Thursday, September 8, 2011




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 ]

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