What are national bank reserves for?
Mugur Isarescu said that Romania’s entire gold reserve would run out in a single year if it were used to cover the hole in the social security budget.
22 Iulie 2010, 10:46
Governor Mugur Isarescu explained that the central bank cannot directly underwrite the state budget deficit, since this is in direct violation of European legislation.
He also said that, even if that move were legal, covering deficits from international reserves would reduce drastically the state’s solvency, diminishing its chances of being lent money on the international market.
“This year Romania has to borrow 8 to 9 billion Euro for the government sector, either from the domestic or foreign markets.These loans have to be backed by guarantees that the country can eventually pay its debts. These loans would be impossible were they not backed up by our country’s present reserves”., said The governor of the National Bank, Mugur Isarescu.
Mugur Isarescu said that Romania’s entire gold reserve would run out in a single year if it were used to cover the hole in the social security budget.
The governor explained that the purpose of having gold reserves is to provide a state with credibility and with the opportunity of getting good loans on the foreign markets.
It is also meant to boost the credibility of its economic, monetary and foreign currency exchange rate policies.
“The reserve is an element of credibility. On the international scene, our traditional saying still holds: Money is drawn to money. Which means that if a country has a solid international reserve, it can attract more money. It is impossible to make adjustments by resorting to the reserve.Let us say we use the reserve to pay for some social commitments such as pensions, but that would make the state unable to borrow money to cover its budget deficit, which stems from exactly this kind of spending” said Mr. Isarescu.
The National Bank makes profit from managing the reserve, such as the interest rate obtained from depositing it with financial institutions.
The governor emphasized the fact that 80% of that profit goes straight to the state budget. Last year, these profits contributed to the state budget 300 million Euro, around 25 million Euro every month, the equivalent of 150,000 average pensions.
According to the central bank, Romania’s reserves, hard currency plus gold, last month reached almost 35 billion Euro.
(Radio România Internaţional, Serviciul în limba engleză).
