Recognition of the importance of data transparency—including for promoting the efficient operation of financial markets and policy accountability on the part of governments and central banks—is a remarkably recent phenomenon in the history of economic thought. The timely availability of data on international reserves and the foreign exchange operations of central banks is a case in point. As recently as 10 years ago, with relatively few exceptions, only very aggregated information typically was available, and then often only with a substantial lag. Indeed, in a number of countries, these data were treated as state secrets. Moreover, significant regional differences existed—and still do, to an important degree—in terms of views about the value of enhancing transparency.
The establishment of the IMF’s Special Data Dissemination Standard (SDDS) in 1996 was a milestone in recognizing the role of data transparency, particularly the timely dissemination of high-quality data. A component of the SDDS covered (gross) international reserves. The requirements for reporting reserves were strengthened substantially in 1999 with the adoption of the international reserves and foreign currency liquidity data template (henceforth referred to as the “reserves template”) as an integral part of the SDDS. Initial reporting began in June 1999 and, following a transition period, SDDS subscribers were required to observe the enhanced standard by April 2000.
The history of the SDDS can be viewed as one of continuous modification and enhancement of the standard as an integral part of the evolving international financial architecture. In this latter regard, not only have there been enhancements in the area of international reserves and foreign currency liquidity, but there have been important enhancements also to external debt statistics and the international investment position (IIP). This chapter discusses the origins of the SDDS and the reserves template, describes the key features of that template, and then reviews the experience with its use. The chapter assesses the costs and benefits of adopting the standard and considers possible future directions for the SDDS/reserves template. Indeed, both the case for more transparency and the ongoing relevance of the reserves template have begun to receive renewed attention in the context of a rapid buildup in global holdings of international reserves, further diversification of reserves holdings across currencies and asset classes, and increasing use of special funds (including sovereign wealth funds) as a means of holding reserves.
Origins of the Data Standards
The concept of transparency underpins a significant part of the work on improving the international financial architecture, including the SDDS. Transparency “refers to a process by which information about existing conditions, decisions, and actions is made accessible, visible and understandable” (Group of 22, 1998, p. v). It is closely tied up with the concept of accountability. However, “transparency and accountability are about much more than the availability of specific pieces of information. They are about an approach to economic policy and decision-making” (Ibid., p. v).
Against the backdrop of growing recognition of the importance of transparency—and possibly also contributing to it—the Mexican crisis of 1994–95 underscored the role that information deficiencies could play in contributing to market turmoil. The crisis led directly to the establishment of the SDDS. The SDDS was envisaged as providing, on a voluntary basis, a set of data dissemination standards, representing an effort to codify (existing) good practice, to which countries participating in international capital markets, or aspiring to do so, could subscribe. Subscribers commit to provide timely and detailed data on 21 data categories covering four sectors—real (national income, prices, and labor), fiscal, financial, and external sectors. Population is an addendum item.
In addition to timeliness and detail, the standard deals with other aspects of data quality. On the premise that markets need to know about the reliability and comparability of data, the standard emphasizes the importance of providing adequate and readily accessible metadata (information about methods and compilation practices of the data) to accompany the prescribed data series.2
While subscription to the standard is voluntary, observance of the standard by subscribers is mandatory. Moreover, observance is regularly monitored by IMF staff, and procedures are in place (potentially involving the IMF’s Executive Board) to ensure that the standard is observed. The SDDS was implemented in 1996, and, by the end of that year 42 countries had subscribed. By November 2007 the number of subscribers had risen to 64.
Data on international reserves form a part of the data on the external sector, but in the early days of the SDDS, the information provided about reserves was somewhat sparse. IMF staff proposed in the initial draft discussion paper that international reserves and official liabilities be reported weekly, with a reporting lag of one week. However, the authorities of several member countries favored publication of less timely and less frequent data on international reserves; they also had difficulties with the concept of “official liabilities.” In the end, a somewhat less ambitious standard was agreed upon. Monthly data on gross international reserves would be disseminated with a lag of one week (weekly dissemination would be encouraged). Countries also would be “encouraged” to publish “reserves-related liabilities” on an “as relevant” basis.3
The Asian crisis that began in 1997 provided an impetus to strengthen the SDDS, especially with respect to the coverage of international reserves, international debt, and the IIP. It was evident that data on gross reserves did not provide an adequate picture of the authorities’ overall foreign currency liquidity position. Nor was the information provided with adequate timeliness. The most prominent deficiencies in coverage involved the lack of information on the on- and off-balance-sheet foreign exchange positions—including derivatives—of both the central bank and other public sector entities.
“Such shortcomings arguably helped exacerbate the financial turmoil by obscuring the buildup of financial weaknesses and imbalances and by complicating crisis management” (Group of 10, 1998, p. 1). In order to estimate the authorities’ liquidity position, two sorts of quantitative information were needed: foreign currency assets that are readily available to the authorities; and potential calls on liquid resources (referred to subsequently as “short-term drains”).
These shortcomings stimulated remedial work within the IMF and led also to the establishment of working groups by the Euro-Currency Standing Committee of the Central Banks of the G-10 Countries and by the finance ministers and central bank governors from 22 systemically significant economies (G-22).4 The IMF and the G-10 working group jointly developed the reserves template in 1999. Following an extensive consultation process and a thorough discussion by the IMF’s Executive Board, the template became a prescribed element of the SDDS.
The decision to adopt the reserves template reflected a careful balancing of the perceived benefits and costs of greater transparency. On the one hand, the benefit of adopting the reserves template were seen as fourfold: (1) it would strengthen the accountability of the authorities with regard to policy actions and choices; (2) it would facilitate the efficient functioning of markets by removing a source of financial volatility, increasing the scope for effective market discipline, accelerating policy corrections, and reducing contagion; (3) it would strengthen the accountability of the private sector, which would not be able to “blame” its investment mistakes on inadequate disclosure by the public sector; and (4) more transparency in the public sector would underpin the case for stronger transparency standards in the private sector. Further, the G-10 working group anticipated that more transparent disclosure of reserves and reserves-related liabilities by industrial countries could encourage similar behavior among emerging market countries.
On the other hand, it was recognized that specific costs might limit the acceptable degree of transparency, including (1) reduced operational flexibility to intervene covertly in foreign exchange markets; (2) uncertainties about a move to more stringent disclosure, which might prove difficult to reverse once taken (for example, it might undermine the credibility of the authorities’ commitment to the principle of transparency); and (3) implementation costs, both one-off, such as the cost of developing adequate reporting and dissemination systems, and ongoing, such as the cost of reporting and monitoring the standard.
On balance, however, there was a strong sense that there should be “a significant move toward enhanced disclosure … with regard to both the content and timeliness of information” (Group of 10, 1998, p. i).
It is worth noting that the adoption of the reserves template differed from the initial work on the SDDS in the sense that it sought to redefine and strengthen international good practice. It should be seen in the context of one part of a broader effort to strengthen the architecture of the international financial system; in parallel with the work on the SDDS, the IMF was active in developing transparency codes for monetary and financial and fiscal policies, as well as the Reports on the Observance of Standards and Codes (ROSCs) and the Financial Sector Assessment Program (FSAP). The coincidence of these actions makes it difficult to disentangle the impact of the reserves template and the SDDS more generally from the impact of other measures supporting greater transparency.
