Wednesday, August 31, 2011

JD - Report on economic and monetary union in the European Community

Jacques Delors

Report on economic and monetary union in the European Community
Presented April , 17 , 1989

"This report has been prepared in response to the mandate of the European Council to study and propose concrete stages leading towards economic and monetary union' ."

At its meeting in Hanover on 27 and 28 June 1988 the European Council recalled that, 'in adopting the Single Act, the Member States of the Community confirmed the objective of progressive realization of economic and monetary union . The Heads of State or. Government therefore decided to examine at the European Council meeting in Madrid in June 1989 the means of achieving this union. To that end they decided to entrust to a Committee, chaired by Mr Jacques Delors, President of the European Commission, ' the task of studying and proposing concrete stages leading towards this union
In response to this request, the Committee has the honour to submit the attached Report. The ideas expressed and the proposals contained in the Report are put forward by the members of the Committee in their personal capacity. A collection of papers submitted to the Committee will be .published."


List of members of the Committee
Jacques Delors (Chairman)
Frans Andriessen
Miguel Boyer
Demitrius J. Chalikias
Carlo Azeglio Ciampi
Maurice F. Doyle
Willem F. Duisenberg
Jean Godeaux
Erik Hoffmeyer
Pierre Jaans
Alexandre Lamfalussy.
Jacques de Larosiere
Robert Leigh-Pemberton
Karl Otto Pohl
Mariano Rubio
Jose A.V. Tavares Moreira
Niels Thygesen
Gunter D. Baer
T ommaso Padoa -Schioppa

[Mrt: An interesting insight into the 1989 situation]


COLLECTION OF PAPERS - 000003936_5.pdf

First stages towards the creation of a European Bank
The creation of a European Reserve Fund

J. de Larosiere

pg. 177

The ECU as a parallel currency
W F. Duisenberg

pg. 185

The working of the EMS: A personal assessment
J. Godeaux

pg. 191

The ECU banking market
A. Lamfalussy

pg. 200

The ECU, the common currency and the monetary union
Gunter D. Baer
Tommaso Padoa-Schioppa

pg. 208

A proposal for stage two under which monetary policy operations would be centralized in a jointly-owned subsidiary
A. Lamfalussy

pg. 213

The basic difference between the frameworks for policy decision-making provided by the EMS and EMU
Pierre Jaans

pg. 220

An operational framework for an integrated monetary policy in Europe
C. A. Ciampi


[Mrt: no read yet, just a fly through, will return in next posts to make picks, the J. de Larosiere´ERF is brilliant and the TMS is amazing stuff.]



"F-1. Gold depositories of the Fund shall be established in the United States, the United Kingdom, France, and India. The gold of the Fund shall be held with the depositories designated by the members in whose territories they are located at places agreed with the Fund.

Adopted September 25, 1946, amended November 29, 1956, and April 1, 1978

F-2. The Fund may hold gold under earmark for members."

Adopted April 1, 1978




"1. As long as loans from the Poverty Reduction and Growth Facility Trust (hereinafter the “PRGF Trust”) to members for the financing of “rights” as defined in the Managing Director’s Summing Up at EBM/90/97 of June 20, 1990 are outstanding, the Fund shall review the adequacy of the Reserve Account of the ESAF Trust (hereinafter the “Reserve Account”) by end March and end September of each year.
2. The Fund shall determine whether the amounts held in the Reserve Account, plus other available means of financing that would effectively restore the resources of the Trust, are sufficient to meet all obligations which could give rise to a payment from the Reserve Account to lenders to the Loan Account of the ESAF Trust in the six months following a review under paragraph 1. To the extent that it is determined by the Fund that these resources are insufficient to meet all such obligations (the “potential shortfall”), then the Managing Director is hereby authorized and instructed to sell gold held in the General Resources Account of the Fund in an amount that would generate proceeds available for transfer to the Special Disbursement Account under Article V, Section 12(f), up to the equivalent of the potential shortfall in the Reserve Account provided that
    (i) these proceeds shall not exceed the equivalent of the previous drawings on the Reserve Account attributable to overdue obligations under loans from the ESAF Trust to members for the financing of rights as described above, plus foregone interest earnings on amounts equivalent to these drawings, and less any amounts corresponding to these drawings that have been subsequently paid by such members or for which the Reserve Account has previously been replenished from the proceeds of a gold sale under this decision; and (ii) the total amount of gold available for sale under this decision shall not exceed the amount specified in paragraph 4.
3. The proceeds of any sale of gold under this decision in excess of an amount equivalent at the time of the sale to one special drawing right per 0.888 671 gram of fine gold shall be placed in the Special Disbursement Account and shall be transferred immediately thereupon to the Reserve Account.
4. Subject to Paragraphs 5, 6, and 7 the Fund shall retain full ownership of holdings of gold of 3 million ounces in the General Resources Account, less any amounts sold pursuant to this decision, as long as loans from the ESAF Trust to members for the financing of rights as described above remain outstanding.
5. The need to maintain the full amount specified in paragraph 4 available for sale shall be reassessed on the occasion of the reviews under paragraph 1. This amount shall not be reduced without the consent of all lenders to the Loan Account of the ESAF Trust.
6. This decision shall not be amended by the Fund except with the consent of all lenders to the Loan Account of the ESAF Trust.
7. This decision shall be terminated (i) when after all loans that may be made from the ESAF Trust have been fully disbursed, the resources held in the Reserve Account exceed the amounts outstanding under ESAF Trust loans, or (ii) when after all loans that may be made from the ESAF Trust for the financing of rights as described above have been fully disbursed, there are no outstanding obligations under such ESAF Trust loans, with respect to which a gold sale can be made under this decision, whichever is earlier.

