Foreign currency and gold reserves, investment portfolio and risk management

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The Bank of Italy manages Italy's official reserves and a part of those of the European Central Bank (ECB), like the other Eurosystem national central banks (NCBs). The official reserves help to maintain the credibility of the European System of Central Banks (ESCB) and may be used to intervene in the foreign exchange market; the national reserves allow Italy to fulfil its commitments vis-à-vis international financial institutions.

The Bank has its own financial portfolio in euros which, together with the foreign currency reserves and only those liabilities connected with monetary policy, constitutes the set of net financial assets. These are invested in observance of the constraints and limits established by the Eurosystem in order to prevent any interference in the conduct of monetary policy. Net financial assets serve two purposes: they help to cover business costs and they maintain the Bank's capital strength against the risks involved in carrying out institutional activities. Financial autonomy is a key condition for preserving independence from any political or administrative influence and for carrying out institutional duties.

Official reserves

The Bank of Italy owns and manages the country's official reserves in foreign currency and gold. Article 127 of the Treaty on the functioning of the European Union-TFUE (ex Article 105 of the Treaty EC) establishes that these reserves, along with those of the other National Central Banks (NCBs) and the official reserves of the European Central Bank (ECB), form part of the reserves held by the Eurosystem.

Full information on the management of the reserves can be found in Relazione sulla gestione e sulle attività della Banca d'Italia.

The Bank of Italy also manages part of the reserves assigned to the ECB, following guidelines set by the Governing Council.

The national reserves

One of the main reasons for maintaining national reserves is to provide additional foreign reserves to the ECB, which it may ask the NCBs to do in given circumstances. The Bank of Italy also uses the national reserves to service the foreign currency-denominated debt on behalf of the Treasury (avoiding any impact on the foreign exchange market) and to fulfil its obligations towards international organisations such as the International Monetary Fund. Lastly, national reserves, being part of the reserves of the Eurosystem, play an important role in building up and maintaining the ESCB's credibility.

The profit from the management of the official reserves constitutes a major item in the Bank's income statement and ensures the soundness of its balance sheet as a safeguard against the risks connected with the activity of a central bank.

The main objectives of reserve management are therefore to preserve capital value and liquidity. Moreover, because they are an increasingly important component of the Bank's assets, reserves are managed to obtain the maximum return for an acceptable level of risk.

The management of the official reserves - like the investment of the euro portfolio - cannot be conducted with a view to the monetary financing of budget deficits, as laid down in Article 123 of the TFUE. Consequently, primary market purchases of securities issued by member states and Community bodies and institutions are prohibited, while purchases on the secondary market are subject to monitoring thresholds.

The ECB's reserves

A partly decentralised approach is adopted for the management of ECB reserves, with a few functions, such as risk management and accounting, being performed directly by the ECB and investment and back office functions attributed to the single NCBs within the guidelines set by the Governing Council. These guidelines translate the general objectives of reserve management into precise rules, including lists of eligible issuers and counterparties and a set of limits for credit and market risk.

The main objective of ECB reserve management is to ensure that a sufficient amount of liquid resources are available whenever needed for foreign exchange policy operations. In the event of large-scale intervention, the ECB may make further calls on the foreign reserves of the NCBs or fund the intervention without using its foreign exchange holdings (for instance by means of foreign exchange swaps). Subject to the stringent security and liquidity requirements implicit in the purpose of the portfolio, ECB reserves can also be managed to maximise return.

An important principle of reserve management, of both ECB and national reserves, is that of 'market neutrality'. This means that investments should be made in markets that are sufficiently deep and liquid to ensure that transactions are easily absorbed at market-determined prices.

Full information on the management of ECB reserves is available on the ECB's website.

Focus on the Bank of Italy's gold reserves

The purpose of the gold reserves is to boost confidence in the stability of Italy's financial system and of the single currency. This function becomes all the more important when geopolitical conditions or the international economic situation could put the financial markets at additional risk, such as of a foreign exchange or financial crisis.

The Bank of Italy owns the world's fourth largest gold reserves after the US Federal Reserve, the Deutsche Bundesbank, and the International Monetary Fund. The Bank's gold weighs 2,452 tonnes, mostly in bars (there are 95,493 of them) but with a small portion of coins too. Gold is valued according to the Eurosystem's accounting rules, i.e. at end-of-year market prices; at 31 December 2018 the Bank's gold reserves were worth about €88 billion.

