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. Last Updated: 07/27/2016

Central Bank Decides Not to Buy Gold Bonds

The Central Bank said Tuesday it had formally refused to buy gold-backed bonds that a division of the Finance Ministry plans to issue.

"We officially declined to buy the certificates," Sergei Kyshtymov, the Central Bank's chief of precious metals, was quoted by Reuters as saying.

"We have no guarantee that gold purchased in this manner would end up at the Central Bank," Kyshtymov added.

Gokhran, the Finance Ministry department that supervises the government's gold and precious stones reserve, came up with the bond plan in October. The securities were to be backed with 50 tons of gold which the Finance Ministry would buy from Russian producers in 1999.

According to Gokhran spokesman Alexei Druzhinin, the bond sale was necessary to raise funds for gold producers.

But some analysts said that the approximately $450 million issue, offered to the Central Bank, was merely an ingenious way for the government to finance the budget deficit with Central Bank loans.

The analysts said the Russian government could not afford to buy as much as 50 tons of gold from producers next year.

The Central Bank did not jump at Gokhran's offer of bonds in October, so the Finance Ministry department took it to foreign banks, including the European Bank for Reconstruction and Development.

Gokhran then made a series of optimistic comments to the press, saying that foreign banks were interested in the offer.

On Monday, Druzhinin said the European Bank for Reconstruction and Development was ready to buy the bonds.

But that did not whet the Central Bank's appetite for the bonds, as Kyshtymov's comments showed Tuesday.

The European Bank for Reconstruction and Development, for its part, would not confirm that it had reached any kind of agreement with Gokhran.

EBRD spokeswoman Julia Silberman said the talks were "in an initial stage."

If the European Bank for Reconstruction and Development does buy the bonds, it wants the proceeds to go to the Russian gold industry, not to the budget.

Russian gold producers said in a statement Tuesday that output would fall to 110 tons this year from 122.9 tons last year.

The Central Bank's gold reserves have also fallen lately, despite the fact that the bank has bought about 33 tons of gold from private banks so far this year.

According to Kyshtymov, on Dec. 1 the reserves amounted to 512-515 tons, down from 525 tons June 25.