FINANCE. TAXES. CREDIT УДК 336.339 JEL: 1West Ukrainian National University, Research ID : http://www.researcherid.com/rid/H-47-2017 PRECONDITIONS AND GLOBAL MACROFINANCIAL EFFECTS OF THE ACTIVE PORTFOLIO MANAGEMENT OF CURRENCY RESERVES The scale of a reserve hoarding changes the risks of holding them, by admitting that the more active management will allow one to make their value less vulnerable to variations in the exchange rate, to increase their profitability, and to diminish their dependence on the policies in countries emitting the reserve currency. The assertion that the endogenous increase of reserves cannot affect the increasing inclination to their diversification in the world with the dominant motive of precautionary self-insurance is criticized. Four stages of the hoarding and management of reserves are separated: from the advantage of the liquidity as a response to the vulnerability to traditional shocks of a payment balance to the search for a nonstandard portfolio of reserve assets, which is based on the active management aimed at increasing the value and the profitability of external assets. In the global economy, two tendencies are simultaneously formed: the enhancement in the reserve holding concentration and the change in a distribution of reserve holdings relative to GDP among countries. The fundamental driver of the transition to a more active management of reserves is defined as the upside bias of a median reserve volume over the optimal level. The level of synchronization between the optimal and median volumes of reserves defines the preconditions for the transition of a median central bank to a more active management of reserves, as well as to the reallocation of reserves to renew their liquidity as a response to a worsening of global macrofinancial conditions. The median and concentrated reserve holdings provide differences in the profiles of macrofinancial effects in the active management. In general, such effects are: increase in the background volatility of capital flows and exchange rates; risks of changes in the structure of the relative yields for the classes of assets; increase in the competition between reserve currencies (assets) and search for a full market of reserve assets; segmentation of the risk-taking of a decrease in the liquidity of exchange reserves; etc. For countries with low level of reserve holdings, an increase in the fraction of reserves in non-conventional reserve currencies is ultimately unwelcome. Keywords:currency reserves, external assets of central banks, active portfolio management, global macrofinancial conditions, global instability, reserve currencies
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