Twenty-Third Meeting of the IMF Committee on Balance of Payments Statistics Washington, D.C.
October 25–27, 2010
I. INTRODUCTION
"1. The IMF Committee on Balance of Payments Statistics (Committee) was informed at its November 2009 meeting that the review of the International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template (Guidelines) would gain momentum in the middle of 2010. A consultative process is underway now. As noted during the 2009 Committee meeting, an important element of the consultative process involves reconvening the Reserve Assets Technical Expert Group (RESTEG),1 and this was completed in September 2010. A draft schedule (Appendix I) for updating the Guidelines has been developed. The schedule calls for preparing a pre-publication draft of the Guidelines, for posting on the IMF website by December 2011..."
"...3. In regard to the revisions to the Data Template itself, in December 2008, the IMF Executive Board saw the need for closing the gap in the Reserves Template for exchangetraded futures settled in national currency. (It should be noted that the Terms of Reference of RESTEG notes that there were no intentions to change the Reserves Template, and so RESTEG members were consulted on the proposed changes to the Data Template. No objections were received.) The changes in the Reserves Template became effective in August 2009 (as detailed in BOPCOM-08/25)...."
Source: http://www.imf.org/external/pubs/ft/bop/2010/10-11.pdf
Monday, September 5, 2011
Sunday, September 4, 2011
IMF - RESTEG
Revision of the Fifth Edition of the IMF's Balance of Payments Manual: Papers of the Reserve Assets Technical Expert Group
Source: http://www.imf.org/external/np/sta/bop/resteg.htm
[Mrt: Simply RESTEG]
Source: http://www.imf.org/external/np/sta/bop/resteg.htm
[Mrt: Simply RESTEG]
IMF - RESTEG - RESERVE ASSETS TECHNICAL EXPERT GROUP: SUMMARY REPORT
Twentieth Meeting of the IMF Committee on Balance of Payments Statistics Washington, D.C., October 29–November 1, 2007
...
"C. Monetary Gold
9. On monetary gold, the issue of the treatment of unallocated gold accounts was not fully resolved at the Committee meeting in Frankfurt. To expedite consensus, in early 2007 there was a meeting between Fund staff and members of RESTEG in Europe that commented on the RESTEG paper on the subject. The outcome, following further consultation with the Committee and RESTEG, was to include in the draft BPM6 two items within monetary gold for both BOP/IIP data: gold bullion (including allocated gold accounts) and nonresident unallocated gold accounts. A specific question was included in paragraph 6.73 to gauge the world-wide response.
10. This outcome also affected the national accounts, and hence the revision of the System of National Accounts 1993 (SNA). The proposal for the SNA to include a total for monetary gold (F1.1), with two subcategories (F1.1.1 (gold bullion) and F.1.1.2, (nonresident unallocated gold accounts) was accepted by the Advisory Expert Group on National Accounts at its meeting in New York during March 2007..."
...
[Mrt: Note "APPENDIX I: Reserve Assets Technical Expert Group—List of Members"]
Source: http://www.imf.org/external/pubs/ft/bop/2007/07-15.pdf
...
"C. Monetary Gold
9. On monetary gold, the issue of the treatment of unallocated gold accounts was not fully resolved at the Committee meeting in Frankfurt. To expedite consensus, in early 2007 there was a meeting between Fund staff and members of RESTEG in Europe that commented on the RESTEG paper on the subject. The outcome, following further consultation with the Committee and RESTEG, was to include in the draft BPM6 two items within monetary gold for both BOP/IIP data: gold bullion (including allocated gold accounts) and nonresident unallocated gold accounts. A specific question was included in paragraph 6.73 to gauge the world-wide response.
10. This outcome also affected the national accounts, and hence the revision of the System of National Accounts 1993 (SNA). The proposal for the SNA to include a total for monetary gold (F1.1), with two subcategories (F1.1.1 (gold bullion) and F.1.1.2, (nonresident unallocated gold accounts) was accepted by the Advisory Expert Group on National Accounts at its meeting in New York during March 2007..."
...
[Mrt: Note "APPENDIX I: Reserve Assets Technical Expert Group—List of Members"]
Source: http://www.imf.org/external/pubs/ft/bop/2007/07-15.pdf
IMF - RESTEG - FOLLOW-UP PAPER # 11.1
IMF COMMITTEE ON BALANCE OF PAYMENTS STATISTICS RESERVE ASSETS TECHNICAL EXPERT GROUP (RESTEG)
FOLLOW-UP PAPER (RESTEG) # 11.1
Prepared by Hidetoshi Takeda, IMF Statistics Department
August 2006
...
"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.
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
Allocated 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.
Unallocated gold
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)]'
...
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.
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.
...
References
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),
http://unstats.un.org/unsd/nationalaccount/AEG/papers/m4Gold.pdf
"
[Mrt: As usual, this is just an extract, for getting all one must read the whole paper(s).]