Key Features of the Reserves Template
Although we refer to it as the reserves template, the focus is on the authorities’ foreign currency liquidity position. This position goes well beyond the concept of international reserves to the readily usable foreign exchange resources and actual and potential short-term drains. In the context of the Asian crisis, certain principles were emphasized in the design of the template. First, coverage should extend beyond the monetary authorities to include general government and relevant public sector institutions. Second, because the focus was on usable foreign exchange resources and short-term drains regardless of source, the residency concept that underpins balance of payments accounting and the definition of international reserves should be deemphasized.5 Third, the template should be comprehensive and detailed with regard to the breakdown by financial instrument, which should distinguish instruments that might differ in terms of liquidity or cash flow characteristics. Comprehensiveness also implies that both on- and off-balance sheet items should be included. Fourth, both predetermined and contingent short-term drains should be included. Fifth, inclusion of assets and flows should depend on the settlement medium of the contract (foreign currency) rather than the currency of denomination. Sixth, valuation principles should emphasize liquidity by valuing assets at approximate market value and by valuing predetermined and contingent short-term drains at their nominal value. And seventh, the coverage should be forward-looking, covering future inflows and outflows.
A schematic presentation of the reserves template is provided in Figure 2.1.6 It is structured as a coherent framework to present data and also to facilitate reserves management, debt/asset management, and analysis of countries’ liquidity position. It comprises four sections:
Official reserves asset and other foreign currency assets;
Predetermined short-term inflows and outflows of foreign currency;
Contingent short-term inflows and outflows of foreign currency; and
Memo items, including the currency composition of reserves.
In addition to the content of enhanced disclosure discussed thus far, the matter of its timeliness also arises. Timeliness depends on both the frequency of reporting and the reporting lag. As previously noted, timeliness had been a contentious issue in the initial specification of the reserves component of the SDDS. As a general proposition, the benefits of transparency and disclosure, particularly with regard to the more efficient functioning of markets, tend to increase with the timeliness of information. But some of the costs may increase as well, particularly the loss of flexibility to conduct covert intervention. The balancing of benefits and costs in the template is set at the monthly frequency of reporting, with a reporting lag of up to one month, although countries are free to report more frequently if they wish to do so. (For example, the United States reports on a weekly/weekly basis.)
With one exception, the monthly/monthly frequency and timeliness lag are applied to all the items of the template, because otherwise it would be possible for countries to hide changes in their liquidity position for a time in the items that are reported with lesser frequency.
The one exception is the currency composition of foreign exchange reserves. As noted in the report of the G-10 working group, a “possible source of costs arises from constraints on reserve management that may result from an excessively detailed disclosure” (G-10, 1998, p. 9). Currency composition is to be reported at least annually under section IV of the reserves template as a memorandum item, while more frequent dissemination is encouraged. In addition, the reserves template calls for the reporting only of groups of currencies: those in the basket of special drawing rights (SDRs) and those outside of the SDR basket. Countries, however, can provide detailed currency composition in the template if they choose to do so; they also can provide such information in country notes accompanying the data.7
On coverage, whereas the general principles underlying the construction of the template call for disclosure of the positions of the monetary authorities, general government, and relevant public sector institutions, reporting as a practical matter is restricted to the monetary authorities and the central government. Similarly, for practical reasons, the reporting of predetermined and contingent net short-term drains is reported in a grid of up to one month, one to three months, and three months to one year, with the cut-off set at one year.
Experience with the Reserves Template
The IMF adopted the reserves template as a part of the SDDS in March 1999, allowing current members a transition period extending through April 2000 to fully observe the new standard. Seven countries began disclosure in June 1999. By the end of the transition period in 2000, 41 countries were reporting template data (Figures 2.2 and 2.3). Currently, all 64 SDDS subscribers plus New Zealand disseminate their data on international reserves and official foreign currency liquidity on their national websites. Of these, 57 provide their data to the IMF for redissemination on its website. In addition, the European Central Bank (ECB) provides its template data, as well as those for the euro area, to the IMF for redissemination. The IMF website (http://www.imf.org/external/np/sta/ir) presents the data for each country in a common format and in a common currency (the U.S. dollar) to facilitate crosscountry comparisons. Reporting the data to the IMF for redissemination is voluntary. Most of the 65 countries disseminate their template data on a monthly basis with a monthly lag, while a few disseminate these data more frequently with a shorter lag.
Industrial and Nonindustrial Special Data Dissemination Standard Subscribers
Source: IMF Statistics Department.Industrial and Nonindustrial Special Data Dissemination Standard Subscribers
Source: IMF Statistics Department.Industrial and Nonindustrial Special Data Dissemination Standard Subscribers
Source: IMF Statistics Department.
Number of Special Data Dissemination Standard Subscribers Reporting the Reserves Template
Source: IMF Statistics Department.Number of Special Data Dissemination Standard Subscribers Reporting the Reserves Template
Source: IMF Statistics Department.Number of Special Data Dissemination Standard Subscribers Reporting the Reserves Template
Source: IMF Statistics Department.The sections that follow provide some information on key aspects of the experience with the reserves template, including overall reserve coverage, level of detail, detail on the forward-looking aspects, and revealed trends.
Overall Reserves Coverage: How Representative Are the Data?
Aggregating the data reported by the 57 individual countries and the ECB to the IMF for redissemination shows that these data cover official foreign currency positions of countries that held about 61 percent of the world’s foreign currency reserves, as reported in the IMF’s International Financial Statistics (IFS) for December 2006.8
These data have generally captured the sharp increase in reserves holdings, but also show that coverage more generally has fallen off in the last two years (Figure 2.4). This largely reflects the fact that the accumulation of reserves has taken place to a large extent in countries that are not SDDS subscribers. This observation pertains particularly to many of the major oil producers and to some countries in Asia that have been large accumulators of reserves.
International Reserves
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.As all the industrial countries and the ECB report data on the reserves template to the IMF for redissemination on the IMF website, the coverage of international reserves and foreign currency liquidity of industrial countries is nearly complete (Figure 2.5).9 The widening of the coverage gap can be attributed largely to the nonindustrial countries (Figure 2.6), which include oil-producing countries and reserves accumulators.
International Reserves: Industrial Countries
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves: Industrial Countries
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves: Industrial Countries
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.
International Reserves: Nonindustrial Countries
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves: Nonindustrial Countries
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves: Nonindustrial Countries
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.Behind these numbers is the differing coverage by region (including both industrial and nonindustrial countries). For Asia, the growing accumulation of reserves by a few large economies that are not SDDS subscribers would explain the widening coverage gap between the IFS and the template database for the region; in magnitude, this gap is the largest among different regions (Figure 2.7). Reporting of reserves template data by non-SDDS subscribing countries in Asia to the IMF for dissemination would greatly enhance the coverage of global foreign currency liquidity. Currently, only 10 Asian economies are SDDS subscribers (see Appendix 2.1). The coverage of Europe is comprehensive (Figure 2.7). Europe has the largest number of SDDS subscribers (37), and they report reserves template data to the IMF for redissemination in addition to disseminating the information on their own websites. The coverage gaps of the Western Hemisphere, the Middle East, and Africa are affected by the number of SDDS subscribers in the regions—12, two, and three, respectively (Figure 2.7 and Appendix 2.1).
International Reserves
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.International Reserves
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: IFS = International Financial Statistics.Level of Detail on the Use of Financial Instruments
Table 2.1 contains aggregate data for reporting countries for section I of the reserves template, covering foreign currency resources. It provides a sense of the relative magnitudes reported by countries as well as the number of countries using particular financial instruments.10 Three observations are relevant.
