In a new report, UBS analyst Paul Donovan discusses one of the biggest influences in global markets that rarely gets discussed in the media: sovereign reserves. The size and influence of central banks and sovereign wealth funds rival those of institutional investors such as pension funds and insurers.

According to the report, the current value of global central bank reserves and sovereign wealth funds is more than $20 trillion. In his report, Donovan discusses the changes in sovereign reserves in recent years and exactly what the future holds for sovereign wealth funds.

Traditional Role

Traditionally, foreign exchange reserves were held in an effort to stabilize currencies. In that sense, reserve levels and trade volumes were usually closely tied.

However, Donovan notes that the relationship between trade volume and reserve levels has completely disappeared in the past decade.

What Changed?

Donovan believes…

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