Source: http://www.imf.org/external/np/sta/bop/pdf/fu111.pdf
[Mrt: Preceded by: http://www.imf.org/external/np/sta/bop/pdf/res111.pdf]
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
August 2006
...
"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
Allocated 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.
Unallocated gold
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
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.
...
References
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),
http://unstats.un.org/unsd/nationalaccount/AEG/papers/m4Gold.pdf
"
[Mrt: As usual, this is just an extract, for getting all one must read the whole paper(s).]
Source: http://www.imf.org/external/np/sta/bop/pdf/fu111.pdf
[Mrt: Preceded by: http://www.imf.org/external/np/sta/bop/pdf/res111.pdf]
Friday, September 2, 2011
In Search of a Stable Currency System in the 21st Century
In Search of a Stable Currency System in the 21st Century
Occasional Papers No.9
IIMA, 1999
Source: http://www.iima.or.jp/pdf/paper9e.pdf
Occasional Papers No.9
IIMA, 1999
Source: http://www.iima.or.jp/pdf/paper9e.pdf
TT -- International Center for Monetary and Banking Studies
ICMB
"Founded in 1972, the International Center for Monetary and Banking Studies (ICMB) aims at facilitating the exchange of ideas, information and research in the fields of international money, banking and finance. Its characteristic is to bring together leaders from three fields: central bankers, private bankers and academics.Its main activities are to organise public lectures and a yearly international conference whose results are published. ICMB leans on the world best experts."
Public lectures
All public lectures are held at the Auditorium Jacques-Freymond of the Graduate Institute of International and Development Studies (IHEID), 132, rue de Lausanne, Geneva, at 18:30 (unless otherwise mentioned).
Entrance free.
Source: http://www.icmb.ch/index.php?rub=2&lang=en
International conferences
Each year the ICMB, in cooperation with CEPR, organizes an international conference dealing with an issue of keen interest to bankers, policy makers and academic researchers. The conference is organized around a study specially commissioned from leading experts. The study is published in the Geneva Reports on the World Economy series available from CEPR.
Source: http://www.icmb.ch/index.php?rub=3&lang=en
Publications
Source: http://www.icmb.ch/index.php?rub=4&lang=en
[Mrt: got here via TPS bio, Note: sponsor CIE]
Source: http://www.icmb.ch/
THE ECU part II
The European Monetary System: documents
Extract from the conclusions of the Presidency of the European Council of and December 1978 in Brussels
European..Monetary System
"The European Council agreed, on the basis of the preparatory work of the Council (Economics and Finance Ministers) and of the Monetary Committee and the Committee of the Governors of the Central Banks to set up a European Monetary System as from 1 January 1979.
The purpose of the European Monetary System is to establish a greater measure of monetary stability in the Cpmmunity: It should be seen as a fundamental component of a more comprehensive strategy aimed at lasting growth with stability, .a progressive return to full employment, the harmonization of living standards and the lessening of regional disparities in the Community. The European Monetary System will facilitate the convergence of economic development and give fresh impetus to the process of European Union. The Council expects the European Monetary System to have a stabilizing effect on international economic and monetary relations. It will therefore certainly be in the interests of the industrialized and the developing countries alike...."
Resolution of the European Council of December 1978 on the establishment of the European Monetary System (EMS) and related matters
A. The European Monetary System
"1. Introduction
1. In Bremen we discussed a ' scheme for the creation of closer monetary cooperation leading to a zone of monetary stability in Europe . We regarded such a zone 'as a highly desirable objective' and envisaged ' durable and e~ve scheme
2. Today, after careful examination of the preparatory work done by the Council and other Community bodies, we are agreed as follows:
A European Monetary System (EMS) will be set up on 1 January 1979.
1.3. We are firmly resolved to ensure the lasting success of the EMS by policies conducive to greater stability at home and abroad for both deficit and surplus countries...."
...
[Mrt: well, all those picked in the document are worth a look]
Source: http://aei.pitt.edu/1019/1/monetary_ECU_2nd_edition.pdf
Extract from the conclusions of the Presidency of the European Council of and December 1978 in Brussels
European..Monetary System
"The European Council agreed, on the basis of the preparatory work of the Council (Economics and Finance Ministers) and of the Monetary Committee and the Committee of the Governors of the Central Banks to set up a European Monetary System as from 1 January 1979.
The purpose of the European Monetary System is to establish a greater measure of monetary stability in the Cpmmunity: It should be seen as a fundamental component of a more comprehensive strategy aimed at lasting growth with stability, .a progressive return to full employment, the harmonization of living standards and the lessening of regional disparities in the Community. The European Monetary System will facilitate the convergence of economic development and give fresh impetus to the process of European Union. The Council expects the European Monetary System to have a stabilizing effect on international economic and monetary relations. It will therefore certainly be in the interests of the industrialized and the developing countries alike...."