Data Template on International Reserves and Foreign Currency Liquidity, December 2005
(In millions of U.S. dollars, end-of-year period)
Data Template on International Reserves and Foreign Currency Liquidity, December 2005
(In millions of U.S. dollars, end-of-year period)
| Number of Countries Reporting | Aggregate Amount | ||||
|---|---|---|---|---|---|
| 1.A. Official Reserve Assets | 63 | 3,057,870.32 | |||
| 1. Foreign currency reserves | 62 | 2,622,161.12 | |||
| a. Securities | 62 | 1,985,054.01 | |||
| b. Deposits | 61 | 638,059.81 | |||
| 2. IMF reserves position | 53 | 34,034.63 | |||
| 3. Special drawing rights (SDRs) | 61 | 24,165.46 | |||
| 4. Gold (including gold on loan) | 58 | 269,165.97 | |||
| 5. Other reserve assets | 38 | 85,615.09 | |||
| I.B. Other Foreign Currency Assets | 47 | 38,938.95 | |||
| II. Predetermined Short-Term Net Drains | |||||
| 1. Foreign currency loans and securities | 51 | –174,047.61 | |||
| 2. Aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps) | |||||
| a. Short positions | 22 | –98,431.00 | |||
| b. Long positions | 25 | 110,388.90 | |||
| 3. Other (specify) | 24 | –20,723.81 | |||
| III. Contingent Short-Term Net Drains | |||||
| 1. Contingent liabilities in foreign currency | 32 | –41,907.99 | |||
| 2. Foreign currency securities issued with embedded options (puttable bonds) | 2 | –684.23 | |||
| 3. Undrawn, unconditional credit lines | 4 | 7,176.42 | |||
| 4. Aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency | |||||
| a. Short positions | 1 | –156.00 | |||
| b. Long positions | 1 | 518.00 | |||
| IV. Memo Items | |||||
| 1. a. Short-term domestic currency debt indexed to the exchange rate | 8 | 352.36 | |||
| b. Financial instruments denominated in foreign currency and settled by other means (e.g., in domestic currency) | 2 | 3,738.75 | |||
| c. Pledged assets | 7 | 947.49 | |||
| d. Securities lent and on repo | 24 | 96,485.46 | |||
| e. Financial derivative assets (net, marked to market) | 15 | –36,703.20 | |||
| f. Derivatives (forward, futures, or options) that have a residual maturity greater than one year, which are subject to margin calls | 3 | 13,285.47 | |||
| 2. To be disclosed less frequently: | |||||
| a. Currency composition of reserves (by groups of currencies) | |||||
| • Currencies in SDR basket | 52 | 1,729,004.60 | |||
| • Currencies not in SDR basket | 41 | 46,289.55 | |||
Data Template on International Reserves and Foreign Currency Liquidity, December 2005
(In millions of U.S. dollars, end-of-year period)
| Number of Countries Reporting | Aggregate Amount | ||||
|---|---|---|---|---|---|
| 1.A. Official Reserve Assets | 63 | 3,057,870.32 | |||
| 1. Foreign currency reserves | 62 | 2,622,161.12 | |||
| a. Securities | 62 | 1,985,054.01 | |||
| b. Deposits | 61 | 638,059.81 | |||
| 2. IMF reserves position | 53 | 34,034.63 | |||
| 3. Special drawing rights (SDRs) | 61 | 24,165.46 | |||
| 4. Gold (including gold on loan) | 58 | 269,165.97 | |||
| 5. Other reserve assets | 38 | 85,615.09 | |||
| I.B. Other Foreign Currency Assets | 47 | 38,938.95 | |||
| II. Predetermined Short-Term Net Drains | |||||
| 1. Foreign currency loans and securities | 51 | –174,047.61 | |||
| 2. Aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps) | |||||
| a. Short positions | 22 | –98,431.00 | |||
| b. Long positions | 25 | 110,388.90 | |||
| 3. Other (specify) | 24 | –20,723.81 | |||
| III. Contingent Short-Term Net Drains | |||||
| 1. Contingent liabilities in foreign currency | 32 | –41,907.99 | |||
| 2. Foreign currency securities issued with embedded options (puttable bonds) | 2 | –684.23 | |||
| 3. Undrawn, unconditional credit lines | 4 | 7,176.42 | |||
| 4. Aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency | |||||
| a. Short positions | 1 | –156.00 | |||
| b. Long positions | 1 | 518.00 | |||
| IV. Memo Items | |||||
| 1. a. Short-term domestic currency debt indexed to the exchange rate | 8 | 352.36 | |||
| b. Financial instruments denominated in foreign currency and settled by other means (e.g., in domestic currency) | 2 | 3,738.75 | |||
| c. Pledged assets | 7 | 947.49 | |||
| d. Securities lent and on repo | 24 | 96,485.46 | |||
| e. Financial derivative assets (net, marked to market) | 15 | –36,703.20 | |||
| f. Derivatives (forward, futures, or options) that have a residual maturity greater than one year, which are subject to margin calls | 3 | 13,285.47 | |||
| 2. To be disclosed less frequently: | |||||
| a. Currency composition of reserves (by groups of currencies) | |||||
| • Currencies in SDR basket | 52 | 1,729,004.60 | |||
| • Currencies not in SDR basket | 41 | 46,289.55 | |||
First, compared with the situation prevailing prior to adoption of the reserves template, there has been a significant increase in information that SDDS subscribers make available to the public, not only in the amount and timeliness of information, but also in the uniformity of presentation.11 This welcome event greatly increases the possibilities for cross-country analysis and comparison.
Second, Table 2.1 reveals the range of financial instruments in use by the reporting countries for reserves management. At the aggregate level, all instruments are used by at least some countries. Moreover, the positions in some instruments, such as forwards and futures in foreign exchange or securities lent and on repo, are quite sizable. Overall, the reserves template shows a tendency toward increased diversification across different asset classes.
Third, it is possible to infer the diversity of reserves usage and management practices followed by the reporting countries by comparing the number of countries reporting usage of particular instruments. For example, whereas on the particular reporting date (December 2005) more than one-third of the reporting countries indicated that they held short and/or long positions in forwards and futures, fewer than one-quarter were reporting transactions in financial derivative assets, and only one country reported a position in options in foreign currencies. No doubt the relativities would shift with the reporting period selected, but the period selected is considered to be reasonably representative. Overall, it paints a picture of a relatively conservative approach to reserves management, although some countries are more adventurous than others.
Detail on the Forward-Looking Aspects of Foreign Currency Liquidity
Table 2.2 presents aggregate data for reporting countries for sections II and III of the reserves template broken down by maturity—under one month, one to three months, and three months to one year. Data show that, except for a dozen or so countries that have few foreign currency liabilities, most SDDS subscribers complete these two sections of the template. Data in these sections represent the most timely and comprehensive information available to the public on the monetary authorities’ and central governments’ foreign currency liabilities coming due in the near term. The template thus is a valuable public source of such information, especially to credit rating agencies, which indicate they refer to the data regularly to assess country risks. Before the template was introduced, such data were not systematically compiled and not readily available even to senior government officials, let alone to the public.
