Serbia’s gross foreign-exchange reserves reached a record €30.5 billion at the end of July, supported by central-bank currency purchases and proceeds from government securities issued on international markets.
The increase strengthened the country’s liquid external position and provided the National Bank of Serbia (NBS) with a larger pool of foreign assets to manage currency-market pressures and meet foreign-currency obligations. Gross reserves increased by €893 million during July. Net reserves, which exclude banks’ required foreign-currency deposits, liabilities to the IMF and certain other obligations, rose by €931 million to €25.99 billion, also reaching a month-end record. At the end of July, the reserve stock covered seven months of imports of goods and services, up from 6.8 months in June. It was also equivalent to 168.3% of M1 money supply, according to the central bank.
Foreign-Exchange Purchases Lead July Increase
The largest single contribution to the monthly increase came from the NBS’s foreign-exchange market operations. Settlement of currency purchases added €570 million to reserves during July, although €135 million of that amount related to transactions agreed at the end of June. The central bank bought a net €435 million in the domestic foreign-exchange market during July as it absorbed excess foreign-currency supply and limited appreciation of the dinar.
The currency remained almost unchanged against the euro during July and had declined by only 0.1% during the first seven months of the year. Despite the July purchases, the NBS remained a net seller of €320 million over the year to date. The intervention pattern reflects its policy of maintaining what it describes as the dinar’s “relative stability”, with reserves accumulated when foreign-currency supply is strong and deployed when demand for euros increases.
Government Borrowing Also Increased Reserves
International financial-market transactions provided another significant addition to the reserve stock. The sale of Serbian government securities on international markets generated €488 million for the reserves. The inflow increased immediate foreign-currency liquidity, while also increasing public liabilities and creating future interest and repayment obligations.
Reserve-management income, donations and other transactions generated a combined net inflow of €138 million. These additions more than offset €155 million used to meet the government’s foreign-currency obligations and €148 million in negative valuation effects, mainly resulting from a weaker US dollar and lower prices for foreign securities. The composition of the July increase therefore included both central-bank intervention and sovereign financing, rather than being generated exclusively by exports, foreign direct investment or other underlying balance-of-payments flows.
Dinar Stability Supports Euro-Linked Economy
The NBS’s substantial reserve holdings provide additional capacity to intervene in the foreign-exchange market and meet foreign-currency payments during periods of financial or external-market disruption. For Serbian households and businesses, a relatively stable dinar reduces exchange-rate uncertainty in an economy where savings, borrowing, property values and commercial contracts remain closely linked to the euro.
Exchange-rate stability also helps limit the domestic inflationary impact of imported goods, including energy, machinery and consumer products. A large stock of liquid foreign assets can also support investor confidence by demonstrating that the authorities have resources available for debt servicing and periods when access to international financial markets becomes more restricted. Reserves do not eliminate Serbia’s external exposure. The economy remains dependent on imported energy and foreign investment, while current-account pressures can intensify when domestic consumption and infrastructure investment increase. Maintaining a stable currency can also require substantial central-bank intervention if capital flows reverse or geopolitical developments increase demand for euros.
Gold Holdings Reach Record Level
Gold accounted for a significant portion of Serbia’s reserve portfolio at the end of July. The NBS held a record 54.8 tonnes of gold, valued at €6.16 billion and equivalent to 20.2% of gross foreign-exchange reserves. The central bank purchased an additional 226 kilograms during July from Serbia Zijin Copper and has acquired approximately 2.3 tonnes since the beginning of the year.
Gold provides portfolio diversification and does not carry direct counterparty exposure. Its market value, however, can fluctuate with currency and commodity-market movements. Despite the increase in physical gold holdings, the euro value of Serbia’s gold reserves declined by €36.8 million during July because of currency and market effects. The record reserve level gives Serbian policymakers additional room to respond to external shocks, while the composition of the July increase shows that part of the improvement came from sovereign borrowing and central-bank intervention. The sustainability of the external buffer will therefore remain linked to Serbia’s ability to generate export revenues and attract investment alongside its use of foreign financing and foreign-exchange market intervention.
