainable Central Banking Toolbox, which is designed to support central bankers and financial supervisors in calibrating monetary, prudential and other instruments in accordance with sustainability goals as they address the ramifications of climate change and other environmental challenges. The papers have been written and peer-reviewed by leading experts from academia, think tanks and central banks and are based on cutting-edge research, drawing from best practice in central banking and supervision. 

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