Forward-Looking Component of the Reserves Template, December 2005
(In millions of U.S. dollars, end-of-year period)
Forward-Looking Component of the Reserves Template, December 2005
(In millions of U.S. dollars, end-of-year period)
| Up to One Month | More than One and Up to Three Months | More than Three Months and Up to One Year | ||||||
|---|---|---|---|---|---|---|---|---|
| Country count | Amount | Country count | Amount | Country count | Amount | |||
| II. Predetermined short-term net drains | ||||||||
| 1. Foreign currency loans and securities | 47 | –26,169.95 | 47 | –36,254.81 | 49 | –111,622.12 | ||
| 2. Aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps) | ||||||||
| a. Short positions | 14 | –26,489.03 | 16 | –40,786.72 | 15 | –31,156.25 | ||
| b. Long positions | 19 | 32,418.08 | 17 | 39,977.36 | 21 | 37,994.58 | ||
| 3. Other (specify) | 22 | –23,933.28 | 8 | –32.98 | 9 | 5,264.52 | ||
| III. Contingent short-net drains | ||||||||
| 1. Contingent liabilities in foreign currency | 26 | –8,172.39 | 26 | –7,673.10 | 27 | 10,466.36 | ||
| 2. Foreign currency securities issued with embedded options (puttable bonds) | ||||||||
| 3. Undrawn, unconditional credit lines | 1 | 789.06 | 2 | 387.36 | ||||
| 4. Aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency | ||||||||
| a. Short positions | 1 | –156.00 | ||||||
| b. Long positions | 1 | 518.00 | ||||||
Forward-Looking Component of the Reserves Template, December 2005
(In millions of U.S. dollars, end-of-year period)
| Up to One Month | More than One and Up to Three Months | More than Three Months and Up to One Year | ||||||
|---|---|---|---|---|---|---|---|---|
| Country count | Amount | Country count | Amount | Country count | Amount | |||
| II. Predetermined short-term net drains | ||||||||
| 1. Foreign currency loans and securities | 47 | –26,169.95 | 47 | –36,254.81 | 49 | –111,622.12 | ||
| 2. Aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency (including the forward leg of currency swaps) | ||||||||
| a. Short positions | 14 | –26,489.03 | 16 | –40,786.72 | 15 | –31,156.25 | ||
| b. Long positions | 19 | 32,418.08 | 17 | 39,977.36 | 21 | 37,994.58 | ||
| 3. Other (specify) | 22 | –23,933.28 | 8 | –32.98 | 9 | 5,264.52 | ||
| III. Contingent short-net drains | ||||||||
| 1. Contingent liabilities in foreign currency | 26 | –8,172.39 | 26 | –7,673.10 | 27 | 10,466.36 | ||
| 2. Foreign currency securities issued with embedded options (puttable bonds) | ||||||||
| 3. Undrawn, unconditional credit lines | 1 | 789.06 | 2 | 387.36 | ||||
| 4. Aggregate short and long positions of options in foreign currencies vis-à-vis the domestic currency | ||||||||
| a. Short positions | 1 | –156.00 | ||||||
| b. Long positions | 1 | 518.00 | ||||||
Trends in Reserves Management and Foreign Currency Liquidity
Insights on reserves management can also be drawn from the data. Specifically, the data show three trends: (1) the composition of reserve assets differs among country groups; (2) shifts in the relative importance of securities, bank deposits, and gold; and (3) the increased use by central banks of financial derivatives and repos, as well as pooling arrangements, in their reserves management. The item “other reserve assets,” once insignificant, has gained a rising share among countries’ official reserve assets. Some details that elaborate on these trends are provided below.
Industrial economies other than those in the euro area invest most of their reserve assets in securities, reaching about 75 percent in recent years. Increases in liquidity have tended to allow managers of reserves in these countries to invest more in securities as they aim to realize higher returns. The share of securities among reserve assets has risen in these countries as the shares of bank deposits and gold have declined. Bank deposits account for about 17 percent of the reserve assets, and gold only about 5 percent (Figure 2.8).
Composition of Foreign Currency Reserve Assets By Region, December 2006
Composition of Foreign Currency Reserve Assets By Region, December 2006
Composition of Foreign Currency Reserve Assets By Region, December 2006
The composition of reserve assets for the euro area differs from that of other industrial economies, as well as that of nonindustrial ones. Recently, gold has represented about 56 percent of the reserve assets of the euro area. The rising share of gold among reserve assets in these countries is accompanied by the noticeable decline in the share of securities (recently accounting for about 35 percent of reserve assets). The share of bank deposits has increased slightly in recent years, to about 9 percent; that of other reserve assets has remained insignificant. With the ECB overseeing exchange rate management for the euro area, objectives of reserves management for the member states of the European Union may have been modified (Figure 2.8).
About 68 percent of the reserve assets of nonindustrial economies are invested in securities, about 24 percent in bank deposits, and 2 percent in gold (Figure 2.8). It appears that, while searching for higher returns, reserve managers in these countries have maintained their focus on liquidity and security among their key investment objectives. One shift in the composition of reserve assets for this group of economies is evident in that the share of “other reserve assets” has been rising (reaching about 6 percent recently). One major reason for this shift could be attributed to the development of the Asian bond funds (ABFs) established by a number of Asian countries as part of their efforts to develop a regional bond market.12 A number of SDDS nonindustrial subscribers contribute to the ABFs, and these contributions are recorded under “other reserve assets” in the reserves template.
In addition to aggregate official reserve assets held by the countries, the data further show the magnitude of holdings in securities, bank deposits, and gold held as reserve assets by monetary authorities. As of December 2006, the aggregate reserve assets of the 57 economies and the ECB reporting the template data to the IMF amounted to about $3.2 trillion, of which about 66 percent were in securities, 19 percent in bank deposits, 10 percent in gold, 4 percent in other reserve assets, and 1 percent in IMF reserve positions and SDRs.
The data also show that in addition to about $3.2 trillion of reserve assets in securities, bank deposits, and gold managed by central bankers, another $50 billion of other foreign currency assets was held by these economies (including some of these countries’ petroleum funds and other special purpose funds). In December 2006, the euro area held other foreign currency assets equivalent to nearly 8 percent of its reserve assets, up from 3.5 percent in December 2000. The rise in other foreign currency assets held by the euro area suggests the broadening of goals and objectives in reserves management of these countries. Holdings of other foreign currency assets are not as significant in other industrial and nonindustrial economies.
Central banks’ use of financial derivatives, repos, gold swaps, securities lending, nondeliverable forwards, and other financial instruments, as disclosed in the reserves template, further reveals the increased complexity of reserves management and the linkage of reserves and debt management. The increased use of complex financial instruments also suggests rising investment in more risky assets, greater efforts needed in managing risks, and more active reserves management generally.
Insights on global liquidity can also be drawn from the liquidity ratios derived from the data. The liquidity ratio is defined as total foreign currency resources (as covered in sections IA and IB of the reserves template) over total foreign currency drains (as covered in sections II and III). Aggregate template data show that between December 2000 and December 2006, the liquidity ratio for all countries reporting template data to the IMF rose from 8.2 to 17, or more than doubled (Figure 2.9). The rise in foreign currency liquidity was most pronounced for nonindustrial economies; their aggregate liquidity ratio rose to 37 in December 2006, up from about 5.5 in December 2000. Among these economies, liquidity increased particularly for the Asian export-oriented economies, with sizable cumulating foreign currency reserves and few short-term official foreign currency liabilities. As for industrial economies other than the euro area, moderate increases in their reserve assets and slight declines in their external short-term foreign currency liabilities raised their aggregate liquidity ratio from about 11 to about 12.5 during the same period. Moderate increases were also shown in the liquidity positions of the euro area, from 8.6 to about 10.5.
