Importance of strategic national reserves
The national reserves in any country are of great importance in saving a nation from unpredictable crises. Reserves come in hand during such times to ensure the normal lifestyle of the citizens. Different types of reserves guarantee stable commodity prices, a stable nation, good healthcare services, and society. This paper discusses the importance of the different kinds of national reserves in the United Kingdom.
National Food Reserves
Recently, the food price crisis had severe consequences for world hunger. Mittal (2009) highlights that rice’s global price increased by 74% during the peak of the crisis. The price of wheat doubled rising by 130%. The UK market prices also dramatically, and millions of people joined the hunger’s rank. Hossain and green (2011) postulate that the food prices rose again sharply in 2010 in Asia and Africa’s local markets. The problem now lies at the price fluctuation volatility and the uncertainty of where the pattern is headed.
With hunger being a long-lasting threat and price volatility emerging again, the food reserves have been renewed attention in the global food security forums (Porter et al., 2014). According to Wright and Cafiero (2011), food reserves are an old idea, addressing the inherent attributes of agriculture, precisely the relatively constant, inelastic demand with variable short term supply. Agricultural markets that are not regulated always depict a pattern of several years of falling prices interrupted by a brief, sharp upward surge of prices (Wright and Cafiero, 2011).
Food reserves can reduce the undesired outcomes of unstable agricultural markets. Price stabilization reserves purchase the commodities when the prices are low to reduce the supply and sell them when prices are high to keep prices in the balance (Gilbert, 2011). This intervention helps protect farmers’ income and mitigate the impact of the sharp price rises on consumers. The national food reserves also enhance societal stability by helping farmers project their markets and contribute to the local markets’ growth. National stability is promoted by the reserves because, during hard times of sharp price rise, consumers will be cushioned from the impacts of these price rises, and the food resources will be provided to the nation. Healthwise, reserves can help nations cope with climate change and its effect on food production and distribution (Willows et al., 2011).
Monetary reserves
Carpenter and Demiralp (2012) define monetary reserve as the central bank’s holdings of a state currency and other precious stuff. The holdings by the central bank allow for the regulation of the currency and the cash flow and aid in the management of liquidity for businesses in global markets (Nguyen and Boateng, 2015). Financial reserves also help the governments meet their immediate and near-term financial goals and act as assets in a country’s balance of payments. Notably, financial reserves are not only in domestic reserves, but central banks also hold the “foreign currency reserves.”
The monetary reserves play a critical role in ensuring price stability and especially during the deflation periods. When commodity prices fall, the financial reserves act by increasing the cash flow into the economy. Consumers, therefore, have more to spend and therefore purchase more of these commodities. In turn, the suppliers react by increasing the prices back to the original levels (Taylor, 2007). A stable economy with stable prices results in a stable nation in terms of its Gross Domestic Product (GDP) and the government’s revenues.
National Petroleum Reserves
According to Pago and Hewitt (2001), an increase in demand and fear of commodity supply disruptions exerts upward pressure on oil prices globally. The global demand for petroleum and its products has increased while some countries comfortably preserved their petroleum reservoirs. The national strategic reserves induce the uncertainty of future oil prices and its products since oil price is thought to increase inflation and affect economic growth. Juvenal and Patrella (2015) opine that the increase in oil prices directly affects commodity prices.
The UK petroleum reserve aims at protecting the country’s economy following unpredictable future oil supply disruption (Hirsch et al., 2007). This strategic reserve is also significant in protecting the global economy during the oil-price sparks, the significant sources of recession, and unemployment. Therefore, oil reserves will be the main solution when the global economy becomes vulnerable due to uncertain future oil outages. However, high oil prices in the global market may stimulate oil stocks (Emerson, 2006). Consequently, the national strategic reserves will be cautious of lowering the country’s oil prices, thus moderating or lowering the oil-related commodities’ prices available to the citizens, thus boosting economic stability. Furthermore, strategic commodity reserve ensures society stability, sustainable development, and economic growth (Shultz II and Rahtz, 2005).
References
Mittal, A. (2009). The 2008 food price crisis: rethinking food security policies. UN.
Hossain, N., & Green, D. (2011). Living on a Spike: How is the 2011 food price crisis affecting poor people?. Oxfam Policy and Practice: Agriculture, Food and Land, 11(5), 9-56.
Porter, J. R., Xie, L., Challinor, A. J., Cochrane, K., Howden, S. M., Iqbal, M. M., … & Travasso, M. I. (2014). Food security and food production systems.
Wright, B., & Cafiero, C. (2011). Grain reserves and food security in the Middle East and North Africa. Food Security, 3(1), 61-76.
Gilbert, C. L. (2011). Food reserves in developing countries: Trade policy options for improved food security. Issue paper, (37).
Willows, N., Veugelers, P., Raine, K., & Kuhle, S. (2011). Associations between household food insecurity and health outcomes in the Aboriginal population (excluding reserves). Health reports, 22(2), 15.
Carpenter, S., & Demiralp, S. (2012). Money, reserves, and the transmission of monetary policy: Does the money multiplier exist?. Journal of macroeconomics, 34(1), 59-75.
Nguyen, V. H. T., & Boateng, A. (2015). An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese banks. International Review of Financial Analysis, 37, 63-72.
Taylor, J. B. (Ed.). (2007). Monetary policy rules (Vol. 31). University of Chicago Press.
Page, S., & Hewitt, A. (2001). World commodity prices: still a problem for developing countries?. London: Overseas Development Institute.
Page, S., & Hewitt, A. (2001). World commodity prices: still a problem for developing countries?. London: Overseas Development Institute.
Hirsch, R. L., Bezdek, R., & Wendling, R. (2007). Peaking of world oil production and its mitigation. In Driving climate change (pp. 9-27). Academic Press.
Shultz II, C. J., & Rahtz, D. R. (2005). Striving for Peace, Stability, and a Sustainable Consumer Market. Handbook of Markets and Economies: East Asia, Southeast Asia, Australia, New Zealand, 76.
Emerson, S. A. (2006). When should we use strategic oil stocks?. Energy policy, 34(18), 3377-3386.