Wednesday, September 28, 2011

BIS - Global imbalances: current accounts and financial flows

Global imbalances: current accounts and financial flows
Stephen G Cecchetti*
Economic Adviser and Head of the Monetary and Economic Department
Bank for International Settlements
Remarks prepared for the
Myron Scholes Global Markets Forum University of Chicago
27 September 2011

"...Returning to where I started, current account deficits are large and rising. Global imbalances remain. But imbalances of this size cannot and will not be with us forever. The risk is that the adjustments will be disorderly. Surplus countries, and their investors, could suddenly decide that they no longer want to finance new borrowing by deficit countries. Or, even worse than merely stopping, they could quickly repatriate their foreign investments. The result would be intense pressure on nominal exchange rates..."


PJF - The Monetary Crisis of 1971 - The Lessons to be Learned

Henry C. Wallich
C. J. Morse
I. G. Patel

Sunday, September 24, 1972
Washington, D. C. USA


Sunday, September 25, 2011

BIS - Changing patterns in household saving and spending

Speech by Mr Philip Lowe, Assistant Governor (Economic) of the Reserve Bank of Australia, to the Australian Economic Forum 2011,
Sydney, 22 September 2011.

Philip Lowe: Changing patterns in household saving and spending

BIS - The real effects of debt

The real effects of debt
Stephen G Cecchetti, M S Mohanty and Fabrizio ZampolliMonetary and Economic Department September 2011

"...At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging. When does debt go from good to bad? We address this question using a new dataset that includes the level of government, non-financial corporate and household debt in 18 OECD countries from 1980 to 2010. Our results support the view that, beyond a certain level, debt is a drag on growth. For government debt, the threshold is around 85% of GDP. The immediate implication is that countries with high debt must act quickly and decisively to address their fiscal problems. The longer-term lesson is that, to build the fiscal buffer required to address extraordinary events, governments should keep debt well below the estimated thresholds. Our examination of other types of debt yields similar conclusions. When corporate debt goes beyond 90% of GDP, it becomes a drag on growth. And for household debt, we report a threshold around 85% of GDP, although the impact is very imprecisely estimated..."

"...As with government debt, we have known for some time that when the private sector becomes highly indebted, the real economy can suffer. But, what should we do about it? Current efforts focus on raising the cost of credit and making funding less readily available to would-be borrowers. Maybe we should go further, reducing both direct government subsidies and the preferential treatment debt receives. In the end, the only way out is to increase saving."


Wednesday, September 21, 2011

BIS - CNB - Mojmír Hampl: States as debtors

Mojmír Hampl: States as debtors

"...This time is different, however, at least in the following respects:

1. We forgot that this can happen, that sovereigns can become perfectly insolvent just like any other debtor, and states behaved accordingly.

2. This is the first time in 60 years or so that a sovereign crisis has hit the developed world, the rich world, not the developing one, the hardest. To demonstrate that: almost 80% of all the IMF’s rescue loans have gone to Europe! Over 40% have gone to the Eurozone itself, and the share is going to rise. The developed world is not accustomed to this.

3. This time the problem of sovereign debt has appeared at a time of peace and prosperity.

4. Moreover, the Eurozone – a monetary union without a state – is a completely new, unprecedented arrangement.

Typically, the solution to such a crisis used to be: inflation, default or monetary reform, very often accompanied by currency devaluation, or a combination of all these. Please note that typically when the IMF organizes a programme for a developing country, it requires a partial default or devaluation to disburse funds.

Nothing like that is possible within the Eurozone – monetary solutions are unavailable for the weakest sovereign links. And only default remains. Or, of course, a bail-out, i.e. shifting the debt burden from some countries to others.

But, history seems to suggest quite clearly that without some form of debt reduction (or default, if you wish) it will be really hard to get sovereigns functioning normally again.

Are there any OTHER alternatives?


//Mrt: Well, what about a full gold demonetization/revaluation as a wealth reserve asset and counting it only once properly in accounting incase of leasing/gold loans? //

Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank,
to the Alpbach
Financial Market Symposium, Alpbach, Austria, 2 September 2011.

Tuesday, September 20, 2011

SNB - Speech given by Mr Jean-Pierre Roth, 30-4-2004

Speech given by Mr Jean-Pierre Roth,
Chairman of the Governing Board of the Swiss National Bank,
at the Bank’s Annual General Meeting on 30 April 2004

Dawn of a new era

"...Ladies and gentlemen, as the President of the Bank Council indicated earlier on, the National Bank is at an historic turning point today. As of tomorrow, our institution will be governed by new legislation. The new National Bank Act will enter into force in less than 24 hours. Our operational framework, our range of instruments, our organisation and our duty of notification will all be affected. Likewise, our mandate will be – perhaps not modified – but at least made more explicit. Article 5 of the new Act stipulates that “The National Bank shall pursue a monetary policy serving the interests of the country as a whole. It shall ensure price stability. In so doing, it shall take due account of the development of the economy”.
The objective of price stability is not new. In fact, the National Bank has always been guided by this goal in its activities. The desire to guarantee the purchasing power of our  currency underpinned the link established in the past between the franc and gold, and it was this same concern that led Switzerland, in 1973, to abandon the fixed exchange rates of the post-war period, which were undermined by widespread lack of discipline. The objective of price stability is now inscribed in law, which reinforces its legitimacy. Our monetary system is thus now as clearly defined as it used to be under the gold standard. We define price stability as an annual rate of inflation of less than 2%. We were able to maintain such stability in the course of the past year, and I am pleased to note that this objective has been reached in each of the past ten years – an unparalleled achievement internationally. It is a modest, but highly important, contribution to the prosperity of our country. Our history has shown that inflation – or deflation – can have damaging effects that often cause suffering to the most vulnerable members of our society.
One of Switzerland’s traditional values is this concern for price stability. It is a significant achievement that the National Bank will endeavour to preserve in the years to come..."


