Sri Lanka says South Asia should cross-invest forex reserves

Aug 15, 2008 (LBO) – South Asian nations should look at re-investing foreign exchange reserves in each others’ countries instead of buying low yielding securities in developed nations, Sri Lanka’s central bank governor Nivard Cabraal said. “Our foreign reserves are bridging the fiscal deficit of developed countries at low rates,” Governor Cabraal told a gathering of South Asian central bankers in Colombo.

“We should look at cross-investing in each others’ countries. This can be controversial because our credit ratings are low. But we should explore it.”

SAARCFinance, a regional forum of central bankers of the eight-nation South Asian Association for Regional Co-operation (SAARC), is having a two-day seminar to boost their forex management skills and improve returns.

Head of the banking studies unit of the Sri Lanka’s central bank, Udeni Alawattage, said key Asian nations had seven times the foreign reserves of the European Union area with China having 1,800 billion dollars and India 300 billion dollars.

Flawed Frameworks

Foreign exchange reserves, which central banks in Asia and some developing countries accumulate, are a result of central bank intervention in forex markets.

It is a consequence of op