Cyprus is resisting pressure from the European Commission (EC) and the International Monetary Fund (IMF) to sell its gold reserves to finance its “bailout”. The Cypriot Finance Minister said that a sale of its gold reserves was not the only option under consideration to pay down its debt and that other alternatives were being considered.
Cyprus has 13.9 tons (c. 447,000 troy ounces) of gold reserves which are worth some 436 million euros at today’s market prices. The international bailout imposed on Cyprus involved 10 billion euro ($13 billion) and therefore the Cypriot gold reserves are worth a mere 4.36% of the bailout.
“The possibility of selling gold is known, but only as an option,” Finance Minister Harris Georgiades told reporters. He did not elaborate on what the alternatives were according to Reuters. The government in Cyprus may release that in the event of Cyprus leaving the euro and returning to the Cypriot pound, their gold reserves could provide support for the fragile newly-launched national currency. International lenders have imposed a 10 billion euro bailout on the country, which was forced to seize bank deposits in two major banks in radical new “bail-ins” to finance the sudden bailout in March.
Cyprus continues to see capital and currency controls today, meaning that a euro in Cyprus is no longer the same as a euro in France or Germany. The International Monetary Fund and the European Commission stipulated that Cyprus should sell its gold reserves at the time of the bailout. “It will be considered, when the time comes, with options, or rather, all other options,” Georgiades told reporters. Asked if this meant there was a possibility of Cyprus not selling its gold, he answered: “When that time comes other options will be examined.”
An assessment of Cypriot financing needs prepared by the European Commission in March said that Cyprus has to sell its gold reserves. Officials have attempted to play down the issue, saying the matter is not a priority for the government. There was also speculation that a possible gold sale would be a precedent and could lead other Eurozone and other debtor nations to consider gold sales, and a suggestion that this contributed to gold’s weakness.
Nations may consider using gold reserves as collateral, as proposed by the World Gold Council, in order to maintain confidence in their debt and keep yields low – but they will be reluctant to sell gold reserves completely. Should the Cypriot gold sale happen, it would be unlikely to set a precedent for other troubled Eurozone countries such as Italy, as these nations now greatly value their gold reserves as important stores of value that will protect against currency devaluations. There is also the likelihood that debtor nations will be very reluctant to sell their gold reserves to finance bailouts of their banks and financial sectors, which have been lent to irresponsibly by international banks.
Cash-strapped individuals and nations such as Cyprus are being forced by circumstance to sell their gold while creditors are continuing to accumulate it.