Resolution of the European Council of December 1978 on the establishment of the European Monetary System (EMS) and related matters
A. The European Monetary System
"1. Introduction
1. In Bremen we discussed a ' scheme for the creation of closer monetary cooperation leading to a zone of monetary stability in Europe . We regarded such a zone 'as a highly desirable objective' and envisaged ' durable and e~ve scheme
2. Today, after careful examination of the preparatory work done by the Council and other Community bodies, we are agreed as follows:
A European Monetary System (EMS) will be set up on 1 January 1979.
1.3. We are firmly resolved to ensure the lasting success of the EMS by policies conducive to greater stability at home and abroad for both deficit and surplus countries...."
...
[Mrt: well, all those picked in the document are worth a look]
Source: http://aei.pitt.edu/1019/1/monetary_ECU_2nd_edition.pdf
THE ECU
The ECU
5/1987
EUROPEAN DOCUMENTATION
1. The origin of ECU
"The ECU started life as a unit of account used only for budgetary purposes. It now serves increasingly as money within the Community, not only for official purposes by the European Community institutions that created it, but also, on an even greater and increasing scale by companies , banks and private individuals.
Such growth in the private use of the ECU (European currency unit) in so short a period of time has been possible only because national currencies alone cannot meet all the needs of increasing cross- frontier trade and capital movements within the Community and worldwide. A generally accepted form of money is also required to reduce and spread more evenly the risks associated with the use of national currencies in cross- frontier transactions.
The growing use in international trade and on the financial markets of a unit of account initially needed by the Community institutions for their own internal accounting purposes required the background of a strong European Community and of the European Monetary System (EMS), established in 1979. Only the unit of account of a Community determined to ensure cohesion and a stable economy could have transcended the narrow framework of its official use and have been taken up by the private sector , which was looking for a currency unit for cross-frontier transactions. The ECU is being used today in two separate circuits: there is the official ECU used by the monetary authorities and the private ECU used by business and the population at large, both being identical in definition.
The European Community originally comprised six Member States, and since 1986 has 12 all with equal rights but separate currencies. Since its foundation , it required a common measure of value. This was essential for drawing up the Community budget, for settling claims and obligations, and, following the introduction of the common agricultural policy in the early 1960s , for expressing common prices for agricultural products. This uniform measure of value was not a common currency, merely a common yardstick or unit of account.
The Community s first unit of account (u. ) was that used by the European Payments Union (EPU), set up in 1950. Its value was equivalent to the weight in gold of one United States dollar - 0..88867088 gram of fine gold. Conversion of the unit of account into national currencies was based on the official central rates for Member States' currencies fixed at international level under the Bretton Woods agreement. With the disintegration of the system of fixed exchange rates , it was not long before the Community s unit of account began to split as well. As a result, several units of account came into being in the Community, some of which were based on the old and less and less applicable parities , while others were geared to the fluctuating daily rates of the currencies concerned.
On 21 April 1975 , the Community decided to follow the example of the International Monetary Fund and to create a European unit of account made up of specific quantities of the then nine Member States' currencies. At the time, the IMF unit of account, the special drawing right (SDR), consisted of agreed quantities of 16 currencies in a common basket.
The Community s new basket-type unit of account was christened the European unit of account , or EUA. With its introduction in 1975 , the foundation was laid for the ECU. When the European Monetary System (EMS) was launched on 13 March 1979 , the EUA formula was retained unchanged , but a review clause was incorporated and the EUA renamed the ECU..."
...
2. Nature of the ECU
"The architects of the EMS drew on differing sources in arriving at the name 'ECU' For the then French President, Valery Giscard d'Estaing, it was supposed to be reminiscent of the gold coin introduced by Louis IX (also known as Saint Louis) in the thirteenth century and subsequently circulated throughout Europe. The British and German representatives took the name from the initials of ' E uropean currency unit..."
...
B. The function of the ECU in the European Monetary System (EMS)
1. Centre of the EMS
"The ECU is a pillar of the European Monetary System (EMS) and the symbol of a zone of monetary stability in Europe. This was made clear in the resolution adopted by the Member States' Heads of State or Government at their meeting in Brussels on 5 December 1978 at which the EMS was launched: 'A European currency unit (ECU) will be at the centre of the EMS. ' The EMS was designed to bring about greater measure of monetary stability in the Community. The Heads of State or Government wanted it to be seen 'as a fundamental component of a morecomprehensive strategy aimed at lasting growth with stability, a progressive return to full employment, the harmonization of living standards and the lessening of regional disparities in the Community . It was ' to have a stabilizing effect on international economic and monetary relations
Given these objectives , the ECU has a role to play not only within the EMS but also, in the longer run, within the international monetary system, whose stability it seeks to help reinforce. Only if the Community works for greater stability internally can it usefully contribute toa return to increased monetary stability externally, that is to say in the world at large.
