5331.0 - Balance of Payments and International Investment Position, Australia, Concepts, Sources and Methods, 1998  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 22/09/1998   
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14.5. From the gold standard era, when attention was focused on monetary gold, to the present day, when the focus has shifted to a range of reserve assets, it has been regarded as desirable that balance of payments statements should identify the components comprising transactions in reserve assets. The concept of reserve assets relates to those foreign financial assets that are effectively controlled by the monetary authorities and are available for use in meeting balance of payments needs. In Australia’s case, reserve assets include monetary gold, Special Drawing Rights, reserve position in the IMF, and foreign exchange (currency, deposits and debt securities) held by the Reserve Bank as part of Australia’s official reserve assets. Each of these components is described in box 11.3. The classification of these assets is shown in table 14.3.

Monetary gold

Special Drawing Rights

Reserve position in the IMF

Foreign exchange
Currency and deposits

14.6. Transactions in reserve assets are recorded at market value as they occur and are converted to Australian dollars at the market rate of exchange ruling at the time of the transaction (or a very close approximation).

14.7. Statistics for levels of reserve assets at the end of a period, for June 1976 onwards, are converted to Australian dollar equivalents at market prices and at market rates of exchange. For this purpose, the exchange rate used for amounts denominated in United States dollars is a representative mid-point determined by the Reserve Bank on the basis of market quotations at 4 pm on the last working day of the period to which the statistics relate. (Between June 1976 and June 1983, the rate used was the mid-point of the rates at which the Bank was prepared to deal with the Australian trading banks.) Rates used for other currencies are calculated by crossing the rate for the United States dollar with the mid-point of closing buying and selling rates for other currencies largely on Asian markets (the New York market was used between June 1976 and June 1983). The bases of valuation of reserves before June 1976 are described in box 14.4.

For periods prior to June 1976, a number of other bases were used by the Reserve Bank for valuing the levels of reserve assets. The evolution of the valuation basis used is traced briefly below. The valuation basis used in the ABS reserve assets series is identical to that used by the Bank, and it has been changed consistently with the changes in the Bank basis described below.

From the end of September 1959 until December 1971, the series was valued in terms of the official parities between the Australian dollar and gold and foreign currencies. Following the international currency crisis of the latter half of 1971, the floating of the United States dollar and the widening of the permitted margin for fluctuation of market rates of exchange around the official parity, in December 1971 the Bank began to value holdings of foreign exchange at market rates for its balance sheet purposes. However, official parities continued to be used in the calculation of the
reserve assets series. Towards the end of 1972, the difference between the two methods of calculation became more pronounced and the Bank began publishing the reserve assets series on the basis of market rates as well as on the basis of official parities. A further change introduced by the Bank in June 1973 was to take account of current market values in determining the foreign currency value of overseas securities included in official reserve assets in the Bank's balance sheet. Previously, these securities were generally included at the lower of cost or face value.

The next important change occurred when, from July 1974, the IMF began determining the value of the Special Drawing Rights on a daily basis using market exchange rates for a basket of sixteen currencies. This change was immediately adopted in valuing Special Drawing Rights and the Reserve Position in the IMF in the
reserve assets series, and the opportunity was taken to discontinue publication of the series based on official parity relationships. The final step in the progressive adoption of a market valuation basis for items in the series occurred in August 1977. At that time the reserve assets series back to June 1976 was amended to show gold holdings valued at the average London gold price for the month, converted to Australian dollars at the market rate of exchange applying on the last day of the month.

Treatment of gold loans

14.8. Gold loans made by the Reserve Bank provide the Bank with a gold loan claim (a secured commitment to repay the gold) on a resident or non-resident in exchange for its surrendering gold. Repayment of such loans results in a reduction of the claim and the acquisition of physical gold. Given the near substitute nature of such loans for physical gold, the Reserve Bank, consistent with the practice of other central banks, treats such loans as part of monetary gold in reserve assets. A brief discussion of this treatment is set out in box 14.5.

Gold loans made to residents require no balance of payments entries. The gold is 'demonetised' (a non-transaction change in reserves), and then exchanged for a gold loan claim (resident to resident transaction) which is subsequently monetised (again, a non-transaction change in reserves). Therefore, three 'other adjustments' entries are required in the reconciliation presentation of the international investment position: the demonetisation of monetary gold reserves; and two other adjustment entries to re-route the monetisation of the gold loan, creating a monetary gold asset on the one hand, and an offsetting loan liability to the rest of the world for the loan counterparty.

Gold loans made to non-residents result in an export of gold in exchange for a gold loan claim on a non-resident. Therefore the balance of payments includes both a goods credit entry and an entry in
other investment loan assets of the Reserve Bank. As with loans to residents, in the international investment position the initial loan requires an other adjustment for the demonetisation of the monetary gold, followed by the subsequent monetisation of the loan claim, requiring other adjustments in both reserves and other investment assets.

A more detailed description of this treatment is given in the December quarter 1997 issue of Cat. no. 5302.0.

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