The National Bank of Poland (NBP) is prepared to begin active management of its gold reserves and to direct an unrealised revaluation gain of about PLN197bn (€46.3bn) to defence spending over several years, Adam Glapiński said on March 11.

The announcement came as President Karol Nawrocki has until March 20 to sign or reject government legislation implementing the EU’s loans-for-weapons scheme, Security Action for Europe (SAFE). Nawrocki is politically opposed to the government.

The president and the NBP governor proposed last week an alternative domestic mechanism called “Polish SAFE 0%” to finance Poland’s defence spending, which Warsaw sees as necessary to strengthen deterrence against Russia.

Nawrocki claims the SAFE programme would involve taking on excessive debt — the scheme assumes repayment by 2070 — and includes political conditions set by the European Commission. Nawrocki and the Law and Justice (PiS) party, with which the president is allied, have long argued that the European Union seeks to assume excessive powers over member states.

President Nawrocki has suggested establishing a Polish Defence Investment Fund within the state development bank BGK, where the NBP would direct the estimated valuation gain on its gold holdings following conversion at current prices.

“Our view is that, given the higher public interest in strengthening national security, we are ready to start active management of the gold holdings,” Glapiński told a press conference.

“We have accumulated an unrealised gain, an additional value on gold of 197 billion PLN — it occurred to me that this should be used to support defence, to speedily build armed forces,” Glapiński also said.

The NBP’s gold holdings rose to 570 tonnes at the end of February from 550 tonnes at the end of last year. The central bank’s foreign exchange reserves are currently worth PLN1,094bn, of which gold accounts for PLN340bn. The bank also has a target to increase its gold holdings to 700 tonnes.

Glapiński said the bank could recognise unrealised gains on gold as profit without reducing the overall level of foreign reserves, arguing that such a move would only change the composition of the reserves.

“If we sell gold, we sell it in London for dollars. The value of what we hold remains unchanged — instead of gold, we have dollars. We do not deplete reserves; we only change their structure,” Glapiński said.

“We would realise the excess — the unrealised value of current gold prices above the average price at which we bought it — and that would flow into the result and the profit and go to the fund which the president proposed,” Glapiński also said.

Glapiński said any sales could be reversed.

“Nothing prevents us from buying back the same amount of gold in a year or two. In that situation, we should sell some gold, realise the unrealised gain, hold it in dollars and, say, in two or three years buy gold again if the [NBP] management deems it appropriate,” Glapiński said.

The draft law proposed by President Nawrocki envisages several sources of financing for the Polish Defence Investment Fund beyond operations involving gold, including debt issuance and interest income from placements in złoty and foreign currencies.

The presidential draft was submitted to parliament on March 10, but the parliament — where the government holds a majority — is unlikely to begin work on it.

That appears to increase the likelihood of a presidential veto of the government legislation setting out how Poland’s share of SAFE — €43.7bn, the largest allocation among EU member states — will be used.

Prime Minister Donald Tusk said earlier this week that the government had received information that the president intended to veto the SAFE legislation, adding that the government had an alternative plan if a veto occurred.

Vetoing the legislation would not block SAFE funds for Poland. The government has said that about 80%–90% of the funds would be directed to domestic defence contractors.

Glapiński warned the central bank would proceed cautiously to avoid market disruption and inflationary effects and said any use of the unrealised gold gain would be phased in over several years. Glapiński added that all proposed operations would be conducted within the bank’s legal mandate and in compliance with Polish and European law.