The holding and managing of the official reserves and other financial assets is one of the basic tasks to be carried out by the national central banks of the EU Member States, which have adopted the euro, and by the European Central Bank (ECB), all operating under a single framework, the Eurosystem. This task has been stipulated by the Treaty establishing the European Community and namely the Statute of the European System of Central Banks and of the European Central Bank annexed to the Treaty.
Official reserves and financial investments are the financial assets of Latvijas Banka that cover the relevant liabilities of Latvijas Banka, including currency in circulation and government and commercial bank deposits with the central bank. Total financial investments of Latvijas Banka comprise securities denominated in foreign currencies and euro and gold. Financial investments mainly include debt securities denominated in US dollars, euro and other currencies, e.g. the Canadian dollar and the UK pound sterling. These securities are issued by central governments and their agencies, international organisations, banks and corporates, as well as issuers of asset-backed debt securities.
In order to enhance diversification, Latvijas Banka started investing in equities in 2018. Exposure to equities is relatively small comparing to investments in fixed income instruments.
The gold reserves were built as an instrument to ensure monetary stability in Latvia at the beginning of the 20th century. Nowadays, gold is still accounting for a small portion of the total foreign reserves of Latvijas Banka. This component of foreign reserves is stored at the Bank of England. This precious metal is mostly of social, political and emotional significance: the gold reserves were amassed during the years of the formation of the first Republic of Latvia and the initial decades of independent statehood; moreover, their historical importance has not faded over the years.
A small portion of foreign reserves in the euro area managed by the ECB
Like the central banks of other EU Member States which have introduced the euro, Latvijas Banka has transferred a small portion of its foreign reserve assets to the ECB foreign exchange reserves for management. Accordingly, Latvijas Banka is entitled to a euro-denominated claim against and receives interest rate income from the ECB: due to the euro changeover, at the beginning of 2014 Latvijas Banka has transferred to the ECB for management 3.5% of its foreign reserves, i.e. foreign currency and gold. At the moment of transfer, the holding was worth 205 million euro (with gold accounting for 15% of foreign reserves or around 31 million euro). Why exactly this amount? The central banks of the euro area countries are shareholders or co-owners of the ECB, and the amount to be transferred to the ECB for management is calculated using a capital key or the respective country's share in subscribed capital of the ECB.
Management of financial investment
Latvijas Banka manages the foreign reserves and other financial assets with an objective to provide capital preservation, liquidity and and income in a medium term, thus providing funds to cover central bank's operations. Latvijas Banka also takes into account sustainability principles in the management of financial assets.
Additional information
Detailed information about the foreign reserves and other financial investment is available in Latvijas Banka's Financial Statements.
Information on financial risks and Latvijas Banka's performance results in respect to foreign and gold reserves management is also available in annual reports of the central bank.