ANNUAL REPORT 2008 - Polymer Bank Notes of the World

The principal assumptions used for the purposesof calculating the staff scheme liability are asshown in the following table. The expected rateof return on plan assets is used by the actuariesfor the purpose of calculating the annual chargeto the Profit and Loss Account.2008%2007%Discount rate 5.75 5.30Expected return on plan assets 6.50 6.50Future salary increases 2.00 2.00Future pension increases 2.00 2.0013 PROVISIONSThis item consists of a provision against foreignexchange rate, interest rate and gold price risks andother miscellaneous provisions. The latter includean appropriate provision against the contractualobligation of the ECB to restore its currentpremises to their original condition when they arevacated and the ECB moves to its new site.The Governing Council, taking into account theECB’s large exposure to foreign exchange rate,interest rate and gold price risks, and the size ofits revaluation accounts, deemed it appropriateto establish a provision as at 31 December 2005against these risks. This provision will be usedto the extent deemed necessary by the GoverningCouncil to offset future realised and unrealisedlosses, in particular valuation losses not coveredby the revaluation accounts. The size andcontinuing requirement for this provision isreviewed annually, based on the ECB’sassessment of its exposure to the above risks.This assessment takes a range of factors intoaccount, including in particular the level ofholdings of risk-bearing assets, the extent ofmaterialised risk exposures in the currentfinancial year, projected results for the comingyear, and a risk assessment involvingcalculations of Values at Risk (VaR) on riskbearingassets, which is applied consistentlyover time. 13 The provision, together with anyamount held in the general reserve fund, maynot exceed the value of the ECB’s capital paidup by the euro area NCBs.As at 31 December 2007 the provision againstforeign exchange rate, interest rate and goldprice risks amounted to €2,668,758,313. Inaccordance with Article 49.2 of the Statute ofthe ESCB, the Central Bank of Cyprus and theCentral Bank of Malta contributed the amountsof €4,795,450 and €2,388,127 respectively tothe provision with effect from 1 January 2008.Taking the results of its assessment into account,the Governing Council decided to transfer, asat 31 December 2008, an additional amount of€1,339,019,690 14 to the provision. This increasedthe size of the provision to €4,014,961,580,which is the value of the ECB’s capital paid upby the euro area NCBs as at 31 December 2008,and reduced net profit to €1,322,253,536.14 REVALUATION ACCOUNTSThese accounts represent revaluation balancesarising from unrealised gains on assets andliabilities. In accordance with Article 49.2 of theStatute of the ESCB, the Central Bank of Cyprusand the Central Bank of Malta contributed theamounts of €11.1 million and €5.5 millionrespectively to these balances with effect from1 January 2008.2008€2007€Change€Gold 6,449,713,267 5,830,485,388 619,227,879Foreign currency 3,616,514,710 0 3,616,514,710Securities andother instruments 1,286,373,348 338,524,183 947,849,165Total 11,352,601,325 6,169,009,571 5,183,591,754The foreign exchange rates used for the yearendrevaluation were as follows:Exchange rates 2008 2007US dollars per euro 1.3917 1.4721Japanese yen per euro 126.14 164.93Euro per SDR 1.1048 1.0740Swiss francs per euro 1.4850 Not applicableDanish kroner per euro 7.4506 Not applicableEuro per fine ounce of gold 621.542 568.23613 See also Chapter 2 of the ECB’s Annual Report.14 This transfer was funded from realised gains on gold salesof €0.3 billion and the ECB’s income on euro banknotes incirculation amounting to €1.0 billion.ECBAnnual Report2008231