SL’s Central Bank: Setting the record straight on dwindling gold reserves

The Central Bank (CB) on Monday responded to reports and statements, including one from Opposition legislator Dr. Harsha de Silva that the banking regulator had sold half of its gold reserves to shore up falling foreign reserves.

“While the CB’s gold holdings by end 2021 may have decreased to US$175 million (5.6 per cent of gross official reserves of $3.1 billion) based on the need to enhance the liquidity of the reserve portfolio, the CB may, at a future date, consider increasing its gold holdings when the foreign reserve levels grow to values that may warrant a change in the composition of the reserve portfolio,” it said in a statement.

Opposition politicians and economists have expressed alarm at the reduction in the gold reserves.

In a statement on Monday, the CB said:

“International reserve management of a central bank is a dynamic and technical process which is usually designed to ensure that a country’s foreign assets are readily available and controlled to achieve a defined range of objectives.

Accordingly, the adoption of appropriate reserve management policies relating to the asset composition, currency mix, liquidity needs, tenor, profitability, safety, etc. of investment instruments could vary from country to country and would depend on the country-specific circumstances and economic priorities.

In this background, the attention of the CB has been drawn to several misleading and erroneous interpretations regarding the change in the composition of the CB’s international reserve position as at end December 2021. Accordingly, the CB wishes to clarify that the changes in the composition of official reserves is in accordance with the current reserve management needs and priorities, considering all aspects of the reserve management requirements, as set out above.

In fact, the CB’s gold holdings by end 2008 was only $92 million (3.6 per cent of gross official reserves of $2.6 billion), but was gradually increased by end 2014 to $893 million (10.9 per cent of gross official reserves of $8.2 billion). Hence, it is evident that the share of gold holdings in the reserve may change from time to time, reflecting the needs of the CB to buy, hold or liquidate its gold holdings in accordance with the prevailing reserve management priorities.”