Official Reserve Assets and Other Foreign Currency Assets as a Percentage of Predetermined and Contingent Foreign Currency Drains
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: EU = European Union.Official Reserve Assets and Other Foreign Currency Assets as a Percentage of Predetermined and Contingent Foreign Currency Drains
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: EU = European Union.Official Reserve Assets and Other Foreign Currency Assets as a Percentage of Predetermined and Contingent Foreign Currency Drains
(In trillions of U.S. dollars)
Source: IMF Statistics Department.Note: EU = European Union.Benefits of the Reserves Template
As noted earlier in this chapter, the expected benefits of adopting the reserves template are strengthened accountability of the authorities with regard to policy actions and choices; more efficient functioning of capital markets; strengthened accountability of the private sector; and a strengthened case for more transparency in the private sector. It is, of course, difficult to disentangle the effects of the reserves template from those of the SDDS more generally, as well as from the panoply of actions and decisions to increase transparency, of which the SDDS and the reserves template are only a part. At a superficial level, it may be that the benefits of transparency are self-evident, as witnessed by the extent to which the transparency concept has been embraced by countries and market participants over the course of the last 10 years.
Strengthened Accountability
On the question of strengthened accountability of the authorities, it seems beyond dispute that there has been a marked increase in transparency—both in individual countries where there was already a high degree of transparency and in countries where availability of timely information had been quite limited. The case for transparency as a means of promoting accountability rises with the level of reserves because more is at stake, and, indeed, greater transparency and accountability provides protection not only to taxpayers against possible misuse of national resources, but also to the administrators and custodians of reserves portfolios against possible claims of mismanagement. Coincident with the increase in transparency of reserves management, good management practices have been established and reserves managers increasingly are measuring and reporting performance against objective and publicly available benchmarks (Truman and Wong, 2006; Carver and Pringle, 2006).
Although it cannot be claimed that the reserves template alone has been responsible for the rise in accountability and transparency, it is reasonable to conjecture that the template has been a contributing factor (although, possibly, a small one) to the more formalized reserves management procedures that many central banks have introduced. Adoption of these procedures was perhaps a result of the greater transparency entailed in publishing the template, a more coherent view of the foreign exchange operations entailed by assembly of the template, and even the benchmark role of the reserves template itself.
Market Efficiency Benefits of the SDDS
Indirect evidence illustrates that the second of the expected benefits, greater market efficiency, has been realized. For example, the risk premium on emerging market sovereign debt has declined substantially (the EMBIG spread).13 There is also some evidence that contagion among emerging market countries has been reduced (there has been a secular reduction in the cross correlation among emerging market sovereign spreads). But, clearly, it is not possible to attribute these phenomena directly to either the SDDS or the reserves template.
On the other hand, evidence shows that SDDS subscribers face lower borrowing costs than do nonsubscribers. Several secondary bond market studies have found an interest rate discount on bonds of emerging market countries subscribing to the SDDS.14
Recently, Cady (2005) found evidence of a similar discount for emerging market country SDDS subscribers issuing bonds in the primary bond market. Studying the effects of SDDS subscription on sovereign borrowing costs in private capital markets for 17 emerging market countries, econometric estimates indicate that subscription to the SDDS is associated with a reduction of launch spreads of about 20 percent, or the equivalent of some 55 basis points. Chapter 4 of this volume presents an extension of Cady’s original paper covering the General Data Dissemination System along with the SDDS. The chapter finds that participation in either of the IMF’s Data Dissemination Standards Initiatives can be associated with a reduction in spreads on new issues of sovereign bonds.
Capital market participants generally view the SDDS as useful. Mosely (2003) reports that a survey of U.S. and UK mutual fund managers conducted during 2000 indicated concerns with the availability and quality of information, especially for developing and emerging markets. While awareness of the SDDS was not high, with over 60 percent of respondents indicating that the SDDS played no role in their decision making, about 7 percent indicated that they would attach a smaller risk premium to countries subscribing to the SDDS.
According to a 2000 Financial Stability Forum survey of international standards and codes, market participants’ familiarity with 12 key international standards varied widely, and the SDDS and the International Accounting Standard were the best known and viewed as particularly useful (Financial Stability Forum, 2000).
Market Efficiency Benefits of the Reserves Template
The G-10 working group considered that greater reserves transparency would remove a source of financial volatility. Truman and Wong (2006, p. 1) also conjectured that the “potential for reserve diversification adds volatility to foreign exchange markets,” pointing, among other things, to a relationship between short-term volatility in exchange markets and rumors concerning possible changes in international reserves in the case of Korea.
Cady and Gonzalez-Garcia (2007) performed some econometric tests of the impact on exchange market volatility of introducing the reserves template. These tests are presented in Chapter 5 of this book. Using panel data for 48 countries (including 12 industrial countries and 36 emerging market and low-income countries), exchange rate volatility is modeled as a function of macroeconomic variables and the effect, if any, of disseminating the reserves template is tested. The implicit hypothesis is that the introduction of the reserves template, by providing markets with additional information about a country’s foreign exchange liquidity position, could affect exchange rate volatility by allowing market participants to better assess the implications of a country’s macroeconomic conditions, including specific factors such as a country’s solvency (measured using the government debt-to-GDP ratio) and reserve adequacy (measured as a ratio of reserves to short-term debt on a remaining maturity basis). These tests show that the dissemination of the reserves template had a measurable negative impact on exchange market volatility—a reduction on the order of 20 percent, ceteris paribus, relative to levels persisting prior to its dissemination. Increases in the reserves adequacy measure have an enhanced dampening effect on volatility for template subscribers, while increases in the solvency ratio have a weaker positive effect once a country begins disseminating the reserves template.
Strengthened Private Sector Accountability and Transparency
There is no direct evidence showing the benefits of strengthened accountability and transparency of the private sector. However, again at a superficial level, a correlation appears between a range of measures to strengthen transparency, including the SDDS and the reserves template, and higher standards of accountability and transparency in the private sector.
Costs of the Reserves Template
Eight years into the “experiment” with the reserves template, the weight of the evidence is that the costs do not seem to have been large. Construction of the template involved a careful balancing of perceived benefits against perceived costs. The latter entailed reduced operational flexibility to intervene covertly, uncertainties about the costs of reversibility, and implementation costs. In addition, concerns about a possible loss of flexibility in reserves management was behind the decision to report the currency composition of reserves at a broad level of detail and on an annual basis.
With regard to the perception of a loss of flexibility in reserves management, if central banks are bothered by a loss of flexibility to engage in covert exchange market intervention activities, they do not say so publicly. Moreover, we are unaware of any subscriber having reported any difficulties in conducting such an intervention as a result of the information provided in the template. Indeed, no subscriber has sought to roll back the publication requirements beyond the prescribed monthly/monthly disclosure requirement, and few subscribers have chosen to exceed the timeliness requirements of the disclosure standard. This suggests a high degree of comfort with the disclosure standard. The growth over time in the number of subscribers shows that countries throughout the world are increasingly accepting that the costs of transparency are less than the benefits.
With regard to reversibility, similarly, no subscriber has sought to reverse its commitment to transparency, suggesting either that the costs of a reduced commitment to transparency are too high to be contemplated, or that the costs of increased transparency are so low that there is no point in reversing them. The fact that a growing number of countries are embracing transparency measures, while others that have embraced transparency are increasing their commitment to it, suggests that the latter interpretation is the better of the two. This said, it needs to be recognized that the benefits of transparency are not equally well accepted in all regions of the world, and there is still a reluctance on the part of many emerging market and oil-producing countries to fully embrace the concept. Indeed, the most difficult element for new subscribers to the SDDS to accept has proven to be the disclosure requirements on the reserves template.