Decision No. 10286-(93/23) ESAF,
February 22, 1993,
as amended by Decision No.12229-(00/66) PRGF,
June 30, 2000

IMF - About Gold in IMF


The following principles should be observed by members in reflecting their participation in the Fund in their accounts:
    1. Gold and currency subscribed to the Fund are clearly within its unrestricted ownership. They do not belong in any way to the subscriber. 2. Although the accounting practices of a member are primarily its own concern, each member should prepare its accounts in such a way that misconceptions as to the ownership of the gold and currency subscribed to the Fund would be avoided. …
    Decision No. 170-3, May 20, 1947


IMF - Thirty- Fifth Issue -- E. Off-Market Transactions in Gold by the Fund

Selected Decisions and Selected Documents of the IMF, Thirty- Fifth Issue -- E. Off-Market Transactions in Gold by the Fund

Prepared by the Legal Department of the IMF
As updated as of December 31, 2010

Whereas the Executive Board is considering off-market transactions in gold consisting of sales of up to 14 million ounces of fine gold on the basis of prices in the market to cooperating members with repurchase obligations to the Fund falling due, and acceptance of the same amount of gold from those members in payments of their repurchase obligations falling due to the Fund; and
Whereas those off-market transactions will enable the Fund to place an amount of the sales proceeds equivalent to SDR 35 per ounce of fine gold in the General Resources Account and the balance in the Special Disbursement Account for investments for the benefit of the ESAF-HIPC Trust; and
Whereas the Interim Committee has requested the endorsement by the Board of Governors of this approach as a one-time operation of a highly exceptional nature,

Now, therefore, the Board of Governors hereby resolves that:

The off-market transactions of up to 14 million ounces of fine gold by the Fund that are envisaged will be a one-time operation of a highly exceptional nature that is a part of a broader financing package to allow the Fund to contribute to the resolution of the debt problems of the HIPCs at the turn of the millennium and to the continuation of concessional operations to support countries’ efforts to achieve sustained growth and poverty reduction.
Resolution No. 54-10,
September 24, 1999


IMF - Articles of Agreement of the International Monetary Fund - Overview

Articles of Agreement of the International Monetary Fund

"Adopted at the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 22, 1944. Entered into force December 27, 1945. Amended effective July 28, 1969, by the modifications approved by the Board of Governors in Resolution No. 23-5, adopted May 31, 1968; amended effective April 1, 1978, by the modifications approved by the Board of Governors in Resolution No. 31-4, adopted April 30, 1976; amended effective November 11, 1992, by the modifications approved by the Board of Governors in Resolution No. 45-3, adopted June 28, 1990; amended effective August 10, 2009, by the modifications approved by the Board of Governors in Resolution No. 52-4, adopted September 23, 1997; and amended effective February 18, 2011, by the modifications approved by the Board of Governors in Resolution No. 63-3, adopted May 5, 2008..."


IMF - Transcript of a Conference Call with a Senior IMF Official on the Executive Board’s Approval of Limited Gold Sales

Transcript of a Conference Call with a Senior IMF Official on the Executive Board’s Approval of Limited Gold Sales
Friday, September 18, 2009

"SENIOR IMF OFFICIAL: Good afternoon. Let me just say a few words of introduction basically covering the main points in the Press Release you already have.

Today, the Fund’s Board took the formal decision to proceed with the strictly limited sale of 403.3 tons of the Fund’s gold, which, if you’ve been following this process which has been in train for quite a while, you will know by now this is what we call the post-Second Amendment gold, which is gold that the Fund has accepted back from members since the Second Amendment of the Fund’s articles...."


IMF - Gordon Brown about UK gold sales - Transcript of a Press Briefing

Transcript of a Press Briefing

By UK Chancellor of the Exchequer Gordon Brown, Chairman of the International Monetary and Financial Committee, and International Monetary Fund Managing Director Rodrigo de Rato with John Lipsky, First Deputy Managing Director of the IMF, and Masood Ahmed, Director of IMF External Relations
Washington DC, April 14, 2007

"...QUESTION: Chancellor, there is a story in the Sunday Times running that you did not take proper advice on gold sales in the past. I wondered whether you had a comment on that.

MR. BROWN: Gold sales are a decision for the government. They were a decision that I made as Chancellor of the Exchequer in the right and proper way. Many countries at the time were doing exactly what we have been doing, and that is, diversifying our portfolio and reducing the risks. Actually, at the time, the Governor of the Bank of England, Eddie George, said to the Treasury Select Committee that the decision to sell gold was a perfectly reasonable portfolio decision. In other words, diversification of our reserves and reducing risk is in the national interest; it was the right long-term decision for our economy.
It was studied by the National Audit office at the time. It was also examined by the Treasury Select Committee. Indeed, the National Audit Office said that it was in a transparent and fair manner that the sale had happened while achieving value for money, so that is actually what happened..."


QUESTION: A much less sexy question following up on gold sales and the finance of the IMF, which I understand was a topic of the discussion at the lunch of the Finance Ministers today. I wondered what the Chairman's assessment is after this lunch of what the sentiments seemed to be at this time among the Finance Ministers regarding gold sales and, on the other hand, a much more active management of the Fund's resources, and could you put perhaps a percentage figure on the likelihood that we will see gold sales of the IMF in the coming year?

MR. BROWN: Rodrigo may wish to say something about the report and the work that he is going to do to take it on, and then I will say something about what Finance Ministers said in response.

MR. DE RATO: We had a chance to discuss with the Finance Minister the Crockett report, which I think has been well received by Finance Ministers from what I heard around the table. Now, I think, is the moment for me and staff to prepare a paper for the Board, and we will do so, based on the concept of a package of an income model or an income model based on a package-that is probably better English-and I think that, in that respect, the use of IMF resources, a more efficient use of IMF assets and resources will be part of that package.
Regarding the use of our gold, I think the recommendations of the Crockett Committee are very clear. If there is a decision to do so, it will be in a measured way, a very limited amount, about 1/8 of our gold resources. It will be managed in a way that the proceeds, after inflation, will be the ones that really apply to our income model.
In any case, any use of our gold will be done in the context of the agreement of central banks that was established, I believe, in 2004. I have to say that some of the gold-producing countries have expressed that, well, this is a way that could be seen as constructive but, of course, nobody has yet given any final position and I do not expect that nobody will do it until I do not make a formal proposal to the Board.

MR. BROWN: I think it is true to say that the Crocket report recommended that, if it were necessary that gold sales could happen, that it should be done in a measured way and it should be part of the 2004 central bank agreement about the ceiling on gold sales at any particular point in time.
What I found encouraging today was that there were countries who previously had not been prepared to consider gold sales and who were prepared to do so now. I think the next stage is the report from the Managing Director to the next meeting about how we move forward with this issue of the income of the Fund. There is no doubt that the gold sales are potentially a part of that.

[Mrt: Whoah! What a find.... :o) ]


[]Mrt: starts at 17th min, 26th min]


UN - Substantive Comments on the Draft Chapters of the 1993 System of National Accounts Revision 1

Substantive Comments on the Draft Chapters of the 1993 System of National Accounts Revision 1
Chapter 11: The Financial Account

Prepared by Intersecretariat Working Group
23 March 2007, New York

1. Treatment of gold in the SNA

Comments from: ECB

The definition of monetary gold has to be modified following the recent discussions on [the topic] also  distinguishing between gold bullion (allocated monetary gold) and unallocated gold accounts.