Monday, September 19, 2011

SNB - Speech given by Mr Jean-Pierre Roth, 29-4-2005

Speech given by Mr Jean-Pierre Roth, Chairman of the Governing Board at the General Meeting of Shareholders of the Swiss National Bank on 29 April 2005

The dollar and the oil price as disruptive elements

"...The foreign exchange and commodity markets experienced the most turbulence in 2004. The US dollar, which had been falling since 2001, accelerated towards the end of the year, when it hit a record low against the euro. Switzerland was affected in much the same way as the other European countries: the Swiss franc appreciated by about 7% against the US currency during the last three months of the year. This development has since improved somewhat.
Despite the dollar's sharp drop over the last few months, its current exchange rate is still higher in real terms than it was in the mid-1990s. The current situation is particularly difficult, however, as a whole series of Asian currencies, including the Chinese renminbi, are pegged to the dollar. The greenback's fall has thus reinforced the competitiveness of numerous emerging markets versus the European economies. For us here in Switzerland it has been positive to note that the nose-diving dollar has not unleashed any speculation on the Swiss franc. The Swiss franc-euro exchange rate has remained remarkably stable at around CHF 1.55 per euro. Since the single European currency was introduced on 1 January 1999, the Swiss franc's nominal appreciation has been more than offset by the inflation differential between Switzerland and the euro area. The competitive position of our exporters has thus improved against their European counterparts.
The dynamism of the Asian economies has boosted demand for commodities, notably oil. The soaring price of this "black gold" continues to pose a serious threat to the recovery of the industrialised economies.

Completion of the gold sales

On 31 March, we completed our sales of the 1,300 tonnes of gold no longer required for monetary policy purposes. These sales had begun on 1 May 2000. The fears expressed in some quarters that our gold sales would destabilise the market have proven to be unfounded. By selling the gold in small instalments and according to a fully transparent schedule, we succeeded in assuaging the market's fears. Moreover, our sales strategy and risk hedging also proved effective in financial terms: the 1,300 tonnes of gold were sold at an average price of CHF 16,241 per kilo. This was CHF 700 more than the average market price during the same sales period. An additional profit of more than CHF 900 million was therefore realised.
At the end of the sales programme, the National Bank still held 1,290 tonnes of gold, corresponding to one third of the value of its currency reserves. Even though it has been demonetised, the yellow metal still plays an important role in our reserves. It is an asset category that traditionally affords good protection in times of crises in the international monetary system. It also allows us to hold part of our reserves on our own country, which is not possible with financial assets. Moreover, as expressly requested by Parliament, Article 99 of the Federal Constitution requires the National Bank to hold part of its currency reserves in gold. The Governing Board considers that the holdings of 1,290 tonnes are appropriate to the current international environment. It does not intend to proceed with further sales of gold.

Distribution of profit
This General Meeting of Shareholders will find a special place in the National Bank's annals, as you are going to decide on how the proceeds of the gold sales are to be distributed. This will close a chapter first opened in 1997, when a group of experts came to the conclusion that the SNB's currency reserves were larger than required for the execution of its mandate and that it could thus consider selling half its gold holdings, once the Swiss franc's gold parity was discontinued.
As you know, the Governing Board adopted the expert group's conclusions and indicated to the Federal Council that, based on the profit figure following revaluation, an amount corresponding to half the gold holdings could be earmarked for purposes other than monetary policy.
The possible uses for the sales proceeds have been the subject of much political debate. None of the proposed solutions have succeeded in attracting a consensus among the population or in the Federal Parliament. On 16 December, the parliamentary debate was concluded without an agreement being reached. Thus, a sum of CHF 21.1 billion, corresponding to the proceeds of the gold sales, has been included in the usual profit distribution procedure.
Some people fear that, following this transfer, the National Bank will no longer have sufficient currency reserves. I have a word of reassurance for them. This issue has been examined in depth and has been discussed by our Bank Council. Our currency reserves total CHF 60 billion – an amount which may be considered appropriate by comparison with other industrialised countries.
But nor are these reserves excessive. Furthermore, it is important that the currency reserves evolve over time, in tandem with the size of our economy. This is why, in accordance with Article 99 of the Constitution and Article 30 of the National Bank Act, the SNB has adopted a provisioning policy that provides for gradual growth in its currency reserves. This year, CHF 885 million have been reserved for this purpose, and similar sums will have to be set aside in the future.
The closing of our accounts for 2004 thus brings with it an extraordinary allocation of profit to the Confederation and the cantons. It is important to emphasise that – paradoxically – the distribution of the CHF 21.1 billion accruing from the gold sales does not actually make them any richer. Up to now, the public sector received the income earned on this capital: a sum of CHF 400 million will also be allocated to them from this source this year. As of the beginning of next year, this income will no longer be distributed. As a result, the Confederation and the cantons will gain in terms of capital, but will lose in terms of transfers of interest income. If they use the proceeds of the gold sales to repay their debts, the reduction in financing charges will correspond approximately to the reduction in the profits paid to them by the SNB. In net terms, there will be few – if any – additional funds available for new expenditures. It is therefore important that decision-makers at all levels maintain a rational approach..."


SNB - 103rd Annual Report

Annual financial statements of the Swiss National Bank (parent company)

The annual financial statements of the Swiss National Bank (SNB) comprise the balance sheet, income statement and notes (art. 662 para. 2 of the Swiss Code of Obligations (CO)) and meet the requirements under Swiss company law (art. 29 of the National Bank Act (NBA), arts. 663 et seq. CO). The annual financial statements refer to the parent company, i.e. the SNB as a separate entity. Detailed information on the stabilisation fund is disclosed separately, as is information on the consolidated finances. The annual financial statements of the parent company determine the appropriation of profit.

