Zafar Parker, head of financial markets at the South African Reserve Bank, spoke to OMFIF for Global Public Investor 2025 about the bank’s approach to gold allocation and riskier asset classes, as well as its view of the dollar in the light of recent volatility.
OMFIF: How do you assess geopolitical risks and the potential impact on the SARB’s foreign exchange reserves?
Zafar Parker: Geopolitical risks to central bank reserves are currently considered possible, though their likelihood remains low. We assess them because of the significant impact they could have if they were to occur.
Given this risk has recently evolved from ‘unthinkable’ to ‘unlikely but conceivable’, we have not yet developed models for assessing geopolitical exposures; modelling the impact of geopolitical risk on reserve assets is very complex. Consequently, we address the issue qualitatively on a case-by-case basis. We also have existing credit risk and country risk limits that can be adjusted in response to increased geopolitical risks in specific regions.
For supranational issuers, we evaluate the domicile of the entity, contributing countries, geographical scope of operations and the effect of geopolitical risks on the institution.
The reserves portfolio is relatively protected against geopolitical risks through substantial exposure to diversified safe-haven assets and gold.
OMFIF: Are you considering diversifying away from the dollar towards other reserve currencies? Which ones seem most appealing?
ZP: Our currency choices are mainly influenced by trade activity and foreign debt issuance. In recent years, we have been somewhat overweight in the dollar, relative to the weights implied by these metrics. This was due to the ultra-low or even negative interest rates available on safe assets from other major economies, which undermined the core reserve management objective of capital preservation.
Now that interest rates seem to be stabilising comfortably above zero, across most major jurisdictions, a more balanced currency allocation may be achievable again. The dollar is nonetheless likely to retain an important role, alongside other currencies that are important for our trade and borrowing.
OMFIF: What are the main factors determining your allocation to gold?
ZP: South Africa has historically had significant gold holdings due to its status as a major gold producer. Although there have not been substantial additions to gold reserves recently, the rise in gold prices has increased gold’s share of total reserves. At the end of 2019, gold comprised about 11% of total gross reserves; it now accounts for nearly 20%. The recent fluctuations in gold prices have demonstrated its value as a safe haven and its role in a diversified portfolio of reserve assets. However, there has been no decision to reduce other exposures and increase gold holdings.
OMFIF: Are you considering diversifying into riskier asset classes, such as public equities and corporate bonds?
ZP: We conduct an annual review of our strategic asset allocation to determine which asset classes meet our objectives and constraints. Corporate bonds are part of this analysis; however, given our conservative risk profile, we only allocate modestly towards corporate bonds, typically within the active management space rather than the strategic space.
We have yet to make an allocation to public equities. Nevertheless, we continue to explore the feasibility of incorporating public equities into our strategic asset allocation.
OMFIF: Are you considering adding to ESG assets in your portfolio?
ZP: We have established a portfolio focused on green bonds issued by supranational entities and agencies. This portfolio is relatively small compared to the rest of the reserves, and we may explore additional green investments in the future. In addition to the green portfolio, our external fund managers are required, through our investment management agreements, to apply responsible practices when selecting corporate bond issuers.
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