Regarding implementation costs, a concern during the initial discussions of the reserves template was the possibility of an adverse interaction between establishing the necessary systems to assemble and report the reserves template data and the “year 2000” costs of changing over all types of reporting systems to the new millennium. In the event, this interaction and these costs did not prove to be large, and the ongoing costs of reporting the template data, once “one-off” systems development costs were incurred, have been small.
Another key factor in containing perceived costs may well have been the careful selection of key parameters in the template. If these standards had been set more tightly than in fact they were, perceived costs may well have been markedly higher. For instance, restricting the scope of reporting to the monetary authorities and the central government—in contrast to the theoretical requirement of the monetary authorities, general government, and relevant public sector institutions—greatly simplified reporting requirements and, for a large number of countries, probably greatly reduced the cost of developing and implementing suitable reporting systems.
Further, the selection of monthly reporting with a one-month lag for all detailed elements of the template (except for the currency composition of reserves) provides another example of judicious selection of a key parameter that has kept the perceived costs down. Frequency and timeliness of reporting were particularly contentious issues in the discussions leading up to the adoption of the reserves template. Indeed, although the standard as adopted “prescribed” monthly/monthly detailed disclosure with data on total reserves prescribed for dissemination on a monthly basis with a lag of no more than one week, some IMF Executive Directors supported more frequent reporting, calling for a weekly/weekly standard. The tighter standard was “encouraged” rather than “prescribed,” and the Executive Board agreed to reconsider the decision once countries had gained experience with the new data template system. Subsequently, only a few countries have opted for the encouraged standard and the IMF has not moved to tighten the reporting standard further.
There remains, lastly, the anomaly of the less detailed and less frequent reporting of the currency composition of reserves due to a perceived loss of flexibility in reserves management. While there is no direct evidence on this issue, a growing number of central banks report this information on their own websites or in their own publications, suggesting that, for them, these costs are low or unimportant.15 In addition, the greater use of published benchmarks in reserves management suggests that gains in accountability may well outweigh any costs in terms of loss of flexibility. And, finally, there may be recognition of a collective action problem; that is, that the collective benefits of reduced volatility in global foreign exchange markets may outweigh the private costs associated with a loss of flexibility to conduct reserve management operations.
On balance, the experience of subscribers seems to be that the benefits of increased transparency through the reserves template outweigh the costs by a substantial margin. Growing subscription to the SDDS implies that other countries are increasingly persuaded by this experience.
Possible Extensions
Transparency is, in an important sense, a “moving target” which changes with the context and evolution of the international financial system. Ongoing financial globalization, including the rapid buildup and increased diversification of international reserves holdings described in section IV of the reserves template, raises the question of the whether the reserves template, in its present form and with its existing country coverage, has kept pace with these developments and continues to fulfill the transparency objectives for which it was intended. There are at least five areas in which reserves template coverage and design could be seen to be lagging.
1. The buildup in holdings of international reserves has largely taken place in countries that are not SDDS subscribers, and reserves template coverage has fallen over the last two years to roughly 60 percent of world reserves. Coverage is scant for the largest oil exporters and for certain key emerging market countries. It would seem essential to encourage greater participation on the part of these countries, either through their full subscription to the SDDS or, alternatively, by emulating New Zealand’s example of voluntarily disseminating the full reserves template data without having subscribed to the SDDS.
2. Coincident with the buildup in reserve levels, many central banks have begun to manage their reserves to augment yield while maintaining adequate liquidity. According to the surveys, central banks are shifting a share of their reserves into assets for which credit risk is an issue by, for example, holding U.S. government agency bonds and AA-rated paper or lower.16 The surveys also report that central banks are increasingly cognizant of operational risk in managing their portfolios. The reserves template captures liquidity risk and market risk, but does not deal with either operational or credit risk, except indirectly in the case of the latter risk. The publication International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template notes that “reserve assets should generally be of high quality (investment grade and above). If reserve assets include securities below investment grade, this must be indicated in country notes accompanying the data” (Kester, 2001, paragraph 89). However, a careful examination of countries’ metadata on reserve assets indicates the opposite of what is recommended in the guidelines, since countries tend to mention in the metadata that assets in official reserves are of investment grade, rather than seeking to alert the user that some of their investments may be below investment grade. It may therefore be appropriate to modify the template to explicitly capture credit and operational risk elements.
3. The combination of the buildup in reserves and the desire to seek additional yield has coincided with a growing number of countries accumulating official foreign currency assets outside of their official foreign exchange reserves accounts in separate vehicles now generally referred to as “sovereign wealth funds.” These funds are growing rapidly, and were estimated as of June 2007 to be on the order of $1.5 trillion to $2.5 trillion. According to Lowery (2007), the upper limit of that estimate would be equivalent to approximately one-half of total official international reserves as reported in International Financial Statistics. The Economist reports that, for the 12 largest of these funds, total assets are in the range of $20 billion to hundreds of billions of dollars.17 Generally these funds are of two types: commodity funds that are established with the proceeds of commodity exports (typically, but not exclusively, oil); and noncommodity funds that typically are established by transferring assets from official international reserves.
The International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template (paragraphs 118–127) provide that official liquid foreign currency assets that are readily available and not included in reserve assets are to be reported under “other foreign currency assets” in section I.B. of the template. The guidelines also provide that in reporting “other foreign currency assets,” countries need to specify the nature of such assets. Oil funds and special purpose funds, to the extent that they are not included in reserve assets but comprise readily available liquid foreign currency assets, are to be disclosed in section I.B. of the template. As a practical matter, SDDS countries tend to clarify only in footnotes and metadata that such funds are excluded from the reserves template (e.g., Armenia, Kazakhstan, and Norway).
Already, these funds have reached a size where they have the potential to undo the transparency benefits achieved with official reserves via the reserves template. The implications for exchange market volatility of changes in the currency or asset composition of special funds, for instance, are the same as for changes in the composition of official foreign exchange reserves. Moreover, should a country wish to conceal changes in the asset and liability composition of its foreign currency position, it would have the option to do so by undertaking the changes in the special fund, rather than in the official reserves. A lack of transparency also undermines governance and accountability for the management of these funds and increases the possibility that transactions undertaken by these funds could be destabilizing for international financial markets. Such possibilities are leading to calls for the development and adoption of best practices for sovereign wealth funds (Lowery, 2007). One of the best practices would surely involve a suitable degree of transparency.
One option could be to start reporting the assets and liabilities of sovereign wealth funds in the reserves template. As noted above, such funds could be incorporated within the reserves template without further modification. Indeed, the creation of the Asian bond funds (ABF1 and ABF2) points in this direction. Following consultation with IMF staff on appropriate treatment within the reserves template, sponsoring countries have agreed to include the assets and liabilities of sovereign wealth funds in reserves as part of “other reserves,” based on the particular characteristics of the funds’ structure. Whether the reserves template is used or whether a separate, specialized instrument is created for the purpose of disclosing information on special funds, there is a clear and growing need for countries to report specialized funds systematically and uniformly in accordance with an agreed-upon set of practices.