"...In managing its investment portfolio, the National Bank lends part of its gold holdings to first-class domestic and foreign financial institutions. It receives interest in return. Gold lending transactions are effected on a secured basis. The gold price risk remains with the SNB. Gold loans are entered in the balance sheet under claims from gold transactions and stated at market value inclusive of accrued interest. The valuation result and interest are stated in net result from gold..."


This is continuation of: "SNB - 102nd Annual Report"

Friday, September 16, 2011

From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege

Pierre-Olivier Gourinchas
Hélène Rey
Working Paper 11563
1050 Massachusetts Avenue
Cambridge, MA 02138
August 2005

"Does the center country of the International Monetary System enjoy an "exorbitant privilege" that significantly weakens its external constraint as has been asserted in some European quarters? Using a newly constructed dataset, we perform a detailed analysis of the historical evolution of US external assets and liabilities at market value since 1952. We find strong evidence of a sizeable excess return of gross assets over gross liabilities. Interestingly, this excess return increased after the collapse of the Bretton Woods fixed exchange rate system. It is mainly due to a "return discount": within each class of assets, the total return (yields and capital gains) that the US has to pay to foreigners is smaller than the total return the US gets on its foreign assets. We also find evidence of a "composition effect": the US tends to borrow short and lend long. As financial globalization accelerated its pace, the US transformed itself from a World Banker into a World Venture Capitalist, investing greater amounts in high yield assets such as equity and FDI. We use these findings to cast some light on the sustainability of the current global imbalances..."


Thursday, September 15, 2011

SNB - 102nd Annual Report

Legal framework
Swiss National Bank - 102nd Annual Report 2009


"...The Swiss National Bank (SNB) carries out its tasks in line with art. 99 (monetary policy) of the Federal Constitution and with the National Bank Act (NBA). Under the terms of art. 99 of the Constitution, the SNB is required to pursue a monetary policy that serves the general interests of the country. In addition, the article enshrines the SNB’s independence and requires it to set aside sufficient currency reserves from its earnings, also specifying that a part of these reserves be held in gold. The objective of both of these elements is to help maintain public confidence in the value of money. Finally, the Federal Constitution also stipulates that the SNB distribute at least twothirds of its net profits to the cantons..."


Sharp increase in gold price

5 Business performance
5.1 Annual result

"...In the course of the year, the price of gold rose to CHF 38,958 per kilogram and closed at CHF 36,687 (2008: CHF 29,640) on the balance sheet date. Only in 1980, when the price for a kilogram briefly exceeded the CHF 40,000 mark, was this precious metal priced more dearly. A valuation gain of CHF 7,329 million was therefore recorded on the SNB holdings of 1,040 tonnes of gold. The SNB earned a further CHF 9 million through its secured gold lending business..."

Composition of currency reserves

In the short term, the currency reserves fluctuate as a result of inflows and outflows of funds as well as valuation changes. The level of currency reserves targeted in the long term reflects the monetary policy requirements.

In connection with the third Central Bank Gold Agreement, the SNB confirmed in August that it was NOT planning to PURCHASE any gold in the foreseeable future.
pg. 121

/Mrt: WHAT? Isn´t the CBGA about limits of selling the CBs gold?/


Balance sheet and income statement

Physical gold holdings consist of gold ingots and gold coins. The gold is stored at various locations in Switzerland and abroad. These holdings are stated at market value. Valuation gains and losses and sales proceeds are reported in
In managing its investment portfolio, the National Bank lends a part of its gold holdings to first-class domestic and foreign financial institutions. It receives interest in return. Gold lending transactions are effected on a secured basis. The gold price risk remains with the SNB. Gold loans are entered in the balance sheet under
net result from from gold transactions and stated at market value inclusive of accrued interest. The valuation result and interest are stated in net result from gold....

SNB - The challenges of Swiss monetary policy

The challenges of Swiss monetary policy
Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank
Swiss Bankers Day of the Swiss Bankers Association, Lugano, 14 September 2001, 14.09.2001


