• CBRT’s gross gold reserves, which stood at 436t in 2017, have risen sharply to reach 716t by end-2020.
  • However, its own reserves, which remained stable at 115.8t until 5th May 2017, peaked at 440.6t in July 2020, before dropping to 334.7t by the end of last year.
  • The Treasury’s issuance of gold bonds and lease certificates were reflected in the CBRT’s gross gold reserves, reaching 60t by the end of 2020.

Introduction

Turkey’s long standing and increasingly active participation in the gold market extends to the country’s central bank. Over the past two decades it has become increasingly involved, whether this relates to outright purchases (and more recently disposals), or in terms of using gold to help boost commercial bank liquidity.

Gold Reserves

In Turkey, the CBRT’s core activities, in terms of its management of its gold and foreign exchange reserves, are guided by Article 53 of the CBRT Law. Specifically for gold, this governs how the Bank may execute forward and/ or spot purchases and sales of gold and lending/borrowing transactions.

Until September 2011, the CBRT’s gross gold reserves (as reported to the IMF) had remained essentially flat at 116.1t. Since then, its gross holdings have risen sharply, to reach 716.3t by end-2020. The increase largely reflects the adoption of more gold friendly policies by the Turkish government, which has increasingly promoted the role of gold in the financial system, while at the same time trying to lessen the country’s dependence on the dollar. To help achieve these goals, aside from the CBRT making direct gold purchases from local and international markets, it has increasingly used other tools, including the Gold Monetisation Scheme, the Treasury’s gold bond and gold lease certificate issuances and the CBRT’s gold swaps programme with local commercial banks.

1. CBRT’s Own Reserves

Focussing on the CBRT’s own reserves, it was not until May 2017 that the central bank started to raise its holdings. In other words, the 320t increase in the CBRT’s gross holdings between October 2011 and April 2017 was driven by the commercial banks’ gold held through the reserve option mechanism (ROM).

From 115.8t in April 2017, the CBRT’s own holdings peaked at 440.6t in July 2020. This was followed by a period of disposals during August-December which totalled over 105t, these accounting for the largest share of global central bank sales at that time. This left the CBRT’s own reserves at 334.7t by end-2020. These sales were largely driven by a deteriorating economic backdrop and currency crisis. After Turkish foreign exchange reserves dropped to a multi-decade low over the summer, some gold holdings are believed to have been mobilised to support the lira and/or repay international debt.

2. Treasury

Part of the growth in the CBRT’s gross gold reserves also reflected the issuance of gold bonds and lease certificates by the Turkish Treasury, as gold collected via these programmes was transferred to the central bank’s account. In September 2017, the Treasury decided to issue both an interest-bearing gold bond and also a gold sukuk (the Islamic equivalent of a bond, generating a return while still being compliant under Sharia law). Both were sold to the public in return for their physical gold.

Under this mechanism the public deposited their gold with the state-owned Ziraat Bank and, in return, the Treasury issued a gold bond or sukuk, both of which pay dividends in Turkish lira (TL) at regular intervals. At the point of maturity, investors have had two options. First, they can take back their gold in the form of Republic coins struck by the State Mint, Darphane. Alternatively, these instruments can be sold back before maturity to the Treasury with payment made in TL. Starting with a volume of 1.9t in October 2017 and, with the subsequent involvement of financial institutions, the total amount of these two instruments reached 60t by the end of 2020; with further auctions in 2021 boosting this figure to 94.7t by end-June 2021.

CBRT’s Gross Gold Holdings, by Location (1)

Source: CBRT Annual Financial Statements for the year ended 31 December 2020