Georgia’s main external liabilities are denominated in U.S. dollars and euros; accordingly, the country’s foreign exchange reserves are primarily held in these currencies. The National Bank follows internationally recognized reserve management principles when allocating international reserves, said Alexander Khazaradze, Head of the Financial Markets Department at the National Bank of Georgia.
According to him, in order to hedge currency risk related to liabilities, the currency composition of liabilities and reserves should be similar. At the same time, the principle of diversification must be taken into account, which involves investing a small portion of total reserves in other currencies to reduce overall volatility and enhance returns.
“Since the country’s main liabilities are denominated in U.S. dollars and euros, our foreign exchange reserves are primarily held in these currencies. However, a small portion of Georgia’s reserves has always been allocated to other currencies for diversification purposes. These have included the Australian dollar, the Canadian dollar, and other currencies. Among them, of course, is the Chinese yuan, which is one of the most suitable currencies for diversification. Since 2021, we have held approximately USD 100 million worth of reserves in Chinese yuan,” Khazaradze noted.
He added that these funds were not invested directly, but rather through an investment fund established and managed by the Bank for International Settlements (BIS).
According to Khazaradze, direct access to China’s interbank bond market allows for lower-cost direct investments and provides access to a broader range of financial instruments.
The National Bank of Georgia obtained direct access to China’s interbank bond market under a memorandum signed with the People’s Bank of China. As a result, the National Bank of Georgia joined the list of central banks permitted to operate in China’s interbank bond market.