The Heads of State or Government expressly assigned four functions to the ECU; it is to serve as:
(a) the denominator (numeraire) for the exchange-rate mechanism;
(b) the basis for a divergence indicator;
(c) the denominator for operations in both the intervention and credit mechanisms;
(d) a reserve instrument and a means of settlement betWeen monetary authorities in the Community..."
...
(d) A reserve currency in the making and a payment instrument
"The European Council made it clear when it launched its initiative in December 1978 that in introducing the ECU it wanted not only to create a unit of account but also to lay the foundations for a currency and reserve unit. Since the inception of the EMS, EMS participants have deposited 20% of their gold reserves and 20% of their dollar reserves with the European Monetary Cooperation Fund (EMCF). In exchange, the EMCF has credited them with ECUs.
By requiring the deposit of gold and dollar reserves as the counterpart to the creation of the ECU , the Community has shown that the ECU is not a source of liquidity additional to existing reserve instruments and created out of nothing, but that the ECUs issued are entirely matched by other, immobilized currency reserves. The deposit arrangements applicable during the first phase must not, however, be confused with definitive transfer of part of Member States' gold and dollar reserves to the EMCF. So far, Member States' deposits with the EMCF of 20% of their gold and dollar reserves have merely been in the form of three-month revolving swaps. The deposit arrangements themselves are renewed every two years. Physically, the gold and dollars remain the possession of Member States' central banks, which also bear, the investment risk and recei~e interest payable on the dollar portion. The ECUs credited against the original depC?sit do not therefore yield any interest. Interest becomes receivable only when Member States use their ECU credits for payment purposes..."
...
The private use of the ECU
1. Origin
"The development of the private ECU markets began in 1979 when a number of Belgian banks opened ECU-denominated sight and time deposit accounts for the Community institutions at the latter s request. This enabled the Commission to simplify its cash management and to transfer ECU-denominated financial contributions and interest subsidies to the European Investment Bank (EIB) directly in ECUs..."
[Mrt: How different is ECU from early stage of SDR?]
Source: http://aei.pitt.edu/1019/1/monetary_ECU_2nd_edition.pdf
5/1987
EUROPEAN DOCUMENTATION
1. The origin of ECU
"The ECU started life as a unit of account used only for budgetary purposes. It now serves increasingly as money within the Community, not only for official purposes by the European Community institutions that created it, but also, on an even greater and increasing scale by companies , banks and private individuals.
Such growth in the private use of the ECU (European currency unit) in so short a period of time has been possible only because national currencies alone cannot meet all the needs of increasing cross- frontier trade and capital movements within the Community and worldwide. A generally accepted form of money is also required to reduce and spread more evenly the risks associated with the use of national currencies in cross- frontier transactions.
The growing use in international trade and on the financial markets of a unit of account initially needed by the Community institutions for their own internal accounting purposes required the background of a strong European Community and of the European Monetary System (EMS), established in 1979. Only the unit of account of a Community determined to ensure cohesion and a stable economy could have transcended the narrow framework of its official use and have been taken up by the private sector , which was looking for a currency unit for cross-frontier transactions. The ECU is being used today in two separate circuits: there is the official ECU used by the monetary authorities and the private ECU used by business and the population at large, both being identical in definition.
The European Community originally comprised six Member States, and since 1986 has 12 all with equal rights but separate currencies. Since its foundation , it required a common measure of value. This was essential for drawing up the Community budget, for settling claims and obligations, and, following the introduction of the common agricultural policy in the early 1960s , for expressing common prices for agricultural products. This uniform measure of value was not a common currency, merely a common yardstick or unit of account.
The Community s first unit of account (u. ) was that used by the European Payments Union (EPU), set up in 1950. Its value was equivalent to the weight in gold of one United States dollar - 0..88867088 gram of fine gold. Conversion of the unit of account into national currencies was based on the official central rates for Member States' currencies fixed at international level under the Bretton Woods agreement. With the disintegration of the system of fixed exchange rates , it was not long before the Community s unit of account began to split as well. As a result, several units of account came into being in the Community, some of which were based on the old and less and less applicable parities , while others were geared to the fluctuating daily rates of the currencies concerned.
On 21 April 1975 , the Community decided to follow the example of the International Monetary Fund and to create a European unit of account made up of specific quantities of the then nine Member States' currencies. At the time, the IMF unit of account, the special drawing right (SDR), consisted of agreed quantities of 16 currencies in a common basket.
The Community s new basket-type unit of account was christened the European unit of account , or EUA. With its introduction in 1975 , the foundation was laid for the ECU. When the European Monetary System (EMS) was launched on 13 March 1979 , the EUA formula was retained unchanged , but a review clause was incorporated and the EUA renamed the ECU..."
...
