- International Monetary Fund. Statistics Dept.
- Published Date:
- May 2000
Library of Congress Cataloging-in-Publication Data
Financial derivatives, a supplement to the Balance of payments manual, 5th ed., 1993 — Washington, DC: International Monetary Fund, 2000. 50p.
Companion volume to Balance of payments manual, 5th ed. ISBN 9781557759412
1. Balance of payments — Handbooks, manuals, etc.
2. International finance. I. International Monetary Fund. HG3881.5.158 155 2000
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This document comprises a new chapter on financial derivatives and modifications to the existing material on financial derivatives in the fifth edition of the Balance of Payments Manual (BPM5).
In response to large-scale changes occurring in recent decades in the size and nature of financial derivative markets, the System of National Accounts 1993 (1993 SNA) and the BPM5 presented new standards for the treatment of such derivatives. After the 1993 SNA and the BPM5 were published, markets for financial derivatives evolved to an even greater extent, and national statisticians requested clarification and amplification of the published standards.
These inquiries led to the creation of the Informal Group on the Measurement of Financial Derivatives. This informal group, the IMF Committee on Balance of Payments Statistics (the Committee), and the group of experts working on the draft of the IMF Manual on Monetary and Financial Statistics produced discussion papers that were widely distributed and commented upon in the international statistical community.
The process of discussion and commentary confirmed the view that financial derivatives should be treated as financial assets. Transactions in financial derivatives, in general, should be reported as separate transactions rather than as integral parts of the values of underlying transactions or as integral parts of the values of financial assets to which derivatives may be linked as hedges. The process also led to two significant changes in previous statistical standards. One was the change to a less restrictive view towards the classification of financial derivatives within the SNA asset boundary. This change permitted the inclusion of more over-the-counter (or non-exchange-traded) instruments. A second, related change was the recognition of interest rate swaps and forward rate agreements as financial assets and the recording of net cash settlement payments resulting from these contracts as financial transactions rather than investment income flows. In addition, it was agreed that a new functional category, financial derivatives, would be created for the balance of payments and a new instrument, financial derivatives, for the national accounts. These changes were adopted by the Committee and the Inter-Secretariat Working Group on National Accounts (ISWGNA) at their October 1997 meetings. In November 1997, the IMF Statistics Department released The Statistical Treatment of Financial Derivatives.
The ISWGNA and the Committee then asked that the IMF Statistics Department use The Statistical Treatment of Financial Derivatives as a base to prepare—for inclusion in the 1993 SNA and the BPM5—text containing a definitive description of financial derivatives and recommended treatments for them. A version suitable for each publication was prepared, but the wording of the two versions is identical in many instances. The BPM5 version, although subject to further review regarding the classification of financial derivatives as direct investment and reserve assets, was considered and adopted at the October 1998 meeting of the Committee.
At its October 1999 meeting, the Committee made a provisional decision to include financial derivatives in both of these functional categories and to record such derivatives as separate items. This treatment is consistent with that described, in the October 1999 release of the provisional IMF Operational Guidelines on the Data Template for International Reserves and Foreign Currency Liquidity, for financial derivatives classified as reserve assets. This guideline will be reviewed in late 2000 or early 2001. The continued classification of financial derivatives within direct investment and reserve assets depends on the results of the review and on country experience in implementing the recommendations with regard to derivatives classified in direct investment.
The text that follows comprises two parts: a new, additional chapter for the BPM5 and an amendment to material in the existing BPM5.
The new chapter presents information on the functional category of financial derivatives. The underlying features of financial derivatives and treatments appropriate for specific derivatives are described. The amendment to the BPM5 shows, by means of shading and strikeout, clarifications and changes to the published manual. Only modified paragraphs and tables are shown—in the same order as chapters and paragraphs are shown in the 1993 text. The release of this addendum and amendment to the BPM5 was coordinated with finalization of the parallel revision to the 1993 SNA. (The process of dissemination and adoption for the latter revision was more lengthy.) The revised 1993 SNA was adopted by the United Nations Statistical Commission in February 2000.
Carol S. Carson