## draft-bpm7-annex-3-v7-regional-arrangements

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---

### A. Introduction — scope and purpose
- Growth in regional arrangements for monetary and economic cooperation since BPM6; creation of the euro noted as a particularly notable development.
- Types covered: customs unions, economic unions (EcUns), monetary and currency unions (CUs), and other regional organizations.
- The Manual’s concepts and recommendations for BOP and IIP compilation apply to regional arrangements; specific statistical issues are addressed in this annex.
- Annex organization and focus:
  - Begins with currency unions because they raise most methodological issues and there is an essential policy need for CU BOP and IIP statistics (A3.5).
  - Provides methodological guidance for compilation at both CU and member-economy levels.
  - Covers EcUns and customs unions; issues relevant for EcUns and customs unions are largely a subset of those for CUs.
- Distinctions:
  - Compiling BOP and IIP statistics for CUs and EcUns involves aggregation of data for two or more economies.
  - “Regional statements” are compiled by an economy vis-à-vis a grouping of selected economies (geographical breakdown).
- IIP by partner uses the debtor-creditor approach; national contributions for compiling financial flows data in CU and EcUn BOP are allocated along the debtor-creditor approach to ensure bilateral symmetry.

### B. Currency Unions — rationale and compilation needs
- Rationale:
  - Full BOP and IIP statements are essential at the CU level because the CU conducts a single monetary policy and requires information on variables affecting monetary and foreign exchange conditions for the union as a whole (A3.5).
  - Statistical requirements for a CU are the same as for an economy that issues its own currency (A3.5).
- National statistics:
  - National BOP and IIP statements for member economies remain necessary because economic and fiscal policies often remain defined at the national level (A3.6).
- Aggregation principle:
  - Simple aggregation of national gross data is inappropriate because it inflates gross flows and stocks by including intra-member transactions (A3.21–A3.23).
  - Recommended approach: aggregate national contributions for transactions and positions of the CU with nonresidents of the CU (extra-CU data), requiring consistent application of international standards and adequate metadata by member economies (A3.23).
  - Intra-CU data remain analytically important; asymmetries in intra data can affect CU data quality (A3.24–A3.25).

### Table of methodological issues (summary of Table A3.1)
- Issues and applicability (X = relevant issue; n.a. = not applicable):
  - 1. Definition of a CU central bank — relevant for Currency Union (CU) only (X under CU).
  - 2. Domestic/foreign status of the common currency* — relevant for CU only (X).
  - 3. Allocation of intra-CU claims among CU’s central banks — relevant for CU only (X).
  - 4. Reserve assets* — relevant for CU only (X).
  - 5. Regional organizations — relevant for Customs Union, Economic Union, and CU (X, X, X).
  - 6. Economic territory — relevant for Economic Union and CU (n.a. for Customs Union; X, X).
  - 7. Debtor/creditor versus transactor principle* — relevant for Customs Union, Economic Union, and CU (X, X, X).
  - 8. Geographic allocation of goods — relevant for Customs Union, Economic Union, and CU (X, X, X).
- Note: Items marked with * (items 2, 4, 7) also raise statistical issues in “dollarized economies.”

### 1. Definitional issues (currency-union specific)
- Definition of a currency union:
  - Monetary union: single monetary policy among economies established by intergovernmental legal agreement (monetary union defined in the Manual).
  - A monetary union that replaces national currencies with a common currency is a currency union and raises specific BOP and IIP methodological issues (A3.8).
  - Statistical definition: a union to which two or more economies belong and that has a regional central decision-making body, commonly a currency union central bank (CUCB), with legal authority to conduct a single monetary policy and issue the single currency of the union. To belong to a CU, an economy must be a member of the central decision-making body, participate in its regular monetary policy decision-making process, and be subject to its monetary policy decisions (A3.9).
- Exclusions:
  - Monetary arrangements by a CU economy with an outside economy do not confer CU membership on the outside economy.
  - Unilateral adoption of another currency (dollarization, euroization) does not make third-party economies members of the CU for statistical purposes.
  - A common monetary area (CMA) where different national currencies remain legal tender does not meet the criteria for a CU (A3.10).
- The CUCB:
  - The CUCB is a regional financial institution, an institutional unit in its own right, owning assets and liabilities on own account, nonresident of any CU member economy state but resident in the CU (A3.11).
- Centralized vs. decentralized CU models:
  - Centralized model: CUCB owned by governments; common currency issued by the CUCB; central bank operations in each economy carried out by branches or agencies (A3.13).
  - Decentralized model: CUCB plus CU national central banks (CUNCBs); CUCB owned by CUNCBs; monetary policy taken by CUCB decision-making body and implemented/coordinated by CUNCBs (A3.14).
  - Some reporting guidance differs between the two models because of differing institutional arrangements (A3.15).
- Domestic currency in a CU:
  - The currency issued in a CU is the domestic currency of the CU and is considered domestic from the viewpoint of each member economy state even if issued by a nonresident institution (another CUNCB or the CUCB). Holdings of domestic currency can be a claim on a nonresident (A3.16).

### 2. Application of core BOP concepts in a CU
- Residence and territory:
  - Economic territory of a CU consists of the economic territory of CU economies plus the CUCB; other regional organizations comprising the same or a subset of those economies are included in the CU (A3.17).
  - Being resident of an economy of a CU implies being resident of the CU; regional organizations within CU territory are resident of the CU unless their membership differs (A3.18).
- Multiterritory enterprises:
  - Union-wide incorporation may complicate residence determination and allocation of activities; follow guidance in paragraphs 4.41–4.44 (A3.19).
- Institutional sector allocation:
  - Sector classification of regional organizations that are nonresident of member economies but resident of the CU or EcUn should be decided case-by-case.
  - In CU international external accounts, the CUCB is attributed to the central bank sector; a regional investment bank could be classified as a financial corporation (A3.20).

