The Central Bank of Ecuador (BCE), in compliance with its function of preserving and managing the country’s International Reserves (IR), carried out a technical assistance with the World Bank at the beginning of 2023, followed by another with the Inter-American Development Bank. The objective was to analyze the management and composition of the IR[1]. As a result of these technical assistances, an excess was identified in the participation of monetary gold as a percentage of the total IR, motivating the need for asset rearrangement.

Therefore, within its competencies, the BCE administration presented a technical proposal for the rearrangement in the composition of external assets available for investment to its highest governing body, the Monetary Policy and Regulation Board, which was approved in December 2023. This technical decision successfully converted over 241 thousand troy ounces of gold into USD 494 million, which is being invested in secure and liquid financial instruments, generating additional income for the BCE[2].

Through the asset rearrangement, the BCE achieved four important accomplishments: i) increasing the liquidity of IRs; ii) reducing the volatility of monetary gold in the IRs; iii) capitalizing the BCE as established by the Organic Monetary and Financial Code (COMF); and iv) increasing IRs profitability. This technical decision safeguards the liquidity and security of the resources managed by the BCE.

It is important to highlight that, following this operation, the BCE maintains sufficient monetary gold position that would allow to activate its contingency liquidity lines for over USD 1 billion with the Bank for International Settlements (BIS) and the Latin American Reserve Fund (FLAR) for exclusive central banking operations.

The main motivation behind this measure is to strengthen Ecuador’s monetary system. However, this asset rearrangement also resulted in a positive externality for the fiscal sector, as it generated additional profits of USD 252.9 million for the BCE, of which up to 70% will be distributed during the first quarter of 2024 to the Ministry of Economy and Finance, as stipulated by the Organic Monetary and Financial Code.

The Central Bank of Ecuador reaffirms its commitment to monetary stability and adequate management of International Reserves, in order to continue strengthening trust of depositors in the financial system and of the entities that hold their deposits in the BCE.

[1] International Reserves are composed of liquid assets: i) cash, ii) monetary gold, and iii) investments abroad denominated in dollars, mainly in monetary entities and multilateral organizations.

[2] Historically, the Central Bank of Ecuador has not generated income from investments by holding physical monetary gold, but has incurred in custody expenses.