In some circumstances official foreign exchange reserves are also used as a tool of domestic liquidity management by way of forex swaps. Stabilization Funds are normally expected to constitute a macro hedge against a sharp fall in the export receipts from commodities that are mainly exported.
They are set up primarily to insulate the budget and the broader economy from excess volatility, inflation, Dutch disease, etc., by smoothening revenues flowing to the budget i.e. saving during a revenue windfall and dis-saving during a price slump. SWFs seek returns over and above that required to preserve the real value on a sustainable basis.