### 3. Geographical allocation of stocks and flows and merchandise trade
- Geographic allocation:
  - Geographic allocation of stocks and flows becomes fundamental for CU BOP and IIP compilation (A3.21).
- Problems with simple aggregation:
  - Simple addition of gross national data inflates CU aggregates because intra-member transactions are included; aggregating net national transactions yields only net aggregates and does not separate debits/credits or assets/liabilities (A3.22).
- Practical compilation approach:
  - Compile CU BOP and IIP by aggregating national contributions for transactions and positions vis-à-vis nonresidents of the CU (extra-CU data) (A3.23).
- Intra-CU data specifics:
  - Portfolio investment: liabilities vis-à-vis nonresidents of the CU may need calculation by subtracting residents’ holdings in other CU economies from total national securities liabilities to nonresidents when national systems cannot identify whether nonresident purchasers are residents of other CU economies (A3.24).
  - Direct investment: intra-CU transactions between parent and branch/subsidiary in different CU economies are domestic transactions of the CU; reinvested earnings among entities in different member economies are recorded as cross-border transactions in national BOP but not recorded as transactions in CU national accounts, requiring close cooperation among compilers (A3.25).
- Geographic allocation of goods:
  - BOP uses change-of-ownership principle: exports allocated to region of residence of new owner; imports to region of residence of former owner (A3.26).
  - Customs and international merchandise trade statistics often use physical movement concepts (economy of origin, economy of final destination, economy of consignment), which may not coincide with change-of-ownership.
  - Where customs declarations are completed in a third economy (economy of consignment) that does not obtain ownership, double recording of “extra” trade flows can occur (A3.27).
  - A combination of the three customs concepts is often necessary in CU/EcUn cases to properly record extra- and intra-union trade (A3.27).

### Box A3.1 — Numerical example: trade recording in CUs and EcUns (illustrative)
- Example setup:
  - Economy A: not a member (economy of origin).
  - Economies B and C: members of the union.
  - Economy A exports goods to Economy C (economy of last known destination); Economy B is the economy of consignment.
- Using economy of origin and economy of last known destination:
  - Economy A: export: 10
  - Economy B: import: 10; export: 10
  - Economy C: import: 10
  - Union (B+C) totals: import: 20; export: 10
- Consequence:
  - Aggregation of customs-based trade data for the union can lead to overestimation of imports (double counting) and incorrect intra-union export recorded by B.
- Combined method (origin/last destination + consignment):
  - Recording with dispatches/arrivals removes double counting: Union import: 10.
- Practical guidance (A3.28):
  - For CUs/EcUns with internal customs borders: reliance on customs data with economy of consignment data as supplementary is feasible.
  - For CUs/EcUns without national customs borders: reporters must provide data on economy of origin, economy of last known destination, and economy of consignment.

### Reserve assets and reserve-related liabilities
- Definition and consistency (A3.29–A3.30):
  - Reserve assets in CU BOP and IIP should include only assets that:
    - (a) represent claims on nonresidents of the CU; and
    - (b) meet criteria described in Chapter 6.
  - The definition of reserve assets at the CU level and at member economy level should be the same: national reserve assets should include only those assets that qualify as reserve assets at the CU level.
  - Liabilities classified as reserve-related liabilities in national data should include only those liabilities that qualify as reserve-related liabilities at the CU level.

### Issues related to operational aspects of a currency union
- Attribution of transactions and positions (A3.31):
  - Issues mostly relate to attribution among member economies and the CUCB and do not affect the CU BOP and IIP statements.
- Treatment in a centralized CU (A3.32–A3.39):
  - Institutional treatment:
    - In a centralized CU, national monetary authority functions are deemed carried out by a national agency resident in each member economy.
    - The CUCB typically maintains national offices; the national agency is an institutional unit separate from CUCB headquarters.
  - National agencies:
    - Perform monetary authority functions and have complete accounts including balance sheets for statistical purposes (A3.32-1).
    - Transactions of national agencies are treated like domestic monetary authority transactions in economies with independent central banks.
  - Recording through CUCB:
    - Transactions among resident units of the same member economy settled through the CUCB are not recorded in the national BOP but are attributed to the national agency as domestic transactions and positions (A3.33).
    - Transactions with nonresidents settled through the CUCB are recorded as transactions of the national agency in the national BOP, with corresponding financing entry attributed by the CUCB (A3.34).
    - Changes in reserve assets of a CUCB largely reflect member economies’ underlying external transactions and should be shown in the BOP and IIP of member economies (A3.34).
  - CUCB own-account transactions:
    - CUCB transactions on own account should be recorded in national BOP according to nature of the transaction only if attributable to residents; own-account CUCB transactions with nonresidents are not recorded in national BOPs but are included in the CU BOP (A3.35–A3.36).
  - Gross positions and imputed claims:
    - Member economies’ gross assets and liabilities at period end should reflect beginning position plus transactions/other flows (A3.37).
    - Member economies usually have a net claim on the CUCB representing their share of CUCB reserve assets (imputed reserve assets).
    - If an economy has a net liability position, transactions in liabilities under other investment or central bank short-term (and memo item “reserve-related liabilities”) should be recorded rather than reserve assets.
    - Compilers must ensure CUCB assets and liabilities are not double counted when compiling CU data.
  - Pooled reserves and solidarity principle (A3.37-1):
    - In CEMAC, ECCU, and WAEMU, reserve assets of member states are pooled.
    - In CEMAC and WAEMU, solidarity principle implies full access by all member states to pooled reserves irrespective of individual contributions; these unions do not present reserve assets of individual member states in the BOP and IIP, and reserve assets are recorded only in the CUCB balance sheet.
    - In such cases, net claims on the CUCB could be recorded under other investment in national BOP and IIP of CU member states; compilers should explain this in ESS metadata.
  - National shares within pooled reserves (A3.37-2):
    - ECCU member states maintain a national share within the common pool; imputed reserve assets of each member state are computed as the difference between assets held with the ECCB and its liability to the ECCB.
  - Assets held by CUCB on behalf of members (A3.39):
    - Assets held by CUCB on behalf of member economies (monetary gold, reserve position at the IMF, SDRs, and foreign assets assigned to member economies in CUCB accounts) are to be shown in the BOP and IIP of the member economies.
    - Liabilities attributable to the economy (e.g., use of IMF credit) are to be shown in the BOP of the member economy.
    - Recording of SDR allocations/holdings in members of decentralized or centralized CUs is the same as for any other country; SDR holdings and allocations are assets and liabilities of the member state that participates in the IMF’s SDR Department (attributed to the national agency) and should be recorded in its BOP/IIP.

