THE NATIONAL BANK OF HUNGARY TRIPLED ITS GOLD RESERVES TO 94.5 TONNES
Budapest, 7 April 2021 - The National Bank of Hungary (MNB) has increased Hungary's gold reserves from 31.5 tonnes to 94.5 tonnes, in line with its long-term national and economic strategy objectives. With this decision, the MNB has continued the process started with the increase in the gold reserve in 2018, which has resulted in Hungary moving from the middle to the top third of the international ranking by March 2021.
Throughout history, gold has played many roles in different financial systems. Although gold's importance in monetary policy terms declined in the 1970s, its role as a traditional reserve asset remained of paramount importance thereafter. As a credit- and counterparty-risk-free asset, gold helps to build confidence in a country in all economic environments, and remains one of the most important reserve assets worldwide, alongside government bonds. In recent years, the role of gold in international reserves has been strengthened for many central banks. Central bank demand for gold reached record highs in 2018 (656 tonnes) and again in 2019 (669 tonnes).
The National Bank of Hungary has decided to triple the gold reserve, taking into account long-term national and economic strategic objectives. The decision also played an important role in addressing the new risks that emerged in the wake of the coronavirus epidemic. Rising global sovereign debt or the emergence of inflationary fears further reinforce the national strategic importance of gold, its role as a safe haven and its function as a store of value. With the recent decision of the MNB, the country's gold reserves have increased from 31.5 tonnes to 94.5 tonnes, which has moved Hungary from 56th to 36th place in the international ranking of gold reserves, while it has improved its position from 6th to 3rd place in the Central and Eastern European region. The country's gold reserve per capita has increased from 0.1 ounces to 0.31 ounces, so Hungary now has the highest gold reserve per capita in the Central and Eastern European region.
The National Bank of Hungary has held gold reserves since its foundation in 1924. The gold reserves were maintained until the Second World War, when the MNB's legendary "Gold Train" was used to transport some 30 tonnes of gold bullion and gold coins to Spital am Pyhrn in Austria. The gold reserves were returned in full to the country after the end of the war, providing collateral to support the stabilisation of the Hungarian economy and financial consolidation when the new currency, the forint, celebrating its 75th anniversary this year, was introduced. At the time of the change of regime, Hungary's gold reserves were reduced in several stages from 46 tonnes to 3.1 tonnes, following a decision by the then management of the National Bank of Hungary, and remained unchanged until 2018.
The MNB decided to significantly increase the gold reserve for the first time in 2018, based on long-term national and economic strategic considerations, and in October 2018 the level of the gold reserve was increased tenfold (from 3.1 tonnes to 31.5 tonnes), bringing the MNB in line with the level of gold reserves in the regional countries. With its current purchases, the MNB has continued the process started in 2018.
MNB increases Hungary's gold reserves tenfold
In view of long-term national and economic strategic goals, the Monetary Council of the National Bank of Hungary decided to significantly increase the country's gold reserves, as a result of which the stock of the precious metal increased tenfold from 3.1 tonnes to 31.5 tonnes in October 2018. For the first time since 1986, i.e. for the first time in 32 years, the National Bank of Hungary has repurchased gold. Following a significant increase in the physical gold stock, it has already been repatriated.
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In 2018, the National Bank of Hungary increased its gold reserves tenfold and repatriated its foreign holdings. The Monetary Council of the National Bank of Hungary (MNB) has taken a historic decision to review its gold reserve policy, taking into account the country's long-term national and economic strategic objectives. As a result, in a first step, the central bank transferred its gold reserves from London to storage locations in Hungary in March 2018, and then increased the total stock tenfold by October 2018. The gold stock increased from 3.1 tonnes to 31.5 tonnes. In 2018, the MNB bought gold for the first time in three decades.
On the occasion of the announcement, the National Bank of Hungary also published a "gold book", which provides an insight into such key periods as the centuries of gold coins, the domestic ownership of our national treasure in the form of gold coins, the development of the gold standard, the development of the gold standard in Hungary, the domestic ownership of the precious metal is in line with international trends, supports financial stability and can further strengthen market confidence in Hungary. Gold remains one of the safest assets in the world, maintaining its historical role, and it is already performing its stability and confidence-building functions under normal market conditions. The stock of 31.5 tonnes of gold reserves, amounting to some USD 1.24 billion at current exchange rates, has also reached the historic level of the gold reserves available to us at the time of the "gold train". The share of gold reserves in the international reserve has thus risen to 4.4%, which is in line with the average for non-euro area Central and Eastern European countries.
The role of gold reserves in national and economic strategy is increasingly recognised, while both the domestic possession of the precious metal and the increase in its stock are emerging as a major international trend. In line with this trend, the Hungarian National Bank has taken a strategic decision to increase the domestic gold reserve to 31.5 tonnes. The increase and physical transfer of the gold reserve took place in the first half of October 2018.
Increasing the stock of gold reserves and bringing them home is also a significant step in economic history. The National Bank of Hungary has been holding gold reserves since its establishment in 1924, but the size of the reserves has fluctuated widely over the decades, depending on the purposes for which they are held. The gold reserves increased until the end of World War II, when some 30 tonnes of gold bullion and gold coins were exported on the MNB's legendary "gold train" to Spital am Pyhrn in Austria. This quantity was returned to the country in its entirety after the war, providing cover for the introduction of the country's new currency, the forint, thus supporting financial consolidation and the stabilisation of the post-war Hungarian economy. In the late 1980s, Hungary's gold reserves fluctuated around 40-50 tonnes, driven by short-term investment objectives, and then fell to a minimum level of around 3.1 tonnes during the regime change (1989-1992), following decisions by the then central bank governors, and remained at that level until the end of September 2018. With the current decision of the MNB, the stock of gold reserves reached 31.5 tonnes by October 2018, a level typical of the stabilisation period of 1946.
Gold reserves are held by countries' central banks for short-term investment and/or long-term stability purposes. The current decision of the National Bank of Hungary is driven by stability objectives, there are no investment considerations behind the holding of gold reserves. Gold also has a confidence-building property in normal times, i.e. it can play a stabilising and protective role not only in extreme market conditions, structural changes in the international financial system or deeper geopolitical crises. Nevertheless, gold is still considered one of the safest assets, due to its unique characteristics such as the finite supply of physical precious metals, which are not associated with credit and counterparty risk, given that gold is not a claim on a specific partner or country. In recent years, an increasing number of countries have decided to reassert the dominant role of the precious metal as a traditional reserve asset and to increase their gold reserves. Poland, for example, has recently followed this path, despite already having one of the highest gold reserves in the region. In raising the domestic gold reserve to 31.5 tonnes, the MNB has also taken into account the international and regional role of the precious metal in central bank reserves. This brought the Hungarian gold reserve ratio to 4.4% of the total international reserve ratio, in line with the regional average in Central and Eastern Europe. With this move, the country has moved from the bottom of the international ranking to the middle of the pack, both in terms of the size and the share of gold reserves.
It is either the rescue of the country's gold reserves or the recent repatriation of the country's gold reserves.