According to data from the central bank, the inflow of EU funds drawn under the Recovery and Resilience Mechanism to the state’s foreign exchange account at the HNB has significantly increased the net foreign assets of the HNB.
Foreign assets represent the kuna equivalent of international reserves, which at the end of July recorded an increase of 274.2 million euros or 1.1 percent compared to June, amounting to 25.5 billion euros at the end of the month, according to the macroeconomic analysis by RBA analysts.
Compared to the same month last year, gross international reserves increased by 3.2 billion euros or 14.3 percent. A higher level of contracted repo agreements and an increase in foreign currency deposits of the state at the HNB resulted in an increase in international reserves so far this year, according to the HNB.
Considering that, according to the currency structure, the largest share of reserves consists of investments in euros (84.3 percent at the end of 2021), followed by investments in US dollars (10.7 percent) and special drawing rights, the kuna value of international reserves in the HNB’s balance sheet (foreign assets) is also affected by the exchange rate movements of these currencies. During the observed period, the kuna strengthened against the euro by 0.21 percent on a monthly basis and weakened by 0.3 percent on an annual basis.
HNB needs to pay 330 million euros
According to the latest weekly data from the central bank as of August 19, gross international reserves further increased compared to the end of July, amounting to almost 26 billion euros.
By entering the euro area, Croatia will lose independence in conducting monetary policy, meaning that the HNB will become part of the Eurosystem, which consists of the European Central Bank and the national central banks of all euro area countries. However, the management of the international reserves of the Republic of Croatia remains under the jurisdiction of the HNB, a smaller portion of which will be transferred to the European Central Bank upon entering the euro area.
According to RBA analysts’ estimates, with Croatia’s capital key of 0.6596 percent, the amount that the HNB needs to pay is almost 330 million euros. Of this amount, 15 percent is paid in gold, and the remainder in another currency (USD, YEN, etc.).
Statistically speaking, international foreign exchange reserves will significantly decrease upon entering the euro area, according to our estimate by more than 85 percent. Namely, along with gold, the reserve position with the IMF, and SPV, only those reserves denominated in a currency that is not the euro and claims against residents of countries that are not members of the European Monetary Union are treated as international reserves upon entering the euro area.
According to information from the HNB, 85 percent of reserves are denominated in euros. This ratio does not significantly deviate from the reductions recorded by newer EMU members, although the first euro area members experienced a reduction in international reserves of about 30 percent (thus, in the structure of those international reserves at the time, they had only 30 percent of reserves denominated in the currencies of those members that would adopt the euro or in securities whose issuers were residents of the newly established euro area).
The key for the transfer of reserves is the same as for capital, so the euro equivalent of the reserves that must be transferred is paid 15 percent in gold and 85 percent in some foreign currency (USD, YEN…). According to RBA analysts’ estimates, with full membership in the euro area, it is necessary to pay (in three installments) the remaining part of the subscribed capital of the ECB worth 68.7 million euros.