- Treatment in a decentralized CU (A3.40–A3.41):
  - Recommended methodology for centralized CUs is de facto applied in decentralized systems where each national central bank carries out monetary activities and has its own assets and liabilities.
  - Where reserve assets are held by CUNCBs but operational constraints restrict effective control (e.g., transacting may require CUCB agreement), provided there has been no transfer of ownership to the CUCB and assets can be mobilized by the CU to meet BOP needs, the CUNCB should classify them as reserve assets in national BOP and IIP even if complete control is constrained.

- Transactions and positions in banknotes (A3.42–A3.43):
  - For CU BOP and IIP, transactions and positions in banknotes are treated according to national data principles: nonresident purchases recorded as an increase in external liabilities (credit) with corresponding entry (e.g., travel).
  - From a national perspective, holdings of CU banknotes issued by a CUNCB in another member state are external assets even though the currency is classified as domestic.
  - If issuer of banknotes can be identified, methodology can be applied in national BOP and IIP; when issuer cannot be identified (e.g., Europe where banknotes are collectively issued without economy identifiers), approximations in national data are needed.

- Other intra‑CU claims and liabilities:
  - Initial subscription of CUCB capital (A3.44):
    - Initial subscriptions and subsequent changes recorded in BOP and IIP of member economies as assets, other investment, other equity and equity in international organizations; all members and CUCB must classify this transaction and position the same.
  - Initial transfer of reserve assets (A3.45):
    - Claims from transfer of reserve assets to CUCB are classified as assets, other investment, other equity and equity in international organizations or currency and deposits, depending on nature of claim.
    - If a member does not fully transfer reserve assets, CUCB reports a claim on the member; such claims should be classified in that member’s BOP and IIP as liabilities, other investment, other accounts payable–other, central bank (or general government), short-term.
  - Intra‑CUNCBs and CUCB balances (A3.46):
    - Claims and liabilities among CUNCBs and the CUCB (including settlement and clearing) are recorded under other investment, currency and deposits or loans in member economies’ BOP and IIP.
    - Non-transaction changes in intra-CU claims and liabilities are shown under “other adjustmentchanges in financial assets and liabilities accounts ” column of the integrated IIP statement.
    - Remuneration of these claims and liabilities is recorded in member economies’ BOP as investment income, other investment (gross basis).
  - Allocation of seigniorage (A3.47):
    - Seigniorage is monetary income to the central bank from issuance of currency; reallocations of monetary income among member states and CUCB where no underlying asset and liability positions are recognized are to be recorded as a current transfer.
  - Distribution of CUCB profits (A3.48):
    - Distribution of CUCB profits should be classified as income on the financial asset to which member states’ subscriptions are attributed.

### Economic unions (EcUns): definition, purposes, and residence
- Role and data relevance (A3.49–A3.50):
  - EcUns formulate data requirements for macroeconomic coordination and to assess integration, internal market performance, and share of trade with non-EcUn economies.
  - At EcUn level, the current account, capital account, and direct investment account are relevant for monitoring performance.
  - Because different currencies may coexist and monetary authorities set national monetary policy objectives, portfolio and other investment categories are less meaningful at EcUn level.
  - Reserve assets of a union other than a CU equal the sum of national reserves (without consolidation) and have no specific meaning at union level.
- Definition and residence (A3.51–A3.53):
  - Statistical definition: an EcUn is a union to which two or more economies belong, established by intergovernmental legal agreement to foster greater economic integration. Elements that may be shared include:
    - (a) free movement of goods and services within the EcUn and a common tax regime for imports from non-EcUn economies (free trade zone);
    - (b) free movement of finance within the EcUn;
    - (c) free movement of persons within the EcUn.
  - EcUns represent greater cooperation than customs unions because members harmonize substantial conditions for economic activity across the union (A3.51-1).
  - Residence: economic territory of an EcUn consists of economic territories of member countries/jurisdictions and regional institutions that manage the EcUn; being resident of an economy of an EcUn implies being resident of the EcUn (A3.52–A3.53).
  - Regional organizations whose membership is not the same as, nor a subset of, the EcUn should be regarded as nonresident of the EcUn.

### Recording issues — scope and general principle (A3.54)
- EcUn member economies must consistently follow internationally agreed standards for classification of transactions and assets and liabilities, and provide adequate metadata describing methodology.
- Geographic allocation guidance for goods transactions in paragraphs A3.27–A3.28 applies to EcUns.

### Customs unions: institutional and recording implications (Section D)
- Customs unions rely on a common customs tariff vis-à-vis nonmembers; generally do not raise specific BOP issues unless customs unions generate cross-border flows (e.g., revenue-sharing).
- Example: imports recorded at CIF value at first port of entry may require adjustment to freight and insurance estimates to include transport from first port of entry to port of final destination.

- Recommendation: economies in a customs union are encouraged to agree on common statistical recording procedures to ensure regional consistency and comparability (A3.56).

Scenarios and recording treatments:
1. Designated agency levies, collects, and distributes duties (A3.58–A3.60)
  - If designated agency is an institutional unit, customs duties classified as its own tax revenue (primary earned income) and recorded when underlying economic event occurs, with corresponding increase in financial assets.
  - Importing economy records accrual of taxes (taxes payable) and reduction in financial assets or increase in liabilities.
  - If payment occurs after the event, designated agency records accounts receivable; importing economy records accounts payable.
  - If agency distributes revenue pool on basis of underlying event, it records current transfer (debit) and accounts payable (credit) at time of event; member economies record current transfer (credit) and accounts receivable. If distributions are formula based, current transfer recorded when unconditional claim established.
  - Adjustments to preliminary distributions are recorded in periods in which adjustments are made.

