- International Monetary Fund
- Published Date:
- June 1992
© 1992 International Monetary Fund
Library of Congress Cataloging-in-Publication Data
Background papers to the Report on the measurement of international capital flows.
Includes bibliographical references.
1. Capital movements—Statistical methods. 2. International finance—Statistical methods. I. International Monetary Fund. II. International Monetary Fund. Working Parly on the Measurement of International Capital Flows. Final report of the Working Party on the Measurement of International Capital Flows.
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John F. Wilson
Data Sources and Methodology
Lorna M. Dailey and John Motala
Benchmarking Positions in Portfolio Securities
John F. Wilson and Samuel Pizer
International Banking Statistics
Stephen P. Taylor
Other Capital Flows
Wilson John F.
This volume gathers together a number of the papers and studies that were prepared as background research to the Final Report of the Working Party on the Measurement of International Capital Flows (also referred to as simply the Report on Capital Flows). Although not part of the report itself, these papers provide detail on a number of issues that are treated in a more general way in the report. The papers include contributions by members of the technical staff of the Working Party, national compilers, and several outside experts who collaborated with this endeavor to improve compilation practices for these important international capital flow statistics.
The Working Party’s two-year investigation into imbalances in the global capital account covered a wide range of topics. It also required the assistance of balance of payments compilers in a large number of countries, many of whom cooperated by filling out the demanding Special Questionnaire on international Capital Flows and by providing some of the detail behind national balance of payments statistics, as well as written descriptions and critiques of national compilation practices and ad hoc studies on subjects suggested by the Working Party. The selection of material in this volume includes only a portion of these contributions. The Working Party thanks all the individuals who contributed, and in doing so provided a foundation for the Working Party’s conclusions and recommendations. It is hoped that the papers reproduced in this background volume will be helpful in understanding the framework of the research into capital flows and some of its detail.
Although each paper in this volume was prepared independently, they are grouped here by general topic. The first group consists of three papers dealing with the data sources and methodology used by capital account compilers. The first of these papers provides an overview of compilers’ responses to the Working Party’s Special Questionnaire on International Capital Flows, as well as a copy of the Questionnaire itself. The remaining two focus on national data sources and procedures. As the Report on Capital Flows makes clear, sources and methods vary greatly across countries for such important categories as direct investment, portfolio investment, and nonbank capital flows. “Data Sources Used by National Compilers” affords a more detailed examination of the similarities and differences among national compilation systems than could be dedicated to this topic in the report itself, “National Compilation Systems” is a cross-country view based on contributions made directly by balance of payment compilers in eleven countries that have significant capital account transactions. The sections of this survey address three topics for the country concerned: a) the main features of its capital account compilation; b) the important problems perceived by the national compilers themselves, and; c) the improvements planned or in progress. Information provided by compilers on these topics was of great help to the Working Party in its research. This paper provides in a relatively standardized form further detail about problems that compilers are aware of in their national sources.
The second section of this volume deals with direct investment capital flows. The first paper of this section, “Bilateral Comparisons of Direct Investment Data,” comments on the use of bilateral comparisons as a guide to measurement problems in national statistics. The data in this contribution were assembled in the course of the Working Party’s research with the assistance of many national compilers, and they underpin the conclusions and recommendations of Chapter 3 in the Report on Capital Flows. The second paper in this section, “U.S. Direct Investment Flows with Selected Caribbean OFCs,” illustrates capital flow measurement conventions (and problems) in transactions with offshore financial centers.
Several papers on portfolio investment constitute the third group of studies in this volume. As noted in the Report on Capital Flows, measurement of portfolio capital flows has become increasingly difficult in recent years because of several developments affecting the traded instruments, the kinds of transactors, and the channels through which transactions are effected across national boundaries. “Innovative Financial Instruments and Capital Flow Discrepancies” affords a survey of the new, and sometimes exotic, instruments—most of which fall into the portfolio category—that have come into play in the past decade. It discusses the problems that such instruments pose for balance of payments measurement and their possible role in global imbalances. “Foreign Investments of Pension Funds in Six Countries” provides an overview of the activities of a major class of institutional investor. Legislative and regulatory developments in a number of countries have liberalized the scope for cross-border investments by pension funds, and the Working Party’s research suggests that closer attention to reporting by (or on behalf of) such organizations would benefit the global figures.