Response by ISWGNA and Editor:

The 1993 SNA will follow the treatment of monetary gold of the BPM6. See the annex attached on the issue.

Question to AEG:

1. Does the AEG support the treatment of unallocated gold accounts proposed for BPM6?

Situation to date

1. The AEG agreed that allocated gold accounts would be treated in the same way as physical gold. If they are held by monetary authorities as part of foreign reserves, they are treated as monetary gold. All other holdings are treated not as financial assets but as inventories or valuables as appropriate.

2. The AEG also agreed to treat unallocated gold accounts (and similar accounts of other precious metals) as financial assets, specifically as a form of the SNA category currency and deposits. This is a change from the 1993 SNA.

New proposal

3. The proposal now is that, in addition, unallocated gold accounts held by monetary authorities as part of foreign reserves, where the counterparty is a non-resident, should be classified as monetary gold. So, it is suggested that the definition of monetary gold include physical gold (monetary gold as defined in the 1993 SNA plus allocated gold accounts held by monetary authorities;) and unallocated gold accounts held by monetary authorities with non-resident units. The rationale for this is that reserves are managed by treating physical gold and unallocated accounts as interchangeable.

4. Henceforward, monetary gold will (conceptually) consist of two sub-items. The first, to be referred to as gold bullion, will consist of physical gold and allocated gold accounts owned by monetary authorities (and others subject to the authorities’ effective control) and held as a financial asset and as a component of foreign reserves. The second sub-item will be unallocated gold accounts held by monetary authorities (and others subject to the authorities’ effective control) as a component of foreign reserves with non-resident units. In practice, for reasons of confidentiality, the two sub-items may not be shown separately.

5. Gold bullion remains an asset with no counterpart liability. Unallocated gold accounts do have a counterpart liability. When they are regarded as part of a country’s foreign reserves, they are part of monetary gold (as stated above) and the counterpart is a liability of monetary gold in the rest of the world.

6. When unallocated gold accounts are not treated as part of a country’s monetary gold, they are treated as currency and deposits on both the asset and liability side.

Consequence of the proposal

7. If the monetary authority of economy A holds an unallocated gold account as part of reserves with a bank in economy B, in A’s accounts, the unallocated gold account is treated as monetary gold as an asset of the monetary authority and there is a monetary gold liability of the rest of the world. For B’s accounts, the unallocated gold account is a currency and deposit as a liability (regardless of whether the bank holding the account is a monetary authority or not) with an asset of a currency and deposit in the rest of the world (specifically with A).

Footnote 1: This proposal applies to unallocated gold accounts only. All unallocated accounts in other precious metals will continue to be classified always as currency and deposits.

Footnote 2: (For national accountants) Gold bullion held by monetary authorities other than as part of foreign reserves is not treated as monetary gold, but as a valuable. A practical example is a country where all gold to be sold abroad must be sold through the central bank. To the extent that the central bank is acting as a gold dealer, the stocks held in that capacity are not classified as monetary gold.

March 2007


[Mrt: SNA = The 2008 System of national accounts: here]

Tuesday, August 30, 2011

JJT - The International Monetary Crunch: Crisis or Scandal?

The International Monetary Crunch: Crisis or Scandal?

"...The truth of his statement is brought home when we look at the way Western financial authorities are handling the so-called international debt crisis.' In their view, most of the blame for this crisis must be laid on the developing countries. They say that it all started with the oil 'shock' of 1973, when the Organization of Petroleum Exporting Countries (OPEC) abruptly quadrupled oil prices. Developing countries then had either to 'adjust' to the new situation, or borrow their way out. Most chose the second, easier, option. Easier because OPEC deposited its multi-billion dollar surplus with the private Western banks, and the banks were willing to lend them these dollars. This 'recycling' of OPEC dollars went smoothly until the end of the 1970s,. when another oil shock emerged: interest rates soared and prices of ravv materials nosedived. But developing countries still refused to adopt the necessary adjustment policies; a debt crisis was the inevitable result" Eventually, 'adjustment', i.e. harsh austerity measures prescribed by the International Monetary Fund, was the. only solution left..."

[Mrt: worth of dip deeper...]

Mr. W.Duisenberg (in eighties): 'The situation we are in now is completely absurd. A sound situation would be that the -rich countries lend or give money to the poor countries. There should be an export of capital in the form of loans and grants from the rich to the poor countries. But, surprisingly, the richest country in the world, the United States, actually imports capital from allover the world. In this sense the United States is being financed by the rest of the world, including the developing countries.'

"What the American government has done is implement a programme of tax reduction, which means less income for the government, while at the same time raising its expenditures, particularly in the military sector. Military expenditure increased in real terms by 7-8% a year. That's how the United States has acquired these tremendous budgetary deficits."

How is it that the United States has shifted its military expenditures to other countries? 'In short', Duisenberg replies, 'this amazing fact is the result of the privileged financial position the United States has in the world.'

So far Duisenberg has tried to avoid a moral judgement. But at the end of his story he says what he really thinks of the behaviour of the US government:
The United States has at once a very privileged and a very responsible position. A country which is conscious of that responsibility should not only look at the internal effects of its policy, but also look at the international repercussions. America produces tremendous shockwaves affecting the whole world-in both the industrialized and the developing countries-but continues to be strongly inwardlooking. That's why we, presidents of central banks all over the world have been shouting, 'America, get your own house in order!' The situation we now find ourselves in is going to be unbearable, both for the United States and for the World.

'Keeping the system going'... The financial system cannot stop lending, because then everybody goes bankrupt. ~Tavares


"Some years after World War II the United States indeed began to run a chronic deficit on its balance of payments, or, in other words, to run a foreign debt, thereby creating substantial dollar surpluses abroad. The question is, however, who was responsible? The position of American economists is that it was not the fault of the United States, but rather the fault of the foreign central banks. They say these banks were eager to accumulate dollars as international reserve; nobody forced them to take dollars. They could always bring them back to the United States and encash them in' gold, or they could always buy American goods. By not doing so, they imposed the need of running this deficit on the United States. However, this explanation shifts the responsibility too easily onto the foreign governments and their central banks. The argumen't that the foreign-notably European-central banks were so eager to accumulate dollars as reserves should, in fact, be taken with a grain of salt. By the middle to late fifties European central bankers had already started worrying that the United States' gold supply was insufficient to continue supporting the gold value of the dollar. But, as they had star~ed to hold dollars as reserves, they were caught in a dilemma: if they all tried to convert their dollars into gold, the value of their reserves would certainly have drastically fallen because the United States would then have been forced to change the dollar parity., So, they ,were stuck. They thought it was better to keep dollars as reserves than convert them into gold, which would have almost destroyed their value.
This meant the United States continued to run deficits and the central banks continued to accumulate dollars. Not wanting to buy more unwanted American goods, which was their other option, and eager to invest their locked up dollars, the solution they eventually hit upon was to lend them to private banks. But these banks themselves had to find outlets for them, so they looked for clients who needed long-term credits; and the underdeveloped countries seemed to be the best bet."

