OREANDA-NEWS. On 19 May 2008 was announced, that as of May 1, 2008 the volume of the international reserves constituted 1 121.81 mln. USD. The National Bank's international reserves included assets in gold - 6.43%, Special Drawing Rights (SDR) - 2.65% and foreign currencies portfolio - 90.91%.

Gold, as an investment asset, is not a highly liquid instrument by definition in accordance with certain currently effective rules at the international market of gold and agreements regulating operations with them. Recently the increase of prices for the given asset was the consequence of the real estate loans crises in the US, which had an impact at the international level and has resulted in increased speculative activities at the gold market. For the purpose of restraining consequences of various crises affecting the volume of gold offers at international markets, 15 central banks - largest gold keepers, have signed Washington Agreement of 1999, which was extended till 2009 in 2004. The given agreement establishes and consolidates sales quotes for the asset under consideration.

Considering high fluctuation of prices, gold assets increase at the expense of the currency part of international reserves at present is inexpedient for the following major reasons.

Payments of the KR Government on servicing the external debt, financing foreign representations and etc., shall be carried out in foreign currency and not in gold. The National Bank shall have to keep the portfolio in liquid assets. The Central Bank being a non-commercial financial organization, without setting making profit as a priority, will be using international reserves for timely adjustment of the national currency exchange rate to maintain stability of prices by following the appropriate monetary crediting policy. Maximizing incomes from managing reserves shall be the objective of the central bank only in the case the liquidity and security of reserves is ensured.

Dynamics of the currently applied interest rates at the international gold market evidence the low profitability of assets in gold. The gold (deposits) is a less liquid instrument than securities or other instruments in foreign currency. The gold placed on a fixed deposit is a non-liquid instrument due to the fact that before termination of the deposit?s term, the investor can not use the gold. Early termination of the contract may result in fines and other expenses. Practically gold does not bring any income if placed on bank accounts.

Speculative operations with assets in gold on the background of potential increase or decrease of prices is the flatly prohibited form of investment activity in central banks due to high loss risk. The use of the given form of operations is associated with assets liquidity risk and the market risk, which may result in the solvency and decreasing the profitability level and consequently, on the deductions of incomes to the state budget. Adhering to the principles of security and liquidity, the NBKR does not carry out operations with international reserves in carrying out them, the risk of market fluctuations could become the ground for decreasing the level of international assets and/or be the reason for decreasing the level of international assets and /or loss of assets, i.e. the National Bank shall not carry out speculative operations on the background of short-term changes in the market conjuncture but considers long-term assignments and at the same time reacts to changes in the environment. With consideration of this and to avoid credit risks the NBKR shall place gold only on deposits at first rate highly reliable foreign banks having high credit rating established by the leading highly reliable foreign banks having high credit rating established by the leading world rating agencies.

Maintaining the significant volume of gold or buying gold for the reserved currency will mean decreasing the share of other assets, i.e. of the foreign currency, its liquid part, which endangers the NBKR's its direct functions stipulated in the law "On the National Bank".

Taking into consideration the above-said currently it is inexpedient to buy or sell gold as it is first of all important to provide liquidity and security of the gold and foreign currency reserves, decrease the risks of their devaluation. The National Bank shall place reserves in various currencies, instruments and banks, diversifying risks and solving the tasks imposed on the NBKR.