The role of gold reserves among the assets held by the National Bank of Poland

Abstract

This article is an in-depth look at the functionality of gold reserves at the National Bank of Poland. At the same time, it attempts to outline the purpose of the gold reserves. The author begins with presenting the specific inverted correlation of the role of gold and the US dollar, which are the previous and current unofficial reserve asset of the world. In doing so, he tries to explain the individual functionality of each of them in the reserves of central banks and outlines the necessity for diversification. The article discusses in detail the overall assets held by the National Bank of Poland and how they have changed over the past few years. For comparison, domestic gold reserves are presented against several selected jurisdictions, with detailed comments. An important part of the article is the discussion on the recent Basel III regulations and how they changed the role of gold from speculative asset to a trusted one. In this section the author also focuses on reversal of the selling trend by central banks and the legal separation of physical and ‘paper’ gold. Establishing a formal and legal framework, the author focuses on gold in the reserves of the Polish central bank. The article provides a historical overview of how the composition of reserves have changed between 1939 and 2021, and shows in detail how Polish gold is currently divided between Polish treasuries and the London market. The author explains the reasons for such diversification, and provides information on future declared volume changes. The article concludes that based on the current situation in the financial markets and the decade long trend in net gold purchases by central banks, the diversification of assets by adding gold should be considered as logical and innovative at the same time.