The structure of the gold and foreign exchange reserves of each country includes gold and currency. Other assets are also often included. In developed countries, the structure of the gold reserves can include the British pound and Swiss franc, yen and other major currencies of the world. The Central Bank policy determines the composition of the reserve. Moreover, the more stable the state’s economy, the greater the percentage of gold in its gold reserves. If the national currency exchange rate is not very stable, then the state’s reserve will also include a significant reserve of the strongest foreign currencies.
Structure of gold reserves by country
The structure of gold reserves is fundamentally different depending on the state. The latest official figures as of January 1, 2014 indicate the following share of gold in assets:
- America - 70%.
- Germany - 66%.
- France - 64.9%.
- EU countries - an average of 55.2%.
- Russia - 7.8%.
- Ukraine - 8%.
Here we note that in the last three years a decrease in the value of the precious metal has been recorded. That is why many question the fact of the relevance of gold as a dominant asset. If the country is developing, it is more rational to fill the reserve with the main currencies of the world, since their rate is growing very quickly. Developed issuing states issuing world currencies, when forming gold reserves, they prefer precisely precious metals. In addition to metal and currency, gold reserves may include special drawing rights and quotas of the IMF state.
Reserve of Ukraine in 2014
Gold and foreign exchange reserves of Ukraine in 2014, according to published data, corresponded to the equivalent of 16.2 billion dollars. The reason for the budget increase was the stand-by program from the International Monetary Fund. The IMF allocated $ 978.42 million to the government. 397.55 million dollars came to the account of the national bank of the country. The dynamics was due to the country's obligations to make payments to pay off debt in foreign currency. Over the course of the month, the National Bank actively manipulated money in the international currency market. He carried out both the sale of currency in the amount of 833.74 million and its purchase for 98.30 million. This format of action was aimed at smoothing the exchange rate of the national currency.
Reduction of gold reserves in 2015
Gold and foreign exchange reserves of Ukraine, despite an unexpected increase in the fall of 2014, already in December fell by $ 7.5 billion. According to official figures, by January 1, 2015, the volume of international reserves amounted to 7.533 billion. To assess the state of the reserve, you can study a similar indicator of last year.
So, in December 2014, the amount of gold reserves in the equivalent to the dollar amounted to 9.965.95 billion. In percentage terms, state assets for the whole year decreased by 24.41%. Foreign exchange reserves decreased from 9 billion 959.95 million dollars to 6 billion 618.37 million. The gold and foreign exchange reserves of Ukraine did not lose their borrowing rights, which both amounted to $ 3.78 million, and today they are. There was a slight increase in dollar assets from 903.84 million equivalent to 911.09 million. The state’s reserve position in the IMF remained at $ 0.03 million.
What does the government say?
According to the authorized bodies, such a reduction is due to timely and full repayment of the debt of the government and the NBU in foreign currency. UNIAN reported that gold reserves were down 51.19% ($ 10.450 billion) by early 2015.
The results of November are not very comforting, since the gold and foreign exchange reserves of Ukraine, statistics on which have always been within the norm, already in November easily updated their lows for the last 10 years. The last "weight loss" of assets of this level was recorded in December 2004 at around 9.715 billion dollars. The National Bank justifies the situation by paying payments from NAK Naftogaz Ukrainy for imported gas. Moreover, the state currency debt, including to the IMF, is systematically serviced and repaid.
A significant contribution to the situation was made by hryvnia interventions on the interbank market. Gold and foreign exchange reserves of Ukraine began to decline back in 2013. At that time, they dipped by 16.83% or 4.130 billion dollars. Valeria Gontareva's forecast for a dramatic increase in gold reserves in 2015 suffered a complete failure.
Implications of Reduced Gold Reserves
Ukrainian gold and foreign exchange reserves, the schedule of which has been falling over the past few years, negatively affects the economy of the state as a whole. Contraction of the backbone of the domestic economy deprives confidence and creates panic in society.
