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IMF Follow Up Paper: Treatment of Allocated/Unallocated Gold Held as Reserve Assets

http://www.imf.org/external/np/sta/bop/pdf/fu111.pdf

Below is further research on the confusing aspects of current accounting treatments for gold loans and how they should be changed. Here are some selected notes from the follow up paper.

Prepared by Hidetoshi Takeda, IMF Statistics Department : August 2006

I. CURRENT INTERNATIONAL STANDARDS FOR THE STATISTICAL TREATMENT OF THE ISSUE

3. Current macroeconomic statistics manuals are silent on the statistical treatment of allocated and unallocated gold. There are no explanations of the treatment of gold swaps/deposits that involve unallocated gold.

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.

15. Unallocated gold held by the monetary authorities that does not meet the criteria of reserve assets would be treated as deposits, i.e., other investment of the monetary authorities in the balance of payments and IIP if a claim is on a nonresident, otherwise as a claim on a resident bank.

19. As the Guidelines describe, monetary authorities may undertake gold swaps (paragraph 100). So, assume that a central bank (A) holds an unallocated gold account in bullion bank (B) with a position of 100, and undertakes a gold swap of 100 with a financial institution (C) (perhaps by asking B to undertake the transaction on its behalf). If the statistical treatment is that the ownership of the underlying asset is assumed not to change hands under a gold swap, central bank A continues to report, a holding of unallocated gold (100) as reserve assets or other investment and C does not record, a holding of unallocated gold (100). On the other hand, bullion bank B has legal liability of 100 to C and may record deposit as from C. So, both A and C may record a gold holding (A may keep recording on a claim on B, while C may record its claim on B).

20. If market practice is for B to record that C not A has ownership then de facto it places in question whether gold swaps with unallocated gold should be treated like repos, although the economic ownership argument may be equally as valid. So, in order to determine appropriate treatment, practices of market and accounting of banks on gold swaps need to be taken into consideration.

For a more comprehensive understanding of this paper, please visit the IMF link at the top of the page. These are just some of the selected quotes from the paper.

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