2.7 International Reserves and Risk Management

The CBRT holds international reserves in support of a range of objectives that include assisting the government in FX-denominated domestic and foreign debt servicing, maintaining adequate FX liquidity against external shocks, supporting monetary and exchange rate policy implementation, and enhancing market confidence. The CBRT’s reserve management practices are governed by the CBRT Law No. 1211. Pursuant to this law, international reserves are managed by the CBRT in consideration of the three priorities as investment safety, liquidity, and return respectively. Accordingly, the objective of management of international reserves is to generate returns under the constraints of protecting capital and providing the necessary liquidity, with the ultimate aim being the prudent management of reserves as the country’s national wealth.

The CBRT’s institutional decision-making framework for reserve management has a three-tier hierarchical structure. Firstly, in line with the duties and powers entrusted by the CBRT Law No. 1211, the Board, as the Bank’s top decision-making authority, sets the general investment criteria for reserve management by approving the Guidelines for Foreign Exchange Reserve Management and the Guidelines for Gold Reserve Management (the Guidelines). The decisions made by the Executive Committee or the Governor, who are assigned by the Board to take the decisions regarding the implementation, in line with the Guidelines constitute the second tier of the institutional decision-making. At this point, a benchmark portfolio that reflects the CBRT’s investment strategy and general risk tolerance for the relevant year is determined upon the approval of the Executive Committee. The third and final tier of the institutional decision-making process is the implementation of reserve management practices within the preferences and constraints specified by the Guidelines and the benchmark portfolio. In line with the best practices, reserve management activities are carried out within an organizational structure based on segregation of duties. Accordingly, reserve management activities are carried out by the Reserve Management Division of the Markets Department, while related risk management activities are carried out by the Corporate Risk Management Division of the same department.

Subject to the objectives, constraints and limits set by the Guidelines and the benchmark portfolio, transactions that can be conducted are listed as: FX buying-selling transactions in international markets, FX deposit transactions, securities buying-selling transactions, repo and reverse repo transactions, securities lending transactions, and derivatives transactions. Regarding the management of the CBRT’s gold reserves of international standard, outright purchase and sale of gold, gold deposit transactions, gold currency swaps, location swaps and physical gold transfer transactions can be carried out.

Management of risks that the CBRT may be exposed to during the conduct of its reserve management operations begins with the determination of the benchmark portfolio. Reflecting the CBRT’s preferences for strategic asset allocation, the benchmark portfolio consists of target currency composition, target duration and limits of deviation from these targets, maximum permissible transaction limits, and the investment universe representing the eligible transaction types as well as the countries and instruments to invest in. Accordingly, once the currencies to invest in, and the instruments and maturities to be employed in reserve management are set, the expected return and the financial risks involved are identified to a large extent.

In 2024, global economies and financial markets were mainly driven by the rate cut paths of major central banks, expectations regarding the rate cut process and developments regarding elections in advanced economies. Throughout 2024, financial markets responded sensitively to inflation and economic activity data in line with central banks’ data-driven rate cut path communication. Meanwhile, in the post-June period, elections in the US and major European countries played a role in the direction of asset prices. In summer months, yield spreads in European countries such as France and Belgium increased significantly, while US bond yields continued to rise after the US elections. Moreover, the Bank of Japan’s rate hike after a period of negative interest rate policy since 2016 had an impact on the risk appetite in global markets in the summer. In 2024, global growth prospects improved gradually after interest rate cuts by central banks, and the US dollar appreciated against other currencies in the last months of the year due to the positive divergence of the US economy from other advanced economies and expectations regarding post-election policies. Amid the weak domestic demand outlook and the persisting sluggishness in production, China stepped up its fiscal and monetary policy actions, and Chinese bond yields saw a decline. Gold, on the other hand, performed strongly due to the rate cuts delivered by major central banks and rising geopolitical risks. The year 2024 was marked by elevated economic uncertainty and financial volatility due to central bank policies, geopolitical developments, elections in major countries and their consequences for economic policies.

These developments also affected the CBRT’s reserve management strategies in 2024. In this period of elevated global economic and financial risks, the CBRT continued to carry out its reserve management in line with monetary policy objectives and practices, prioritizing safe investment, liquidity and return, respectively. In 2024, the Bank maintained its strategy to strengthen reserves as long as market conditions permitted and it did not conflict with the inflation target. The monetary tightening and the simplification steps in the macroprudential framework also underpinned the increase in reserves. The CBRT’s international reserves increased by USD 14.1 billion from the previous year to USD 155.1 billion as of December 31, 2024. Of this total, foreign currency reserves accounted for USD 90.8 billion and gold reserves for the remaining USD 64.4 billion. Making up 41.5% of total international reserves, the CBRT’s gold reserves of international standard amounted to 766.7 tons as of December 31, 2024 (Charts 2.7.1 and 2.7.2).

Chart 2.7.1: CBRT’s FX and Gold Reserves Between 2001 and 2024 (USD Billion)

Source: CBRT.Last Observation: December 31, 2024

Chart 2.7.2: CBRT’s FX and Gold Reserves in 2024 (USD Billion)

Source: CBRT.Last Observation: December 31, 2024