Publishing date: 12.02.2014
The principal changes in Latvijas Banka's assets and liabilities on the 31 January 2014 balance sheet as compared to 31 December 2013 and the reasons for these changes.
On 1 January 2014 Latvijas Banka joined the Eurosystem which is composed of the national central banks (NCBs) of the euro area and the European Central Bank (ECB). Upon joining the Eurosystem, the structure of Latvijas Banka's balance sheet has been changed in line with the breakdown used by other central banks of the Eurosystem and in drafting the consolidated financial statements of the Eurosystem (see the information on the structural changes of the balance sheet of Latvijas Banka as at 31 December 2013 
).
The Statute of the European System of Central Banks (ESCB) and the ECB (hereinafter, the "Statute") stipulates that the NCB joining the Eurosystem shall pay up its share in the ECB capital in full, as well as in the ECB's reserve capital, provisions equivalent to reserves and the financial instrument revaluation account. The subscribed share of Latvijas Banka in the ECB's capital is 30.5 million euro (the percentage share or the capital key is 0.2821%); pursuant to the transitional provisions of the Statute and the decision of the ECB's General Council, it was paid up in the amount of 1.1 million euro or 3.75% up to 31 December 2013 (see notes in the financial statements of Latvijas Banka of previous years). Upon joining the Eurosystem, Latvijas Banka paid up the remaining share in the ECB capital. The above contribution is reported under the balance sheet item "Participating interest in the European Central Bank", with a respective decrease in the balance sheet item "Claims related to TARGET2 and national central bank correspondent accounts (net)".
Pursuant to the Statute, the NCB joining the Eurosystem shall transfer a definite amount of its foreign reserves to the ECB. The amount of the foreign reserves to be transferred is also defined in proportion to the share of each NCB in the ECB subscribed capital. Upon joining the Eurosystem, Latvijas Banka transferred 205.3 million euro to the ECB which is equal to Latvijas Banka's proportionate share of the market value of the foreign reserves transferred by other Eurosystem NCBs. Gold accounted for 15% or 30.8 million euro of the above and Japanese yen for 85% or 174.5 million euro. For the foreign reserves transferred to the ECB Latvijas Banka received a claim credited by the ECB in the amount of 163.5 million euro, i.e. in proportion to the value of the respective claims of other Eurosystem NCBs. The difference between the market value of the transferred foreign reserves and the value of the above claim is reported as a contribution to the ECB's capital (see the previous explanation). The above transactions had the following effect on the balance sheet items: a decrease in "Gold and gold receivables" and "Claims on non-euro area residents denominated in euro"; an increase in "Claims equivalent to the transfer of foreign reserves to the European Central Bank" and "Participating interest in the European Central Bank".
In January 2014 the amount of loans granted by Latvijas Banka in the main refinancing operations decreased, down to 1 million euro at the end of the month.
In view of the fact that euro cash is issued in circulation by all NCBs of the Eurosystem, each NCB reports banknotes in circulation on its balance sheet in proportion to the share of the ECB's capital in the total amount of euro banknotes issued by the Eurosystem rather than the actual amount issued. As a result, the amount of banknotes actually issued is adjusted on the balance sheet (increased in the case of Latvijas Banka) as the proportionate share of Latvijas Banka in the total amount of euro banknotes issued by the Eurosystem is larger than the amount of banknotes issued in Latvia. As a result of the above adjustment, respective claims on the ECB for the allocation of banknotes are reported under the balance sheet item "Claims related to other operational requirements within the Eurosystem" of Latvijas Banka. As at 31 January 2014 the balance sheet item "Banknotes in circulation" comprised the euro banknotes actually issued in circulation in the amount of 584.2 million euro, as well as the lats banknotes in circulation which had not been exchanged for euro (on 31 January 2014 the outstanding amount was 211.1 million euro). In line with the balance sheet structure the euro coins issued by Latvijas Banka and the non-exchanged lats coins in the amount of 38.2 million euro and 71.6 million euro respectively are reported under the balance sheet item "Other liabilities".
As a result of a decrease in the minimum reserve requirements of credit institutions, as well as a change in several credit institutions' liquidity management policy when joining the euro area, deposits of credit institutions with Latvijas Banka decreased in January 2014 (balance sheet item "Liabilities to euro area credit institutions related to monetary policy operations denominated in euro"), with credit institutions making cross-border payments via the TARGET2 settlement system. TARGET (Trans-European Automated Real-time Gross settlement Express Transfer System) is a real-time settlement system effecting interbank settlements in euro in the central bank money.
An increase in the funds deposited by the government (balance sheet item "Liabilities to other euro area residents denominated in euro") mostly resulted from the government bond issue in the amount of 1 billion euro in January 2014.
As a result of changes in credit institution and government deposits, a decrease was recorded in claims on the ECB reported under the balance sheet item "Claims related to TARGET2 and national central bank correspondent accounts (net)", mostly reflecting the settlement result in the TARGET2 settlement system