Cyprus Central Bank rejects government call to sell part of its gold reserves

Cyprus' central bank rejected government calls to sell part of its EUR250 mln in gold reserves in order to reduce public debt. The Central Bank of Cyprus said in a statement that it cannot afford to sell any of its 14 tons of gold held in reserve because it would be unable to respond to a financial crisis or help the European Central Bank cover possible losses.

The Cyprus bank's gold reserves, relative to its assets and the value of circulating currency, are only a fraction of what other Eurozone central banks hold, the statement said.
It said a similar call was made by the previous government last year and that Central Bank officials cautioned against it. The statement said nothing has changed to warrant a shift in the bank's position following the request from the country's new Communist-rooted administration in March.

"The Central Bank has a legal obligation to decide, of its own accord, both the level and the management of its reserves so that it can ensure its financial independence," the statement said.
On Wednesday, the government said it had asked the central bank to sell part of its gold reserve to reduce public debt that stood at 60.9 percent of GDP at the end of 2007. It is projected to drop to 52.5 percent this year.

"Through the sale of the gold, the government aims to pay down part of the public debt so it can lead to a sharp drop in interest payments the state makes each year," government spokesman Stefanos Stefanou said.