**_Legal Framework._** The legal frameworks of central banks differ widely from country to country. For example, most common-law countries do not have constitutional provisions for the central bank. Countries with these provisions often differ in the rules and authorities concerning central bank functions and mandates that are built into their constitutions (Ortiz 2009). Most central bank laws, however, explicitly define independence, prescribe the central bank's policy goals, and provide discretion and autonomy to achieve those goals through policies and operations (Khan 2017).<sup>3</sup> For many central banks, price stability, monetary policy, financial supervision, and reserve management are part of a legislative mandate. (Appendix III contains a brief review of the relationships between financial supervision functions and both the broader governance environment and reserve management.) In other cases, central banks' objectives are implicit in more general economic goals. For example, price stability is critical for realizing stable economic growth. Following the 2008–09 global financial crisis, the objectives and powers delegated to central banks increased significantly to allow for unconventional responses to halt a worldwide financial meltdown (Balls, Howat, and Stansbury 2018). Building on this expansion during the global financial crisis, central bank actions in response to the COVID-19 pandemic have been unprecedented in history in terms of speed, scope, and scale.<sup>4</sup> Observers of central banks have raised questions about the rapid expansion of new instruments and unconventional monetary policies and the implications of these for central bank independence (De Haan and Eijffinger 2016).

**_Reserve Management Function._** Holding and managing a country's official foreign reserves are among a central bank's core functions (Bossu and Rossi 2019). Central banks' reserve management operations have always been part and parcel of their monetary policy function. Initially, most central banks had currencies backed by gold, and their reserves primarily consisted of gold bullion. With the abolition of the gold standard in 1971, central banks started diversifying their reserves into foreign asset pools.

Holding foreign reserves has various purposes. Most notable are self-insurance for balance-ofpayments crises and support of exchange rate policies. In some countries, reserves also support financial stability by providing lender-of-last-resort functions in foreign currency. As a result, reserves protect the country against disruptions and volatility in international capital markets. Over the past two decades, successive financial crises have solidified and validated this approach. Recent research indicates that emerging market central banks holding relatively higher foreign reserves experienced less currency depreciation, smoother credit growth, and more stable credit ratings. Countries with higher levels of reserves also had better access to external funding during the global financial crisis of 2008–09 (Arslan and Cantú 2019). Furthermore, empirical research identifies a relationship between political instability and weak institutions in emerging markets,

> 3. For a compendium of such legislation globally, see International Monetary Fund, Central Bank Legislation Database, https://cbld.imf.org/#/. Ashraf Khan’s 2017 IMF Working Paper (Khan 2017) provides an analysis of the data.

> 4. See IMF (2020) for a global accounting of the monetary and fiscal policy actions taken by governments worldwide.

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