In the last 13 years, the government managed to increase significantly foreign exchange reservesNow, because of sanctions The oil industry of Serbia, it seems that the turn has come for them to be spent more, so the question arises whether politicians intentionally built up these reserves in order to be able to put out fires caused by bad political decisions and assessments. Those decisions have put Serbia in the position that the only active refinery in the country is not working, that the question is what will happen to the supply, as well as to the entire economy, and all because we are waiting for Russia on the European road to decide on our future, writes Aleksandra Nenadović on the portal New economy.
The foreign exchange reserves of the National Bank of Serbia consist of claims of the NBS in foreign currency on its accounts abroad, securities, gold, effective foreign currency, as well as special drawing rights and reserve positions with the International Monetary Fund. Their role is predominantly protective and a type of security, and in the case of Serbia, the decision of the NBS to keep reserves at a high level proved to be justified, because what the NBS called an "anchor" and "guarantor of security" for years began to be undermined by the introduction of sanctions on the NIS.
"The role of foreign exchange reserves is to ensure the liquidity of the state's payments abroad, to support the conduct of monetary policy and exchange rate policy, to contribute to the preservation of financial stability, etc. The role of foreign exchange reserves is to absorb potential external shocks, i.e. to mitigate the potential negative impact of movements in the international environment on the domestic economy. Bearing in mind the aforementioned roles, it is important that foreign exchange reserves are at an adequate level," says the NBS explanation.
As economists add, reserves provide not only external liquidity for the state, but also for the economy. As for the exchange rate, elsewhere in the world interventions are generally not used as often as here in this market, so the exchange rate has been practically fixed for the last six or seven years. Foreign exchange reserves are also replenished with export revenues generated by companies, from foreign direct investments (FDI) because the largest number of investors here buy dinars for business, by borrowing abroad, but also from remittances received by the population and exchanged for dinars.
Gold reserves
Serbia's gold reserves amount to a record 51,7 tons, which is 3,5 tons more than at the end of 2024, while compared to the end of July 2012, it is over three times more (they weighed less than 15 tons then), the NBS announced in October this year.
NBS buys monetary gold in the form of gold bars on a regular basis from domestic production - from the company Ziđin Koper from Bor (previously RTB Bor), as well as from time to time on the international market. During 2025, 276 gold bars weighing 3,5 tons were purchased from Ziđin, which has already exceeded the annual record from 2024, which was 3,2 tons.
Since August 2012, the National Bank of Serbia has purchased 36,8 tons of gold, of which slightly less than half (46 percent, i.e. about 17 tons) refers to purchases on the international market, while 54 percent (just under 20 tons) refers to purchases from domestic production, which have been particularly pronounced in the last two years. The purchase of domestically produced gold bars is carried out according to market conditions (considering that these bars also meet the highest international standards in terms of their fineness/purity and other characteristics), and from dinars, which increases not only the gold reserves but also the entire foreign exchange reserves managed by the NBS, unlike purchases on the international market, which are made from foreign currency within the foreign exchange reserves, so during this purchase only their structure changes, according to the central bank.
All the gold NBS keeps in its vaults, except for five tons of gold bought in July 2024, which are currently still in a special account of the NBS with the Swiss central bank in Bern. The NBS made its first purchases on the international market in October 2019 (nine tons) and November 2020 (three tons of gold), and in mid-2021 it returned all the gold it owned abroad (the listed 12 tons and one ton remaining from the succession that was with the Bank of England) to its vaults. At the beginning of July 2024, the National Bank of Serbia bought another five tons of gold abroad. All these purchases of gold (which has an international LGD quality standard) were made through the Bank for International Settlements (BIS) in Basel.
All decisions on the purchase of gold on the international market, as well as the need to transfer that gold to its vaults, are evaluated by the NBS based on the analysis of all factors that can affect it, from the global geopolitical and economic situation, to costs and conditions of holding, to the possibility of disposing of those funds. The gold that was bought abroad from 2019 to 2024, due to the increase in the price of gold on the international market, increased its value and the value of Serbia's foreign exchange reserves by over one billion dollars, that is, it doubled its value on average.
By returning gold to the country, the NBS, as they say, tried to increase the availability and security of gold reserves in periods of global crisis and uncertainty. Geopolitical risks, as well as historical experience from certain earlier periods, certainly partly influenced this decision, with the fact that this trend of repatriation is also related to other central banks. On the other hand, the advantage of holding gold reserves in one of the established trading centers (BoE, New York FED, Banque de France, Switzerland, etc.) is primarily reflected in the liquidity of that part of gold reserves, since prompt sale is possible in case of necessity, the NBS explained. Here, we should bear in mind the fact that gold makes up only a part of the foreign exchange reserves of the NBS, about 18 percent, according to the bank's data from October this year.