2. Designated agency levies but member economies collect (A3.61–A3.63)
  - Collecting member records accounts payable to designated agency as customs duties accrue; designated agency records accounts receivable.
  - When payment made to designated agency, collecting member records reduction in cash and elimination of accounts payable.
  - If collecting member collects duties due from importers in other economies, it records accounts payable to designated agency and increase in financial assets (cash); importing economy records taxes payable and reduction in financial assets (increase in foreign liabilities); designated agency records taxes (primary earned income) from importing economy and accounts receivable from collecting economy.
  - Distributions by designated agency treated per A3.59.

3. Collective rights to levy and collect duties (A3.64–A3.66)
  - Each member records customs duties due on their imports on an accrual basis, regardless of revenue sharing/where duties collected.
  - If agreement gives a member a larger share of the customs pool than implied by underlying activity, a current transfer exists and is recorded when unconditional claims are established, with accounts receivable/payable entries.
  - Concentration of ports of entry in some members leads to accounts receivable (importing economy) and accounts payable (collecting economy) when claims can be established; discrepancies across members sum to zero across the customs union.

4. Collective rights to levy but only one member collects (A3.67)
  - Recording follows above principles; only collecting economy records accounts payable; all other economies have claims on the collecting economy for their share.
  - Recommendation: involved economies should agree and follow the same recording procedures to avoid bilateral asymmetries (A3.68).

- Netting note:
  - Net recording of accounts payable or receivable might be appropriate when a member both receives more (less) of the customs pool than underlying activity implies and collects more (less) of the revenue than its share.

### Other regional statements (Section E)
- Regional statements can show a CU’s or EcUn’s external transactions with, or positions vis-à-vis, another selected group of economies or a particular economy (data by partner economy) (A3.69).
- Recording principles:
  - Manual’s BOP and IIP concepts apply, substituting residents of the relevant foreign economy or group for references to nonresidents/the rest of the world (A3.70).
  - Current and capital accounts: goods allocated by change of ownership; services allocated to region where provider/acquirer is resident; income allocated to region on which resident has the associated financial claim or liability; transfers allocated to donor or recipient region (A3.71).
  - Financial account and IIP: allocation on debtor-creditor principle (A3.72).
- Specific issues:
  - Multilateral settlements: a regional statement vis-à-vis a subset of nonresidents generally will not balance because payments may take form of claims on other nonresidents; Draft BPM7 includes an item “multilateral settlements” to restore accounting balance as an offset to regional discrepancies (A3.73).
  - Data to compile multilateral settlements seldom available; item usually derived as residual and can be calculated only with net errors and omissions (A3.74).
  - Inconsistencies in regional classification do not affect a global statement because multilateral settlements cancel when all regions are combined (A3.74).
  - Region selection: follow residence guidelines in Chapter 4; a region comprises an economic territory or group of economic territories (A3.75).
  - International organizations are generally not resident in an economy or region; a separate region for international organizations is appropriate (A3.76).
  - The Manual does not prescribe a standard list of regions; regional breakdown depends on intended use (A3.76).

### Illustrative materials and selected numeric/institutional details
- Table A3.1 main characteristics (examples given):
  - CEMAC: composition = Six Central African countries; Reserve pooling: French Treasury acts as guarantor; Repatriation requirements: Yes.
  - ECCU: composition = Six Caribbean countries and two territories; Reserve pooling: ECCB maintains a peg to the U.S. dollar through a quasi-currency board arrangement; Repatriation requirements: In the ECCU, these vary country by country.
  - WAEMU: composition = Eight West African countries; Reserve pooling: French Treasury acts as guarantor; Repatriation requirements: Yes.
  - EMU: composition = 20 European countries; Type of currency union = “De-centralized”; Reserve pooling: Reserves are partially transferred to the ECB; Repatriation requirements: No.
- Numerical examples (selected):
  - Economy A exports 100 of goods to Economy Y (not a member), paid in foreign exchange—extra union transaction of member Economy A.
  - Economy A exports 100 of goods to B, external transaction settled in domestic currency—intra-union transaction.
  - Economy A imports goods for 400 from Economy Y (not a member), paid in foreign exchange—extra union transaction of member Economy A.
  - CUCB lends 100 to a bank in Economy A (funds channeled through NA of Economy A).

