Lithuania’s gold reserves
We manage 5.8 tons of gold. This reserve had been accumulated in the interwar period and was recovered in 1993, after the restoration of Lithuania’s independence.
The pre-war gold holdings were returned to the Bank of Lithuania by the central banks of England and France, as well as the Bank for International Settlements, located in Switzerland. A pecuniary compensation was received for gold held in Sweden. The Bank of Lithuania’s gold is held in the Bank of England vaults in London. Gold investments not only cover gold storage costs, but also earn significant income. The amount and value of the gold reserves managed by the Bank of Lithuania are available on the Bank of Lithuania website.
Why gold is held in the Bank of England?
The gold reserves accumulated during the interwar period were recovered by the Bank of Lithuania from the Bank of England and the Banque de France as well as from the Bank for International Settlements located in Basel. The gold retrieved from the first two banks was transferred to the Bank of Lithuania’s account at the Bank of England. The gold returned by the Banque de France was remelted to meet the loco London Good Delivery gold standard and transferred to the Bank of England as well. The latter bank was chosen as the custodian for Lithuania’s gold so that it could be invested. If the gold had been transferred to the Banque de France, it could have also been invested but interest rates and market liquidity in this case were significantly worse. Transporting gold physically to Lithuania would have been very expensive. In addition to that, gold storage in Lithuania would lead to a lack of investment possibilities, thus the annual return on gold investment would be lost. Furthermore, storing gold in Lithuania might also raise certain geopolitical security challenges. Presently, the Bank of Lithuania has no plans of changing the storage location and the quantity of its gold reserves.
As much as 5.8 tons of Lithuanian gold are currently held at the Bank of England. Gold storage costs are only incurred when the Bank of Lithuania does not invest its reserves and simply stores them in the Bank of England’s vaults. Although everything usually gets invested, on very rare occasions, when investment conditions are unfavourable, the gold reserves remain untouched, which in turn incurs a certain fee. The Bank of Lithuania has a total of 466 gold bars. In the event if nothing gets invested, the annual storage fee is a little bit over GBP 5.5 thousand. For comparison, the return on gold investments (via the Bank of Lithuania’s eligible financial instruments) is up to 0.3%. Therefore, over the past decade, the Bank of Lithuania has earned €6.5 million from gold investment (not taking into account volatility of gold prices), which, on average, amounts to a bit over €600 thousand per annum.
Traditionally, national gold reserves are stored in a country where its size, geopolitical situation, military power and other circumstances are sufficient for gold safety. Another important factor when choosing the location for gold custody is the ability to invest gold easily from where it is stored. This ensures that there are no additional freight costs after the transfer of ownership. In cases where most market participants store their gold at the same location, the invested gold (deposited or swapped – these are the transactions eligible for the Bank of Lithuania) is simply moved from one spot to another without leaving the custodian vaults.
Investment of gold
We generally invest gold in two ways: either gold deposits are conducted, thus earning interest, or through gold swaps, i.e. temporarily exchanging gold into other currencies, for example, US dollars or euro, and then investing it. The majority of profit earned by the Bank of Lithuania, including profit from gold reserves, is transferred to the State Budget to meet public needs.
Gold reserves and the Eurosystem
With the introduction of the euro in Lithuania, the Bank of Lithuania became the nineteenth central bank in the Eurosystem and a co-proprietor of the Eurosystem foreign reserve assets. The Bank of Lithuania transferred its contribution in gold, which it acquired in financial markets, maintaining the amount of the gold reserves under its management unchanged. On 1 January 2015, the Bank of Lithuania also signed the fourth Central Bank Gold Agreement, limiting the amount of gold that signatories can sell during a five-year period. After this period, the agreement is reviewed and updated. All euro area countries, the European Central Bank and other European banks are parties to this agreement.