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Treatment of gold swaps and gold deposits
24. RESTEG agreed to include a clearer description of the treatment
of gold swaps and gold deposits/loans drawing as appropriate on the relevant
text in the Guidelines. RESTEG considered
that the statistical treatment of gold swaps and gold deposits needed to be
addressed from the viewpoint of whether allocated or unallocated gold was involved.
25. As an important outcome, RESTEG agreed that the statistical treatment
of gold deposits/loans of allocated gold should be the status quo. That is,
if the deposited/loaned gold is available upon demand to the monetary authorities,
it can be included in reserve assets as monetary gold (paragraph 99 of the Guidelines). However,
if the gold is not available upon demand, it should be removed from reserve
assets, and also from the IIP (demonetization).
26. The meeting was informed that gold swaps primarily involve unallocated
gold, and the secretariat was asked to investigate further the implications
of this, and produce an additional paper (Issues Paper #11.1) for the consideration
of RESTEG through correspondence. The work included appropriate bilateral
discussions to discover practices on gold swaps and deposits/loans among central
banks, especially those via unallocated gold.
27. An important conclusion was that the majority of RESTEG members
that commented preferred to treat unallocated gold consistently with the AEG
recommendation as foreign currency denominated deposits, rather than as monetary
gold, and include these deposits in reserve assets if the reserves criteria
are met. In this treatment, unallocated gold accounts held with residents (such
as bullion banks) are excluded from reserve assets. The additional drafting
on gold was included in paragraphs 5.155, 5.158, and 5.159 of the draft Manual.
28. On the treatment of gold swaps, the majority preferred to retain the asset
on swap in reserve assets and record the swap loans in RRL if with a nonresident.
However, there was a general view that this issue should be considered in the
context of reverse transactions more generally (see ahead).
http://www.imf.org/external/pubs/ft/bop/2006/06-28.pdf
So, in lay terms, here is our interpretation of the above IMF statement.
- According to the IMF, nearly all gold loans are made via unallocated accounts.
- Gold lent via unallocated accounts will be removed from central bank gold reserves.
- Gold lent via allocated accounts will be removed from reserves if the gold is not readily available upon demand. We assume “upon demand” will be defined by the loco London clearing transfer time period of 48 hours.
- The term “residents” includes bullion banks, but is not limited to loans made via bullion banks in unallocated accounts. This will also include loans directly to fabricators and private third parties from unallocated accounts as well as allocated accounts that are not available upon demand.
- The definition of allocated and unallocated gold will be made much clearer along with the guidelines defining the trading of those accounts.
(For a description of allocated and unallocated accounts from the LBMA,
please read the Appendix I in the Gold Lending Paper at
www.blanchardgold.com/beru or visit
the LBMA website at www.lbma.org.uk)
Blanchard’s review of these five short and clear points on the coming
changes to gold reserve accounting indicates that they are exactly what we expected
to see after reviewing the previous position papers and committee recommendations. Gold
swapped and loaned by central banks via bullion banks nearly always is taken
from unallocated accounts. “In this treatment, unallocated
gold accounts held with residents (such as bullion banks) are excluded from
reserve assets.” This loaned and swapped gold will now
be excluded from reserve asset totals.
To be sure, this is not an issue that will send the market higher in one day…this
will have a much greater, long term impact on the market by providing new transparency
on levels of gold swapped and loaned into the market that was not previously
available to all market participants. We believe that this development
should be considered as important, if not more so, than the Washington Agreement
on Gold in 1999 and the legalization of gold ownership by Chinese citizens in
2004.
This decision by the IMF should not mean an end to OTC trading activity on
the London Bullion Market. Transactions in that market will still continue
with a certain degree of confidentiality and lack of transparency, but this
decision by the IMF will become the ultimate end around for the average investor
to begin receiving additional trading information regarding market activity.
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