Fourth meeting of the Advisory Expert Group on National Accounts
30 January – 8 February 2006, Frankfurt
by Chris Wright and Stuart Brown with accompanying information from Robert Dippelsman
AEG Paper – Nonmonetary Gold
A. Executive Summary
"1. It is proposed that a clarification should be made to the 1993 SNA to state that unallocated metal accounts should be classified as a financial asset/liability, specifically, a deposit. At present, this case is not discussed and these accounts may sometimes be classified as outright ownership of the physical asset. It is proposed to state that allocated metal accounts, held outside the central bank (S.121), will continue to be regarded as ownership of the metal as a nonfinancial asset.
2. This issue was initially raised for gold, but, as shown below, investigations have shown that the same arrangements are also used for silver and certain other precious metals and could in principle be applied for other commodities."
B. Background, including 1993 SNA position and main reasons for change
3. This topic was covered in BOPTEG issues papers dealt with at two meetings and in electronic discussion:
(BOPTEG Issues Paper 27)
The Treatment of Non-Monetary Gold in the Macro Economic Accounts,
(BOPTEG Issues Paper 27A)
Non-Monetary Gold: A Possible Way Forward,
(BOPTEG Issues Paper 27B)
The first two issues papers discussed a possible change to the SNA to reclassify gold held by financial corporations from a nonfinancial to a financial asset. The third paper proposed an alternative that would clarify the SNA to state that unallocated metal accounts, which represent a claim against a third party rather than outright title, should be classified as a financial asset, but that allocated metal accounts should be nonfinancial assets. The proposal in the third paper was adopted by the IMF Committee on Balance of Payments Statistics.
9. In seeking to define a possible boundary between financial and commodity gold, Issues Paper 27A presents various alternative proposals. That contained in Paragraph 11 has attracted particular interest. This definition, which emerged from discussions with gold traders, views financial gold as “gold traded between counterparties through electronic metal accounts”.
10. The IP is attracted to this definition both because of its precision and practicality. But the description of trading through dematerialised electronic accounts has raised the additional possibility that inter dealer turnover may not in fact give rise to the rapid changes in ownership of commodity gold which were thought likely to dominate conventional measures of trade in goods. The point at issue is whether traders exchange title to physical gold or whether the regular process of trading takes place in a genuine financial asset – a deposit – which happens to be denominated in units equivalent to physical gold, but for which the credit positions of one institutional unit are matched by a liability position for another unit.
So What Are Metal Accounts?
11. Metal accounts are any form of account facility provided by a third party, which give the holder the market risks and benefits of holding physical metal without the need to provide secure storage. They record the holder’s outstanding balance, expressed as a quantity (weight) of metal – gold or other precious metal.
12. But such accounts occur in at least two distinct forms:
• As a record of title to specified allocated gold; and
• As a claim against a third party to deliver unallocated gold.
The Statistical Treatment of Allocated and Unallocated Gold
[Mrt: just open the file and educate yourself]
[Mrt: Note that this is from 2006 and we moved forward a bit. Some more info about those issues are in previous blog entries, e.g. here.]