When Cyprus joins the euro-zone, provided that it fulfills all the minimum criteria, its share and contribution to European Central Bank (ECB) reserves will be 0.13% or an estimated EUR 60 mln.
The 0.13% share of ECB reserves has been calculated on the basis of population and GDP. With ECB reserves now at some EUR 40 bln and expected to continue higher by the time Cyprus joins the euro-zone on January 1, 2008, the Cyprus share of ECB reserves will by then amount to EUR 60 mln.
According to Financial Mirror sources, it is not yet clear in what currencies Cyprus will be called to contribute its share. The ECB currently holds its reserves in US dollars, Japanese yen and gold. This means that Cyprus will be called to contribute in any of the above, which will then be returned to Cyprus to be managed on behalf of the ECB, as is the practise with all other member states.
— 65% of reserves in euros
The increase in global interest rates and a major influx of foreign currency helped boost the international reserves of Cyprus during 2005 to the equivalent of CYP 2.13 bln (EUR 3.6 bln), up by CYP 413 mln (EUR 707 mln) from the total reserves of CYP 1.7 bln (EUR 2.9 bln) at the end of 2004.
Central Bank Governor Christodoulos Christodoulou told the Financial Mirror that 65% of the international reserves, or the equivalent of CYP 1.3 bln (EUR 2.2 bln), are held in euros, the rest spread among US dollars, Pound sterling and Swiss francs, while some 5%, or the equivalent of CYP 105 mln (EUR 180 mln) is held in gold.
“The surge in our international reserves has helped the liquidity, but the strong influx of money into Cyprus has its negatives, in the form of feeding rising inflationary pressures,” Christodoulou said.
The current inflationary pressures to the upside were cited by Christodoulou as the reason why the Central Bank has called on the government and the House to abide by the fiscal restraint programme. Otherwise, the euro adoption effort by January 2008 may not succeed.
“You saw what happed with Lithuania, which could not convince the E-12 about the sustainability of its inflation reduction programme,” said Christodoulou, adding that Cyprus should not spare any effort especially up to May 2007 when its application to lock the currency with the euro will be reviewed.
