Nicosia’s plan to dispose of most of its gold holdings would be the first such sale by a country seeking international assistance since the Asian financial crisis in 1997-98, when South Korea asked the public to donate jewellery to the central bank for the good of the nation.
Cyprus is the first euro member to sell its reserves in the three-year eurozone crisis. To raise €400 million, it will need to sell just over 10 tonnes of the yellow metal of the 13.9 tonnes held by the central bank. The central bank’s holdings account for 62 per cent of its total official reserves.
Governments in the eurozone’s beleaguered southern periphery tend to hold a large part of their total foreign reserves in gold – the Italian central bank holds 2,451 tonnes of gold, over 70 per cent of its total reserves, while Portugal’s holding of 383 tonnes accounts for 90 per cent.
The bail-out document - known as the debt sustainability analysis, paints a grim picture for the Cypriot economy, forecasting it will contract by a cumulative 12.5 per cent 2013-14. Public sector debt will peak at 126.3 per cent of GDP in 2015. The documents also warns of “downside risks” to the programme from a deeper than expected recession.
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