"While repos are instruments used for liquidity management on the Swiss money market, and consequently for the daily implementation of monetary policy, monetary reserves constitute the means for making international payments. They are freely available and may be used in operations to defend the Swiss franc or the country’s external payments capability. At the end of last year, freely available reserves represented slightly less than twice the portfolio of assets denominated in Swiss francs, or around 55 billion Swiss francs. This figure does not take account of reserves that are already earmarked for distribution, namely the proceeds of the sale of 1,300 tonnes of gold, as well as the surplus provisions, whose distribution will be determined when the agreement signed with the Confederation, relating to the distribution of profits of the Swiss National Bank, is renewed in 2003.
The question of the optimum level of monetary reserves has already been the subject of interminable discussion, with the debate frequently heated and sometimes pseudoscientific. The problem in this discussion arises from the fact that there is no objective yardstick to measure the optimum level of monetary reserves, just as there is no objective measurement for the amount of capital required to support an insurance for risks which are statistically unquantifiable. This question therefore leaves substantial scope for subjective interpretation. We consider that a small economy like ours, which is open to the outside world, deeply integrated in financial markets and not a member of any monetary zone, must hold substantial monetary reserves. If we compare our situation with that of other countries, it can be seen that we have larger reserves than other small European states, which is to be expected in view of our monetary independence and the size of our financial sector, but that other markets—in particular Singapore and Hong Kong—are well ahead of us.
A group of experts that debated the issue of the level of reserves estimated that half the stock of gold, namely 1,300 tonnes, could be used for purposes other than monetary policy. Parliament is currently debating the allocation of the proceeds from the sale of this gold. Subsequently, the nation will be asked to decide. The Swiss National Bank does not intend to become involved in the debate concerning the allocation of the proceeds of gold sales, but it does have a keen interest in ensuring that this transfer takes place in a manner that does not compromise its position on the markets.
On this issue, two mistakes must be avoided:
In the first place, it would be dangerous, as in the case of the popular initiative «for the payment of excess gold reserves of the Swiss National Bank to the Swiss old-age pension fund» (the Gold Initiative), not to specify exactly the amount of gold to be transferred. This initiative does not quantify the amount of excess gold. It leaves it to the law—and consequently to Parliament—to decide on the details. A provision of this nature is a Damocles sword for our reserves of precious metals and a major source of uncertainty for the gold market. How could we reach any credible agreements with other central banks if our gold sales depended on parliamentary decisions that were liable to be revised in the light of changing needs? How would the gold market react to parliamentary debates on this issue? Moreover, what would be the credibility of a central bank that could find itself deprived of part of its monetary reserves according to political circumstances?
The Council of States recently adopted a plan which will shortly be submitted to the National Council and which aims to divide the proceeds of sale of 1,300 tonnes of gold into three parts. Unlike the old-age pension initiative, this plan creates a perfectly clear framework and leaves no scope for future «slippage».
A second aspect, which concerns our excess reserves, is, in our view, important: contrary to the wishes of certain people, the Swiss National Bank cannot accept the responsibility of managing the assets representing the excess reserves. Why are we unable to accept this? Out of a concern for transparency and effectiveness: we wish to avoid any ambiguity as to the reasons for our actions in the markets. Let us take an example: if the euro weakened against the dollar and Swiss franc, would it be judicious for us to sell euros against dollars in order to limit potential losses on the assets under management, but at the risk of increasing pressure on the Swiss franc? Moreover, as it is also probable that these sums will be invested in Swiss securities, would it be possible for us to avoid problems of insider information, due to the fact that we would be taking important decisions concerning interest rates? And even if it were possible, how could we convince those watching us in the markets that we were not acting on the basis of this information? If we were given the responsibility of managing the excess reserves, we would be faced with situations involving a conflict of interest. «No man can serve two masters at once» as the Scriptures say. This also applies to monetary policy. The central bank must deploy its resources exclusively in the service of its monetary mandate. Any diversification of its responsibilities damages the transparency of its actions and only serves to weaken it.
The idea of creating a separate fund, with responsibility for managing the proceeds from the sale of the 1,300 tonnes of gold, is thus a good solution. The second widely debated question is the issue of our profits. In this area, our position is clear: once our operating costs have been covered and the provisions necessary to fund our monetary reserves have been raised, our profit is fully distributable. We see no difficulty on this point, as distribution has no impact on the conduct of monetary policy. The agreement on profits signed with the Confederation merely sets out the practical aspects of distribution. Thereafter, it is the responsibility of the Confederation and cantons to decide on allocation of these funds, within the framework of their budget. The Swiss National Bank is not prepared to give any advice on this point.
It is also essential that distribution of our profits should not be at the mercy of any political considerations. This would occur if the decision were taken to allocate part of our profits to the direct funding of some specific objective—financing the Swiss old-age pension scheme has been mentioned—instead of absorbing our profits into public budgets. Here again, our fear is that the action of the Bank might lack transparency: is the Bank conducting its operations with a view to ensuring a high yield on its assets, since funding of the old-age pension scheme depends on it, or is it giving priority to monetary policy? The same ambiguity exists as would be the case if the Swiss National Bank were responsible for managing excess reserves.
The draft law governing the Swiss National Bank creates an explicit legal basis for the definition of issues relating to the calculation and distribution of our profits. It provides for the SNB to raise provisions and thus maintain its monetary reserves at an adequate level. Since this question is of prime political importance, we proposed, during the consultation procedure, that our Bank Council—and not the Governing Board—should be the body empowered to approve the Bank’s provisioning policy. As regards the rules for distribution, these are unaltered since they are already clearly set out in the Constitution: two thirds of our profits are to go to the cantons, one third to the Confederation..."
/Mrt: to be edited later/


3.2 Monetary reserves

SNB - Opening Remarks Seventy years after: The final collapse of the gold standard in September 1936

Opening Remarks, Conference “Seventy Years After: The Final Collapse of the Gold Standard in September 1936”

Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank
Conference “Seventy Years After: The Final Collapse of the Gold Standard in September 1936”, University of Zurich, 15.12.2006


"As I said at the outset, the role of gold has faded over the years. But gold had an afterlife long after it ceased to be relevant in any form for the conduct of monetary policy. First and foremost, the legal link between the Swiss franc and gold continued to exist until very recently. The constitutional changes that severed this link took effect in 2000, followed, within the same year, by the corresponding changes in the relevant law. The new law no longer includes an obligation on the part of the SNB to redeem banknotes for gold – an obligation which – in practice – had been suspended for decades. Moreover, it has abolished the minimum gold coverage of the banknotes in circulation and the gold parity of the Swiss franc. With these changes, gold finally became a normal and marketable asset for the SNB. In May 2000, the SNB began to sell part of its gold stock. About 50 percent of the gold once owned by the SNB has now been sold. I should emphasise that the SNB will continue to hold gold as a monetary reserve, but the legal relics of the gold standard era no longer immobilize the gold stock as they did for decades.
A second aspect of the afterlife of the gold standard is its presence in discussions on domestic and international monetary standards. In the 1970s and 1980s, when inflation was high and exchange rates volatile, a small but vocal group endorsed the gold standard as an alternative to the paper standard of the post-Bretton Woods era. Judged by practice, they were on the losing side. There appears to be a widespread consensus – both among economists and central bankers – that a gold standard generates few positive things that cannot be provided by other means. For one, the gold standard has all the drawbacks of fixed exchange rates. That is, monetary policy cannot be used to achieve domestic goals and the parities are vulnerable to speculative attacks. Also, the gold standard has all the disadvantages of a commodity standard. In other words, the system is not only expensive to maintain, it also allows the supply and demand conditions for the commodity in question to affect the general price level.
Some advocates of the gold standard did not propose the gold standard as an international system but promoted it as a tool for solving domestic problems. In particular, they argued that the link to gold, by providing a credible anchor, would keep inflation under control. This argument is valid as far as it goes, but ignores the fact that a gold standard has its own credibility problems. If countries can tie their currencies to gold, they can also untie their currencies from gold. This is what happened in the 1930s. The markets know that and form their expectations accordingly.
For this reason, most countries preferred to go other ways. In recent years, many of them have adopted clear mandates for their central banks which specify price stability as the primary goal..."

