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BOU’s framework for Foreign Exchange Reserve Management

The Bank draws its mandate from the Section 31 of the Bank of Uganda Act 2000, to maintain and prudently manage the country’s foreign exchange reserves.

1.1 Rationale for Holding Reserves

Foreign exchange reserves play a key role in ensuring that the Republic of Uganda can meet the following macroeconomic objectives:

i. Supporting and maintaining confidence in the country’s monetary and exchange rate policies.
ii. Providing confidence that the country can service its external debt obligations.
iii. Providing a buffer to absorb balance of payments shocks during times of crisis, and national disasters or emergencies.
iv. Providing liquidity to fulfill day to day transactional obligations in foreign currency.

1.2 Investment Objectives

The Bank manages the foreign exchange reserves guided by the following investment objectives in order of priority;

i. Capital preservation: Safety of the principal amount invested is the foremost investment objective. Investments shall be undertaken in a manner that seeks to minimize the loss of capital value of the overall portfolio over a stated investment horizon.

ii. Liquidity: The Bank shall ensure that adequate reserves are available to cover liquidity requirements. Therefore, reserves shall be invested in assets that can be liquidated in a timely manner and at minimal cost.

iii. Return: Subject to the capital preservation and liquidity constraints stated above, the reserves shall be invested with the objective of achieving a reasonable and commensurate return, given the stipulated risk objectives defined in this document.

1.3 Governance Framework

The governance framework spells out the decision-making bodies and key internal stakeholders who approve the investment policy, the benchmarks and investment guidelines as well as participate in the day to day reserves management operations.

Foreign Exchange Reserves Management Governance Hierarchy