European Central Bank will increase cash reserve



ECB

ECB

To tackle the Euro-zone sovereign debt crisis, the European Central Bank (ECB) has decided to almost double its cash reserve to meet future contingencies. The bank will increase its reserve to €10.8 billion ($14.3 billion £9.1 billion) from the present €5.8 billion.

The ECB has requested the additional cash from the 16 European member states, which is unprecedented in the history of the bank.

ECB had recently bought government bonds worth billions of Euros from the regions most indebted and worst affected countries such as Ireland, Greece and Portugal. The ECB bought these bonds to save the countries from high borrowing costs they would have incurred to attract unwilling borrowers. Now asking for deposits from member countries, it wants everybody to behave responsibly and be accountable.

Explaining the reason behind the move to increase reserves, it said it “was deemed appropriate in view of increased volatility in foreign exchange rates, interest rates and gold prices, as well as credit risk”.

Michael Schubert, an economist at Commerzbank said “With this, the ECB gives a clear signal that purchasing bonds isn’t, so to say, a free lunch, but it creates a lot of risks and therefore it decided to increase the subscribed capital”.

The announcement comes amid a meeting of the national leaders currently being held in Brussels to discuss the region’s economic crisis.

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