Central-bank currency purchases and government borrowing lifted the reserve stock, strengthening Serbia’s external buffers but complicating the headline improvement
Serbia’s foreign-exchange reserves rose to a record €30.5bn at the end of July, giving the central bank a larger buffer against currency volatility, external financing pressures and potential shocks to energy imports.
Gross reserves increased by €893mn during the month, according to the National Bank of Serbia. Net reserves—which exclude banks’ required foreign-currency deposits, liabilities to the IMF and certain other obligations—rose by €931mn to €25.99bn, also a month-end record. National Bank of Serbia
The reserve stock was sufficient to cover seven months of imports of goods and services, compared with 6.8 months in June. It was equivalent to 168.3 per cent of the M1 measure of the money supply, according to the central bank.
The figures reinforce Serbia’s capacity to defend the dinar and meet foreign-currency obligations during periods of market disruption. But the composition of July’s increase shows that the headline rise was not driven solely by exports, foreign direct investment or other underlying balance-of-payments flows.
The largest contribution came from the NBS’s foreign-exchange market operations. Settlement of currency purchases added €570mn to reserves, although €135mn of that amount related to transactions agreed at the end of June.
A further €488mn came from the sale of Serbian government securities on international financial markets. This strengthens the country’s immediate liquidity position, but it is matched by an increase in public liabilities and will eventually generate interest and repayment costs.
Reserve-management income, donations and other transactions produced a net inflow of €138mn. These gains more than offset €155mn used to meet the government’s foreign-currency obligations and €148mn of negative valuation effects caused mainly by a weaker dollar and declining prices for foreign securities.
The dinar remained almost unchanged against the euro in July and was down only 0.1 per cent over the first seven months of the year. The NBS bought a net €435mn in the domestic market during July, absorbing excess foreign-currency supply to prevent stronger appreciation.
Over the year to date, however, the central bank remained a net seller of €320mn as it continued its policy of maintaining what it describes as the dinar’s “relative stability”. This underlines the two-sided nature of its intervention strategy: the NBS accumulates reserves when foreign-currency supply is strong and uses them to limit depreciation when demand increases.
For Serbian companies and households, exchange-rate stability reduces uncertainty in an economy where savings, loans, property prices and commercial contracts remain heavily linked to the euro. It also helps contain imported inflation, particularly for energy, machinery and consumer goods.
Large reserves can additionally reduce Serbia’s sovereign-risk premium by reassuring investors that the authorities have enough liquid foreign assets to cover debt repayments and periods of restricted market access.
They do not, however, eliminate external vulnerability. Serbia remains dependent on imported energy and foreign investment, while current-account pressures can increase when domestic demand and infrastructure spending accelerate. Maintaining a stable exchange rate may also require significant intervention if capital flows reverse or geopolitical events raise demand for euros.
Gold accounted for an unusually large part of the reserve portfolio. Serbia held a record 54.8 tonnes at the end of July, valued at €6.16bn and representing 20.2 per cent of gross reserves. The NBS bought another 226kg during the month from Serbia Zijin Copper and has acquired about 2.3 tonnes since the beginning of the year.
Gold provides diversification and carries no direct counterparty risk, but its market value can fluctuate substantially. Despite the increase in physical holdings, the euro value of Serbia’s gold reserves fell by €36.8mn in July because of currency and market effects.
The July data therefore offer two readings. Serbia’s liquid external defences are stronger than at any previous month-end, with both gross and net reserves comfortably above conventional adequacy benchmarks. Yet part of the increase reflects sovereign borrowing, while the central bank continues to carry the cost and risk associated with managing a tightly controlled exchange rate.
The reserves give policymakers room to respond to shocks. The more important long-term test is whether Serbia can preserve that buffer through durable export growth and investment inflows, rather than relying increasingly on foreign borrowing or repeated intervention.