The gold reserves form part of Italy's official foreign exchange reserves and provide a safeguard for the Bank of Italy in performing its public functions. The Bank holds the reserves under the terms of the Treaty on the functioning of the European Union and of the Statute of the European System of Central Banks (ESCB) and European Central Bank (ECB): storing and managing the official reserves are among the core tasks of the Eurosystem.

Gold does not carry any solvency risk because it is not 'issued' by an authority (such as a government or central bank). It has a number of features that set it apart from most of the other metals found in nature: in its pure state it is almost incorruptible, it does not rust or oxidize, it is easy to transport and store, and its great malleability makes it highly workable. Throughout history, these features, along with gold's scarcity, have made it a useful unit for measuring the value of goods and an efficient means of payment.

Because of gold's characteristics and functions central banks use it for a variety of purposes: they buy and sell it for financial reasons or to adjust the level of the reserves; they deposit it to earn income and use it as collateral to obtain loans.

The Bank acquired its gold reserves as a result of a series of events occurring throughout its 120 years of existence. In 1893, three issuing institutes - Banca Nazionale del Regno d'Italia, Banca Nazionale Toscana, and Banca Toscana di Credito - merged to create the Bank of Italy, which was initially endowed with its own reserve of gold. These reserves increased progressively until the outbreak of World War II; by the end of the war they were seriously depleted, partly because some of its gold reserves had been removed by the occupying forces. After the war, Italy became an exporting country, receiving large inflows of foreign currency, principally dollars, some of which were converted into gold. This gold was used, for example, in 1976 to guarantee a loan from the Bundesbank. At the end of the 1990s, after the Bank had purchased the residual gold holdings of the former Italian Foreign Exchange Office (UIC) and transferred part of its reserves to the ECB upon the launch of the Economic and Monetary Union, the volume of gold reserves settled at the present 2,452 tonnes.

Most of the Bank's gold reserves are housed in its vault and the rest deposited with a small number of central banks. There are historical reasons for this decision (the gold was purchased there), but it is also the result of a policy of diversification designed to minimize both costs and risks. A portion of the reserves is deposited close to the main bullion markets so that in case of need the gold can be sold quickly and transported inexpensively. The present location of the gold reserves is judged to be satisfactory and no relocation is envisaged for the time being.


Depositary Tonnes %
United Kingdom 141,2 5,76
Switzerland 149,3 6,09
United States 1.061,5 43,29
Italy 1.100,0 44,86
Total 2.452,0

The main physical market for gold is London, where the metal is traded between members of the London Bullion Market Association (LBMA) and where the official gold price used in most international gold futures contracts is set twice daily. The LBMA has also established a set of specifications for gold bars to qualify as 'London Good Delivery' (LGD). Thanks to these standards, professional buyers can accept gold bars without having to check the purity of the metal.

A substantial part of the Bank's gold meets the LBMA's London Good Delivery standard. Gold bars that fall short of it can still be traded, though at a discount on the official market price, usually equal to the cost of bringing them up to specification.

The independent auditing company that certifies the Bank of Italy's annual accounts also verifies all the gold reserves in the vault in Via Nazionale, jointly with the Bank's Internal Audit Directorate. Gold reserves held abroad are certified annually by the central banks where they are deposited. If the Bank wished to test directly the gold bullion on deposit with other central banks (all of which have confirmed their willingness to cooperate), it would have to follow an agreed procedure to ensure that the utmost security and confidentiality were observed during the inspection.

The Bank of Italy's investment portfolio and shareholdings

The Bank of Italy manages, in addition to the national official reserves (gold and claims on non-euro-area residents denominated in foreign currency) and assets relating to monetary policy operations, also the financial portfolio that comprises earmarked investments held against reserves and provisions, including those for staff pension obligations.

More than 90 per cent of the financial portfolio is invested in bonds, mainly Italian and other euro-area government securities; the rest is in equities and units of collective equity-investment undertakings.

The equity component, which is for investment and portfolio diversification purposes, consists mostly of euro-area listed securities. Investments in banking and insurance shares are excluded.
The Bank also manages the defined-contribution supplementary pension fund for employees hired after 28 April 1993; its assets and liabilities are shown separately in the Bank's balance sheet.

Management objectives and methods

The objective of the financial portfolio management is to contribute to covering the costs borne by the Bank and to preserve its capital strength.