"It is said, for instance, that it was created by a Soviet controlled French bank, which, when the cold war intensified, did not want to hold its dollars in American banks. While there may be some truth in these stories, they are not the basic reason for the existence of the Eurodollar market. It was founded''Simply because there were large amounts of unproductive dollars held in European private banks and in the reserves of the central banks. The central banks themselves could only lend them with great difficulty, because central banks usually don't engage in these sorts of activities, and this is where the private banks came in. A large proportion of the Eurodollars came into the system through the Bank for International Settlements in Basel. This bank, a kind of a central bank of the central banks, placed dollar reserves in the commercial banking system. This is how the Eurodollar market started."

"Many countries did use external borrowing as a policy tool. That is, their central banks determined a certain rate of expansion of the internal money supply and a certain interest rate internally, and then encouraged domestic banks to borrow externally. Why? Because this allowed the central banks to keep the growth ofinternal credit strictly to the limits they had decided upon. Central banks like to set up quantitative credit restrictions which are intended to ensure that total credit does not grow, say, for the manufacturing sector, by more than a certain percentage. If the private banks go above this rate they are made to deposit a certain amount in reserves with the central bank. But, if the banks succeed in borrowing money externally, they can avoid these restrictions. That was the built-in incentive which drove the banks to the Eurodollar market. Moreover, they were attracted by the very low interest rates in the Eurodollar market."

"What is the fundamental cause of this Third World debt which has accumulated beyond any reasonable possibility of repayment? It is the fact that the dollar is still being used as the world currency. That is the basic flaw of the system, and as long as this flaw remains, we will continue to be plagued by major crises, be they dollar crises or international debt crises."

"Soon after publication of my book in 1960, the European Community asked the president of the German Bundesbank, Emminger, to form a committee to write a report on my plan. Emminger came to the conclusion that there was no reason to believe the dollar would be a problem in the foreseeable future. He wrote this in 1960, and in October 1960 we already .had our first dollar crisis. Even so, Emminger continued to believe in the dominating role of the dollar. Why? Let me tell you a story. I remember a meeting of the IMF in Washington, in 1963, where I explained my plan and where I urged in a' discussion with the Europeans for communal restraint in the purchasing of dollars. Afterwards Bob Roosa came to me and said, 'Robert, do you see what you are doing? You are undermining our position in relation to the Europeans. As long as we can approach them separately we have no problem, but if we have to confront them jointly we will be very much weakened.' Then Emminger added: 'Triffin, do you realize what you are saying? At the moment, when the United States asks us to take mo~e dollars, we can just say, "By all means, but it does not suit us right now, can't you address yourself to Italy or Belgium?" But if we have to confront the United States jointly we cannot say "no" without putting the Atlantic Alliance in danger.'"

 "Ironically, the richest and the most capitalized country in the world is actually being financed by the poor countries through the creation of international monetary reserves. Economic logic as well as humane concerns should· lead the richer and more capitalized countries to help economic development in the poorer countries. This is piously stressed again and again in United Nations resolutions. But the United States is doing exactly the opposite; it is having itself financed by poorer countries, even the poorest countries. To te.ll the truth, the United States is the only debtor of international reserves. The creditors-or claimants-ofinternational reserves are: other industrialized countries for a small amount, OPEC countries for a larger amount, and the other developing countries for the largest amount."

Triffin's third argument for reform is that there is an enormous overflow of capital to the United States from the rich countries. Explaining the reasons for the overflows, Triffin says:

"It started when the Shah of Iran fell and embassies were being burned, and when there were fears of a third world war. Some people thought that West Germany and Switzerland were not as safe as the United. States, so they began to switch their capital from Europe to safer American havens. Then c:::).me the enormous rise in interest rates in the United States. And, more recently, the United States has introduced attractive terms for investment. But the fundamental cause is, of course, that the system has continued to be based on the dollar."

Why is Triffin so concerned about the rich countries investing their money in America rather than Europe? 'Because', says Triffin, 'European savings are not being used to finance European investment, economic recovery or increasing employment; they are being used, instead, to finance the US budget deficit. More than half the gigantic American budget deficit is financed by this exported capital.'

"Some years ago, I was discussing with a central banker the proposal of the European Commission to strengthen the position of the ECU . (European Currency Unit). He said, 'Triffin, I am all in favour of strengthening the European currency, but as a governor of the central bank I must advise my government that this wo-qld be a loss of sovereignty for our country.' And I said, 'Are you serious? Isn't it you who told me only a few weeks ago that with the way interest rates were rising you had become totally dependent on the United States and had no real sovereignty left?'"

"In the end, I think you can blame them more than the United States. The dollar remained the world's key currency because the central banks ofVVest Germany and Japan continued to buy dollars. Thanks to its privileged position as world's banker, the United States could go on spending enormous amounts on the military. It perhaps sounds a little strange that I put the blame more on Western Europe and Japan than the United States. But imagine that I said to you, 'Go to the best restaurant you can find, invite your friends and tell the waiter to send the bill to me rather than to you.' It would qe very hard for you not to abuse that kind of privilege. I wish the United States had acted more responsibly; but the main fault lies with Western Europe and Japan. For, if you ,tell the United States, 'You can spend whatever you like; we will pay the bill' then this is no way to encourage reasonable policy by the United States. Those who accumulate dollars (Europe and Japan) have more power to curtail the use of the dollar than those who are offering them (the United States )."

"It is certainly impossible to introduce them as long as the United States does not support them. You can't have a world-wide monetary reform without the cooperation of the United States because it is, after all, the richest country with the biggest capital market in the world. This therefore means the Europeans must do all they can for reg~onal monetary cooperation. A stronger European monetary system and a stronger ECU would function as the carrot and the stick. It is a stick because the United States would no longer have the ability to use the dollar as they do now, in a nefarious way. And a carrot because it would help the United States improve i~s policies concerning lower interest rates and lower exchange rates for the dollar."