Beyond the gold standard

SNB - A view on Switzerland in the run up to the demonetisation of gold

A view on Switzerland in the run up to the demonetisation of gold

Jean-Pierre Roth, Vice-Chairman of the Governing Board of the Swiss National Bank
22nd Annual FT World Gold Conference, London, 14 June 1999, 14.06.1999

"I would like to thank you for inviting me to participate in this gold conference and for the opportunity to give you some insight into the present state of the discussions on the demonetisation of gold in Switzerland. I must admit that I have accepted your invitation with mixed feelings: why play the role of trouble shooter here among people worried about the activity of central banks on the gold market? How to communicate the SNB's intentions when its room for manoeuvre depends on a complicated political process? All this makes me dream of comfortable situation of my colleagues in Belgium and Holland who were able to implement their strategy without outside interference and could communicate their sales as a fait accompli. I also look with envy at the Bank of England which will be able to proceed with sales shortly after the Treasury has made its intentions public.
Firstly, I will show you the importance of gold in the National Bank's monetary reserves;

Let me address the following issues:
  • Then I will outline why the revaluation of our gold holdings will necessarily lead to disposals:
  • In a third part, I will describe the different political stages down the road, the uncertainties surrounding this process, and the timetable we can expect to adhere to.
  • Finally, I will conclude by indicating in what spirit we plan to tackle the delicate task of disposing of an important part of our gold holdings..."


Friday, September 9, 2011

TPS - December 2001 issue - Interview with Tommaso Padoa-Schioppa (By Erebus)

"A charter member of the Executive Board of the European Central Bank discusses the evolution of that institution, the upcoming rollout of the euro in 12 European countries and how the ECB and the Fed compare, among other issues.

Arthur J. Rolnick - Senior Vice President and Director of Research, 1985-2010

He has been called the "intellectual impetus" behind the euro and the "founding father" of the new currency, and soon his progeny will be freely circulating throughout Europe and the rest of the world. For Tommaso Padoa-Schioppa, a charter member of the Executive Board of the European Central Bank (ECB), these are interesting times, to say the least—not only must the nascent ECB deal with important policy questions in a rather uncertain era, but the beginning of the new year finds the introduction of a unified European currency, something very few thought possible just 10 years ago. ..."


Thursday, September 8, 2011

IMF - BOPTEG - THE TREATMENT OF NON-MONETARY GOLD IN THE MACRO ECONOMIC ACCOUNTS Executive summary of a paper prepared for the UK Office for National Statistics Philip Turnbull, Consultant in Official Statistics August

Executive summary of a paper prepared for the UK Office for National Statistics

Philip Turnbull, Consultant in Official Statistics
August 2004

Executive Summary of a paper prepared for the UK Office for National Statistics
Philip Turnbull, Consultant in Official Statistics, August 2004


"1. This paper is an executive summary of the full paper. It is designed to be the appropriate Issues paper for BOPTEG. The paper has been commissioned by the UK Office for National Statistics and will be presented to international statistical expert groups reviewing the existing international standards on national accounts and balance of payments. The issue addressed is the current and future treatment of gold in the System of National Accounts 1993 (SNA93 and planned revision) and the 5th edition of the Balance of Payments Manual (BPM5 and planned revision). Any changes would naturally also apply to other macro-economic standards e.g. those for Monetary and Financial Statistics (MFS) and for Government Finance Statistics (GFS).

2. The proposal in this paper is to extend the statistical treatment of gold as a financial asset to all financial institutions, rather than just the monetary authorities as in the present standards. Thus transactions and holdings of gold would be split into two categories: commodity gold, classified as trade in goods and inventories or valuables; and financial gold (including monetary gold) classified as a financial asset.

3. This paper supports and amplifies BOPTEG Issues Paper #27 prepared by the Bank of Japan, May 2004"

[MRT: whoah!]




Prepared by the Bank of Japan May 2004

I. Current international standards for the statistical treatment of non-monetary gold 

The IMF Balance of Payments Manual Fifth Edition (hereafter, BPM5) defines nonmonetary gold as follows. “Nonmonetary gold covers exports and imports of all gold not held as reserve assets (monetary gold) by the authorities. Nonmonetary gold is treated the same as any other commodity and, when feasible, is subdivided into gold held as a store of value and other (industrial) gold” (See BPM5, paragraph 157). The IMF Balance of Payments Compilation Guide indicates that, for non-monetary gold that does not cross frontiers, the difference between the value of goods when acquired and resold should be recorded under merchanting services (See paragraph 138).

II. Concerns and shortcomings regarding the current treatment 

The volume of gold merchanting reported in Japan is substantial1. However, a large portion of these transactions consist of dealing transactions undertaken to obtain capital gains or to collateralize loans. The inclusion of these amounts in the accounting of goods on a gross basis or in the accounting of services on a net basis can obscure trends and developments in trade.

III. Possible alternative treatments

Non-monetary gold should be treated differently from other goods, primarily for the
following two reasons.

