Central and Eastern European banks rush to increase their gold reserves
Hungary tripled its gold reserves to a total of 95 tonnes, the largest per person in Eastern and Central Europe. Poland has added more than 200 tonnes of the precious metal to its national reserve in the past two years, and even the Central Bank of Serbia has been steadily increasing its gold purchases in recent years.
The penchant for gold in Central and Eastern European countries is on the rise. The governor of the Central Bank of Hungary, a close aide to Prime Minister Viktor Orban, said the move was aimed at stabilizing the economy amid the COVID pandemic, increasing inflationary risks and inflating public debt. The country’s central bank even touted on its site to have the highest per capita gold reserves in the EEC region.
The Hungarian central bank explained the spectacular purchase of gold bars, stressing that gold has neither credit risk nor counterparty risk, and thus reinforces sovereign confidence in all economic environments
Another country determined to increase its gold reserves is Poland. Governor Adam Glapinski, also close to the ruling party, said gold is expected to reach 20% of central bank reserves during his next term, as he kicks off his bid for reelection. Glapinski said the institution he heads will buy at least 100 tons of gold in the coming years to demonstrate the country’s economic strength.
Poland’s central bank bought 126 tonnes of gold in 2018 and 2019 and repatriated 100 tonnes from the Bank of England, doubling its reserves.
The repatriation of gold reserves was also used as part of populist rhetoric, as happened in 2019 in Romania, when the government in charge subsequently tried unsuccessfully to move the country’s gold reserve. from London to Bucharest.
Another gold accumulator, Serbia has also made headlines with its more gradual accumulation of gold. “The key
The driving force behind these purchases was to consolidate the stability of the Serbian financial system during a period of uncertainty and to guard against the increased risk of a global crisis, ”said the Council of Foreign Investors in Serbia, adding that the pandemic of COVID-19 continues to be an important trigger for wanting more exposure to gold from central and eastern European central banks.
Over the past decade, some Eastern European countries have increased their purchases of gold in order to reduce their dependence on other assets.
On the other hand, other European nations began the millennium by reducing their holdings of gold. The euro area, which also includes the reserves of the European Central Bank, has sold a total of 1,885.3 tonnes over the past two decades, reducing gold holdings by around 15%. Despite this, Germany, Italy and France still retain some of the largest gold reserves.
The European Central Bank believe that gold remains “an important component of global monetary reserves, as it continues to provide asset diversification benefits.” Its reserves have gradually increased over the past two decades.
Talk to Cristian Paun, professor at the University of Economic Studies in Bucharest and director of the Center for Research in International Economic Relations, gold reserves are intended to provide stability to a country’s currency and to support its monetary policy.
Păun told EU Reporter that given the current policies of large liquidity poured into the market, gold remains attractive as a reserve asset for central banks to show their credibility.
He explained to EU Reporter that some central banks store gold and others do not base their thinking on how they view the role of gold in the current economy. Another reason that can weigh heavily on choosing gold or versus gold is related to the costs associated with handling the metal.
“Gold has an international liquidity problem. If you want to get rid of gold quickly, as a central bank today you only have a few good options. Additionally, gold has its storage, transportation, handling and security issues. There are significant costs that cannot be ignored and that few central banks can afford, ”Păun told EU Reporter.
Cristian Păun considers that gold reserves could also have a positive impact on the fight against inflation in the EU through a system of pegging the money supply to the gold reserves of central banks.
“The economic differences between euro area and non-euro member states could widen due to rising inflation. As long as massive amounts of euros are printed in the eurozone, non-eurozone countries could be affected by this monetary expansion, ”he told EU Reporter.
However, the storage of gold could also signal an internal political or economic instability, estimates Armand Gosu, expert in geopolitics of the countries of the former sphere of Soviet influence. Rather, he told EU Reporter acquiring gold is a trend that can be seen around the world in crisis situations.