[Mrt: see FONDAD]



Eurostat: G. Gueye (Chair), C. Ravets, L. Frankford, J. Verrinder
IMF: K. Zieschang
OECD: C. Aspden
World Bank: B. Hexeberg
UNSD: I. Havinga, G. Singh, H. Smith, A. Becker (Minutes)
1993 SNA Update project: P. McCarthy (Project Manager), A. Harrison (Editor)

"...3.3. Monetary gold 

The Editor reminded the ISWGNA of the agreement to ensure the SNA and BPM were consistent in the treatment of monetary gold. As a result, the following text should be added to the document explaining clarifications and consistencies arising since the FSCR was posted.
The definition of monetary gold, and gold bullion, has changed in the 1993 SNA Rev1 in order to stay in line with BPM6. The change stems from the recognition of allocated and unallocated gold accounts. An allocated gold account provides a record of title to specified gold. The difference between physical gold and an allocated gold account is simply one of where the gold is held. An unallocated gold account represents a claim against the account operator to deliver gold. In practice, such an account functions like an account denominated in gold. In the System, these are treated as deposits in foreign currency. Monetary gold is gold to which the monetary authorities (or others subject to the effective control of the monetary authorities) have title and is held as a reserve asset. The gold in questions consists of gold bullion (including gold held in allocated gold accounts) and unallocated gold accounts with non-residents. Monetary authorities may hold gold not held as a reserve asset. If it is gold bullion or an allocated gold account it is classed as a valuable as it is for such gold held by commercial banks, for instance. Unallocated gold accounts of the monetary authorities, even when held by non-residents, if not part of reserves are treated as foreign currency deposits.
The ISWGNA agreed that text should be added to the document on ISWGNA decisions on issues that flow from FSCR to be posted on the web....


[Mrt: SNA = The 2008 System of national accounts: here]


Forum On Debt and Development

"Fondad is an independent policy research centre and a forum for international discussion established in the Netherlands. Supported by a worldwide network of experts, it provides policy-oriented research on North-South issues in a globalising world, in particular international financial issues for developing countries. Fondad offers factual background information and practical strategies for policymakers and other interested groups in industrial, developing and transition countries.

History. Fondad was established in 1987 to stimulate discussions among academics and policymakers about international monetary reform and a resolution of the world debt crisis, with the view that the debt crisis of the early 1980s was a symptom of a malfunctioning, flawed system - see, for example, the article by the founder of Fondad Jan Joost Teunissen, "The International Monetary Crunch: Crisis or Scandal?", Alternatives, July 1987.
Among the economists who supported the founding of Fondad were the late Robert Triffin and Jan Tinbergen. H. Johannes Witteveen, former managing director of the IMF, has been acting as a member of the Advisory Board and has contributed to several Fondad publications including his Preface to Fragile Finance: Rethinking the International Monetary System and his chapter in The Policy Challenges of Global Financial Integration...."

"Fondad consists of a large network of international experts, academics, policymakers and others, who exchange views, participate in seminars and contribute to Fondad publications "


 [Mrt: only a short post to keep a track on the web-page address.]


CB - UN/Japan - Treatment of Gold in Balance of Payments Statistics

Treatment of Gold in Balance of Payments Statistics
Bank of Japan, January 2005,

"In order to understand the characteristics of transactions in gold and to find out proper treatment in balance of payments statistics, the Bank of Japan conducted a study on activities of cross-border transactions in gold performed by Japanese residents. Following are the main findings of the study:

(1) The magnitude of transactions in gold traded without any cross-border physical shipment is much larger than that of international gold shipments with Japan’s trading partners (see table 1 below). Transactions in gold without cross-border physical shipment involve gold that is deposited in metal accounts with a financial corporation in London; transfer of ownership is conducted by the settlement in those accounts.

(2) Japanese trading firms rather than financial corporations handle most transactions in gold that don’t involve physical shipment. Three major trading firms concentrate more than 90 percent of transactions of gold without physical shipment (see table 2 below). Historical reasons explain that these trading firms have played an important role in transactions in gold in Japan. After the World War II, the Japanese government banned exports/imports of gold so that national saving could be used to develop emerging industries. After the deregulation of gold transactions in the 1980’s, non-bank traders started dealing with international gold traders. Meanwhile, in 1982, banks were allowed to sell gold in retail markets, but were not allowed to get into wholesale gold markets. This measure was aimed to protect small non-bank gold traders. Large trading firms took advantage of this fragmentation of the gold market and expanded their transactions in gold into wholesale markets using their large capital funds.

(3) Most transactions of trading firms are forwards on gold. They are taking advantage of arbitrage opportunities on the OTC forward market in London, and on those between the OTC forward market in London and the future market in Tokyo Commodity Exchange. It follows that positions on forwards on gold are supposed to be offset at the time of the delivery date; however, the transfer of ownership of gold in metal accounts does not usually occur unless there are exceptional circumstances.

(4) Wholesalers of gold that import gold for industrial purposes do not engage in forwards in gold. They usually import gold using consignment contracts with Swiss banks and sell it to manufacturing firms in Japan when they deem it necessary. Since there are different ends to the use of gold and gold is fungible merchandise, gold wholesalers do not distinguish gold held for its storage value and gold held for other purposes, e.g., used in the industry..."


4. Distinction between Gold and Other Precious Metals
One may argue that forwards on other precious metals, such as platinum and silver, as well as other commodities can be traded the same way as forwards on gold in balance of payments statistics and international investment positions. How could forwards on gold be treated differently from forwards on other precious metals and commodities? The International Reserves and Foreign Currency Liquidity Guidelines for a Data Template states that forwards on gold should be included in the item of other reserve assets. Based on the Guidelines, it seems appropriate to include only forwards and options on gold that the monetary authorities used for the management of reserve assets.

We have the following arguments in favor of making a clear case between forwards on gold and forwards on other commodities. 

First, forwards on other precious metals and commodities are not necessarily offsetable due to the lack of market liquidity. Therefore, such forwards fall outside the boundary of financial assets. Most forwards on other precious metals and commodities can be regarded as fixed price contracts for goods, because such forwards are not standardized so that the market risks therein can be traded in financial markets in its own weight.

Second, most forwards on gold are aimed for financial investment (including arbitrage), while most forwards on other precious metals and commodities are directly linked to procurement of those materials. Investment in other precious metals and commodities are performed in future markets, rather than OTC forward markets, with some exceptions (e.g., forwards on other precious metals in London Metal Exchange). As a result, the price of gold is affected by macro-economic circumstances, whereas prices of other precious metals are primarily affected by demand in industries.

Third, gold itself has characteristics of financial assets. For example, gold has been used as means to store value due to its fungibility and high liquidity in its market.

