Data Template on International Reserves and Foreign Currency Liquidity Presented By: Ghulam Rabbani Assistant Director Financial Accounts Division, Accounts Department, SBP, Karachi

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Data Template on International Reserves and
Foreign Currency LiquidityPresented
ByGhulam RabbaniAssistant DirectorFinancial
Accounts Division,Accounts Department, SBP,
Karachi
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Background

• International Financial crisis in the late 1990s
• Country experiences highlighted the importance of
  accessing foreign exchange liquidity from a
  broader perspective
• IMF and the working group of the Bank for
  International Settlements (BIS) Committee on the
  Global Financial System, jointly developed in
  1999 the new data template
• On March 1999, the template was made a component
  of the Special Data Dissemination Standard (SDDS)
  established by the IMF in 1996

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Data Deficiencies Revealed by Financial Crisis in
the 1990s

• Some countries include pledged assets in reserve
  assets
• foreign currency deposits held in financially
  weak domestic banks
• Valuation practices could depart significantly
  from market values
• Coverage of international reserve assets varied
  among countries

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Lack of Publicly Available Information on
Official Short-term Foreign Currency Obligations

• off-balance sheet activities
• data on forward commitments of foreign exchange
  under financial derivative contracts
• information on options
• information on principal and interest payments in
  foreign currency on loans and advances
• Information on government foreign exchange
  guarantees and callable debt.
• unused conditional lines of credit

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The New Data Template Framework

• The new data template captures several dimensions
  of countrys international reserve and related
  currency obligations and addresses the
  inadequacies described before
• Takes account of the off-balance sheet activities
  
• Takes note of the future schedule and potential
  flows of contracts involving financial
  derivatives such as options, forwards and futures
  as well as un-drawn credit lines and loan
  guarantees
• The template includes information on the
  liquidity of countrys international reserves,
  identifying encumbered assets, and on its
  exposure to exchange rate fluctuations

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Forestalling Future Crisis

• strengthen the accountability of the authorities
  on policy action and foreign currency exposure
• correction of unsustainable policies and limit
  the adverse effects of contagion in times of
  financial turbulence
• It allows market participants to form a more
  accurate view of the condition of individual
  countries
• Access to more transparent data may also enhance
  the effectiveness of the multilateral
  organizations.

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Overview of the Data TemplateThe Scope

• Reserve Assets
• External Assets that are readily available to
  and controlled by monetary authorities for direct
  financing of payments imbalances, for indirectly
  regulating the magnitude of such imbalances
  through intervention in exchange markets to
  affect the currency exchange rate, and /or for
  other purposes. (BPM5 para. 424)

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Foreign Currency Liquidity

• Amount of foreign exchange resources that is
  readily available taking into account both
  predetermined and contingent/potential net
  drains.
• Broader concepts of reserves foreign Currency
  liquidity includes
• A-Foreign Currency Resources
• Ø      Official Reserves
• Ø      Other Foreign Currency Assets
• B-Predetermined and contingent net drains on
  foreign currency resources.

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Key Features and Coverage of the Template
A) Institutions
Covered

• Monetary Authorities
• - It is a functional concept
• - Hold and manage international reserves
• - Encompass the central bank and certain
  central banking operations carried out by
  government institutions or commercial banks.
• Central government (excluding social security
  fund)
• - The political authority of the central
  government extends over the entire territory of
  the country.
• - State and local governments and social
  security funds at all levels are excluded.

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B) Financial Activities covered

• Only instruments settled in foreign currency are
  to be included in resources and drains. As these
  can directly add to or subtract from the liquid
  foreign currency resources.
• Instruments denominated in or linked to foreign
  currency but settled in domestic currency will
  not directly affect liquid foreign exchange, but
  can exert substantial indirect pressure

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C)    Treatment of financial derivative
activities

• The template covers
• Ø      Predetermined foreign currency flows
  pertaining to the authorities forwards,
  futures, and swap contracts
• Ø      Potential flows arising from options
  positions
• Ø      Net, marked to market value of
  outstanding financial derivative contracts
• The template focuses financial derivatives
  settled in foreign currencies. (NDF and options
  settled in domestic currency are reported as
  memo items.
• Separate information is to be reported for short
  and long positions.
• Stress testing is to be included to assess risk
  exposure to fluctuations in exchange rates.

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D) Valuations Principals

• Positions are to be valued at market prices on
  the reference date or at approximate market
  values.
• Drains on foreign currency resources are to be
  valued at nominal terms. (i.e cash flow value
  when the currency flows are to take place.)
• For financial derivatives
• Ø Inflows and outflows in nominal terms for
  forwards, futures, and swaps
• Ø  Notional values for options
• Ø  Net, marked to market values for outstanding
  financial derivative contracts.

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E) Time Horizon

• As the focus is on liquidity, the time horizon is
  short-term, up to one year. Further time horizon
  is proposed for assessing liquidity positions
• Ø     up to one month
• Ø     More than one month and up to three months
• Ø     More than three months and up to one year
• Residual maturity is used to determine the time
  horizon.

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Other Reporting and Dissemination Considerations

• Currency
• Currency same as used to disseminate data
  on official reserves.
• Reference Date
• End date of reporting period. (Usually month
  end)
• Ø      Positions are the outstanding stocks.
• Ø      Flows are anticipated amount within the
  reference period.
• Ø      Transaction dates are used for
  determining time of recording.
• Sign Conventions
• Ø      Plus () for assets and inflows
• Ø      Minus (-) for liabilities and outflows
• Ø      Items not applicable are left blank

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Other Reporting and Dissemination Considerations

• Country Notes to Disclose Information
• Ø      Country-specific exchange rate
  arrangements
• Ø      Specific reserve management policies
• Ø      Accounting Practices
• Ø      Statistical treatment of some financial
  transactions
• SBP data template is disseminated on its website
  http//www.sbp.org.pk/ecodata/liquidity.pdf
• Monthly frequency of dissemination
• More details on data template standards at IMF
• http//www.imf.org/external/np/sta/ir/index
  .htm

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Major Sources of Data

• Accounts Department, SBP
• SBP Banking Services Corporation Bank
• Exchange Policy Department, SBP
• Exchange and Debt Management Department, SBP

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• THANK YOU