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Preface

The Crown's policy on the management of Crown and departmental foreign-exchange exposure is outlined in Treasury Circular 1990/4 of 16 March 1990. This policy requires departments to cover all material foreign-exchange exposures on transactions related to their normal course of business in terms of guidelines approved by the Minister of Finance.

The ‘Guidelines for the Management of Crown and Departmental Foreign-Exchange Exposure’ were approved by the Minister of Finance in March 1990 and subsequently incorporated into Treasury Instructions.

During 2003, Treasury undertook a review of the guidelines, which highlighted a number of ways in which these could be improved. As a result, the guidelines have been updated and reissued, pursuant to section 80 of the Public Finance Act 1989 (Treasury Instructions).

The key changes from the 1990 version are:

  • clarification that Chief Executives are responsible for the identification and management of Crown foreign-exchange exposure for receipts and payments that their department administers (in addition to departmental flows);
  • the Transaction Exposure Limit is expressed on a currency basis instead of a transaction basis. The maximum uncovered individual currency exposure has been increased from NZ $50,000 to NZ $100,000. There is no maximum amount for aggregated uncovered exposure;
  • the list of approved counterparties for foreign-exchange transactions and foreign-currency bank accounts has been replaced with generic credit criteria;
  • confirmation that departments are prohibited under the Public Finance Act 1989 from rolling forward an existing foreign-exchange contract at a historic rate; and
  • the role of the New Zealand Debt Management Office in foreign-exchange management is included in the supporting schedules.

Departments are requested to review their Foreign-Exchange Policy Document to ensure that their policies and practices comply with the 2003 Guidelines. In some cases, this may necessitate a revision of their policy document (the approval process for this is covered in paragraphs 12 and 13 of this document) and/or changes to their foreign-currency banking arrangements. Departments are asked to discuss any transitional issues with their Treasury Vote Team.

These guidelines replace the guidelines dated March 1990, which are hereby revoked.

 

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