[Mrt: For "Silverities" an important doc.]

5. Conclusion
We recommend that a new item of financial gold be clearly established in the financial account. The definition of financial gold should be gold deposited with financial corporations, such as metal accounts London, without physical shipment (especially across borders). Such category broadly corresponds to gold used for investment/speculation by financial corporations and trading firms. If financial gold is newly created, it will be possible to record forward transactions of gold not under services (or goods) but under financial accounts.


UN - Issue 44 - Financial assets classification - Non monetary gold

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:

Nonmonetary Gold,
(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.


The Proposal

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.]

Monday, August 29, 2011

IAS - GAAP Generally Accepted Accounting Principles (United States)

Generally Accepted Accounting Principles (United States)

"In the U.S., Generally Accepted Accounting Principles are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly-traded and privately-held companies, non-profit organizations, and governments. The term is usually confined to the United States; hence it is commonly abbreviated as US GAAP or simply GAAP. However, in the theoretical sense, Generally Accepted Accounting Principles encompass the entire industry of accounting, and not only the United States. Outside the academic context, GAAP means US GAAP...." 

"Similar to many other countries practicing under the common law system, the United States government does not directly set accounting standards, in the belief that the private sector has better knowledge and resources. US GAAP is not written in law, although the U.S. Securities and Exchange Commission (SEC) requires that it be followed in financial reporting by publicly-traded companies..."

"The US GAAP provisions differ somewhat from International Financial Reporting Standards (IFRS), though former SEC Chairman Christopher Cox set out a timetable for all U.S. companies to drop GAAP by 2016, with the largest companies switching to IFRS as early as 2009..."

[Mrt: That is a long time frame to adjust, perhaps the differences are HUGE?]

  • Accounting Entity: assumes that the business is separate from its owners or other businesses. Revenue and expense should be kept separate from personal expenses.
  • Going Concern: assumes that the business will be in operation indefinitely. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain this assumption is not applicable. The business will continue to exist in the unforeseeable future.
  • Monetary Unit principle: assumes a stable currency is going to be the unit of record. The FASB accepts the nominal value of the US Dollar as the monetary unit of record unadjusted for inflation.
  • The Time-period principle implies that the economic activities of an enterprise can be divided into artificial time periods.


  • Historical cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values.
  • Revenue recognition principle requires companies to record when revenue is (1) realized or realizable and (2) earned, not when cash is received. This way of accounting is called accrual basis accounting.
  • Matching principle. Expenses have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue. Only if no connection with revenue can be established, cost may be charged as expenses to the current period (e.g. office salaries and other administrative expenses). This principle allows greater evaluation of actual profitability and performance (shows how much was spent to earn revenue). Depreciation and Cost of Goods Sold are good examples of application of this principle.
  • Full Disclosure principle. Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Information disclosed should be enough to make a judgment while keeping costs reasonable. Information is presented in the main body of financial statements, in the notes or as supplementary information


  • Objectivity principle: the company financial statements provided by the accountants should be based on objective evidence.
  • Materiality principle: the significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual.
  • Consistency principle: It means that the company uses the same accounting principles and methods from year to year.
  • Conservatism principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked (see convention of conservatism).


IMF - The Exogenous Shocks Facility- High Access Component (ESF-HAC)

The Exogenous Shocks Facility- High Access Component (ESF-HAC)
March 31, 2011


IMF - IMF lending - FactSheet

IMF Lending

August 22, 2011

[Mrt: a detailed description with many side pages, here just overview]

The Extended Credit Facility (ECF) succeeds the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for providing medium-term support to LICs with protracted balance of payments problems. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.
The Standby Credit Facility (SCF) provides financial assistance to LICs with short-term balance of payments needs. The SCF replaces the High-Access Component of the Exogenous Shocks Facility (ESF), and can be used in a wide range of circumstances, including on a precautionary basis. Financing under the SCF currently carries a zero interest rate, with a grace period of 4 years, and a final maturity of 8 years.
The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to LICs facing an urgent balance of payments need. The RCF streamlines the Fund’s emergency assistance for LICs, and can be used flexibly in a wide range of circumstances. Financing under the RCF currently carries a zero interest rate, has a grace period of 5½ years, and a final maturity of 10 years.
Stand-By Arrangements (SBA). The bulk of non-concessional Fund assistance is provided through SBAs. The SBA is designed to help countries address short-term balance of payments problems. Program targets are designed to address these problems and Fund disbursements are made conditional on achieving these targets ('conditionality'). The length of a SBA is typically 12–24 months, and repayment is due within 3¼-5 years of disbursement. SBAs may be provided on a precautionary basis—where countries choose not to draw upon approved amounts but retain the option to do so if conditions deteriorate—both within the normal access limits and in cases of exceptional access. The SBA provides for flexibility with respect to phasing, with front-loaded access where appropriate.
Flexible Credit Line (FCL). The FCL is for countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes, although it can also be used for responding to a crisis. FCL arrangements are approved, at the member country’s request, for countries meeting pre-set qualification criteria. The length of the FCL is one or two years (with an interim review of continued qualification after one year) and the repayment period the same as for the SBA. Access is determined on a case-by-case basis, is not subject to the normal access limits, and is available in a single up-front disbursement rather than phased. Disbursements under the FCL are not conditioned on implementation of specific policy understandings as is the case under the SBA. There is flexibility to either draw on the credit line at the time it is approved or treat it as precautionary.
Precautionary Credit Line (PCL). The PCL can only be used for crisis prevention purposes by countries with sound fundamentals and policies, and a track record of implementing such policies. While they may face moderate vulnerabilities that may not meet the FCL qualification standards, they do not require the same large-scale policy adjustments normally associated with traditional SBAs. The PCL combines qualification (similar to the FCL) with focused ex-post conditions that aim at addressing the identified vulnerabilities in the context of semi-annual monitoring. It can have the length of between one and two years. Access can be front-loaded, with up to 500 percent of quota made available on approval and up to a total of 1000 percent of quota after 12 months subject to satisfactory progress in reducing vulnerabilities. While there may be no actual balance of payments need at the time of approval, the PCL can be drawn upon should such a need arise unexpectedly.
Extended Fund Facility (EFF). This facility was established in 1974 to help countries address longer-term balance of payments problems reflecting extensive distortions that require fundamental economic reforms. Arrangements under the EFF are thus longer than SBAs—usually 3 years. Repayment is due within 4½–10 years from the date of disbursement.
Emergency assistance. The IMF provides emergency assistance to countries that have experienced a natural disaster or are emerging from conflict. Emergency loans are subject to the basic rate of charge Loans must be repaid within 3¼–5 years.

