Factors affecting changes in official reserve assets
A fixed national currency exchange rate regime that was made legitimate by the Law
on the Credibility of Litas adopted in 1994 is functioning in Lithuania. Pursuant to
this law, all litas issued in circulation by the Bank of Lithuania (BoL), including
currency in circulation; credit balances in nominal accounts of the holdings of other
MFIs’ with he BoL and litas account holders, as well as BoL’s securities holdings and
other debt liabilities in litas, i. e. total BoL’s liabilities in litas, shall be 100 per cent
backed by gold and foreign exchange reserves. Strict compliance guarantees a
possibility for litas holders to exchange them any time into anchor currency according
to a fixed official exchange rate and vice versa. Households and companies may do it
in any domestic commercial bank, and commercial banks may do it in the Bank of
Lithuania. Generally speaking, the amount of litas issued in circulation by the central
bank of the Republic of Lithuania equals to the amount of anchor currency euro sold
to the central bank by commercial banks.
Also, the size of official reserve assets depends on the BoL’s liabilities in foreign
currencies that are backed by the BoL with the official reserves.
Currency in circulation – banknotes and coins in circulation issued by the BoL and
are widely used for payments. The litas amount in circulation depends on their
demand in the market.
Central government deposits. Under the law of the Bank of Lithuania, the BoL
performs the function of the state fiscal agent and administers the state treasury
accounts in litas and foreign currencies. Accumulation, usage and administration of
the holdings is performed by the Ministry of Finance of the Republic of Lithuania and
other institutions established to administer public funds in accordance with the
procedure set forth by the State Treasury Law of the Republic of Lithuania and other
legal acts. The services provided to the State Treasury Account by the BoL are the
following: fund transferring according to payment orders, account crediting, currency
exchange, acceptance of time deposits in euros and US dollars, provision of
information on the accounts.
Deposits of other monetary financial institutions (MFIs). The other MFIs sector is
composed of commercial banks, foreign bank branches, the Central Credit Union of
Lithuania, other credit unions, and monetary market funds. Commercial banks
registered in the country are requested to hold with the BoL a set percentage (since
November 2008 it makes up 4%) of their deposit holdings in the form of required
reserves that are deposited in litas current accounts with the BoL. Funds in the current
accounts are used for interbank payments, issuing cash, purchase (sale) of anchor
currency, and other payment transactions with the BoL. Within the other MFIs’
deposits, there are also current accounts in euro of the TARGET2 system participants.
External liabilities – non-resident deposits with the BoL. The BoL administers litas
and foreign currency accounts of other countries and EU institutions, foreign banks
and international organisations. For the purposes of foreign reserve management the
BoL may make repurchase transactions with non-residents, which according to the
international accounting standards are recorded as a collateralised inward deposit of
the transaction counterparty: commitment to repay funds is recorded on the liabilities
side of the balance sheet, while the financial asset that has been given as collateral
(sold and repurchased under this transaction) remains on the asset side of the balance
sheet for the period of the transaction.
Special Drawing Rights (SDRs) and change of the SDRs allocation. SDRs are
international reserve assets created by the International Monetary Fund (IMF) and
allocated to its members to supplement existing reserve assets. SDR holdings
represent each holder’s assured and unconditional right to obtain other reserve assets,
especially foreign exchange, from other IMF members. The currency value of the
SDR is determined by summing the values in U.S. dollars, based on market exchange
rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese yen, and pound
sterling).
Other factors reflect changes in gold, securities and foreign currency revaluation
accounts, deposits of government (other than central) and other domestic institutions,
outstanding settlement funds, etc.