### Illustrative transactions and balance‑sheet recordings for CUCB and national agencies (Examples 1–10)
- Overview:
  - Transactions classified as intra-union, extra-union (member economy), CUCB own-account with nonresidents, or funds channeled through a NA for statistical recording.
  - National shares within common pool may be maintained; net claims adjusted in NAs’ balance sheets.
  - For member states under solidarity principle, certain domestic-currency transactions may be classified under other investment in BOP/IIP.
- Example 1 — Opening period (CUCB and NAs balances)
  - CUCB Balance Sheet (Assets = Liabilities = 2000):
    - RA 500
    - Claims on CU residents 1500
    - Banknotes 1600
    - Deposits of CU banks 400
  - NA — Economy A (Assets = Liabilities = 1250):
    - Net claim on CUCB‑RA 300
    - Domestic assets (residents of A) 950
    - Banknotes 1000
    - Bank deposits (residents of A) 250
  - NA — Economy B (Assets = Liabilities = 750):
    - Net claim on CUCB‑RA 200
    - Domestic assets (residents of B) 550
    - Banknotes 600
    - Bank deposits (residents of B) 150
- Example 2 — Economy A exports 100 to Economy Y; commercial bank sells FX to CUCB
  - CUCB Balance Sheet (Total 2100):
    - RA 600
    - Claims on CU residents 1500
    - Banknotes 1600
    - Deposits of CU banks 500
  - NA — Economy A (Total 1350):
    - Net claim on CUCB‑RA 400
    - Domestic assets (residents of A) 950
    - Banknotes 1000
    - Bank deposits (residents of A) 350
  - NA — Economy B unchanged (Total 750).
- Example 3 — Economy A exports 100 to Economy B; settled in domestic currency via CUCB accounts
  - CUCB Balance Sheet (Total 2000):
    - RA 500
    - Claims on CU residents 1500
    - Banknotes 1600
    - Deposits of CU banks 400
  - NA — Economy A (Total 1350):
    - Net claim on CUCB‑RA 400
    - Domestic assets 950
    - Bank deposits 350
    - Banknotes 1000
  - NA — Economy B (Total 650):
    - Net claim on CUCB‑RA 100
    - Domestic assets 550
    - Bank deposits 50
    - Banknotes 600
- Example 4 — Economy A imports 400 from Economy Y; government buys FX with deposits and funds loan
  - CUCB Balance Sheet (Total 1750):
    - RA 100
    - Claims on CU residents 1650
    - Banknotes 1600
    - Deposits of CU banks 150
  - NA — Economy A (Total 1000):
    - Net claim on CUCB‑RA -100
    - Domestic assets (residents of A) 1100
    - Bank deposits (residents of A) 0
    - Banknotes 1000
  - NA — Economy B unchanged (Total 750).
- Example 5 — CUCB lends 100 to a bank in Economy A
  - CUCB Balance Sheet (Total 2100):
    - RA 500
    - Claims on CU residents 1600
    - Banknotes 1600
    - Deposits of CU banks 500
  - NA — Economy A (Total 1350):
    - Net claim on CUCB‑RA 300
    - Domestic assets (residents of A) 1050
    - Bank deposits 350
    - Banknotes 1000
- Example 6 — Following example 5, bank in Economy A lends 100 to a bank of Economy B (intra‑union)
  - CUCB Balance Sheet (Total 2100) unchanged from Example 5.
  - NA — Economy A (Total 1250):
    - Net claim on CUCB‑RA 200
    - Domestic assets 1050
    - Bank deposits 250
    - Banknotes 1000
  - NA — Economy B (Total 850):
    - Net claim on CUCB‑RA 300
    - Domestic assets 550
    - Bank deposits 250
    - Banknotes 600
- Example 7 — Government of Economy A borrows 100 from IMF (extra‑union)
  - CUCB Balance Sheet (Total 2100):
    - RA 600
    - Claims on CU residents 1500
    - Banknotes 1600
    - Deposits of CU banks 500
  - NA — Economy A (Total 1350):
    - Net claim on CUCB‑RA 400
    - Domestic assets 950
    - Bank deposits 350
    - Banknotes 1000
  - Alternative recording if contractual debtor is NA of Economy A:
    - NA — Economy A (Total 1350) includes IMF credit and loans 100 and bank deposits 250.
- Example 8 — CUCB HQ borrows 300 from government of Economy Y (nonmember) — CUCB own‑account
  - CUCB Balance Sheet (Total 2300):
    - RA 800
    - Claims on CU residents 1500
    - Loans to nonresidents 300
    - Banknotes 1600
    - Deposits of CU banks 400
  - NAs unchanged.
  - This CUCB own-account transaction is recorded in CUCB balance sheet and not attributed to any NA.
- Example 9 — Following example 8, CUCB lends 300 to government of Economy B (channeled through NA of Economy B)
  - CUCB Balance Sheet (Total 2600):
    - RA 800
    - Claims on CU residents 1800
    - Loans to nonresidents 300
    - Banknotes 1600
    - Deposits of CU banks 700
  - NA — Economy B (Total 1050):
    - Net claim on CUCB‑RA 200
    - Domestic assets 850
    - Bank deposits 450
    - Banknotes 600
- Example 10 — Following example 9, government of Economy B uses funds for imports 300 from Economy Y (paid in FX)
  - CUCB Balance Sheet (Total 2300):
    - RA 500
    - Claims on CU residents 1800
    - Loans to nonresidents 300
    - Banknotes 1600
    - Deposits of CU banks 400
  - NA — Economy B (Total 750):
    - Net claim on CUCB‑RA -100
    - Domestic assets 850
    - Bank deposits 150
    - Banknotes 600

*Appendix Annex 3, Regional Arrangements: Currency Unions, Economic Unions, and Other Regional Statements (Update of Annex 3, BPM6).*

### Appendix Annex 3

### Appendix Annex 3 Regional Arrangements: Currency Unions, Economic Unions, and Other Regional Statements (Update of Annex 3, BPM6)

### A. Introduction — scope and purpose
- Since the previous edition of the Manual, a growth in regional arrangements for monetary and economic cooperation has been evident, with a particularly notable development being the creation of the euro in the broader framework of the European Union.
- Types of regional arrangements covered: customs unions, economic unions (EcUns), monetary and currency unions (CUs), and other regional organizations.
- The concepts and recommendations in the Manual for compilation of balance of payments and IIP statements apply to regional arrangements, but specific statistical issues arise that are addressed in this appendix annex.
- This appendix annex:
  - Begins with issues relating to currency unions because they raise most methodological issues and there is an essential policy need for CU balance of payments and IIP statistics.1
  - Provides methodological guidance for compilation at both the CU and member-economy levels.
  - Also covers economic unions and customs unions; Table A3.1 lists methodological issues and shows that issues relevant for EcUns and customs unions are largely a subset of those relevant to a CU.
- Distinction:
  - Compiling balance of payments and IIP statistics for arrangements such as CUs and EcUns involves aggregation of data for two or more economies.2
  - “Regional statements” are compiled by an economy vis-à-vis a grouping of selected economies (geographical breakdown of statistics).
- IIP data by partner use the debtor-creditor approach; national contributions for compiling financial flows data in CU and EcUn balance of payments are allocated along the debtor-creditor approach to ensure bilateral symmetry.3