 [Mrt: there is more on IMF pages, discover]


IMF - IMF Standing Borrowing Arrangements NAB

IMF Standing Borrowing Arrangements
June 07, 2011

"While quota subscriptions of member countries are the IMF's main source of financing, the Fund can supplement its quota resources through borrowing if it believes that they might fall short of members' needs. Through the New Arrangements to Borrow (NAB), the IMF's main backstop for quota resources, a number of member countries and institutions stand ready to lend additional resources to the IMF.

The NAB is a set of credit arrangements between the IMF and a group of member countries and institutions, including a number of emerging market countries. The NAB is the facility of first and principal recourse in circumstances in which the IMF needs to supplement its quota resources. Once activated, it can provide supplementary resources of up to SDR 367.5 billion (about $586 billion) to the IMF.

The expanded NAB came into effect on March 11, 2011, and was activated shortly after for a period of six months, in the amount of SDR 211 billion (about $334 billion). The General Arrangements to Borrow (GAB) remains in force and can be used in limited cases.


"...The original NAB was proposed at the 1995 G-7 Halifax Summit following the Mexican financial crisis. Growing concern that substantially more resources might be needed to respond to future financial crises prompted participants in the Summit to call on the G-10 and other financially strong countries to develop financing arrangements that would double the amount available to the IMF under the GAB. In January 1997, the IMF’s Executive Board adopted a decision establishing the NAB, which became effective in November 1998...."

"...The NAB has been activated twice. First, to finance a Stand-by Arrangement for Brazil in December 1998, when the IMF called on funding of SDR 9.1 billion, of which SDR 2.9 billion was used. Second, on April 1, 2011 the Executive Board formally completed the process of activation, following the effectiveness of the expanded NAB on March 11, 2011 and a vote by NAB participants after going through their necessary internal procedures. The NAB was activated for six months in the amount of SDR 211 billion (about $334 billion) to increase the financing available to the Fund.
The NAB has been renewed twice, most recently in November 2007. The next review of the NAB is to take place by November 2011, and will take into account the proposed increases in quotas under the Fourteenth General Review...."


IMF - General and Special SDR Allocations - table

General and Special SDR Allocations

Last Updated: September 09, 2009

"A general allocation of Special Drawing Rights (SDRs) equivalent to about US$250 billion became effective on August 28, 2009. The allocation is designed to provide liquidity to the global economic system by supplementing the Fund’s member countries’ foreign exchange reserves..."


IMF - Special Drawing Right (SDR) Allocations


SDR Basics
2009 SDR Allocation of US$250 Billion and Special Allocation of SDR 21.5 Billion
Statistical Treatment of SDR Allocation
How to record SDR allocations in macroeconomic statistics


IMF - Gold in the IMF

IMF Factsheet: Gold in the IMF

April 2011

"Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. However, it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the largest official holders of gold in the world. Consistent with the new income model for the Fund agreed in April 2008, on September 18, 2009, the IMF Executive Board approved gold sales strictly limited to 403.3 metric tons, representing one-eighth of the Fund’s total holdings of gold at that time. Resources linked to these gold sales will also help boost the Fund’s concessional lending capacity. The approved sales program was completed in late December 2010."

How the IMF acquired its gold holdings
"The IMF held 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories at end March 2011. The IMF’s total gold holdings are valued on its balance sheet at SDR 3.2 billion (about $5 billion) on the basis of historical cost. As of March 31, 2011, the IMF's holdings amounted to $130.2 billion at current market prices...."

The IMF’s legal framework for gold
Role of gold. The Second Amendment to the Articles of Agreement in April 1978 fundamentally changed the role of gold in the international monetary system by eliminating the use of gold as the common denominator of the post-World War II exchange rate system and as the basis of the value of the Special Drawing Right (SDR). It also abolished the official price of gold and ended the obligatory use of gold in transactions between the IMF and its member countries. It furthermore required that the IMF, when dealing in gold, avoid managing its price or establishing a fixed price.
Transactions. Following the Second Amendment, the Articles of Agreement limit the use of gold in the IMF’s operations and transactions. The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member country's obligations (loan repayment) at an agreed price, based on market prices at the time of acceptance. Such transactions require Executive Board approval by an 85 percent majority of the total voting power. The IMF does not have the authority under its Articles to engage in any other gold transactions—such as loans, leases, swaps, or use of gold as collateral—nor does it have the authority to buy gold.

The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment (April 1978) to those countries that were members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of member countries at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold acquired by the IMF after the date of the Second Amendment.

How and when the IMF has used gold in the past
  • Sales for replenishment (1957–70).
  • South African gold (1970–71).
  • Investment in U.S. government securities (1956–72).
  • Auctions and "restitution" sales (1976–80).
  • Off-market transactions in gold (1999–2000).
  • The IMF’s strictly limited gold sales (2009-2010)
[Mrt: for details see the file, same for all my listings, here is a pick:]

"...In October and November 2009, the Fund sold 212 metric tons of gold in separate off-market transactions to three central banks: 200 metric tons were sold to the Reserve Bank of India during October 19-30; 2 metric tons to the Bank of Mauritius on November 11; and 10 metric tons to the Central Bank of Sri Lanka on November 23.
The IMF announced in February 2010 the beginning of sales of gold on the market. At that time, a total of 191.3 tons of gold remained to be sold. In accordance with the priority of avoiding disruption of the gold market, the on-market sales were to be conducted in a phased manner over time. This followed the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. The initiation of on-market sales did not preclude further off-market gold sales directly to interested central banks or other official holders. On September 7, 2010, the Fund sold 10 metric tons to the Bangladesh Bank. Such sales reduced the amount of gold to be placed on the market.
In December 2010 the IMF concluded the gold sales program with total sales of 403.3 metric tons of gold (12.97 million ounces), as authorized by the Executive Board. Total proceeds amounted to SDR 9.5 billion (about $15 billion)..."

[Mrt: So is I count right:
In 2009:.... 200t (to India) + 2t (Mauritius) +  10t (to SriLanka) = 212t to CBs "off market"
In 2010:.... 10t (to Sri lanka) from 191,3 = 181,3 sold to other non CBs "on market" based on "priority"
Note: I would love to know the priority list here of inpatient waiting customers & their ability to disrupt maerket.]


IMS - Zhou Xiaochuan: Reform the International Monetary System (By Erebus)

Zhou Xiaochuan: Reform the International Monetary System

"The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system. 

