Optimal composition of the official reserves of the CBCS

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Central Bank of Curacao and Sint Maarten. Photo stmaartennews.com

 

WILLEMSTAD / PHILIPSBURG — The Centrale Bank van Curaçao en Sint Maarten (CBCS) recently  sold 30% (125,000 out of a total of 420,394,993 fine troy ounces) of its total gold reserves in order  to enhance its resilience and increase revenues, investing the proceeds in fixed income securities (U.S. government bonds). This optimization of the composition of the official reserves and the  resulting increase in revenues will have a positive effect on the CBCS’s results and the targeted  annual dividend payment to Curaçao and Sint Maarten pursuant to Article 40 of the Bank’s Charter. 

“Prior to the sale, the CBCS’s capacity to absorb operational losses was nil, meaning that, in  accordance with the Bank’s Statute, the Countries had to immediately replenish its capital in the  event of any financial setback,” CBCS President Doornbosch explained.  

“The CBCS would like to emphasize that this sale of gold only changed the composition of the  official reserves and not their volume. The transaction therefore has no impact on the stability of  the guilder’s peg to the US dollar. The stability of the peg remains assured,” said Richard  Doornbosch.  

With the agreement of the Countries, the net result of this gold sale has been added in full to the  reserves of the CBCS, thereby strengthening the ability of the CBCS to absorb financial shocks. 

Already in 2021, the CBCS was considering replacing a limited portion of its gold reserves with  other assets to optimize their composition and effectiveness. A confidential IMF review of the  official reserves in April 2021 showed that the CBCS’s gold holdings were substantially higher than  those of other central banks in the region (its “peer central banks”) and that there was room to  convert some of its gold into fixed-income securities to optimize its official reserves. This analysis  was updated by the IMF in November 2023, stating that this adjustment will have the effect of  reducing the market risk of the CBCS’s official reserves, since the price of fixed-income securities  is less volatile than that of gold. 

For the sake of completeness, the CBCS also refers to press release PB 2021-007, dated April 28,  2021, which discusses the CBCS’s then-current consideration to sell some of its gold.