As ING analysts emphasize, one of the main problems is the method of accounting for gold on the central bank's balance sheet. Unlike foreign exchange reserves, whose exchange rate changes can generate unrealized profits that can be transferred to the state budget, gold does not function in the same way.
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This means that the mere increase in its valuation does not automatically translate into funds that can be used to finance public expenditure.
In practice, “releasing” the money would require one of two actions: changing the accounting rules for valuing gold or physically selling some of the reserves. Both solutions – in my opinion ING Economics Poland – would be controversial. The first would mean a departure from the standards used by other central banks, while the second would be contrary to the current strategy of the National Bank of Poland, which has been consistently increasing its gold resources in recent years.
The risk of returning to pandemic times
Another variant of defense financing also appeared in the media space – debt issuance by a special subfund at Bank Gospodarstwa Krajowego, which could then be purchased by the NBP on the secondary market.
Experts ING Economics Poland they note that this would resemble the mechanism of extraordinary quantitative easing (QE), used on a large scale during the pandemic.
Such operations, although they stabilized economies at the time, later contributed to rising inflation in many countries. The introduction of a similar mechanism today – with still increased inflation and geopolitical tensions – could be perceived as a pro-inflation measure.
High borrowing needs of the state
Poland actually has high reserves accumulated at the National Bank of Poland. At the same time, however, the state faces significant borrowing needs and the level of public debt is growing.
As economists point out ING Economics Polandonly recently has it been possible to rebuild the trust of foreign investors in Polish treasury bonds. In this situation – as a NATO frontline country – Poland should take special care of its financial credibility and maintain reserves for potentially more difficult scenarios.
EU SAFE – a better option?
Against this background, analysts point to an alternative in the form of an EU program SAFEwhich offers access to relatively cheap financing outside the traditional debt market. This is important because Poland already issues large volumes of government bonds, and maintaining stable demand from investors is one of the key challenges for public finances.
In conditions of growing geopolitical uncertainty – related to, among others, with tensions in the Middle East or the war in Ukraine – quick access to stable sources of financing may be of strategic importance.
That's why – as experts sum up ING Economics Poland – SAFE 0 percent may involve greater risks than potential benefits. Changes in accounting rules for gold valuation or quasi-monetary debt financing could undermine confidence in the central bank and, consequently, in the gold and domestic bond markets.
In the opinion of analysts ING Economics Poland the EU's SAFE program remains a cheaper, safer and immediately implementable solutionwithout having to experiment with financial structures that could cause market tensions.