### B. Currency Unions — rationale and compilation needs
- Rationale:
  - In a CU, full balance of payments and IIP statements are essential to support policy analysis at the CU level because the CU conducts a single monetary policy and requires information on variables affecting monetary and foreign exchange conditions for the union as a whole (A3.5).
  - Statistical requirements for a CU are the same as for an economy that issues its own currency (A3.5).
- National statistics:
  - There remains a need to compile national balance of payments and IIP statements for member economies states in a CU because economic and fiscal policies often remain defined at the national level (A3.6).
- Aggregation principle:
  - Compiling a CU balance of payments and IIP by simple aggregation of national gross data is inappropriate: it would inflate gross flows and stocks by including intra-member transactions (A3.21–A3.23).
  - The typical approach is to aggregate national contributions for transactions and positions of the CU with nonresidents of the CU (extra-CU data), requiring consistent application of international standards and adequate metadata by member economies states (A3.23).
  - Intra-CU data remain analytically important (for example, portfolio investment and direct investment) and asymmetries in intra data can affect CU data quality (A3.24–A3.25).

### Table of methodological issues (summary of Table A3.1)
- Issues and applicability:
  - 1. Definition of a CU central bank — relevant for Currency Union (CU) only (marked X under CU).
  - 2. Domestic/foreign status of the common currency* — relevant for CU only (X).
  - 3. Allocation of intra-CU claims among CU’s central banks — relevant for CU only (X).
  - 4. Reserve assets* — relevant for CU only (X).
  - 5. Regional organizations — relevant for Customs Union, Economic Union, and CU (X, X, X).
  - 6. Economic territory — relevant for Economic Union and CU (n.a. for Customs Union; X, X).
  - 7. Debtor/creditor versus transactor principle* — relevant for Customs Union, Economic Union, and CU (X, X, X).
  - 8. Geographic allocation of goods — relevant for Customs Union, Economic Union, and CU (X, X, X).
- Notes:
  - Items marked with * (items 2, 4, 7) also raise statistical issues in “dollarized economies.”
  - "X = relevant issue. n.a. = not applicable issue."

### 1. Definitional issues (currency-union specific)
- Definition of a currency union:
  - Monetary union: presence of a single monetary policy among economies established by an intergovernmental legal agreement (monetary union defined in the Manual).4
  - A monetary union that replaces national currencies with a common currency is a currency union and raises specific methodological issues for balance of payments and IIP compilation (A3.8).
  - For statistical purposes, a currency union is defined as a union to which two or more economies belong and that has a regional central decision-making body, commonly a currency union central bank (CUCB), endowed with legal authority to conduct a single monetary policy and issue the single currency of the union. To belong to a CU, an economy must be a member of the central decision-making body, participate in its regular monetary policy decision-making process, and be subject to its monetary policy decisions (A3.9).
- Exclusions:
  - Monetary arrangements by a CU economy with an outside economy (e.g., for overseas dependent territories) do not confer CU membership on the outside economy.
  - Unilateral adoption of another currency by third-party economies (dollarization, euroization) does not make them members of a CU for statistical purposes.
  - A common monetary area (CMA) that allows free movement of finance and a common exchange control regime, but where different national currencies remain legal tender, does not meet the criteria for a CU (A3.10).
- The Currency Union Central Bank (CUCB):
  - The CUCB is a regional financial institution, an institutional unit in its own right, owning assets and liabilities on own account, nonresident of any CU member economy state but resident in the CU (A3.11).
- Regional organizations:
  - Regional organizations are a type of international organization whose members are governments or monetary authorities of economies in a specific region; CUCBs are examples (A3.12).
- Centralized vs. decentralized CU models:
  - Centralized model: CUCB owned by governments of member economies; common currency issued by the CUCB; central bank operations in each economy carried out by branches or agencies of the CUCB (examples observed in Africa and the Caribbean: CEMAC, WAEMU, ECCU) (A3.13).
  - Decentralized model: CUCB plus CU national central banks (CUNCBs) where CUCB is owned by CUNCBs; monetary policy decisions taken by CUCB decision-making body and implemented/coordinated by CUNCBs (model observed in the euro area in the 1990s) (A3.14).
  - Some reporting guidance differs between the two models because of differing institutional arrangements (A3.15).
- Definition of a domestic currency in a CU:
  - The currency issued in a CU is the domestic currency of the CU and should be considered a domestic currency from the viewpoint of each member economy state even if issued by a nonresident institution (another CUNCB or the CUCB). Consequently, holdings of domestic currency can be a claim on a nonresident (A3.16).5

### 2. Application of core balance of payments concepts in a CU
- Residence:
  - Economic territory of a CU consists of the economic territory of CU economies plus the CUCB; other regional organizations comprising the same or a subset of those economies are included in the CU (A3.17).
  - Being a resident of an economy of a CU implies being a resident of the CU; regional organizations within CU territory are resident of the CU unless their membership is not the same as, or a subset of, the CU (A3.18).
- Multiterritory enterprises:
  - Union-wide incorporation for multiterritory enterprises may complicate residence determination and allocation of activities; treat such cases using the guidance in paragraphs 4.41–4.44 (A3.19).
- Institutional sector allocation:
  - Institutional sector classification of regional organizations that are nonresident of member economies but resident of the CU or EcUn should be decided case-by-case.
  - In CU international external accounts, the CUCB should always be attributed to the central bank sector; a regional investment bank could be classified as a financial corporation (A3.20).