A deviation from the reserve replenishment schedule also occurred as a result of unplanned parliamentary elections. Strict adherence to the plan could fundamentally change the actual situation. The state reserve of Ukraine in the volume in which it is today, according to authorized persons, is not a global problem. Optimism is inspired by the fact that the IMF itself actively supports a position in which the size of the country's assets will be equal to 23 billion dollars. The state itself is considering an indicator of 15 billion dollars.
What is happening today?
At present, Ukraine’s gold and currency reserves have been catastrophically reduced, if we do not take into account the upcoming tranche from the EU and the IMF. The exchange rate of the national currency is gradually decreasing, government debt does not stop growing. At the same time, we can confidently say that hyperinflation and default on public debt will not take place.
About the unpleasant situation in the country says the stop of publication of statistics from the analytical group Da Vinci AG. Since 2010, the company has been preparing a quarterly forecast for gold reserves, but in the second half of 2014 completely abandoned its venture due to an extremely negative forecast. The situation, according to most experts, is associated with the negative dynamics of the last 6 years in the field of industrial export.
When did the downtrend begin?
Gold and foreign exchange reserves of Ukraine in 2014 are much lower than planned. According to experts, the downward trend in assets was laid back in 2011. It has an indirect link to military operations in the Donbass. Events unfolding in the east of the country acted as a catalyst for the current situation, which would have manifested itself by 2017-2018.
The gold reserve of Ukraine showed a dynamics similar to the positions of Ukrainian exports in the world market from 2000 to 2014. In the metallurgical industry alone, foreign sales from 2007 to 2013 fell by at least 25%. At the same time, prices dipped by about 30%. Consumers from Europe and Asia have significantly reduced orders. In parallel, the MENA states began to actively increase capacity.
Gold reserves fall: probable causes
Foreign exchange reserves of Ukraine have actually collapsed, but not only in connection with the economic situation in the world, but also as a result of reduced production and sales on the international market. The reason for the phenomenon is directly related to the fixed rate of the national currency, the lack of reforms in the economy, the continuation of the policy of betting on economic resources with a parallel decrease in their weight in the world economy. An identical situation is developing in the chemical industry and in the field of engineering.
Reduction of reserves is a natural phenomenon. The exacerbation of the crisis in 2014 simply coincided with the separation of the Crimea and the fighting in the east of the country. The negative situation throughout the country left its mark on the gold and foreign exchange reserves of Ukraine. October 2014 was only a natural decline after the rise of 2008-2009, when the state economy flourished due to active foreign financial assistance.
What can make a difference?
The situation in Ukraine, including a sharp and systematic reduction in gold reserves, requires a prompt reaction and intervention by the NBU. It is necessary to stabilize the situation in many commercial financial organizations, including through the introduction of temporary administrations. Certain situations require the recognition of official bankruptcy, without attempting to rectify the situation through financial expenses. The consolidation of the financial market is the most optimal scenario, which requires the withdrawal of small financial institutions without a large customer base from the domestic market. It should be noted that the National Bank does not have strong leverage in the field of exchange rate formation. Actions at the level of the Cabinet of Ministers and the National Bank to attract foreign investment and stimulate export development are more than vital.
What can be judged by the gold reserves of Ukraine?
Reserve gold reserves of Ukraine indicates the stock of financial strength of the state. Only NBU has the right to replenish and spend funds from the reserve. The main purpose of the assets is to eliminate the financial deficit in the balance of payments solely for the purpose of implementing interventions. Assets are necessary for investment activities within the foreign exchange market in order to influence the national currency rate. The gold and foreign exchange reserve can be called the financial reserve of strength of national money, using which the state is able not only to strengthen the national currency, but also to stabilize it.
The fall in reserves clearly indicates that the NBU is actively spending highly liquid actives in attempts to maintain the hryvnia exchange rate on the international market. The decrease in stocks can be called an alarming trend, indicating the weakness of the currency. The reduction in stock indicates a high likelihood of an increase in the dollar and the euro, since the state simply cannot support the rate of national money. This is fraught with complete depletion of the gold and foreign exchange reserves and default of the economy. Despite the positive forecasts, the actual increase in gold reserves is not expected.