4. With the creation of the euro and the buildup in the magnitude of reserve holdings, many countries have begun to diversify the currency composition of their international reserve holdings.18 Concerns have arisen that shifts in currency composition could lead to volatility in foreign exchange markets. A possible response, as in the case of sovereign wealth funds, could be to promulgate and adopt a reserves diversification standard that would establish investment and behavioral norms for the management of official foreign exchange reserves. One proposal would use the reserves template as the vehicle for routine disclosure of the currency composition of countries’ official reserves and for monitoring adherence to the standard (Truman and Wong, 2006). However, the reserves template is not well structured for such a role. At present, it only requires annual reporting of currency composition (unlike all other categories that are reported on a monthly basis), while currency composition is broken down only by SDR and non-SDR currencies. In addition to more detail on currency composition, there would need to be a material increase in the frequency of reporting.
5. The lack of reference to, or usage of, the reserves template in analytical work (and academic work, more generally) implies that a potentially rich source of information is not being suitably tapped in two regards.19 First, the original intent underlying construction of the reserves template was to provide more extensive and timely information for individual countries. With regard to timely information on the foreign currency liquidity position, the information implicitly was assumed to have a rather short life. As such, there is no requirement to disseminate historical series for the data presented in the template. Nor is cross-country comparison particularly easy, since 14 SDDS subscribers do not report their template data to the IMF for redissemination in a standard format and in a common currency, and the IMF publishes only a limited subset of the template data in cross-country time-series form. It can be a daunting exercise, therefore, to assemble time-series information on emerging trends (such as those reported in the preceding section);
Second, the same observation could be made with respect to cross-section template data that could be aggregated across all reporting countries (as in Appendix 2.1). It seems evident that, with the possibility of aggregation across countries and with analysis of particular data series through time, much useful analysis could be undertaken. The reserves template could be a valuable source of information, for instance, for the assessment of exchange rate policies, global forecasting, and multilateral surveillance, more generally.
Conclusions
The SDDS has evolved over time as an element of the international financial system architecture, reflecting increasing acceptance of the importance of timely, high-quality statistics for the efficient functioning of markets; changing data needs as the economic and financial system has evolved; and increasing recognition of transparency measures more generally—including data transparency—as an important factor contributing to good governance.
The development and inclusion of the reserves template within the framework of the SDDS in 1999 is a good example of this evolution, reflecting all of the foregoing factors. The template seeks to codify good practice in statistical dissemination—which was the main original goal of the SDDS. In addition, the decision to include the reserves template in the SDDS can be viewed as an attempt to redefine and strengthen international best practice in the area of reserves management, using data dissemination as a tool toward this end. Indeed, the G-10 working group explicitly identified encouraging emerging market countries to emulate and voluntarily adopt the reserves template as one of the purposes behind the initiative.
It should be clear that the reserves template has contributed to meeting the goal of increased transparency in reserves management. Arguably, too, it may have been a factor contributing to increasingly widespread adoption of prudent reserve management practices. And, as explained in Chapter 5 of this volume, there is convincing evidence that the dissemination of the reserves template has contributed to a reduction in foreign exchange market volatility.
Important as these benefits have been, however, there is a case for revisiting and updating the reserves template to consolidate these benefits and maintain the relevance of the template in line with the evolving transparency needs of the international financial system. Most importantly, more widespread coverage of the largest reserves holders—either by their formally subscribing to the SDDS or by following New Zealand’s example of voluntarily disseminating the reserves template outside of the SDDS framework—is essential. Other areas where modification should be considered involve the treatment of special funds, more systematic disclosure of credit and operational risk, and more detailed and higher frequency reporting on the currency composition of reserves. It would be desirable, too, for all countries to report their data to the IMF (in addition to providing it on their own websites) so that more comprehensive aggregate time-series data on the individual template items or categories could be generated for analytical work.
Appendix 2.1. Special Data Dissemination Standard Subscribers by Region, November 2007
| Africa (3) | Asia (10) | Europe (37) | Middle East (2) | Western Hemisphere (12) |
|---|---|---|---|---|
| 1. Morocco | 1. Australia | 1. Armenia | 1. Israel | 1. Argentina |
| 2. South Africa | 2. Hong Kong, | 2. Austria | 2. Egypt, Arab Rep. of | 2. Brazil |
| 3. Tunisia | SAR | 3. Belarus, Rep. of | 3. Canada | |
| 3. India | 4. Belgium | 4. Chile | ||
| 4. Indonesia | 5. Bulgaria | 5. Colombia | ||
| 5. Japan | 6. Croatia | 6. Costa Rica | ||
| 6. Korea | 7. Czech Republic | 7. Ecuador | ||
| 7. Malaysia | 8. Denmark | 8. El Salvador | ||
| 8. Philippines | 9. Estonia | 9. Mexico | ||
| 9. Singapore | 10. Finland | 10. Peru | ||
| 10. Thailand | 11. France | 11. United States | ||
| 12. Germany | 12. Uruguay | |||
| 13. Greece | ||||
| 14. Hungary | ||||
| 15. Iceland | ||||
| 16. Ireland | ||||
| 17. Italy | ||||
| 18. Kazakhstan | ||||
| 19. Kyrgyz Rep. | ||||
| 20. Latvia | ||||
| 21. Lithuania | ||||
| 22. Luxembourg | ||||
| 23. Moldova | ||||
| 24. Netherlands | ||||
| 25. Norway | ||||
| 26. Poland | ||||
| 27. Portugal | ||||
| 28. Romania | ||||
| 29. Russian Federation | ||||
| 30. Slovak Republic | ||||
| 31. Slovenia | ||||
| 32. Spain | ||||
| 33. Sweden | ||||
| 34. Switzerland | ||||
| 35. Turkey | ||||
| 36. Ukraine | ||||
| 37. United Kingdom |
| Africa (3) | Asia (10) | Europe (37) | Middle East (2) | Western Hemisphere (12) |
|---|---|---|---|---|
| 1. Morocco | 1. Australia | 1. Armenia | 1. Israel | 1. Argentina |
| 2. South Africa | 2. Hong Kong, | 2. Austria | 2. Egypt, Arab Rep. of | 2. Brazil |
| 3. Tunisia | SAR | 3. Belarus, Rep. of | 3. Canada | |
| 3. India | 4. Belgium | 4. Chile | ||
| 4. Indonesia | 5. Bulgaria | 5. Colombia | ||
| 5. Japan | 6. Croatia | 6. Costa Rica | ||
| 6. Korea | 7. Czech Republic | 7. Ecuador | ||
| 7. Malaysia | 8. Denmark | 8. El Salvador | ||
| 8. Philippines | 9. Estonia | 9. Mexico | ||
| 9. Singapore | 10. Finland | 10. Peru | ||
| 10. Thailand | 11. France | 11. United States | ||
| 12. Germany | 12. Uruguay | |||
| 13. Greece | ||||
| 14. Hungary | ||||
| 15. Iceland | ||||
| 16. Ireland | ||||
| 17. Italy | ||||
| 18. Kazakhstan | ||||
| 19. Kyrgyz Rep. | ||||
| 20. Latvia | ||||
| 21. Lithuania | ||||
| 22. Luxembourg | ||||
| 23. Moldova | ||||
| 24. Netherlands | ||||
| 25. Norway | ||||
| 26. Poland | ||||
| 27. Portugal | ||||
| 28. Romania | ||||
| 29. Russian Federation | ||||
| 30. Slovak Republic | ||||
| 31. Slovenia | ||||
| 32. Spain | ||||
| 33. Sweden | ||||
| 34. Switzerland | ||||
| 35. Turkey | ||||
| 36. Ukraine | ||||
| 37. United Kingdom |
References
Cady, John, 2005, “Does SDDS Subscription Reduce Borrowing Costs for Emerging Market Economies?” IMF Staff Papers, Vol. 52, No. 3, pp. 503–17.