### 3. Geographical allocation of stocks and flows and merchandise trade
- Need for geographic allocation:
  - Geographic allocation of stocks and flows, not essential for national data, becomes fundamental for CU balance of payments and IIP compilation (A3.21).
- Problems with simple aggregation:
  - Simple addition of gross national data inflates CU aggregates because intra-member transactions are included; only aggregating net national transactions yields only net aggregates and would not separate debits/credits or assets/liabilities (A3.22).
- Practical compilation approach:
  - Compile CU balance of payments and IIP by aggregating national contributions for transactions and positions vis-à-vis nonresidents of the CU (extra-CU data) (A3.23).
- Intra-CU data importance:
  - Portfolio investment: liabilities vis-à-vis nonresidents of the CU may need to be calculated by subtracting residents’ holdings in other CU economies from total national securities liabilities to nonresidents because national systems may not identify whether nonresident purchasers are residents of other CU economies (A3.24).6
  - Direct investment: intra-CU transactions between parent and branch/subsidiary in different CU economies are domestic transactions of the CU; reinvested earnings among entities in different member economies are recorded as cross-border transactions in national balance of payments but not recorded as transactions in CU national accounts, requiring close cooperation among compilers (A3.25).
- Geographic allocation of goods (imports and exports):
  - Balance of payments uses change-of-ownership principle: exports allocated to region of residence of new owner; imports allocated to region of residence of former owner (A3.26).
  - Customs and international merchandise trade statistics are often based on physical movement concepts (economy of origin, economy of final destination, economy of consignment), which may not coincide with change-of-ownership.
  - In a CU or EcUn where customs declarations may be completed in a third economy (economy of consignment) that does not obtain ownership, double recording of “extra” trade flows can occur (first at port of entry into the CU, second at economy of final destination) (A3.27).
  - A combination of the three customs concepts is necessary in many CU/EcUn cases to arrive at proper recording of both extra- and intra-union trade (A3.27).

### Box A3.1 — Numerical example: recording of trade transactions in CUs and EcUns (illustrative)
- Example setup:
  - Economy A: not a member of the union (economy of origin).
  - Economies B and C: members of the union.
  - Economy A exports goods to economy C (economy of last known destination); economy B is the economy of consignment.
- Using economy of origin and economy of last known destination:
  - Economy A: export: 10
  - Economy B: import: 10; export: 10
  - Economy C: import: 10
  - Union (B+C) totals: import: 20; export: 10
- Consequences illustrated:
  - Aggregation of customs-based trade data for the union can lead to overestimation of imports (double counting of imports from A) and to incorrect intra-union export recorded by B because the physical movement between B and C may not reflect a change of ownership.
  - If the union is without internal customs borders and goods are cleared on the external border and released into free circulation, only customs data at the external border (Economy B in the example) would record the transaction; subsequent dispatches and arrivals need enterprise surveys to capture intra-union flows.

*Appendix Annex 3, Regional Arrangements: Currency Unions, Economic Unions, and Other Regional Statements (Update of Annex 3, BPM6).*

### 2. Use of economy of consignment:

### 2. Use of economy of consignment (and related recording methods)

### Use of economy of consignment: effects on trade attribution
- Example recording (partner economy attribution as presented):
  - Economy A records export: 10
  - Economy B records import: 10; export: 10
  - Economy C records import: 10
  - Union import: 2010  import: 10  export: 10
- Finding: If the concept of economy of consignment is used:
  - Extra-union trade is appropriately recorded.
  - Intra-union trade is artificially inflated due to recording physical movement of goods where no change of ownership takes place.
  - Geographic allocation of flows in balance of payments of member economiesstates is inaccurate.

### Combination of the two methods (economy of origin/last destination + economy of consignment)
- Recording approach:
  - Economies record goods transactions of the economy of origin and the economy of last destination as imports/exports.
  - Physical movements through intermediary economies are recorded as arrivals/dispatches.
  - Arrivals and dispatches can be disregarded when compiling extra-union transactions of the union.
- Example partner attribution (as presented):
  - Economy A records dispatch: 10; export: 10
  - Economy B records arrival: 10; dispatch: 10
  - Economy C records import: 10; arrival: 10
  - Union import: 10
- Finding: Only a combination of the two methods will achieve a proper recording of trade flows.

### Practical guidance (A3.28)
- For CUs and EcUns that still have internal customs borders:
  - Reliance on customs data with economy of consignment data as supplementary is feasible.
- For CUs and EcUns without national customs borders:
  - Data on economy of origin, economy of last known destination, and economy of consignment are required from reporters.

---

### Reserve assets and reserve-related liabilities

### Definition and consistency (A3.29–A3.30)
- Reserve assets shown in the balance of payments and IIP of the CU should include only assets that:
  - (a) represent claims on nonresidents of the CU; and
  - (b) meet the criteria described in Chapter 6.
- The definition of reserve assets at the CU level and at the member economy level should be the same:
  - Reserve assets in national data should include only those assets that qualify as reserve assets at the CU level.
- Similarly, liabilities classified as reserve-related liabilities in national data should include only those liabilities that qualify as reserve-related liabilities at the CU level.

---

### Issues related to operational aspects of a currency union

### Attribution of transactions and positions (A3.31)
- Issues relate mostly to attribution among member economiesstates and the CUCB and do not affect the CU balance of payments and IIP statements.