Investment activity is steered towards long-term objectives with a view to safeguarding the Bank's equity under both normal and adverse scenario assumptions that include the assessment of the risks on assets held and those associated with institutional activities.

The system used for the control of market risk, credit risk and liquidity risk supports operations and transmits real-time information on the flows of investment to the various units concerned.

A passive style of management is adopted for the listed equity portfolio, which is geographically diversified across the euro area, the US and Japan. For the Eurozone, a statistical model for in-house replication of a benchmark index is used, and for the US and Japan, collective investment products; for Italy the major market indices are tracked, with the exclusion of banking, insurance, financial services and media stocks. Since the beginning of 2019, the euro-area and Italian equity portfolios have been managed by taking account of ESG (Environmental, Social and Governance) factors in the selection of securities for investment purposes.

To improve the level of transparency, further information on the investment criteria for the equity portfolio managed directly by the Bank is provided.

Equity portfolio

The Bank does not hold controlling stakes of listed companies.

The full stake held in Sidief, an unlisted company that manages the real estate assets not used in operations, is instrumental for the Bank's activity.

Shareholdings in unlisted companies are also held in Europafi, Istituto della Enciclopedia Italiana (Treccani), Soluzioni per il Sistema Economico (SOSE), SWIFT and Valoridicarta.

The Bank of Italy also holds, for institutional purposes, participating interests in the European Central Bank and the Bank for International Settlements.

In accordance with Article 22 of Legislative Decree 33/2013, the list of the Bank's equity holdings in unlisted companies is available at the link below. Additional information is available on the websites of the investee entities: Istituto della Enciclopedia Italiana, SIDIEF, SOSE, SWIFT and Valoridicarta.

Risk management and control

The Bank of Italy engages in integrated management of financial risk (market, credit, and liquidity risks) and designs methods of assessment and control that distinguish, on the level of portfolios and that of process governance, between investments of the Bank's own resources and those used for institutional purposes.

Risk control of foreign exchange reserves, euro-denominated portfolios and the supplementary staff pension fund for its employees relies on a rigorous selection of counterparties and investment instruments; exposure to credit risk is mitigated by the definition of individual and asset class ceilings based on the creditworthiness of counterparties and issuers as well as the liquidity of issues. These portfolios are also subject to operational risk control.

To safeguard against legal risk, investment relationships with our counterparties are regulated by contracts drawn up based on standard models prepared by financial industry associations and in international usage, and adapted to take account of the Bank of Italy's institutional role and functions. For further information see Frequently Asked Questions - The Bank of Italy's investment master agreements and counterparties.

Risk assessment and control is also conducted in connection with the Bank's portfolios, which include, in addition to the guarantees provided by banks in extraordinary financing operations, the assets pledged as collateral for monetary policy operations carried out within the Eurosystem. Relative to bank loans pledged as collateral, which represent the non-negotiable component of these assets, the Bank of Italy's In-House Credit Assessment System (ICAS) provides an estimate of the related credit risk, according to a harmonized methodology used by Central Banks, which uses a standard statistical model for estimating the default probability and an individual qualitative assessment of the firms to which credit is disbursed.

Improving coordination and support for decision-making is the task of the Financial Strategy and Risk Committee, which has advisory functions in the formulation and evaluation of strategy for financial management. The committee is chaired by the Governor, or in his place a member of the Governing Board.

The Investment Committee, chaired by the Head of the Directorate General for Markets and Payment Systems, also plays a role in financial management, evaluating and approving proposals concerning tactical deviations from strategic benchmarks for the Bank's financial investment portfolio.

Related Topics

Report on Operations and Activities of the Bank of Italy

The Report describes the activities of the Bank of Italy during the year in its roles as member of the ESCB and the Eurosystem, as the authority responsible for the sound and prudent management of financial intermediaries and for safeguarding the stability of the financial system, and as the provider of services to intermediaries, government bodies and the public.


The Bank of Italy publishes information on its shareholdings in unlisted companies. After each company’s financial statements have been approved, the Bank provides information on the extent of its equity holding, the net profit/loss for the last three financial years, the number (if any) of Bank representatives on company boards and their annual remuneration.

Foreign exchange operations

Within the Eurosystem, the Bank of Italy may be called upon to intervene on the market together with the other national central banks (NCBs) and the European Central Bank (ECB).