2. Nature of the ECU
"The architects of the EMS drew on differing sources in arriving at the name 'ECU' For the then French President, Valery Giscard d'Estaing, it was supposed to be reminiscent of the gold coin introduced by Louis IX (also known as Saint Louis) in the thirteenth century and subsequently circulated throughout Europe. The British and German representatives took the name from the initials of ' E uropean currency unit..."
...
B. The function of the ECU in the European Monetary System (EMS)
1. Centre of the EMS
"The ECU is a pillar of the European Monetary System (EMS) and the symbol of a zone of monetary stability in Europe. This was made clear in the resolution adopted by the Member States' Heads of State or Government at their meeting in Brussels on 5 December 1978 at which the EMS was launched: 'A European currency unit (ECU) will be at the centre of the EMS. ' The EMS was designed to bring about greater measure of monetary stability in the Community. The Heads of State or Government wanted it to be seen 'as a fundamental component of a morecomprehensive strategy aimed at lasting growth with stability, a progressive return to full employment, the harmonization of living standards and the lessening of regional disparities in the Community . It was ' to have a stabilizing effect on international economic and monetary relations
Given these objectives , the ECU has a role to play not only within the EMS but also, in the longer run, within the international monetary system, whose stability it seeks to help reinforce. Only if the Community works for greater stability internally can it usefully contribute toa return to increased monetary stability externally, that is to say in the world at large.
The Heads of State or Government expressly assigned four functions to the ECU; it is to serve as:
(a) the denominator (numeraire) for the exchange-rate mechanism;
(b) the basis for a divergence indicator;
(c) the denominator for operations in both the intervention and credit mechanisms;
(d) a reserve instrument and a means of settlement betWeen monetary authorities in the Community..."
...
(d) A reserve currency in the making and a payment instrument
"The European Council made it clear when it launched its initiative in December 1978 that in introducing the ECU it wanted not only to create a unit of account but also to lay the foundations for a currency and reserve unit. Since the inception of the EMS, EMS participants have deposited 20% of their gold reserves and 20% of their dollar reserves with the European Monetary Cooperation Fund (EMCF). In exchange, the EMCF has credited them with ECUs.
By requiring the deposit of gold and dollar reserves as the counterpart to the creation of the ECU , the Community has shown that the ECU is not a source of liquidity additional to existing reserve instruments and created out of nothing, but that the ECUs issued are entirely matched by other, immobilized currency reserves. The deposit arrangements applicable during the first phase must not, however, be confused with definitive transfer of part of Member States' gold and dollar reserves to the EMCF. So far, Member States' deposits with the EMCF of 20% of their gold and dollar reserves have merely been in the form of three-month revolving swaps. The deposit arrangements themselves are renewed every two years. Physically, the gold and dollars remain the possession of Member States' central banks, which also bear, the investment risk and recei~e interest payable on the dollar portion. The ECUs credited against the original depC?sit do not therefore yield any interest. Interest becomes receivable only when Member States use their ECU credits for payment purposes..."
...
The private use of the ECU
1. Origin
"The development of the private ECU markets began in 1979 when a number of Belgian banks opened ECU-denominated sight and time deposit accounts for the Community institutions at the latter s request. This enabled the Commission to simplify its cash management and to transfer ECU-denominated financial contributions and interest subsidies to the European Investment Bank (EIB) directly in ECUs..."
[Mrt: How different is ECU from early stage of SDR?]
Source: http://aei.pitt.edu/1019/1/monetary_ECU_2nd_edition.pdf
Thursday, September 1, 2011
THE EVOLUTION OF FRANCE'S EUROPEAN MONETARY DIPLOMACY
THE EVOLUTION OF FRANCE'S EUROPEAN MONETARY DIPLOMACY
by Alan J. Dillingham
[Mrt: no quote post]
Source: http://aei.pitt.edu/6922/1/dillingham_alan.pdf
by Alan J. Dillingham
[Mrt: no quote post]
Source: http://aei.pitt.edu/6922/1/dillingham_alan.pdf
WHAT INTERNATIONAL MONETARY SYSTEM FOR A FAST-CHANGING WORLD ECONOMY?
WHAT INTERNATIONAL MONETARY SYSTEM FOR A FAST-CHANGING WORLD ECONOMY?
AGNÈS BÉNASSY-QUÉRÉ* AND JEAN PISANI-FERRY**
"...As for the unit-of-account functions, the dollar remains key for commodity and energy markets, although it is less the case for manufacturing trade. It also remains key for monetary anchoring. For example, Bénassy-Quéré et al (2006) have estimated that, from 1999-2004, 92 percent of a sample of 59 currencies were de facto pegged. Among them, 56 percent were pegged to the US dollar, 14 percent to the euro and 22 percent to a basket.6 For 2007, Goldberg (2010) finds that out of 207 countries, 96 were either dollarised or had their currency pegged to the dollar and another eight were in a managed float against the dollar, resulting in 36 percent of non-US world GDP being linked to the dollar. If the US share in world GDP is included (25% in 2007), this “dollar area” accounts for more than 60% of the world economy.
