The Politics of SWFs Engagement
We remarked in Chapter 1 that financial markets are viewed by policy makers, economists and the general public in mature economies as the preserve of private entities and investors. Governments' participation – apart from the regulatory functions – is limited to the issuance of public debt (through financial intermediaries) and occasionally the sale of state-owned companies. In essence, when governments access financial markets they are on the sell side. There are exceptions – e.g. publicly owned banks or the Post Offices which run a retail bank arm, as in Japan and in Italy – but after a wave of privatizations in the 1990s they became much rarer. The direct role of the government in those economies has long been on the wane.
The public sector's primary interface with markets is the central bank which routinely conducts operations through money and foreign currency markets, but in the pursuit of monetary policy objectives, not returns or profits. Central bank reserves, as stressed in Chapter 3, are invested in liquid high-grade securities to ensure that domestic economic agents have access to the foreign currency needed for their business, travel or investments. Central banks in the West do not engage in active asset management, but merely maintain a cache of financial ammunitions to fight the consequences of external or domestic shocks.
Most companies fully owned or controlled by the state in advanced economies had been privatized, and the successful ...