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Dáil Éireann díospóireacht -
Wednesday, 28 Nov 2001

Vol. 545 No. 2

Written Answers. - Central Bank Reserves.

Jim Mitchell

Ceist:

91 Mr. J. Mitchell asked the Minister for Finance if he had discussions with the Central Bank regarding the reserves of the bank; his estimate of the level of free reserves or other reserves at the Central Bank; the purpose of these reserves as Ireland is a part of the euro zone; and if he will make a statement on the matter. [30208/01]

I am informed by the Central Bank that the level of its accounting reserves at the end of September stood at 1,450 million. As with any balance sheet, the Central Bank's total assets have a counterpart in liabilities. The liabilities side includes deposits, by credit institutions and government, legal tender notes and the bank's capital. It also contains a revaluation account, which acts in part as a buffer against exchange rate movements and the bank's accounting reserves. The latter consist of the superannuation, currency and general reserves and have been accumulated by the bank over the years from income earned from its operations.

These accounting reserves must be distinguished from the so-called official external reserves. The latter represent the bank's external holdings, principally of deposits or instruments denominated in foreign currency and amount to over 6 billion. It must be remembered that the bank also has considerable liabilities that must be set against these assets, and the external reserves are not, therefore, free assets which could be liquidated and handed over for some other purpose. The suggestion sometimes made, therefore, that this 6 billion can somehow be regarded as unencumbered, and available for other purposes, is therefore unfounded.

It is therefore the bank's accounting reserves which most accurately reflect its net position. The bank's balance sheet must, at any given time, be sufficiently strong to underpin its credibility as a major financial institution, with minimal credit risk for the many financial institutions which act as counterparty to its monetary policy and foreign exchange rate operations. This requires that the bank should also have sufficient reserves to meet any adverse market developments or other contingencies which might result in losses for the bank. As a participant member of the European system of central banks, the strength of the Central Bank's balance sheet must also contribute to the overall financial strength and stability of the euro system.
An event such as the changeover to the euro, which is having such a large effect on the financial system, and the culmination of which will be seen at the very beginning of next year in the actual changeover to euro notes and coins, naturally gives rise to some consideration of the role and purpose of the Central Bank and its balance sheet. The role of the bank in relation to monetary and exchange rate matters have, of course, been largely determined already, having regard to the various applicable Treaty provisions, and the changes in domestic legislation required by those.
As regards the balance sheet issue, I have taken the opportunity recently to invite the board of the Central Bank to consider whether a portion of its accounting reserves might be made available to the State. In its reply, the board indicated to me that when the changeover to the euro is completed, it will be conducting a review of the level of accounting reserves. I will be examining the results of this review when they become available.
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