CNB's role

Published: 1/2/2015
The Croatian National Bank holds and manages the international reserves of the Republic of Croatia.

In accordance with Article 4 of the Act on the Croatian National Bank, one of the tasks of the CNB is the holding and management of the foreign reserves of the Republic of Croatia. The Croatian National Bank manages the foreign reserves in the manner best suited to the monetary and foreign exchange policies and which ensures the smooth settlement of the international obligations of the Republic of Croatia.

International reserves are formed through outright purchase of foreign currency from the banks and the government (Ministry of Finance) from the income derived from the investment of international reserves and of other CNB assets. In addition, international reserves include the funds received from the Ministry of Finance, foreign currency swaps in the domestic market, allocated foreign currency reserve requirements of banks and funds arising from the membership in the IMF as well as other assets owned by other legal persons (e.g. European Commission).

The terminology of reporting on CNB international reserves includes the terms of gross and net reserves. Gross reserves imply total international reserves. Net reserves imply the part of reserves which does not include allocated foreign currency reserve requirements of banks, IMF special drawing rights, European Commission funds and the Ministry of Finance funds.

Purpose of international reserves

The purpose of international reserves is primarily to ensure a country's international liquidity and thus its credibility in the international community. International reserves enable easier access to international capital markets, as well as interventions in the domestic foreign exchange market, i.e. the purchase and sale of foreign currency for kuna with a view to influencing the exchange rate of the kuna against the euro. Also, in conditions of restricted access to capital markets, i.e. in times of crisis, international reserves are needed to limit the impact of external shocks on the domestic economy. Although there is no consensus on the optimum level of international reserves, the rule of thumb is that they should be at least equal to the value of three months of imports of goods and services. Caution and experience suggest it is desirable for international reserves to be at higher levels, so that foreign investors pay great attention to the level of a country's international reserves.