Sovereign Wealth Funds: The Background, The Significance And The Policy Implications

Sovereign Wealth Funds (SWFs) have risen swiftly and become a global focus in recent years. Especially during the subprime mortgage crisis, SWFs injected the capital into the financial institutions and played an important role in stabilizing the market, providing sufficient liquidity and preventing the crisis from intensifying. SWFs are studied in the macroeconomic and microeconomic aspects. In the macroeconomic aspect, we find that the investment of SWFs may coordinate and conflict with the macroeconomic policy. In the background of the global imbalance, we analyze the contact between SWFs and global imbalance. In the microeconomic aspect, we briefly analyze the impact of SWFs as the institutional investors to the financial market,In the second chapter, we briefly introduce the background and the the characteristics, the classification, the development phase and the causes.In the third chapter, we analyze the contact between the central bank's monetary policy implementation and SWFs' investment. The establishment of SWFs is in order to slow the increasement speed of foreign exchange reserves and improve the investment returns. But considering the scale and the goal of SWFs, the investment of SWFs may conflict and coordinate with the macroeconomic policy, we find the domestic investment made by SWFs has the function of credit expansion. And the credit expansion may have the potential conflict with the domestic monetary policy implementation. When SWFs make the investment abroad, SWFs can not only reduce the surging pressure in the foreign exchange reserves but also the domestic market liquidity. And we also find that the loss of SWFs' investment may have implication to the domestic financial system.In the fourth chapter, we mainly analyze the implications of the investment to the financial market. The short-term and long-term effect to the financial market is studied. We also briefly analyze the implications to the bond market and the exchange market.In the fifth chapter, in the background of global imbalance, SWFs' investment will improve the global imbalance, the trends of SWFs' investment is different with the traditional way of capital recycling, which will make the deficit countries change their domestic economy model.