Turkey’s central bank, in a fundamental shift in its reserve policy, is stocking gold and scaling back on foreign exchange after many years of keeping gold reserves at a fixed level and trying to boost foreign exchange. In the first week of April alone, the central bank’s gross foreign exchange reserves declined to $83 billion from $84.7 billion the previous week, while gold reserves stood at about $25.3 billion.

The unprecedented increase in gold reserves propelled Turkey to 10th place in terms of gold reserves in February. According to the World Gold Council, Turkey had 546.8 tons of gold that month, compared to 116 tons in September 2011. In terms of value, the country’s gold reserves increased by about $10 billion over the past year. What is driving the increase?

A major stimulant was a 2011 decision by the central bank allowing banks to hold 10% of their reserve requirements in gold. The decision led the banks to introduce financial products to lure the so-called under-the-pillow gold from Turkish households, that is, gold coins and jewelry kept as a means of investment and savings. Hence, gold flowing from households into the banking system has been one of the factors boosting the central bank’s reserves.

Meanwhile, in late 2017, the Treasury introduced gold bonds in another bid to draw out household stashes. Last year, the combined outcome of the banks’ and the Treasury’s efforts was 75 tons of gold moving from households into the financial system, according to sector officials.