Stabilization fund
Encyclopedia
A stabilization fund generally refers to a mechanism set up by a government or central bank
to insulate the domestic economy from large influxes of revenue, as from commodities such as oil. A primary motivation is maintaining a steady level of government revenue in the face of major commodity price fluctuations (hence the term "stabilization"), as well as the avoidance of inflation
and associated atrophy of other domestic sectors (Dutch disease
). This generally involves the purchase of foreign denominated debt, especially if the goal is to prevent overheating
in the domestic economy. May overlap with sovereign wealth fund
.
Several such funds:
Funds not revolving around large commodity revenue:
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
to insulate the domestic economy from large influxes of revenue, as from commodities such as oil. A primary motivation is maintaining a steady level of government revenue in the face of major commodity price fluctuations (hence the term "stabilization"), as well as the avoidance of inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
and associated atrophy of other domestic sectors (Dutch disease
Dutch disease
In economics, the Dutch disease is a concept that purportedly explains the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector...
). This generally involves the purchase of foreign denominated debt, especially if the goal is to prevent overheating
Overheating (economics)
Overheating of an economy occurs when its productive capacity is unable to keep pace with growing aggregate demand. It is generally characterised by an above-trend rate of economic growth, where growth is occurring at an unsustainable rate...
in the domestic economy. May overlap with sovereign wealth fund
Sovereign wealth fund
A sovereign wealth fund is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally. Some of them have grabbed attention making bad investments in several Wall Street financial...
.
Several such funds:
- Stabilization Fund of the Russian FederationStabilization Fund of the Russian FederationThe Stabilization fund of the Russian Federation wasestablished by resolution of the Government of Russia on January 1, 2004, as a part of the federal budget to balance the...
- Petroleum Fund of Norway (SPF)
- ChileChileChile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
's Copper Stabilization Fund (CSF) - OmanOmanOman , officially called the Sultanate of Oman , is an Arab state in southwest Asia on the southeast coast of the Arabian Peninsula. It is bordered by the United Arab Emirates to the northwest, Saudi Arabia to the west, and Yemen to the southwest. The coast is formed by the Arabian Sea on the...
's State General Reserve Fund (SGRF) - KuwaitKuwaitThe State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. It is bordered by Saudi Arabia to the south at Khafji, and Iraq to the north at Basra. It lies on the north-western shore of the Persian Gulf. The name Kuwait is derived from the...
's Reserve Fund for Future Generations (RFFG) - Papua New GuineaPapua New GuineaPapua New Guinea , officially the Independent State of Papua New Guinea, is a country in Oceania, occupying the eastern half of the island of New Guinea and numerous offshore islands...
's Mineral Resources Stabilization Fund (MRSF) - VenezuelaVenezuelaVenezuela , officially called the Bolivarian Republic of Venezuela , is a tropical country on the northern coast of South America. It borders Colombia to the west, Guyana to the east, and Brazil to the south...
's Macroeconomic Stabilization Fund (MSF) - UAE Abu Dhabi Fund for Development
- Iran's Oil Stabilization Fund
Funds not revolving around large commodity revenue:
- European Financial Stability FacilityEuropean Financial Stability FacilityThe European Financial Stability Facility is a special purpose vehicle financed by members of the eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing...
- Exchange Stabilization FundExchange Stabilization FundThe Exchange Stabilization Fund is an emergency reserve fund of the United States Treasury Department, normally used for foreign exchange intervention...
more
- IMF registered stabilization funds http://www.imf.org/external/pubs/nft/op/205/index.htm