Cady, John, and Jesus Gonzalez-Garcia, 2007, “Exchange Rate Volatility and Reserves Transparency,” IMF Staff Papers, Vol. 54, No. 4, pp. 741–54.
Carver, Nick, and Robert Pringle, eds., 2006, RBS Reserve Management Trends 2006 (London: Central Banking Publications).
Christofides, Charis, Christian Mulder, and Andrew Tiffin, 2003, “The Link Between Adherence to International Standards of Good Practice, Foreign Exchange Spreads, and Ratings,” IMF Working Paper 03/74 (Washington: International Monetary Fund).
European Central Bank, 2006, “The Accumulation of Foreign Reserves.” Report prepared by an International Relations Committee Task Force, Occasional Paper Series No. 43 (February), Frankfurt.
Financial Stability Forum, 2000, “Report of the Follow-Up Group on Incentives to Foster Implementation of Standards.” Paper presented at the Meeting of the Financial Stability Forum, September 7–8.
Glennerster, Rachel, and Yongseok Shin, 2003, “Is Transparency Good for You, and Can the IMF Help?” IMF Working Paper 03/132 (Washington: International Monetary Fund).
Group of 10 (G-10), 1998, “Enhancing Transparency Regarding the Authorities’ Foreign Currency Liquidity Position.” Report of a working group established by the Euro-Currency Standing Committee of the Central Banks of the Group of Ten Countries (September 28), Basel.
Group of 22 (G-22), 1998, Report of the Working Group on Transparency and Accountability (October), Basel.
Institute of International Finance, 2002, “Appendix D: Does Subscription to the IMF’s Special Data Dissemination Standard Lower a Country’s Credit Spread?” in “IIF Action Plan Proposals and Dialogue with the Private Sector” (Washington).
International Monetary Fund, 1993, Balance of Payments Manual, fifth edition (Washington: International Monetary Fund).
International Monetary Fund, 2007, The Special Data Dissemination Standard: Guide for Subscribers and Users (Washington: International Monetary Fund).
Kester, Anne Y., 2001, International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template (Washington: International Monetary Fund).
Lowery, Clay, 2007, “Remarks by Acting Under Secretary for International Affairs Clay Lowery on Sovereign Wealth Funds and the International Financial System” (June 21).
Mosely, Layna, 2003, “Attempting Global Standards: National Governments, International Finance, and the IMF’s Data Regime,” Review of International Political Economy, Vol. 10 (May), pp. 321–62.
Truman, Edwin M., and Anna Wong, 2006, “The Case for an International Reserve Diversification Standard,” Working Paper 06-2 (May) (Washington: Institute for International Economics).
An earlier version of this chapter was presented at the Conference on International Reserve Diversification and Disclosure organized by the Swiss National Bank and the Institute for International Economics, Zurich, September 8–9, 2006.
A detailed description of the SDDS is available in The Special Data Dissemination Standard: Guide for Subscribers and Users (IMF, 2007).
In the SDDS, “prescribed” refers to what is required under the standard; “encouraged” refers to what is desirable but is not required; and “as relevant” refers to taking account of the relevance of a specification or data category of the SDDS to the subscriber’s economy.
Whereas the former working group focused on international reserves and foreign currency liquidity, the latter group took a relatively broad view of transparency and accountability, and its recommendations went beyond international reserves and foreign currency liquidity in the public sector and to the transparency of private sector financial institutions.
Whereas foreign-currency-denominated claims on residents and residents’ foreign-currency-denominated claims on the monetary authorities are excluded from the definition of reserves in The Balance of Payments Manual, fifth edition (BPM5) (IMF, 1993), they can affect foreign currency liquidity.
See Kester (2001) for a detailed description of the reserves template.
Additional information on the currency composition of official international reserves is available in the IMF’s report on the currency composition of official international reserves (COFER), which is posted quarterly on the IMF website. At present, 119 countries (all 24 industrial countries and 95 of 160 nonindustrial countries) voluntarily report end-of-quarter data to the IMF. The currency groups comprise the dollar, euro, pound sterling, Swiss franc, and other currencies. The IMF publishes aggregations by currency group for industrial and nonindustrial countries; however, COFER data for individual countries are strictly confidential.
Note also that a small number of countries, including oil-producing ones, do not report their reserve assets to the IMF for publication in the IFS.
Except for San Marino, all industrial countries shown in the IFS report their template data to the IMF for dissemination. The difference between the IFS series and the template data shown in Figure 2.5 can be attributed to the fact that, for a small number of countries, their reserves data reported for publication in the IFS and those shown in their data templates are not identical for various reasons. For example, the difference can be due to the application of different market prices to value gold among reserve assets: in the IFS series, the London gold market prices were used; for the template data, the market values of gold were provided by the reporting economies.
The use of December 2005 data is arbitrary and is largely a matter of convenience, but the period is considered to be reasonably representative.
The G-22 working group report provides a detailed description and comparison of reserve disclosure practices for selected countries. The report can be regarded as representative of prevailing reporting practices at the time of its publication (Group of 22, 1998).
The ABFs represented the work of the working group of the Executives Meeting of the East Asia and Pacific Central Banks (EMEAP), which comprised 11 Asian central banks and monetary authorities (Australia, China, Hong Kong SAR, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, and Thailand). In June 2003, the EMEAP working group launched the ABF1, which invests in a basket of U.S. dollar-denominated bonds issued by sovereign and quasi-sovereign issuers in eight EMEAP markets—China, Hong Kong SAR, Indonesia, Korea, Malaysia, the Philippines, Singapore, and Thailand. In December 2004, the working group launched the ABF2, which invests in local currency bonds issued by sovereign and quasi-sovereign issuers in EMEAP economies (other than Japan, Australia, and New Zealand).
Some (possibly much) of this decline is probably due to the sustained implementation of better macroeconomic policies in emerging market countries.
For example, secondary bond market studies reported by Christofides, Mulder, and Tiffin (2003); Glennerster and Shin (2003); and the Institute of International Finance (2002).
According to Truman and Wong (2006, p. 22), “23 countries now make such disclosures at least annually, including 11 industrial countries, seven transition countries in eastern Europe and the former Soviet Union, and five emerging-market economies.”
Carver and Pringle (2006, p. 6), observe that, “While highly rated assets remain a mainstay of central bank reserves, a growing proportion of central banks also now invest in lower-rated paper…Three quarters of respondents invest in AA-rated government paper and over one-third invest in A-rated…More than one-fifth of survey repliers invest in corporate bonds rated BBB or above, and two of those invest in debt rated below what is acknowledged as the investment-grade threshold.”
“The World’s Most Expensive Club,” The Economist, May 26, 2007.
See Truman and Wong (2006) and European Central Bank (2006). Trends can be confirmed in the IMF’s COFER data. See also IMF Press Release No. 05/284, “IMF Launches Quarterly Publication of Data on the Currency Composition of Official Foreign Exchange Reserves,” December 21, 2005. Available via the Internet: http://www.imf.org/external/np/sec/pr/2005/pr05284.htm.
Neither of two recent authoritative commentaries on reserves management (European Central Bank, 2006; Carver and Pringle, 2006) make any use, or acknowledge the existence, of the reserves template.
