Composition of the Official Reserve Position Clarified by CBSL
The international reserve management of a central bank is the dynamic and technical process that is normally designed to make sure that a country’s foreign assets are readily available and controlled to attain a defined variety of objectives. Accordingly, the acquisition of appropriate reserve management policies relating to the asset composition, currency mix, liquidity needs, tenor, profitability, safety, etc. of investment instruments could differ from country to country and would be based on the country-specific circumstances and economic priorities.
In this background, at the end of December 2021, the attention of the Central Bank of Sri Lanka (CBSL) has been drawn to many misleading and inaccurate interpretations concerning the change in the composition of the CBSL’s international reserve position. Therefore, the CBSL wants to clarify that the alterations in the composition of official reserves are in compliance with the current reserve management requirements and priorities, taking into consideration all areas of the reserve management requirements, as mentioned above. In fact, the CBSL’s gold holdings by the end of 2008 were just USD 92 million (which was 3.6 percent of the gross official reserves of USD 2.6 billion), but it was moderately increased by the end of 2014 to USD 893 million (which is 10.9 percent of the gross official reserves of USD 8.2 billion). Consequently, it is evident that the share of gold holdings in the reserve may change from time to time, reflecting the need of the CBSL to purchase, hold or liquidate its gold holdings in compliance with the current reserve management priorities.
In that background, while the CBSL’s gold holdings at the end of 2021 might have decreased to USD 175 million (which is 5.6 percent of the gross official reserves of USD 3.1 billion) based on the need to enhance the liquidity of the reserve portfolio, the CBSL may, at a future date, think about increasing its gold holdings when the foreign reserve levels grow to values that may call for a change in the composition of the reserve portfolio.