The complexity of inward and outward portfolio transactions has reached a point where even substantial improvements in flow measurement may not be sufficient to yield reliable figures at the global level. Furthermore, improvements in flow statistics cannot compensate for past errors in measurement that may have accumulated into highly flawed estimates of international position figures. One of the principal recommendations made by the Working Party in its final report is that major countries conduct benchmark studies of inward and outward portfolio positions, focusing especially on large institutional issuers of, and investors in, securities. Apart from benchmarks of inward portfolio investment conducted every five years by the United States, there is only limited experience with measuring such positions. “Benchmarking Positions in Portfolio Securities” discusses the United Kingdom’s recent effort to improve the measurement of nonresident holdings of British equities and also addresses the revisions made to the U.K. capital account as a result of the survey. This paper also reviews the U.S. experience with benchmarking and that country’s plans to conduct an outward survey for year-end 1993.
The fourth section of this volume provides background detail on nonbank capital flows and international banking statistics. As outlined especially in Chapter 6 of the Report on Capital Flows, these are closely related topics because capital flows of private nonbanks are poorly measured in many countries, and international banking figures (as assembled by the Bank for International Settlements and the IMF) provide a “derived” perspective on a large part of these flows. Within certain limits, a comparison of national balance of payments statistics and the figures derived from international banking reports can help to reveal and quantify problems with capital account transactions of nonbank sectors for individual countries. Some of the largest potential “adjustments” that help to reduce the global capital account imbalance arise from these comparisons.
The paper “International Banking Statistics in Capital Flow Measurement” closely examines several aspects of the banking data and their connection to balance of payments figures. The first section of the paper surveys compilation systems and statistics for a number of major countries to help answer the question of how nonbank capital flows are covered in balance of payments statements and to what extent national data can be compared to the IMF’s international banking statistics (IBS) coverage of similar flows. The second section describes the methodology used by the Working Party to extract cross-border holdings of portfolio securities from the banking figures for the comparisons made in its report. Separating security positions from other bank assets is especially important for Japan, whose banks hold large amounts of international securities, and is necessary so that IBS figures can be put on a basis consistent with the balance of payments accounting. The third section of the paper presents a number of tables of annual comparisons for major countries between IBS and balance of payments statistics and adjustments that were presented in Chapter 6 of the Working Party’s report. The fourth section provides a more detailed look at nonbank capital flow statistics for the United States in the context of this discussion. A fifth section expands the comparisons to other countries, and the final section develops the annual adjustments for the principal OFCs described in annual-average form in Chapter 9 of the Report on Capital Flows.
Two papers on other capital flows comprise the fifth and final group in this volume. As emphasized in the body of the Working Party’s report, consistent accounting for swap transactions of members of the European Monetary System with the European Monetary Cooperation Fund (EMCF) is important to proper measurement of reserve transactions in the countries belonging to this monetary arrangement. The first paper, “Balance of Payments Reporting for Transactions of the European Monetary Cooperation Fund” provides a fuller description of the EMCF than was possible in Chapter 8 of the Working Party’s report.
The second paper in this set examines international movements of physical currency and their potential connection to the global capital account imbalance. Although compilers are aware that currency movements may be substantial, in most countries there are no mechanisms for tracking such movements or accounting for them in balance of payments statements. Therefore, this subject remains largely unexplored terrain. “Physical Currency Movements and Capital Flows” deals with the relation of currency movements to balance of payments accounts, and it presents some rough, model-based estimates about cross-border movements of certain currencies for recent years. An annex describes what is known about cross-border currency investments for a few key countries.
Finally, the views expressed in these papers are those of the individual authors and should not be attributed to the IMF or the Working Party itself.
John F. Wilson
Technical Staff of the Working Party