1. Gold is a special good, in that it has characteristics of both goods and financial

2. As in the case of financial assets, dealing transactions in gold are widely undertaken without any physical exports and imports, through the use of the books of gold dealers. Transactions in non-monetary gold not involving physical exports and imports can be treated in various ways. Two options are outlined below.

1. Separating transactions in nonmonetary gold into real-demand transactions (jewelry, industrial uses) and dealing transactions (e.g. aimed at obtaining capital gain), and applying different accounting methods to the two categories.

Note: For example, the former can be categorized as goods and accounted for on a gross basis, and the latter can be treated as margin and accounted for on a net basis. Alternatively, transactions in non-monetary gold can be treated as financial transaction and “Financial Gold” can be created as a new component of the “Financial Account” to be accounted for on a net basis. In connection with the “Financial Account” it will be necessary to clarify the definition of “Financial Gold.”

2. Accounting for the margin on acquisition and resale price as a service.

Note: In the case of dealer-led dealing, consideration must be given to determining who is providing a service to whom.





Prepared by René Fiévet, IMF Statistics Department
October 2004


Relevance of BPM5 standards components of a currency union member country, 
particularly reserve assets

1.      For a currency union (CU) there is a need to compile a balance of payments statement, not least to support economic policy making by the CU institutions and economic analysis more generally. Experience has shown the need for individual countries within the CU to also produce a balance of payments statement (BOP). Economic policy makers seem to require such information, while compilation of the national accounts data requires balance of payments information. Nonetheless, an issue arises as to the relevance of the standard components for a member country of a CU. What standard components should a national BOP be based upon? In particular, does the functional category of reserve assets lose its analytical meaning when compiling a BOP statement for a country belonging to a CU? This paper proposes different options to deal with this issue, and briefly sets out the implications  in terms of defining standard components for a CU’s member country’s BOP/IIP.


Concerns/shortcomings from the current treatment.

5.      Neither BPM5 nor the Guidelines provide any explicit guidance on the way reserve assets of a CU should be reflected in the balance of payments statement of a CU country. However, in BPM5 there is an implication that the countries in a currency union record holdings of reserve assets: it is recommended that each national office in a currency union acts as the central bank and that the financial assets and liabilities of a regional central bank (including presumably reserves) be allocated among national offices in proportion to the claims that such offices have on the regional central bank (paragraph 90). 

6.      Against this background, in June, CUTEG provisionally agreed that only assets considered reserve assets at the CU level could be classified as reserve assets in the national data. This view was taken on the grounds that the concept of reserve assets in a CU has a unitary nature, meaning that only one definition should apply for the whole CU. Further, CUTEG also provisionally agreed that the Currency Union Central Bank (CUCB) should be regarded as an institutional unit in its own right, nonresident of any specific economy but resident of the CU. In other words, its assets and liabilities are not to be allocated to member countries of the CU. These provisional decisions provide clarification as well as change to the BPM5 approach. The rest of this note is based on the assumption that these provisional decisions will be endorsed at the December 2004 meeting

Possible treatments of the issue

7.      In this paper, it is assumed that only if the monetary authorities of a member country owns and/or controls foreign currency assets that meet the criteria of ready availability and control can a case can be made for including those assets in reserve assets at the national level. Further, given the provisional decisions taken by CUTEG, there are various instances, where foreign assets at the national level are not reserve assets. First, if the foreign assets are denominated in the currency of the union they cannot be classified as reserve assets, because they are not foreign currency claims (see Issues paper12). Second, if the foreign currency assets are claims on other residents of the CU, then by having only one definition of reserves for the whole CU, these assets should be excluded from reserve assets at the national level (except perhaps for foreign assets held by domestic banks but “controlled” by national monetary authorities—this instance is relevant to footnote 2). Third, if a national monetary authority transfers ownership of reserve assets to the CUCB (and has a claim on the CUCB as a consequence), then these reserve assets are no longer considered owned by the national authorities and so should not be recorded as reserve assets at the national level (Issues paper 15). 

8.      The question arises as to whether the concept of reserve assets is relevant at member country level at all but could be said to exist at the CU level only—that is a different classification approach could be taken to the same assets at the country and CU levels. Under this logic, even if the foreign assets are owned by the national monetary authorities and meet the definition of  reserves assets at the CU level, they should not be classified as reserve assets at the national level because, in particular, foreign exchange policy is primarily decided at the CU level. In other words, this view would conceptually follow the notion that  since reserve assets are held to meet balance of payments needs and influence the exchange rate, this functional category only makes sense at the level of the CU. Instead, these assets could be allocated to the relevant items of the financial account (“Portfolio investment” and “Other investment”). But this view could only apply for foreign exchange (and other claims) holdings. For the SDR holdings and the reserve position with the Fund, they have to be classified as national reserve assets as they are country specific assets. Similarly, financial gold owned by a monetary authority cannot be regarded as anything other than as a reserve asset in the financial account. 

9.      The alternative position is to maintain a consistent classification approach at country and at CU level. In other words, if an asset meets the definition of a reserve asset at the CU level and it is owned by and/or under the control of the national monetary authorities, it should be recognized as a reserve asset in the national data. This approach would not exclude from the national reserve data, assets owned by and under the control of the national monetary authorities that might also be “controlled” by the monetary authorities of the CU. In this way the data for reserve assets published by the member countries plus the data for reserves held at the CU level—e.g., the CUCB—would equal the total for the reserve assets of the CU. In effect, this approach makes no judgement on the analytical relevance of data on reserve assets owned and/or controlled at the national level—such as whether some or none can be used to meet a national balance of payments need or the degree of influence the national monetary authorities may or may not have over the use of the assets—except that it considers that it is analytically meaningful to identify as reserve assets those foreign assets of the individual countries that are considered as reserve assets of the CU.

