Opinion of the European Central Bank of 30 October 2020 on the New Arrangements to Borrow with the International Monetary Fund (CON/2020/27)

OPINION OF THE EUROPEAN CENTRAL BANK of 30 October 2020 on the New Arrangements to Borrow with the International Monetary Fund (CON/2020/27) Introduction and legal basis

On 2 October 2020 the European Central Bank (ECB) received a request from the Austrian Ministry of Finance (MoF) for an opinion on a draft law on New Arrangements to Borrow (NAB) with the International Monetary Fund (IMF) (hereinafter the ‘draft law’) . The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union (TFEU) and on the third indent of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to the Oesterreichische Nationalbank (OeNB). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

1.1 The draft law authorises the OeNB, on behalf of the Republic of Austria, to grant the IMF a credit line of up to 3,636.98 million Special Drawing Rights (SDR) as part of the NAB. This corresponds to an increase of 36.98 million SDR (currently equivalent to approximately EUR 44.3 million) as compared with the currently permitted maximum credit line of 3,600 million. The draft law would replace the existing Federal Law on an increase of the new borrowing arrangements with the IMF . 1.2 As noted in the MoF’s impact assessment of the draft law , the draft law relates to the failure of the members of the IMF to reach a majority vote on an increase of the IMF quotas as part of the 15th quota reform in October 2019. In order to prevent the financial resources available to the IMF declining drastically upon expiry of the existing NAB and the existing Bilateral Borrowing Agreements (BBA), the participants in the NAB agreed to double the potential resources made available via the NAB from 182.4 billion SDR to 364.7 billion SDR, for a new NAB period from 2021

to 2025 . Taking into account the Republic of Austria’s current maximum credit line, its maximum possible contribution to the NAB should increase from 1,818.49 million SDR to 3,636.98 million SDR. 1.3 As noted above, the OeNB is currently permitted to provide, on behalf of the Republic of Austria, a maximum credit line of 3,600 million SDR to the IMF under the existing NAB. Thus, in order to implement the new NAB, the draft law envisages an increase of 36.98 million SDR. The aim of the draft law is to ensure that the Republic of Austria’s potential contribution to the NAB of the IMF remains the same in relative terms. 1.4 The MoF’s impact assessment of the draft law explains that in the event that the IMF makes a claim on NAB resources, the OeNB would receive interest on the OeNB’s contribution at the rates applied to SDR throughout the period during which the IMF claims those resources. The budgetary impact of the draft law may be either positive or negative, depending on whether those rates applied to SDR are higher or lower, respectively, than the ECB’s main refinancing operations rate. In any event, the MoF estimates that the increase in the credit line granted to the IMF by the Republic of Austria as part of the NAB will not affect the Federal budget by more than EUR 20 million.

2. Monetary financing prohibition

2.1 As the draft law concerns the financing of the IMF by a national central bank (NCB), the compatibility of the draft law with the prohibition of monetary financing laid down in Article 123 of the Treaty must be assessed in light of the specific exemption contained in Council Regulation (EC) No 3603/93 . In particular, Article 7 of Regulation (EC) No 3603/93 provides that the financing by NCBs of obligations falling upon the public sector vis-à-vis the IMF is not regarded as a credit facility within the meaning of Article 123of the Treaty. Recital 14 of Regulation (EC) No 3603/93 clarifies the rationale behind this exemption, stating that it is appropriate to authorise the financing by the NCBs of obligations falling upon the public sector vis-à-vis the IMF because such financing ‘results in foreign claims which have all the characteristics of reserve assets’. Therefore, the exemption in Article 7 of Regulation (EC) No 3603/93 must be interpreted in line with this rationale . 2.2 Reserve assets are defined as those external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for interventions in exchange markets to affect the currency exchange rate, and for other related purposes, such as maintaining confidence in the currency and the economy, and serving as a basis for foreign borrowing . Under this definition, reserve assets must be foreign currency assets and, except in the

case of gold bullion, must be claims on non-residents . The granting of loans by the OeNB under the NAB with the IMF on behalf of the Republic of Austria, as set out in the draft law, falls within the exemption of Article 7 of Regulation (EC) No 3603/93 because this financing results in foreign currency (SDR)-denominated claims of the OeNB against the IMF (a non-resident) that have all the characteristics of reserve assets. 2.3 Based on the foregoing, the ECB considers that the authorisation of the OeNB to grant loans under the NAB with the IMF as envisaged by the draft law is compatible with the monetary financing prohibition.

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 30 October 2020.

[signed]

The President of the ECB

Christine LAGARDE