FOLLOW-UP PAPER (RESTEG) # 11.1
TREATMENT OF ALLOCATED/UNALLOCATED GOLD HELD AS RESERVE ASSETS AND GOLD SWAPS AND GOLD DEPOSITS
Prepared by Hidetoshi Takeda, IMF Statistics Department
"1. At the meeting of May 11–12, 2006, experts of the Reserve Assets Technical Expert Group (RESTEG) discussed the treatment of gold swaps and gold deposits based on the Issues Paper #11. The experts considered that the statistical treatment of gold swaps and gold deposits as reserve assets needed to be addressed from the viewpoint of whether allocated or unallocated gold was involved and the secretariat would investigate the issue further.
2. This follow-up paper was prepared in response to the request of RESTEG, based on further investigation and bilateral discussions with RESTEG members to discover practices on gold transactions, including gold swaps and deposits.
I. CURRENT INTERNATIONAL STANDARDS FOR THE STATISTICAL TREATMENT
OF THE ISSUE
OF THE ISSUE
3. Current macroeconomic statistics manuals are silent on the statistical treatment of allocated and unallocated gold. There are no explanations on the treatment of gold swaps/deposits that involve unallocated gold. However, on the statistical treatment of allocated/unallocated gold, the IMF Committee on Balance of Payments Statistics (BOPCOM) and the Advisory Expert Group on National Accounts (AEG) have discussed and reached agreement at their meetings of June–July, 2005 (BOPCOM), and January–February, 2006 (AEG).
Statistical treatment of allocated and unallocated gold
4. Allocated gold is gold deposited under a safe-keeping or custody arrangement. It is “a specific and uniquely numbered physical piece of gold, which remains in the ownership of the individual or institution placing it for safe custody with a bank” (paragraph 15 of Philip Turnbull, BOPTEG issues paper # 27A). The owner of allocated gold keeps legal ownership over the allocated gold even if it is deposited with a custodial facility provider. In the economic system, it remains an asset without a counterpart liability.
5. Unallocated gold represents a claim on a fixed quantity of gold. “Account providers hold title to a reserve base of physical (allocated) gold and issue claims to account holders denominated in unallocated gold. The account holder does not hold title to physical gold but instead holds an unsecured claim against the account provider, in effect a deposit with the account provider” (paragraph 13 of Chris Wright and Stuart Brown, issues paper for the fourth AEG meeting). The account holder does not have legal ownership of the physical gold but is an unsecured depositor. The account holder is a creditor to the account provider, and so in the economic system this asset has a counterpart liability. Unallocated gold targets the professional gold market.
6. In many cases, similar to deposits, an account holder of unallocated gold account deposits its physical gold to its account provided by, for instance, a bullion bank. Then, the account holder undertakes gold transactions (outright purchase/sale, gold swaps, and gold deposits) via the account. But specific gold bars are not ascribed to the holder unless the holder takes delivery of the gold. The bullion bank can use the deposited physical gold for its own trading purpose and so does not necessarily have 100 percent backing in physical gold for the unallocated gold accounts.
[Mrt: Bron, it surprises me how I, an amateur observer, can find and read about something what professionals should know by heart when one wakes them up in the middle of the night :o) It took me about 5 min to find this and there is certainly much more and more follow up, note, this is just August 2006 doc. Just search "Resteg" or "BOPCOM" & "allocate unallocated" or based on members of the group... in IMF, "Takeda", or "Philip Turnbull, BOPTEG issues paper # 27A" etc, etc...:o)]'
II. ISSUES TO BE DISCUSSED WITHIN THE CONTEXT OF RESERVE ASSETS
Treatment of allocated and unallocated gold within reserve assets
8. A monetary authority can own both allocated and unallocated gold.
9. Given agreements at the AEG and BOPCOM, a monetary authority’s holding of allocated gold would be monetary gold, as long as all other criteria as reserve assets are met. On the other hand, its holding of unallocated gold would be classified as deposits, rather than monetary gold, even when the other criteria for being classified as a reserve asset are met. However, this latter approach may result in (i) a significant decrease in reported monetary gold, although it would only be a one-off effect, and (ii) gold transactions/positions by monetary authorities would be included within deposits and become difficult to identify.
10. Given the unique status of monetary gold within statistical frameworks, an alternative is to treat unallocated gold the same way as allocated (physical) gold only for reserve assets. The advantages of this approach could be (i) it keeps the status quo, (ii) frequent changes in recorded goldholdings are avoided if central banks switch between allocated and unallocated accounts, and (iii) the complication by residence (how to treat unallocated gold if the account provider is a resident bank) can be avoided. However, this approach would result in an asymmetry in recording between creditors (monetary authorities, account holder) and debtors (bullion banks, account provider) because account providers would record deposited unallocated gold as deposits while monetary authorities would record it as gold. Also, as monetary gold does not have a counterpart liability, whereas deposits do, the inclusion of a claim with a liability (unallocated gold accounts) in monetary gold would cause inconsistencies in statistical treatment, between national accounts and balance of payments.
III. POSSIBLE TREATMENTS
Treatment of allocated and unallocated gold in reserve assets
12. Allocated gold is physical gold and, therefore, as long as it meets the criteria as reserves, is classified as monetary gold under reserve assets.
Balance of Payments Manual, Fifth Edition, paragraph 434
International Reserves and Foreign Currency Liquidity, Guidelines for a Data Template,
paragraphs 98–101, 178, 258
Monetary and Financial Statistics Manual, paragraphs 154-164
Annotated Outline, paragraph 5.51 (a), (c) (http://www-stg-ext.imf.org/external/np/sta/bop/pdf/ao.pdf)
IMF Statistics Department, Treatment of Reverse Transactions (RESTEG Issues Paper #8, http://www.imf.org/external/np/sta/bop/pdf/resteg8.pdf)
IMF Statistics Department, Treatment of Gold Swaps and Gold Deposits (Loans) (RESTEG Issues Paper #11, http://www.imf.org/external/np/sta/bop/pdf/resteg11.pdf), Outcome Paper (RESTEG) #11 (http://www-stg-ext.imf.org/external/np/sta/bop/pdf/resout11.pdf)
IMF Statistics Department, Repurchase Agreements, securities lending, gold swaps, and gold loans: an update (issues paper for the December 2004 AEG meeting (SNA/M2.04/26), http://unstats.un.org/unsd/nationalaccount/AEG/papers/m2repurchase.pdf)
Philip Turnbull, The Treatment of Non-monetary gold in the Macro Economic Accounts (BOPTEG issues paper # 27A, http://www.imf.org/External/NP/sta/bop/pdf/bopteg27a.pdf) Chris Wright, Stuart Brown, Non-monetary Gold (issues paper for the fourth meeting of the AEG (SNA/M1.06/30.1),
[Mrt: As usual, this is just an extract, for getting all one must read the whole paper(s).]
[Mrt: Preceded by: http://www.imf.org/external/np/sta/bop/pdf/res111.pdf]