[Mrt: Continuation from: here ]

IMF - CUTEG - Concepts of control and availability of reserves in a CU

JANUARY 24, 2005
(1) Topic: Concepts of control and availability of reserves in a CU

(2) Issues – see CUTEG Issues Paper #10 and Draft Follow-up Paper#10

(3) Recommendations:

1. CUTEG confirmed its provisional view that reserves assets shown in BOP/IIP of CU member countries should only include those assets that are classified as reserve assets at the CU level. However, one representative was concerned that the financing of intra-CU imbalances could still be relevant in the context of specific CUs and, therefore, some countries may consider that the holding of foreign currency assets in banks resident in other countries of the CU could be eligible for reserves even when these holdings are not considered as such at the CU level. The other members of CUTEG did not support this view. One representative considered that this issue relates to the definition and coverage of reserve assets – i.e. whether deposits or other assets in foreign currency held in resident banks (in a country or within a CU) should be considered eligible. CUTEG decided that a paper justifying the majority view be prepared to support further consultation before any final decision is taken.

2. The group agreed on adopting a broad definition of monetary authorities in a CU, including national monetary authorities.

3. The group agreed that the definition of reserve assets of a CU should be consistent with the one recommended in international methodology. Consistent with international methodology, borderline cases on the classification of reserve assets should be determined collectively between the CUCB and all national monetary authorities that are part of the CU decision making body.

4. The group agreed that the issue of effective control and availability on certain assets (for example, foreign assets of the monetary authorities in banks resident in the CU) should be decided in the wider discussion of methodology of reserve assets.


Wednesday, September 7, 2011




Prepared by Remigio Echeverría, ECB
May 2004


"1. This paper analyses the definition of reserve assets in the context of a Currency Union (CU) and the allocation of transactions and positions in reserve assets in the balance of payments, international investment position and international reserves statements of both the CU and the CU’s participating countries. The general principles on the definition of reserve assets set out in the BPM5 and in the IMF “International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template” (hereinafter ‘the IMF Template’) should assist in identifying the key elements guiding the most appropriate reflection of reserve assets in both national and CU aggregate statistics."

I. Current international standards for the statistical treatment of the issue

[Mrt: very interesting reading]

II. Concerns/shortcomings of the current treatment

[Mrt: well articulated]

III. Proposed treatments 

Definition of reserve assets in a CU 

Domestic versus foreign currency denominated assets

7. A key question to be clarified is whether the single currency could be regarded as foreign currency from the
point of view of the CU national member states’ institutional units. The so-called “dual nature of the single currency” theory sustained that the single currency of a CU area could be considered as both a domestic and foreign currency from a national viewpoint. It considers that for each Member State participating in CU, the single currency is both a “national” and a “foreign” currency, since each of them is responsible for its issuance and accepts it as a legal tender, but none of them has full control over it. Should this be the case, CU NCBs’ claims denominated in the single currency and vis-à-vis non-residents of the CU or residents of other CU member states could theoretically be regarded as reserve assets in national statistics.

8. However, the institutional setting of a CU determines that the single currency, in view of its unitary nature,
should be solely regarded as domestic currency in all the CU national member states. In addition, assets denominated in the single currency may be ineffective for any interventions in case of a crisis affecting the CU currency. For these reasons, it is proposed not to consider CU CB/NCBs’ claims denominated in the single currency as reserve assets in CU and national statistics. 

Foreign assets vis-à-vis other CU residents

9. In a CU, three relevant groups of residents could be identified: (i) residents of an individual CU national
member state (domestic residents); (ii) residents of the other CU national member states (other CU residents3); and (iii) residents of countries outside the CU (non-CU residents). Consequently, when defining reserve assets at the nationallevel, groups (ii) and (iii) would comprise the relevant non-resident population, whereas only group (iii) would constitute the non-resident counterpart for identifying reserve assets at the CU level.

10. A first and immediate conclusion is that CU CB/CU NCBs’ foreign currency claims on non-CU residents (group (iii)) are to be considered as reserve assets both in CU and national statistics. Likewise, a second immediate result is that CU CB/CU NCBs’ foreign currency claims on other CU residents (group (ii)) cannot be regarded as reserve assets at the CU level, because they represent ‘domestic’ (as opposed to ‘external’) assets from the CU perspective and do not thus abide by the BPM5 definition of reserve assets.

[Mrt: Note, now we use BPM6]

11. A less clear-cut case arises as regards the reflection of CU NCBs’ foreign currency claims on other CU residents in national statistics. From a strictly national viewpoint, it could be argued that these assets would fulfil the definition of reserve assets prescribed by the BPM5. However, the concept of reserve assets in a CU has a unitary nature, meaning that only one definition (concept) can apply for the whole CU and this should be consistent with that applied at national (single CU member) level for a number of important reasons.

12. Firstly, the extent to which this type of assets could be used for foreign exchange policy (intervention) purposes is questionable. Foreign currency denominated deposits held by CU NCBs in financially weak banks resident in other CU member states, which would likely not be available for use in a crisis affecting the CU financial system, would however be reflected in national statistics, leading to overestimation of reserves.

13. Secondly, an interpretation of the meaning of reserve assets at the national level might be difficult to sustain, if they are not considered as reserves for the CU at the same time, bearing in mind that the holding and management of the reserves of the CU is one of the basic tasks of the monetary authority of the CU and no longer a task of the individual CU NCBs.

14. Finally, the exclusion of these assets from the reserve assets definition at the national level would permit that the sum of the individual reserves of the CU NCBs and the CU CB would be equal to the CU consolidated reserves, enhancing transparency and credibility of the CU in exchange rate related issues. CU CB and CU NCBs reserves are to be seen as homogeneous elements of the very same aggregate, i.e. the reserve assets of the CU as a whole, and therefore the definition of reserves at national level should necessarily be consistent with the CU definition.