This predominance of the dollar as an anchor currency is confirmed by Figure 1 which plots on the Xaxis a country’s ratio of trade with the EU to trade with the US and on the Y-axis the exchange rate alignment index of Cobham (2008). It is apparent that countries tend to peg to the currency of the country they trade with most. However, many countries exhibit an odd dollar habitat (meaning they trade more with the EU but align more to the US dollar) whereas there is only one example of the reverse situation. This is evidence of the importance of the “Bretton Woods 2” regime of Dooley et al (2003) and also confirms that the euro is still a regional, rather than a global currency (Pisani-Ferry and Posen, 2009)
On the whole, the dollar remains the main pivotal currency for all three monetary functions – means of payment, unit of account, store of value. It is true that most of the advanced economies and a group of emerging countries, most of which adopted in the 2000s some variant of inflation targeting strategies,7 have severed direct links with the US dollar through the pegging of the exchange rate or the accumulation of foreign exchange reserves. But even these countries proved to be dependent on the Federal Reserve for liquidity provision at the height of the crisis, despite the emergence of regional arrangements and the extension of IMF facilities. Although neglected in more tranquil times, the dollar reclaimed its position during the crisis, proving that it was still the keystone in the international monetary system...."
[Mrt: an interesting view]
[Mrt: an accident find about the SDR]
"The creation of the SDR in 1969 came after several years of international discussions, especially amongst the "Group of Ten" - a group of ten advanced countries (the US, Japan and eight European countries) represented by their finance ministers, Treasury heads or central bank governors (see Solomon, 1996).
After the war, U.S. holdings accounted for about 60% the world’s reserves of gold. The dollar/gold equivalence and the Marshall Plan, which provided dollar funding to European countries, allowed the relative scarcity of gold to be circumvented. However, the pace of gold production in the world was not consistent with the value of the peg. In the early 1960s, in order to address the problem of scarcity, the central banks of the U.S. and of European countries agreed on a pooling of gold reserves. Under the terms of the agreement, the participating countries were required to intervene if the market price departed from 35 dollars an ounce. However, the cost of these interventions steadily increased. The United States’ privilege as the issuer of the main international currency was also met with the hostility of Charles de Gaulle. After the pound was devalued in 1967, and given the risk of a dollar devaluation because of the Vietnam War, investors converted their dollars into gold, making the 35 dollar an ounce parity increasingly difficult to uphold. The gold pool ceased its functions in 1968. The parity of 35 dollar an ounce was maintained for official transactions, but private transactions were carried out on the basis of a higher market price. This amounted to a de facto devaluation of the dollar, while the problem of international liquidity – based US capital exports – remained unsolved.
The SDR was created by the Fund to serve as a reserve asset. It can be seen either as a substitute for gold (and a competitor to the dollar), or simply a mechanism for managing global liquidity independently of the United States’ current account. In 1978, the member states of the IMF agreed to make the SDR the “principal reserve asset of the international monetary fund” via an amendment to the Fund’s statutes. More than thirty years later, however, the SDR has failed to reach its objectives as a unit of account and as a store of value.
Unit of Account
Initially set at 0.888671 grams of fine gold (on par with the official value of the dollar), the value of the SDR had to be redefined after the end of the Bretton Woods regime. In 1974, the SDR was redefined as a basket of 16 currencies, those of the member states that accounted for at least 1% of world trade. The basket was reduced to five currencies in 1981 (dollar, yen, pound sterling, Deutschemark, French franc), and in 1999 the franc and the mark were replaced by the euro. In 2001, the criterion for inclusion in the basket was changed. The currencies included in the basket were to be those of the biggest exporters, but also those most widely used in trade invoicing. This last criterion is currently an impediment to the inclusion of the renminbi in the basket.
The value of the SDR is determined daily by the IMF, according to the price of its component currencies and their weights within the basket. By construction, the DTS is more stable than its component currencies. However, to this day it is not used as the unit of account outside of the IMF and central banking.
Store of value
The second objective of the SDR was to free international liquidity of its reliance on U.S. economic policy. Three allocations were made between 1970 and 1972, amounting to a total of 9.3 billion SDR. In the years that followed, liquidity disappeared from the concerns of national governments, as the United States was running large current account deficits in a context of high inflation. New allocations amounting to SDR 12.1 billion took place between 1978 and 1981, and then nothing happened until the global financial crisis of 2007-09 and the decision of the G20 (London summit April 2009) to undertake a massive allocation of SDR 161.2 billion.
The SDR is quite an unwieldy instrument for managing international liquidity. The normal procedure is for the Director General of the Fund to make a proposal for the allocation or cancellation of SDRs at least six months before the desired date. The Board of Directors (24 directors) must then approve the proposal. The General Assembly (187 countries today) must finally vote it and reach a majority of 85%."
