What is the justification for maintaining the current foreign exchange reserves on the balance sheet?
Holding and managing the official foreign reserves of the Member States of the Union are among the basic tasks of the ESCB (cf. Article 105(2) of the Treaty establishing the European Community).
At the start of stage 3 of European Monetary Union, the NCBs transferred to the ECB foreign exchange reserves totalling 40 billion euro (of which some 1.4 billion euro was transferred by the Bank). It is primarily these reserves that the ESCB uses to conduct foreign exchange operations under Article 111 of the Treaty. If necessary, the ECB may – within the limits and under the conditions set by the Statute of the ESCB – call for supplementary transfers of foreign reserve assets from the NCBs. The Bank therefore maintains a “precautionary reserve” of foreign exchange assets.
The reserves also help to reinforce the credibility of the Eurosystem. From that point of view, what matters is the size of the foreign exchange reserves of all the Eurosystem central banks together.
At national level, the exchange reserves are used:
- to respect commitments under international monetary cooperation agreements signed by Belgium, in particular in relation to the IMF;
- to carry out transactions relating to international monetary cooperation, e.g. under the aegis of the BIS;
- where appropriate, for operations (e.g. the provision of USD liquidity) promoting the stability of the financial system (cf. Article 12 of the Organic Law).
The foreign exchange reserves also contribute towards the diversification of the Bank’s assets.