The foreign reserve of Albania’s central bank has reached a new historic milestone, exceeding €6 billion for the first time. According to the Bank of Albania’s statistics, at the end of October, the reserve stood at €6.015 billion, marking a 6.3% increase compared to the same period last year.
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| Nationl Bank of Albania, photographed from "Mother Teresa" Square, May 2024, Tirana |
Key Drivers of Growth
This growth in reserves reflects several factors, notably record-high currency purchases by the Bank of Albania in the domestic market. During the first half of the year alone, the central bank purchased approximately €272 million in foreign exchange.
Specifically:
- €134.2 million were acquired through planned auctions for reserve needs.
- €137.6 million were purchased directly to prevent further strengthening of the Albanian lek against the euro.
Direct purchases continued into the third quarter, paused temporarily in August, and resumed in October at a smaller scale. Since the start of May—when the bank initiated direct interventions to stabilize the euro-lek exchange rate—the reserve has grown by €571 million, or 10.5%.
Reserve Composition and Strategy
As of October, Albania’s foreign reserve is composed of:
- 71% in government bonds.
- 20% in cash deposits.
- The remaining portion is held in gold and Special Drawing Rights (SDRs) with the International Monetary Fund (IMF).
In recent months, the Bank of Albania has reduced its investments in securities and increased the reserve portion held as deposits.
IMF Recommendations
The IMF has called for caution in the central bank’s interventions, emphasizing the need to evaluate the costs and benefits of further reserve accumulation. According to the IMF, such measures should consider risks to the central bank’s balance sheet, implications for monetary policy transmission, and the development of financial markets.
Economic Significance
Foreign reserves play a vital role in shielding the economy from potential shocks, such as current account deficits or challenges related to the high euroization of the financial sector. Given Albania’s trade deficit, particularly in goods, foreign reserves are essential for maintaining economic stability during periods of currency shortages.
This historic milestone underscores Albania’s efforts to bolster its financial stability and enhance its capacity to manage external risks.