[Mrt: also in this part there is a interesting info]
Box 3: A user’s guide to the SDR35
The SDR is not a currency. It is a claim on the member states of the IMF, who have a commitment to convert SDRs into key currencies under certain conditions. The mechanism is as follows: (1) the IMF agrees on an SDR allocation, (2) SDRs are allocated among member states according to their contributions to the Fund, (3) allocated SDRs generate interest payments (the SDR is an asset) and interest charges (the SDR is also a liability); the SDR department of the Fund serves as a clearing house; as the interest rate is the same on the asset as on the liability side, the operation is initially neutral, (4) a member state can have its SDRs converted by another member state, in which case it receives one of the currencies in the basket which it can then use to meet its commitments. Its SDR position becomes negative and it pays net interest to the SDR Department of the Fund, (5) the member state that was counterparty in the conversion has a positive SDR position, and receives the net interest. The counterparty for the conversion is determined either on a voluntary basis, or through a designation mechanism (IMF, 2001). The interest rate set by the Fund (based on the money market rates of the currencies in the basket) is low compared to the short-term rates emerging and developing countries are usually charged. This form of liquidity is therefore relatively inexpensive to use. In addition, the system has the advantage of pooling global liquidity, making large reserve accumulation unnecessary, at least in principle (SDR allocations do not depend on current account imbalances). However, the share of SDRs in foreign exchange reserves is still very low (in the range of 0.4%).
34 - In the same spirit, the Palais-Royal Initiative. (2011) suggests to activate the IMF “Council” envisaged in the Fund’s Articles of Agreement, an assembly of finance ministers and central bank governors that would take over the IMFC and the G20 ministers and governors for economic, monetary and financial issues. Here we suggest a smaller grouping of key central bankers for monetary cooperation. The two proposals are compatible.
35 - This box is based on Bénassy-Quéré and Pisani-Ferry (2010).
Source: http://aei.pitt.edu/30831/
[Mrt: the document has a great list of references. Will be re-visited.]
AGNÈS BÉNASSY-QUÉRÉ* AND JEAN PISANI-FERRY**
"...As for the unit-of-account functions, the dollar remains key for commodity and energy markets, although it is less the case for manufacturing trade. It also remains key for monetary anchoring. For example, Bénassy-Quéré et al (2006) have estimated that, from 1999-2004, 92 percent of a sample of 59 currencies were de facto pegged. Among them, 56 percent were pegged to the US dollar, 14 percent to the euro and 22 percent to a basket.6 For 2007, Goldberg (2010) finds that out of 207 countries, 96 were either dollarised or had their currency pegged to the dollar and another eight were in a managed float against the dollar, resulting in 36 percent of non-US world GDP being linked to the dollar. If the US share in world GDP is included (25% in 2007), this “dollar area” accounts for more than 60% of the world economy.
This predominance of the dollar as an anchor currency is confirmed by Figure 1 which plots on the Xaxis a country’s ratio of trade with the EU to trade with the US and on the Y-axis the exchange rate alignment index of Cobham (2008). It is apparent that countries tend to peg to the currency of the country they trade with most. However, many countries exhibit an odd dollar habitat (meaning they trade more with the EU but align more to the US dollar) whereas there is only one example of the reverse situation. This is evidence of the importance of the “Bretton Woods 2” regime of Dooley et al (2003) and also confirms that the euro is still a regional, rather than a global currency (Pisani-Ferry and Posen, 2009)
On the whole, the dollar remains the main pivotal currency for all three monetary functions – means of payment, unit of account, store of value. It is true that most of the advanced economies and a group of emerging countries, most of which adopted in the 2000s some variant of inflation targeting strategies,7 have severed direct links with the US dollar through the pegging of the exchange rate or the accumulation of foreign exchange reserves. But even these countries proved to be dependent on the Federal Reserve for liquidity provision at the height of the crisis, despite the emergence of regional arrangements and the extension of IMF facilities. Although neglected in more tranquil times, the dollar reclaimed its position during the crisis, proving that it was still the keystone in the international monetary system...."
[Mrt: an interesting view]
[Mrt: an accident find about the SDR]
"The creation of the SDR in 1969 came after several years of international discussions, especially amongst the "Group of Ten" - a group of ten advanced countries (the US, Japan and eight European countries) represented by their finance ministers, Treasury heads or central bank governors (see Solomon, 1996).
