Archived World Gold Council Document

At the second meeting of its Governing Council on 7 July, the European Central Bank took the decision to hold 15% of its foreign reserves in the form of gold. Although the Bank has the right to call up to Euro 50 billion of foreign reserve assets initially, it has chosen to limit the total to some Euro 39.5 billion (about $43.5bn) at this stage, thereby leaving room for later contributions by the four EU countries which are not participating in monetary union at the outset.
     15% of Euro 39.5 billion is about $6ý billion, or approximately 21.7 million oz (675 tonnes) of gold at today’s market price.
     The fact that 15% is the agreed figure sends a positive signal to the market about the importance which the ECB attaches to gold. At the inaugural meeting of the Governing Council in June, President Duisenberg had spoken of a possible 10% - 15% range. It is therefore gratifying that the actual decision has chosen the top of that range.
     The vast majority of the eleven ECB members’ gold (some 400 million oz. or 12,460 tonnes) will remain in their own hands. Some market commentators have suggested that this "overhang" will now be sold. There are two important reasons why this will not be the case:

• the major European holders of gold (Germany, France and Italy) have made it clear that their attitude to their gold holdings will remain the same as it was before monetary union. In other words, they will continue to hold it.
• the ECB itself will establish guidelines with respect to foreign reserve asset transactions. This will subject "all operations in foreign reserve assets remaining with the national central banks - including gold" (Dr Duisenberg) to approval by the ECB.

     Future sales of gold by ECB members on any significant scale are therefore likely to need prior clearance from the ECB. Votes on such matters will be weighted by country shares in the ECB and the three large gold-holding countries will have a clear majority.