The Challenge of Sovereign Wealth Funds
Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank
International Center for Monetary and Banking Studies, Geneva, 18.12.2007
The origin and rapid growth of Sovereign Wealth Funds (SWFs) is closely linked to the prevailing global macroeconomic imbalances. SWFs have undoubtedly brought a number of benefits to the global economy. But SWFs have also given rise to considerable political controversy, as their rapid rise challenges some long-held assumptions about how the global economy works. As a consequence, the investment activities of SWFs run the risk of triggering a vicious cycle of financial protectionism. To avoid such an outcome, SWFs should work with the governments of the leading mature economies to agree on a code of conduct or a set of guidelines for the activities of SWFs. These guidelines need to ensure that SWF investment activities are not motivated by political objectives and that a resurgence of state ownership in our economies is precluded. The institutional design of modern central banking can offer some clues as to the appropriate governance arrangements to ensure the former.