[Mrt: Note:
- "question" a singular, not plural,
- "reserve currency" he does not speak about a reserve asset,]

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. 

[Mrt: Note:
- reserve currency not an asset again,
- that "gold" as asset is not fulfilling those requirements, could be a benchmark but is not flexible, cant be issued on demand basis,
- "set of rules" I read about this already, when there was a discussion about one functioning, so a "rule based SDR tied to gold"?
- dis/advantages of gold-rich countries taken in considerations?]
The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.

[Mrt: Note:
- where does not gold fulfil these? Stable value - Yes, Rule-based issuence = what does this mean?, a  controlled supply = what does this mean?
- Do you remember that note Nicolas Sarkozy said after the Paris meeting? It echoes in my ears.]
I. The outbreak of the crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system. 

[Mrt: Inherent vulnerabilities 2nd quote, must be important :o)]
Issuing countries of reserve currencies are constantly confronted with the dilemma between achieving their domestic monetary policy goals and meeting other countries´ demand for reserve currencies. On the one hand,the monetary authorities cannot simply focus on domestic goals without carrying out their international responsibilities??on the other hand,they cannot pursue different domestic and international objectives at the same time. They may either fail to adequately meet the demand of a growing global economy for liquidity as they try to ease inflation pressures at home, or create excess liquidity in the global markets by overly stimulating domestic demand. The Triffin Dilemma, i.e., the issuing countries of reserve currencies cannot maintain the value of the reserve currencies while providing liquidity to the world, still exists. 

[Mrt: Maybe he also discovered Triffin lately and studied his work? :o)]
When a national currency is used in pricing primary commodities, trade settlements and is adopted as a reserve currency globally, efforts of the monetary authority issuing such a currency to address its economic imbalances by adjusting exchange rate would be made in vain, as its currency serves as a benchmark for many other currencies. While benefiting from a widely accepted reserve currency, the globalization also suffers from the flaws of such a system. The frequency and increasing intensity of financial crises following the collapse of the Bretton Woods system suggests the costs of such a system to the world may have exceeded its benefits. The price is becoming increasingly higher, not only for the users, but also for the issuers of the reserve currencies. Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws. 

II. The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies

[Mrt: so must be non-credit based.]

1. Though the super-sovereign reserve currency has long since been proposed, yet no substantive progress has been achieved to date. Back in the 1940s, Keynes had already proposed to introduce an international currency unit named "Bancor", based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may have been more farsighted. The IMF also created the SDR in 1969, when the defects of the Bretton     Woods system initially emerged, to mitigate the inherent risks sovereign reserve currencies caused. Yet, the role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system. 

[Mrt: DP exactly described this in a personal email through our discussion, leading through value of present currencies toward transition path, he will maybe kindly repost, or modified repost...]

2. A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity. A super-sovereign reserve currency managed by a global institution could be used to both create and control the global liquidity. And when a country´s currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances. This will significantly reduce the risks of a future crisis and enhance crisis management capability.

III. The reform should be guided by a grand vision and begin with specific deliverables. It should be a gradual process that yields win-win results for all
The reestablishment of a new and widely accepted reserve currency with a stable valuation benchmark may take a long time. The creation of an international currency unit, based on the Keynesian proposal, is a bold initiative that requires extraordinary political vision and courage. In the short run, the international community, particularly the IMF, should at least recognize and face up to the risks resulting from the existing system, conduct regular monitoring and assessment and issue timely early warnings.
Special consideration should be given to giving the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency. Moreover, an increase in SDR allocation would help the Fund address its resources problem and the difficulties in the voice and representation reform. Therefore, efforts should be made to push forward a SDR allocation. This will require political cooperation among member countries. Specifically, the Fourth Amendment to the Articles of Agreement and relevant resolution on SDR allocation proposed in 1997 should be approved as soon as possible so that members joined the Fund after 1981 could also share the benefits of the SDR. On the basis of this, considerations could be given to further increase SDR allocation.
The scope of using the SDR should be broadened, so as to enable it to fully satisfy the member countries´ demand for a reserve currency.
Set up a settlement system between the SDR and other currencies. Therefore, the SDR, which is now only used between governments and international institutions, could become a widely accepted means of payment in international trade and financial transactions.
Actively promote the use of the SDR in international trade, commodities pricing, investment and corporate book-keeping. This will help enhance the role of the SDR, and will effectively reduce the fluctuation of prices of assets denominated in national currencies and related risks.
Create financial assets denominated in the SDR to increase its appeal. The introduction of SDR-denominated securities, which is being studied by the IMF, will be a good start. 

[Mrt: Was this what was J.Sinclair referring to?] 

Further improve the valuation and allocation of the SDR. The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies, and the GDP may also be included as a weight. The allocation of the SDR can be shifted from a purely calculation-based system to a system backed by real assets, such as a reserve pool, to further boost market confidence in its value. 

IV. Entrusting part of the member countries´ reserve to the centralized management of the IMF will not only enhance the international community´s ability to address the crisis and maintain the stability of the international monetary and financial system, but also significantly strengthen the role of the SDR.

[Mrt: So seems the prediction we will have F1.1 and F1.2 for some time is correct]
1. Compared with separate management of reserves by individual countries, the centralized management of part of the global reserve by a trustworthy international institution with a reasonable return to encourage participation will be more effective in deterring speculation and stabilizing financial markets. The participating countries can also save some reserve for domestic development and economic growth. With its universal membership, its unique mandate of maintaining monetary and financial stability, and as an international "supervisor" on the macroeconomic policies of its member countries, the IMF, equipped with its expertise, is endowed with a natural advantage to act as the manager of its member countries´ reserves.
2. The centralized management of its member countries´ reserves by the Fund will be an effective measure to promote a greater role of the SDR as a reserve currency. To achieve this, the IMF can set up an open-ended SDR-denominated fund based on the market practice, allowing subscription and redemption in the existing reserve currencies by various investors as desired. This arrangement will not only promote the development of SDR-denominated assets, but will also partially allow management of the liquidity in the form of the existing reserve currencies. It can even lay a foundation for increasing SDR allocation to gradually replace existing reserve currencies with the SDR.


[Mrt: Hat-tip to Erebus for providing this link.]

Saturday, August 27, 2011

IAS - International Financial Reporting Standards

 International Financial Reporting Standards

International Financial Reporting Standards (IFRS) are principles-based Standards, Interpretations and the Framework (1989)[1] adopted by the International Accounting Standards Board (IASB).

Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and SICs. The IASB has continued to develop standards calling the new standards IFRS.

[Mrt: An intro, dipping deeper slowly.]