Feature Article - Reserve Bank of Australia Gold Loans
This article was published in the December quarter 1997 issue of Balance of Payments and International Investment Position (ABS Cat NO. 5302.0, p66-67)
1 The Reserve Bank of Australia (RBA), like several central banks around the world, has been making gold loans since the December quarter 1986. However, in ABS macroeconomic statistics these transactions have not been uniformly treated.
2 The ABS has now adopted a uniform treatment of these transactions. This note outlines that treatment, and the changes with past practice.
Nature of gold loans
3 When the RBA makes a gold loan it passes the physical stock of gold to a borrower in exchange for a secured commitment to repay the gold. The security and liquidity aspects of the gold loan claims are regarded as a near substitute for physical gold, and the RBA, in accordance with general accounting practice and with Bank of England guidelines, retains the loan values within its monetary gold reserves.
ABS macroeconomic statistics
4 For statistical purposes, there are several simultaneous transactions and ‘other changes’ to inter-sector financial positions occurring with each gold loan transaction. When a loan is made by the RBA, there is a non-transaction decrease, or ‘demonetisation’, of reserve gold, matched by a non-transaction increase in the RBA‘s commodity gold stocks. At the same time, the commodity stock is regarded as being sold to the loan counterparty in exchange for the loan claim for its return. Therefore commodity stocks are reduced by a sale transaction. Simultaneously the loan claims are regarded as being monetised and included within the monetary gold component of official reserve assets. The reverse processes occur when loans are repaid.
5 The statistical treatment described in paragraph 4 results in ABS statistics that are consistent both internally and with the RBA accounting practice. Changes to the balance of payments, international investment position, and the national accounts commence with the release of the December quarter 1997 accounts. Minor changes to the measurement of international trade in goods commenced with the issue yesterday of the monthly international trade in goods and services statistics.
Balance of Payments
6 For balance of payments (BOP) purposes, loans to resident counterparties do not require any direct entries in the BOP. In practice, residents may draw down gold loans in Australia, export the gold and lodge customs entries which are reflected as goods credits entries in the current account. Alternatively, resident counterparties may draw the loans down from RBA gold stocks held abroad, and an ‘unrecorded’ export needs to be included in goods credits. Offsetting these goods entries are financing transactions in the financial account, such as for increases in foreign exchange assets associated with the export sale. This treatment continues past practice.
7 For loans to non-residents, which commenced in the June quarter 1996, the past practice has been to ignore both the implied sale of the gold under loan and the offsetting creation of a loan claim. Commencing with this issue the uniform approach requires entries in goods credits when a loan is made, which will be offset by a debit entry in the financial account of the BOP (other investment loan assets of the RBA) for the extension of credit under the loan. This change results in revisions to goods credits in four of the past seven quarters (ie, net new lending in those periods) and entries in
goods debits in three quarters (ie, net repayments of loans). The largest credit or debit entry in any one quarter is less than $0.3 billion. Loans drawn and repaid within the one accounting period, including the rollover of existing loans, are recorded on a net basis.
International investment position
8 Gold loan transactions in the financial account of the BOP are also recorded as transactions in Australia's international investment position statistics (IIP). However, the ‘monetisation’ of these claims requires offsetting non-transaction changes in the IIP. Australia’s foreign claim is only recorded as an official reserve asset.
9 When gold loans to residents are ‘monetised’ and included in official reserve assets, entries are also required in the IIP to re-route the liability of the resident borrower: a non-transaction increase is made in the other investment loan liabilities of depository corporations to the rest of the world. The resulting position for this liability exactly offsets the monetised loan claim. That liability peaks at $1.6 billion at 30 September 1996 and has since fallen to a little under $1 billion.
10 The treatment of RBA gold loans in Australia’s national accounts, including the financial accounts, will be fully consistent with the treatment in the BOP and IIP.
11 In the domestic production account, the contribution made to net exports by the gold loan transactions will be exactly offset by changes in stocks, thereby having no impact on GDP. Revisions to public authority stocks are required from the December quarter 1986 to reflect the impact of loans to residents, and from the June quarter 1996 for loans to non-residents. Over the life of the series there are generally small declines in stocks, peaking at $0.3 billion in the June quarter 1996. In the June and September quarters 1997 there are sizeable increases in published stocks data (of $0.4 billion and $0.8 billion in current price terms) as loans have been repaid, which are more than offset by declines in stocks when the RBA sold a substantial proportion of its gold
12 In order to maintain consistency with the IIP treatment a number of revisions will be necessary in the national balance sheet, financial accounts and other changes in the volume of assets account. The impact of these changes will be documented in the forthcoming December quarter 1997 release of the Australian National Accounts: Financial Accounts (5232.0).
13 For further information about the treatment of the gold loans, please contact Bob McColl on (02) 6252 6688, in relation to international accounts statistics; or Derick Cullen on (02) 6252 6071, in relation to national accounts statistics.