After the war, U.S. holdings accounted for about 60% the world’s reserves of gold. The dollar/gold equivalence and the Marshall Plan, which provided dollar funding to European countries, allowed the relative scarcity of gold to be circumvented. However, the pace of gold production in the world was not consistent with the value of the peg. In the early 1960s, in order to address the problem of scarcity, the central banks of the U.S. and of European countries agreed on a pooling of gold reserves. Under the terms of the agreement, the participating countries were required to intervene if the market price departed from 35 dollars an ounce. However, the cost of these interventions steadily increased. The United States’ privilege as the issuer of the main international currency was also met with the hostility of Charles de Gaulle. After the pound was devalued in 1967, and given the risk of a dollar devaluation because of the Vietnam War, investors converted their dollars into gold, making the 35 dollar an ounce parity increasingly difficult to uphold. The gold pool ceased its functions in 1968. The parity of 35 dollar an ounce was maintained for official transactions, but private transactions were carried out on the basis of a higher market price. This amounted to a de facto devaluation of the dollar, while the problem of international liquidity – based US capital exports – remained unsolved.
The SDR was created by the Fund to serve as a reserve asset. It can be seen either as a substitute for gold (and a competitor to the dollar), or simply a mechanism for managing global liquidity independently of the United States’ current account. In 1978, the member states of the IMF agreed to make the SDR the “principal reserve asset of the international monetary fund” via an amendment to the Fund’s statutes. More than thirty years later, however, the SDR has failed to reach its objectives as a unit of account and as a store of value.
Unit of Account
Initially set at 0.888671 grams of fine gold (on par with the official value of the dollar), the value of the SDR had to be redefined after the end of the Bretton Woods regime. In 1974, the SDR was redefined as a basket of 16 currencies, those of the member states that accounted for at least 1% of world trade. The basket was reduced to five currencies in 1981 (dollar, yen, pound sterling, Deutschemark, French franc), and in 1999 the franc and the mark were replaced by the euro. In 2001, the criterion for inclusion in the basket was changed. The currencies included in the basket were to be those of the biggest exporters, but also those most widely used in trade invoicing. This last criterion is currently an impediment to the inclusion of the renminbi in the basket.
The value of the SDR is determined daily by the IMF, according to the price of its component currencies and their weights within the basket. By construction, the DTS is more stable than its component currencies. However, to this day it is not used as the unit of account outside of the IMF and central banking.
Store of value
The second objective of the SDR was to free international liquidity of its reliance on U.S. economic policy. Three allocations were made between 1970 and 1972, amounting to a total of 9.3 billion SDR. In the years that followed, liquidity disappeared from the concerns of national governments, as the United States was running large current account deficits in a context of high inflation. New allocations amounting to SDR 12.1 billion took place between 1978 and 1981, and then nothing happened until the global financial crisis of 2007-09 and the decision of the G20 (London summit April 2009) to undertake a massive allocation of SDR 161.2 billion.
The SDR is quite an unwieldy instrument for managing international liquidity. The normal procedure is for the Director General of the Fund to make a proposal for the allocation or cancellation of SDRs at least six months before the desired date. The Board of Directors (24 directors) must then approve the proposal. The General Assembly (187 countries today) must finally vote it and reach a majority of 85%."
[Mrt: also in this part there is a interesting info]
Box 3: A user’s guide to the SDR35
The SDR is not a currency. It is a claim on the member states of the IMF, who have a commitment to convert SDRs into key currencies under certain conditions. The mechanism is as follows: (1) the IMF agrees on an SDR allocation, (2) SDRs are allocated among member states according to their contributions to the Fund, (3) allocated SDRs generate interest payments (the SDR is an asset) and interest charges (the SDR is also a liability); the SDR department of the Fund serves as a clearing house; as the interest rate is the same on the asset as on the liability side, the operation is initially neutral, (4) a member state can have its SDRs converted by another member state, in which case it receives one of the currencies in the basket which it can then use to meet its commitments. Its SDR position becomes negative and it pays net interest to the SDR Department of the Fund, (5) the member state that was counterparty in the conversion has a positive SDR position, and receives the net interest. The counterparty for the conversion is determined either on a voluntary basis, or through a designation mechanism (IMF, 2001). The interest rate set by the Fund (based on the money market rates of the currencies in the basket) is low compared to the short-term rates emerging and developing countries are usually charged. This form of liquidity is therefore relatively inexpensive to use. In addition, the system has the advantage of pooling global liquidity, making large reserve accumulation unnecessary, at least in principle (SDR allocations do not depend on current account imbalances). However, the share of SDRs in foreign exchange reserves is still very low (in the range of 0.4%).
34 - In the same spirit, the Palais-Royal Initiative. (2011) suggests to activate the IMF “Council” envisaged in the Fund’s Articles of Agreement, an assembly of finance ministers and central bank governors that would take over the IMFC and the G20 ministers and governors for economic, monetary and financial issues. Here we suggest a smaller grouping of key central bankers for monetary cooperation. The two proposals are compatible.
35 - This box is based on Bénassy-Quéré and Pisani-Ferry (2010).
Source: http://aei.pitt.edu/30831/
[Mrt: the document has a great list of references. Will be re-visited.]
Subscribe to:
Posts (Atom)