Appendix Note on the Official Reporting of Gold Flows
- M. O'Callaghan
- Published Date:
- March 1993
|Measure||Metric Tons||Kilogram||Gram||Troy Ounce1||Tolas||Taels|
One Troy ounce is equivalent to 1.097 avoirdupois ounces (that is, standard British ounces).
One Troy ounce is equivalent to 1.097 avoirdupois ounces (that is, standard British ounces).
|Carats||Parts per 1,000|
IMF Practice and Recommendations
The IMF distinguishes between “monetary gold” and “nonmonetary gold,” defining the former as any gold held by an official monetary institution and the latter as all other gold stocks. Because monetary gold is included in official reserves, it is not included in either the current or capital account of the balance of payments and appears instead as a monetary movement below the line.
The IMF’s practice in reporting nonmonetary gold in the balance of payments is the product of two distinct areas of consideration. The primary recommendation (see IMF (1977, para. 464)) is that nonmonetary gold should be treated as a commodity and thereby included in the current account, because gold at end use is closely related to a commodity (on average, 85 percent of new gold is eventually used in fabrication). The secondary recommendation is that commodity flows in general should be included on a gross basis, because imports and exports of a particular commodity are seldom related in a simple manner and because this representation has more informational content, particularly with respect to industry production. The IMF’s Balance of Payments Manual (IMF (1977, para. 2)), in recommending procedures for reporting payments statistics, reflects the IMF’s desire to “facilitate the analysis of countries’ international economic relationships and to maximize intercountry comparability.” Virtually all countries have adopted these recommendations in reporting their gold flows, with the two most notable exceptions being Switzerland and the United Kingdom: Switzerland reports the majority of gold flows in the capital account on a gross basis; the United Kingdom also includes them in the capital account, but on a net basis.
Reporting Gold Flows Through Switzerland
In reporting nonmonetary gold flows for balance of payments purposes, the Swiss authorities distinguish among three categories of gold flows for separate treatment: (1) imports and re-exports on behalf of nonresidents through fiduciary or trustee accounts, which are excluded from the balance of payments; (2) gold imported for finished manufactures in Switzerland, which is included in the current account; and (3) all other flows, which make up the bulk of imported gold (as presented in Table 8 of this paper), which are recorded in the capital account.
Gold flows categorized under (1) are excluded from the balance of payments in accordance with the procedure recommended in the IMF’s Balance of Payments Manual (paras. 221–25) on goods crossing a frontier without change of ownership. The distinction made between categories (2) and (3) reflects gold’s dual characteristics as a commodity and as an investment instrument, which have resulted in most gold transactions being recorded in the capital account and implicitly treated as financial asset transactions. Although this practice deviates from Fund methodology, it would appear to reflect the nature of gold flows through Switzerland because, of the flows that currently appear in the Swiss capital account, an average of 86 percent (based on the period 1968–89) is re-exported after only a minor degree of transformation.
Reporting Gold Flows Through the United Kingdom
In its reporting of gold movements in the balance of payments statistics, the United Kingdom has followed a consistent policy of differentiating between commodity gold and all other gold movements, which are regarded as “financial gold.” The U.K. Central Statistical Office (CSO) explains:
Transactions in commodity gold are recorded in the visible trade account and include overseas trade in finished manufactures together with net domestic and overseas transactions in gold moving into or out of finished manufactured form (i.e., for jewelry, dentistry, electronic goods, medals and proof—but not bullion—coins) (CSO (1989, p. 71)).
The publication states further that because
the figures of exports and imports [which are recorded] in the Overseas Trade Statistics include only finished manufactures of gold…[to] achieve the coverage required for balance of payments purposes, an adjustment is made to exports to include the value added in refining gold and in the production of proof coins, and to imports to cover the value of gold used for finished manufactures. The import adjustment is based on commercial statistics on hallmarking of gold items (published by the Assay Offices of Great Britain) and gold uses in other finished forms (e.g., electronics, dentistry) published by Consolidated Gold Fields plc. (CSO (1989, p. 14)).
The CSO explanation continues:
All other transactions in gold (i.e. those involving semimanufactures such as rods, wire, etc., or bullion, bullion coins or banking-type assets and liabilities denominated in gold, including the official reserves) are treated as financial gold transactions and included in the capital account. The distinction between commodity and financial gold differs from that drawn by the IMF, in its Balance of Payments Manual (4th edition, 1977), between nonmonetary and monetary gold. The United Kingdom has adopted different definitions to avoid distortion of its visible trade account by the substantial transactions of the London Bullion Market (p. 71).
The capital account records:
Net transactions in gold which is held as a financial asset by listed institutions in the London Bullion Market (LBM) outside the U.K. monetary sector and by other non-bank residents … from the beginning of 1982 in the case of the LBM institutions; and from the beginning of 1970 in the case of other U.K. residents (p. 43).
This rather oblique reference to a change in reporting procedure concerns the only significant change in reporting practices since 1970, with effect from January 1, 1981. Thereafter, gold transactions by domestic residents, other than banks or the London Bullion Market, were included as imports and exports in the merchandise trade account to reflect the lifting of exchange control restrictions in 1979, but are not separately quantifiable on the basis of available data. They had hitherto been included on a net basis in the capital account along with LBM transactions, at least insofar as they existed.
A reference in Overseas Trade Statistics (hereafter OTS) (U.K. Department of Trade and Industry (1986)) clarifies this:
With effect from January 1981, all trade in gold, other than that in inwrought refined bullion which is the subject of interbank or London Gold Market dealings (which is to be considered as monetary gold), is included in merchandise trade. Imports and exports of monetary gold continue to be excluded from merchandise trade (p. v).
The CSO (1989) offers further explanation: “transactions between the U.K. monetary sector… and other U.K. residents… are recorded twice within the capital accounts thereby giving no net effect on the total capital account” (p. 43). The only other change in reporting procedure, with effect from January 1976, was that trade in gold coin was thereafter included in the merchandise trade account, having been hitherto included with “monetary gold” (OTS (1986, p. v)).
Therefore, data for the United Kingdom on imports and exports of what the U.K. authorities describe as “financial” gold movements in the United Kingdom balance of payment are included on a net basis in the capital account (CSO (1989, p. 43)). The CSO does publish data on both imports and exports of financial gold, however, but uses the term “monetary gold” to describe them in a separate table (VIII) in OTS (even though such data are excluded from the current account). The CSO defines “monetary gold” as including “unwrought refined bullion which is the subject of interbank or London Gold Market (LGM) dealings” (OTS (1986, p. v)). It therefore comprises gold not held as official reserves, as well as movements in or out of official reserves, and deviates from IMF terminology, which uses the term “monetary gold” to refer exclusively to gold held in official reserves. The categories for monetary gold in OTS have varied slightly over the years, but the vast bulk of gold movements involved in any given year can be assimilated as “unwrought refined bullion.”1
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Some assessment of the magnitude of these gold movements is a useful indicator of what is included. The figure recorded for imports in 1989 is £4,182 million, which is $6,859 million at the average exchange rate. In turn, at the average U.S. dollar gold price, this figure represents 560 tons of gold—very close to industry estimates that 550 tons of “financial gold” flowed through London in 1989. This is a further indication that what the CSO calls “monetary gold” includes “nonmonetary gold” in IMF terminology. There was no significant change in U.K. gold reserves in 1989.
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