Last month Hungary tripled its gold reserves. The decision by the National Bank of Hungary (Magyar Nemzeti Bank, MNB) to increase its gold reserves to 94.5 tonnes, a historic high, follows a 10-fold increase in Hungary’s gold holdings in the last quarter of 2018.
Both increases were made for strategic reasons and were driven by Hungary’s long-term policy objectives. The MNB increased its gold reserves in an effort to strengthen the stability of the country’s financial system during times of geopolitical uncertainty and structural changes in the international financial system. The role of gold as a safe haven and “a major line of defence under extreme market conditions” also factored in the decision about the purchases.1
Risk management in the wake of the Covid pandemic2 and its severe impact on the global economy, played a key role in the MNB’s decision to increase gold reserves earlier this year. The unprecedented response of monetary and fiscal policies to the pandemic has resulted in sharp increases in government debts and rising inflationary pressures, bringing to the fore the role of gold as a safe haven and a long-term store of value.3
Central and Eastern European (CEE) gold holdings on the rise
Hungary is not the only country in the region that has increased its gold reserves recently. Over the last three years the activity of CEE banks in the gold market has risen remarkably, with Poland, and Serbia - previously part of the former Yugoslavia – adding significant amounts of gold to their reserves (see Chart 1).