Ruairi Quinn (Dublin South East, Labour)
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Question 357: To ask the Minister for Finance if his attention has been drawn to the fact that the foreign exchange reserves in the balance sheet of the Central Bank have been reduced from €6 billion at the end of 2001 to €641 million at the end of 2005; the set of liabilities against which the now mainly euro-denominated assets of the bank are held; and if he will make a statement on the matter. [5359/06]

Ruairi Quinn (Dublin South East, Labour)
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Question 358: To ask the Minister for Finance if his attention has been drawn to the fact that overall balance sheet of the Central Bank had risen to almost €33 billion in 2005 from a figure of almost €22 billion in 2001; the reason a sum of almost €12 billion has been set aside to cover other liabilities in addition to the bank notes in circulation and liabilities to other euro area residents accounts which are shown in the balance sheet at €19.1 billion; the liabilities that are covered by the sum of €12 billion; and if he will make a statement on the matter. [5360/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I propose to take Questions Nos. 357 and 358 together.

As set out in the annual reports of the Central Bank and Financial Services Authority of Ireland, the bank has restructured its foreign reserves portfolio significantly since EMU. Following the adoption of the single currency, the euro area as a whole, rather than individual participating member states such as Ireland, required external reserves for intervention purposes. In this regard, the bank transferred €425 million to the foreign reserves of the European Central Bank in January 1999 as Ireland's share — about 1% — of the ECB's pooled external assets.

Accordingly, the bank is no longer required to maintain a highly liquid portfolio, concentrated in the major global currencies, for possible use in foreign exchange intervention. This has allowed changes to be made to the composition of the bank's investment assets with a view to minimising the impact of movements in exchange rates on the value of the bank's assets given that all of its liabilities are now denominated in euro. Over the past six years, the bank has sold the bulk of its foreign currency investments and invested the proceeds in euro-denominated investments to eliminate exchange rate risk on its investment assets. These assets are held against euro banknote liabilities. The move from foreign currency to euro assets generated realised exchange rate gains of €630 million, which have been reflected in the transfer of surplus income to the Exchequer over the period.

The increase in the bank's balance sheet between 2001 and 2005 primarily reflects the €13 billion net value of the euro banknotes issued by the bank. The sum of €12 billion in other liabilities in the bank's balance sheet at the end of December 2005 principally reflects the bank's liability to other central banks of the eurosystem in respect of cross-border payments made by domestic financial institutions in euro through the trans-European automated real-time gross settlement express transfer system, TARGET, the European System of Central Banks' large-value payment system.