Mr. Smith, Assistant Director in charge of the Balance of Payments Division, Research Department, is a graduate of Amherst College and did further work at Harvard Graduate School. Before coming to the Fund, he was with the U.S. Government, specializing in balance of payments problems.
Mr. Bouter, Assistant Chief of the Balance of Payments Division, Research Department, is a graduate of the Netherlands School of Economics. He was formerly on the staff of the Central Planning Bureau in the Netherlands and head of the Bureau of Statistics in the Netherlands Antilles.
This description, while reasonably accurate, makes a rather unappealing title for a balance of payments category, and it is hoped that a more elegant name can be devised eventually. However, nomenclature has always raised difficult problems for the balance of payments, as indeed it has for all the social accounts.
International Monetary Fund, Balance of Payments Manual (Washington, Third Edition, July 1961), para. 38.
How “reserves” or “liquidity” is to be defined is in itself a vexing problem, on which the Manual provides no specific guidance. Some aspects of the subject are dealt with in an article by N. John Brady, “Problems in Compiling Gold and Foreign Exchange Statistics,” Staff Papers, Vol. XI (1964), pp. 262–84. The question is touched on in the present paper only as it becomes relevant to do so in a particular context.
For convenience, throughout the rest of this paper each specific mention of “creation” will be taken to imply the possibility of the reverse process of “destruction.”
See Balance of Payments Concepts and Definitions, International Monetary Fund, Pamphlet Series No. 10 (Washington, 1968), p. 29.
If international liquidity is conceived to include the assets of international monetary institutions, as well as countries, then statements for these institutions must also be included in the aggregate.
This treatment of gold and its rationale are fully described in the Manual, especially paras. 33 and 158–91. An example illustrating the treatment is given in this paper in the Appendix.
The Fund’s Manual has always adhered to the convention of considering all gold as a commodity, except for that which is held by the monetary sectors for monetary purposes, and no change in this convention is contemplated.
In keeping with the practice in this paper of describing only reserve creation (see fn. 4, p. 207), this section focuses on initial allocation rather than net cumulative allocation, the formal term used in referring to allocation less cancellation.
Even this “obligatory limit” is not necessarily a significant figure, since it may be exceeded by agreement between a participant and the Fund.
The treatment described below has been introduced for the “basic” (uniform) tables in Volume 20 of the Fund’s Balance of Payments Yearbook.
It might be argued, with considerable justification, that the portfolio holdings should have been included in the reserves all along, in which case there would have been no change in the reserves to record at the time that the holdings were “liquefied.” To this it may be answered that, if this interpretation is accepted, the original acquisition of the portfolio as reserves, through the official vesting of privately held foreign securities, offers an equally striking example of reserve creation through transactions between residents. It is strictly a matter of analytic judgment as to which occasion the reserve creation could have been recorded more usefully.
Changes in direct investment capital owing to such things as depreciation, which are entered in the balance of payments as from the time they occur, are not considered to represent revaluation. Rather, they constitute real changes in the amount of domestic assets employed by the enterprises and, hence, in the financial equity of the foreign owners of the assets.