Cyprus to finance bailout by selling €400mn of gold reserves

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Published time: April 10, 2013 14:43
Edited time: April 10, 2013 19:23

AFP Photo / Frank Rumpenhorst

Cyprus has agreed to sell excess gold reserves, a draft assessment of Cypriot financing needs prepared by the European Commission shows. According to the draft assessment the country would raise the total of 10.6 billion euros, as originally planned, by taxing uninsured depositors at Laiki Bank and Bank of CyprusCyprus is going to sell 400 million euros ($525-million) worth of gold reserves to finance part of its bailout, Reuters reports citing Troika documents.

Cyprus has 13.9 tonnes of gold, which is 58.3% of its forex reserves, according to the World Gold Council data for September 2012.

Though 400 million euros worth of gold isn’t going to offset the gold trading market, it has still sent traders into a frenzy. As of 19:09 DST, the COMEX gold index is priced at $1,571, already down 16 points, or 1.15%, in reaction to the Cypriot announcement. With London and Shanghai markets already closed, the New York exchange will broker the fluxuating gold sales.

The International Monetary Fund will still provide 1 billion euros to Cyprus's bailout and the euro zone will still provide 9 billion in aid for the rescue plan.

Bailing out and about

A final memorandum of understanding between Cyprus and international creditors on Cyprus’ EU-IMF bailout has now been finalized, German finance ministry spokesman, Martin Kotthaus said on Wednesday.

In late March the troika of international lenders together with eurozone finance ministers agreed to allocate a €10 billion rescue package for the troubled Mediterranean island. In total Cyprus will need €23 billion between the second quarter of 2013 and the first quarter of 2016 to heal its financial wounds, Reuters reports citing a draft assessment it obtained. The International Monetary Fund will provide €1 billion, the eurozone €9 billion and the island itself will generate €13 billion.

According to the EU-IMF plan, Cyprus will need to restructure its banking sector with its largest bank, Bank of Cyprus absorbing island’s second largest Laiki Bank. Cypriot authorities also agreed that all bondholders, investors and savers with over €100,000 on country's two biggest banks to take losses up to 60% as part of bailout terms.

Nicosia is expected to receive a further €600 million over three years from raising the corporate income tax rate and the capital gains tax rate.