Opinion of the European Central Bank of 24 March 2025 on the increase of Italy’s quota in the International Monetary Fund (CON/2025/6)

OPINION OF THE EUROPEAN CENTRAL BANK of 24 March 2025 on the increase of Italy’s quota in the International Monetary Fund (CON/2025/6) Introduction and legal basis

On 19 February 2025 the European Central Bank (ECB) received a request from the Italian Ministry of Economy and Finance for an opinion on an article (hereinafter the ‘draft article’) included in a draft law on Italian participation in banks and multilateral development funds (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 (the ‘Treaty’) and Article 2(1), third indent, of Council Decision 98/415/EC , as the draft article relates to the Banca d’Italia. In accordance with Article 17.5, first sentence, of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft article

1.1 As set out in the explanatory memorandum accompanying the draft law, the purpose of the draft article is to increase Italy’s quota in the International Monetary Fund (IMF). On 15 December 2023, the IMF Board of Governors finalised the Sixteenth General Review of Quotas and agreed to a 50 % increase in quotas while maintaining the existing relative quota shares. The Board of Governors’ resolution also stated that the IMF’s lending capacity should be maintained and its dependence on borrowed funds reduced. This is to be achieved by reducing the New Arrangements to Borrow (NAB) and phasing out bilateral borrowing agreements (BBAs) by means entailing (1) an increase of 50 % in IMF quotas; (2) a simultaneous reduction (of around 16 %) in the NAB; and (3) the termination of the BBAs. The reduction of the NAB and the termination of the BBAs will be finalised when the quota increase is completed. 1.2 In particular, the draft article authorises the Ministry of Economy and Finance to implement the 50 % increase in Italy’s IMF quota from 15.070 million Special Drawing Rights (SDR) to SDR 22.605 million, drawing on the Banca d’Italia’s resources and in accordance with the agreements already existing between the Ministry of Economy and Finance, the Banca d’Italia and the IMF .

1.3 The draft article further specifies that, pending the finalisation of the quota increase, the Banca d’Italia is authorised to extend the duration of the BBA until 31 December 2027 . 1.4 The draft article further provides that the Italian Republic is to grant a State guarantee to the Banca d’Italia for all the disbursements related to the increase of Italy’s quota at the IMF . A State guarantee is also granted for the extension of the BBA for the risks connected to the repayment of the principal amount and interest, and the exchange rate .

2. Monetary financing prohibition

2.1 Article 123(1) of the Treaty prohibits the national central banks (NCBs) in the European System of Central Banks (ESCB) from granting overdraft facilities or any other type of credit facility to public authorities and bodies of the Member States. Article 1 of Council Regulation (EC) No 3603/93 defines ‘any other type of credit facility’, inter alia, as ‘any financing of the public sector’s obligations vis-à-vis third parties’. This prohibition is however subject to certain exemptions contained in 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 123 of the Treaty. The fourteenth recital of Regulation (EC) No 3603/93 sets out 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 should be interpreted in line with that rationale. 2.2 Reserve assets have been 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, other than gold bullion, must be claims on non-residents . 2.3 As the payment by the Banca d’Italia of the proposed increase in Italy’s IMF quota would result in claims which have all the characteristics of reserve assets, the draft article complies with the monetary financing prohibition . 2.4 Moreover, the ECB considers that the extension of the BBA falls within the exemption set out in Article 7 of Regulation (EC) No 3603/93. This is because the financing results in foreign currency

(SDR)-denominated claims of the Banca d’Italia against non-resident persons (the IMF) that have all the characteristics of reserve assets .

3. Financial independence

In order to ensure the independence of the NCBs laid down in Article 130 of the Treaty, Member States may not place NCBs in a situation which in any way undermines their ability to carry out independently a task falling within the scope of the ESCB or the Eurosystem . This includes putting them in a position where they have insufficient financial resources to carry out such task . From the perspective of safeguarding the financial independence of the Banca d’Italia, the ECB, therefore, welcomes the guarantee to be provided by the State under the draft article with respect to any risks deriving from the quota increase and, with respect to the BBA, the reimbursement of the principal and interest accrued on the Banca d’Italia’s loan, which will also cover any exchange rate risk arising from the implementation of the BBA.

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 24 March 2025.

[signed]

The President of the ECB

Christine LAGARDE