15. Therefore, and as a third conclusion, CU CB/CU NCBs’ foreign currency claims on other CU residents (group (ii)) should preferably not be regarded as reserve assets at national level. This also implies that CU NCBs’ foreign currency claims on domestic residents (group (i)) should a fortiori not be considered as reserve assets both at the CU and at the national level.

16. Finally, gold, special drawing rights (SDRs) and the Reserve Position in the IMF held by the CU CB/CU NCBs are to be considered as reserve assets both at the CU and at the national level.

Allocation of reserve assets in a CU

17. Once the issue of what kind of assets qualify for reserve assets in a CU, the question arises on the way the CU total reserve assets are allocated/attributed to the CU CB and CU NCBs. This allocation is important to the extent that it will subsequently determine how the overall reserves of the CU are shown in the CU CB statistics and the statistics of Page 5 of 8 the CU member states. It should be noted that whatever criteria is used to allocate the CU reserves to the CU NCBs, this will by no means alter the total reserves of the CU as a whole. Moreover, it is also worth mentioning that the analytical of this information is questionable, as they could hardly be interpreted as more than simple proportions on the total CU reserves with no economic meaning in itself. However, the allocation criterion chosen will determine the amounts of reserves shown at the national level, and this makes this criterion an undoubtedly sensitive issue because of the political dimension of the reserves figure.

18. In this regard, it is clear that the particular institutional setting of the CU may play a crucial role in determining the sharing of the CU reserves among the CU participating countries, as this question is connected with the effective control of the assets. As a first result, it can be concluded that the total reserves of the CU will always be the addition of the reserve assets of the CU CB and the CU NCBs, whatever the institutional setting for the CU monetary authority has been established.


[Mrt: rest of reading interesting for application in different types of CU.]



Revision of the Fifth Edition of the IMF's Balance of Payments Manual: Papers of the Currency Union Technical Expert Group


Monday, September 5, 2011


NO 1377 / SEPTEMBER 2011


by Antonio Scalia 1
and Benjamin Sahel 2

"...ECB foreign reserves initially comprised transfers of foreign reserve assets to the ECB from the NCBs of the euro-area countries, in proportion to each NCB’s capital share in the ECB (Scheller, 2006, ch. 3). When new countries join the euro area, their NCBs also transfer foreign reserve assets to the ECB, in the same proportion as the other NCBs. Over time, the ECB’s foreign reserves may increase or decrease as a reflection of portfolio returns and of purchases or sales of foreign currency by the ECB. In addition, the ECB may call upon the euro-area NCBs to transfer additional foreign reserve assets if needed. Within the Eurosystem, which comprises the ECB and the euro-area NCBs, total foreign reserves amounted to around €591 billion equivalent at the end of 2010, of which around €57 billion were held by the ECB and around €534 billion were held by the NCBs. The purposes of the NCBs’ foreign reserves include: international obligations (e.g. holdings of IMF special drawing rights); optimization of balance sheet structure; and preparedness to transfer additional foreign reserve assets to the ECB if needed. It should also be noted that a significant portion of the Eurosystem’s foreign reserves is made up of gold holdings, which accounted for €366 billion equivalent (or 62 per cent) at the end of 2010. When comparing Eurosystem and ECB foreign reserve holdings with those of other central banks, it is important to bear in mind that the responsibilities of these other central banks as regards foreign exchange policies may differ from those of the ECB..."

"...The ECB foreign reserves’ portfolio management objectives derive from the purpose of the ECB’s foreign reserves. Accordingly, the high-level objectives are defined as being “liquidity, safety, return”, with the three aspects being ranked in this order of priority. Hence, portfolio liquidity and risk exposures are strictly controlled. Within the range of acceptable liquidity and risk profiles, the objective of the portfolio management process is to maximize portfolio returns..."


CEPS - The Dilemma of the Dollar

The Dilemma of the Dollar
Paul de Grauwe
26 November 2009

Paul De Grauwe is Professor of Economics at the University of Leuven and Senior Research Fellow at
the Centre for European Policy Studies.



Balance of Payments and  International Investment Position Manual


[Mrt: Reserves pg.111, it says it all.]

IMF - RESTEG - Update of the Reserve Assets Template Guidelines

Twenty-Third Meeting of the IMF Committee on Balance of Payments Statistics Washington, D.C.
October 25–27, 2010


"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)...."


Sunday, September 4, 2011


Revision of the Fifth Edition of the IMF's Balance of Payments Manual: Papers of the Reserve Assets Technical Expert Group


[Mrt: Simply RESTEG]


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"]






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. 

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.


Treatment of allocated and unallocated gold in reserve assets

12.      Allocated gold is physical gold and, therefore, as long as it meets the criteria as reserves, is classified as monetary gold under reserve assets.


Balance of Payments Manual, Fifth Edition, paragraph 434
International Reserves and Foreign Currency Liquidity, Guidelines for a Data Template,
paragraphs 98–101, 178, 258

Monetary and Financial Statistics Manual, paragraphs 154-164
Annotated Outline, paragraph 5.51 (a), (c) (

IMF Statistics Department, Treatment of Reverse Transactions (RESTEG Issues Paper #8,

IMF Statistics Department, Treatment of Gold Swaps and Gold Deposits (Loans) (RESTEG Issues Paper #11,, Outcome Paper (RESTEG) #11 (

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),

Philip Turnbull, The Treatment of Non-monetary gold in the Macro Economic Accounts (BOPTEG issues paper # 27A, Chris Wright, Stuart Brown, Non-monetary Gold (issues paper for the fourth meeting of the AEG (SNA/M1.06/30.1),

[Mrt: As usual, this is just an extract, for getting all one must read the whole paper(s).]


[Mrt: Preceded by:

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


TT -- International Center for Monetary and Banking Studies


"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.


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.




[Mrt: got here via TPS bio, Note: sponsor CIE]



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]