Amount of reserves
Why are high foreign exchange reserves not always economically good for the country? Why does Serbia keep so many reserves, and what could be achieved if they were reduced?
As Nikola Avramović, senior director for financial consulting for Austria and Southeast Europe at Alvarez&Marsal, explains, "reserves are airbags - they save your head in a crash, but they carry a price."
"The NBS states that the foreign exchange reserves are about 29,4 billion euros at the end of October 2025, covering slightly less than seven months of imports and about 166 percent of the M1 money supply (cash and money in accounts), which is objectively a high level of protection. The price of this is an opportunity: part of that money could accelerate investments or reduce debt, but the reduction of reserves increases vulnerability precisely in the scenario when energy and foreign direct investment can simultaneously create foreign exchange pressure — that's why that "airbag" today is politically and economically rational", says Avramović.
Where are the reserves invested?
The acceptable level of risk in the investment of foreign exchange reserves of the NBS is in accordance with the conservative investment policy and standards of central banks, including the NBS.
In order to manage credit risk, the NBS has set high criteria for investing in banks with a minimum combined credit rating of AA-.
For this year, we do not yet have the structure of foreign exchange reserves and how it might have changed, and if we look at the data from last year, the largest part of the outflow from the reserves relates to debt relief, that is, the repayment of foreign loans in the total amount of 2,8 billion euros.
At the end of last year, the foreign exchange reserves of the NBS consisted of foreign securities (59,16 percent), foreign currency assets in foreign accounts (22,04 percent), gold in the NBS treasury (13,26 percent), effective foreign money (5,30 percent) and special drawing rights with the IMF (0,24 percent).
The currency structure of foreign exchange reserves (excluding gold) consisted of the euro (69,83 percent), the US dollar (26,35 percent), the British pound (1,44 percent), the Canadian dollar (1,44 percent), the SDR (0,28 percent) and other currencies (0,66 percent).
The largest part of foreign exchange reserves in 2024, in the amount of 17,4 billion euros, was invested in securities (HoV) in euros, US dollars, British pounds and Canadian dollars. Of that, 69 percent was invested in long-term HoV, and 31 percent in short-term HoV.
Within the framework of long-term bonds, funds were invested in government bonds with a maturity of one to ten years issued by the USA, Canada, Germany, Great Britain, France, Austria, Luxembourg, Slovakia, Belgium and Finland, including bonds indexed to the rate of inflation (TIPS); public sector bonds, including floating rate notes (FRN), as well as covered bonds from one to five years.
A part of foreign exchange reserves in the amount of 6,5 billion euros is in current accounts abroad and has been placed in time deposits. Of that amount, 66 percent is with central banks (FED, Bundesbank, Bank of Canada, Austrian National Bank, Central Bank of Luxembourg and Reserve Bank of Australia) and the international financial organization BIS from Basel, and 34 percent is invested with first-class foreign commercial banks with a combined (composite) credit rating of AAA (with a term of up to six months), i.e. foreign commercial banks with a combined credit rating of at least AA– (with a term of up to three months), as well as in current accounts with commercial banks - correspondents abroad. In 2024, the National Bank of Serbia achieved a net income of 657,3 million euros based on placement in foreign securities and interest on foreign currency assets.
Foreign exchange reserves and risk
Therefore, the foreign exchange reserves are not much higher than they were at the end of last year, and part of the reason probably lies in the sale of euros to stabilize the exchange rate of the dinar in the amount of almost 1,4 billion euros, while the price of gold has been increasing since the beginning of the year, and therefore the value of the part of the reserves that are kept in gold has increased. If the price of gold fell on the world markets, the value of foreign exchange reserves would also fall. We will get the exact data when the NBS publishes its annual report.
As stated in the annual report for last year, the NBS also in 2024 "remained consistent with its determination to maintain the risk of its portfolio at a very low level, which made it possible to maintain a high level of security and liquidity." That's why it was a surprise for the citizens of Serbia when the governor of the NBS declared that she was ready to risk secondary sanctions related to the NIS, when the goal of the bank's operations was as much stability and as little risk as possible, which it is obliged to implement by law. This, as well as other statements by leading politicians, created pressure on the exchange rate, where the market clearly signaled that not everyone is risk-averse.
Some other economists are of the opinion that this level of reserves is still good in the case of Serbia because, as we have seen this year, the exchange rate of the dinar must be defended when there is great pressure caused by the poorly managed foreign policy of the country.
Since the beginning of the year, unlike the previous ones where it bought foreign currency, the NBS spent almost 1,4 billion euros from foreign exchange reserves to buy dinars and satisfy those who demand euros. With this, a lot of dinars are withdrawn from the market, and if too many are withdrawn, it may have consequences in the form of less and less dinars for buying foreign currency.
Source: New Economy
Big holiday discount on "Vreme" - subscriptions 25 percent cheaper until mid-January. Give it away subscription to yourself or to someone else, read what matters.