### Treatment of national agencies and reserve assets in a centralized currency union (A3.32–A3.39)
- Institutional treatment:
  - In a centralized CU, monetary authority functions in each member economystate are deemed carried out by a national (resident) monetary authority (national agency).
  - The CUCB typically maintains national offices in each member economystate; the national agency is treated as an institutional unit separate from the CUCB headquarters.
- National agencies:
  - Perform monetary authority functions and have complete sets of accounts including balance sheets available for statistical purposes (A3.32-1).
  - Transactions of national agencies are treated like domestic monetary authority transactions in economies with independent central banks.
- Regional organizations:
  - Regional development banks and similar organizations are treated as nonresident of their member states; transactions with member states are treated as external (A3.32-2).
- Recording through CUCB:
  - Transactions among resident units of the same member economystate settled through accounts at the CUCB are not recorded in the national balance of payments but attributed to the national agency as domestic transactions and positions (A3.33).
  - Transactions with nonresidents settled through the CUCB are recorded as transactions of the national agency in the national balance of payments, with the corresponding financing entry attributed by the CUCB (A3.34).
  - Changes in reserve assets of a CUCB largely reflect member economiesstates underlying external transactions and should be shown in the balance of payments and IIP of member economiesstates.
- CUCB own-account transactions:
  - Transactions of residents with the CUCB where the CUCB acts on its own account should be recorded in national balance of payments according to the nature of the transaction; such own-account transactions are those that cannot be attributed to national agencies (A3.35).
  - Example: debt securities issued by the CUCB and subscribed by residents are treated as portfolio investment in the national balance of payments.
- CUCB transactions with nonresidents acting on own account:
  - Transactions and positions of the CUCB with nonresidents of the CU where the CUCB acts on its own account (e.g., interest on reserve assets not allocated to any member economystate or bonds issued by the CUCB and subscribed by nonresidents) should not be recorded in any national balance of payments of member economiesstates but are included in the balance of payments of the CU (A3.36).
- Gross positions and imputed claims:
  - Gross assets and liabilities of member economiesstates at period end should reflect beginning position plus transactions/other flows between residents and nonresidents (including the CUCB) during the period (A3.37).
  - Usually member economiesstates will have a net claim on the CUCB representing their share of CUCB reserve assets (imputed reserve assets).
  - If an economy has a net liability position, transactions in liabilities under other investment or central bank short-term (and memo item “reserve-related liabilities”) should be recorded rather than reserve assets.
  - Compilers must ensure assets and liabilities of the CUCB are not double counted when compiling CU data.
- Pooled reserves and solidarity principle (A3.37-1):
  - In CEMAC, ECCU, and WAEMU, reserve assets of member states are pooled.
  - In CEMAC and WAEMU, solidarity principle implies full access by all member states to pooled reserves irrespective of individual contributions; these unions do not present reserve assets of individual member states in the balance of payments and IIP, and reserve assets are recorded only in the CUCB balance sheet.
  - In such cases, net claims on the CUCB could be recorded under other investment in national balance of payments and IIP of CU member states.
  - Guidance recommends explaining this recording in the ESS metadata of individual member states.
- National shares within pooled reserves (A3.37-2):
  - ECCU member states maintain a national share within the common pool; imputed reserve assets of each member state are computed as the difference between assets held with the ECCB and its liability to the ECCB.
- Assets held by the CUCB on behalf of member economiesstates (A3.39):
  - Any assets held by the CUCB on behalf of member economiesstates (monetary gold, reserve position at the IMF, SDRs, and foreign assets assigned to member economiesstates in CUCB accounts) are to be shown in the balance of payments and IIP of the member economiesstates.
  - Any liabilities attributable to the economy (e.g., use of IMF credit) are to be shown in the balance of payments of the member economystate.
  - Recording of SDR allocations/holdings in the balance of payments/IIP of a member state of a decentralized or centralized currency union is the same as for any other country; SDR holdings and allocations are assets and liabilities of the member state that participates in the IMF’s SDR Department (attributed to the national agency) and should be recorded in its BOP/IIP.

### Treatment in a decentralized currency union (A3.40–A3.41)
- Methodology:
  - The methodology recommended for centralized CUs is de facto applied in decentralized systems where each economy’s national central bank carries out monetary activities with residents of the CU and has its own assets and liabilities.
- Control over reserves:
  - Where reserve assets are held by CUNCBs (recorded on their balance sheets), operational constraints may restrict effective control by the CUNCBs over some assets (e.g., transacting may require CUCB agreement).
  - Provided there has been no transfer of ownership to the CUCB and the foreign assets owned by the CUNCBs can be mobilized by the CU to meet balance of payments needs (i.e., are reserve assets of the CU), the CUNCB should classify them as reserve assets in national balance of payments and IIP even if the CUNCB does not have complete control over their use because of operational constraints at the CU level.

### Transactions and positions in banknotes (A3.42–A3.43)
- Principle:
  - For CU balance of payments and IIP, transactions and positions in banknotes are treated according to national data principles: nonresident purchases recorded as an increase in external liabilities (credit) with the corresponding entry (e.g., travel) recorded as appropriate.
  - From a national perspective, holdings of CU banknotes issued by a CUNCB in another member economystate are external assets even though the currency is classified as domestic.
- Identification of issuer:
  - If issuer of banknotes can be identified (e.g., some African and Caribbean unions), the methodology can be applied in national BOP and IIP.
  - When issuer cannot be identified (e.g., Europe where banknotes are collectively issued without economy identifiers), methodology cannot be strictly applied among CU members and approximations in national data are needed.

### Other intra–currency union claims and liabilities

- Initial subscription of CUCB capital (A3.44):
  - Initial subscriptions and subsequent changes are to be recorded in the balance of payments and IIP of member economiesstates as assets, other investment, other equity and equity in international organizations.
  - All member economiesstates and the CUCB must classify this transaction and position the same.

- Initial transfer of reserve assets (A3.45):
  - Claims arising from transfer of reserve assets to the CUCB are classified as assets, other investment, under other equity and equity in international organizations or currency and deposits, depending on the nature of the claim.
  - If a CU member does not fully meet obligations to transfer reserve assets to the CUCB, the CUCB reports a claim on the member economystate; such claims should be classified in that member state’s balance of payments and IIP as liabilities, other investment, other accounts payable–other, central bank (or general government), short-term.

- Intra-CUNCBs and CUCB balances (A3.46):
  - Claims and liabilities among CUNCBs and the CUCB (including settlement and clearing) are recorded for the central bank under other investment, currency and deposits or loans in the balance of payments and IIP of member economiesstates.
  - Non-transaction changes in intra-CU claims and liabilities are to be shown under “other adjustmentchanges in financial assets and liabilities accounts ” column of the integrated IIP statement.
  - Remuneration of these claims and liabilities is recorded in member economiesstates’ balance of payments as income on a gross basis under investment income, other investment.

- Allocation of seigniorage (A3.47):
  - Seigniorage is monetary income to the central bank from issuance of currency (difference between return on interest-bearing assets commensurate to currency issued and cost of acquisition/distribution/maintenance).
  - Reallocations of monetary income among member economiesstates and the CUCB where no underlying asset and liability positions are recognized are to be recorded as a current transfer.

- Distribution of CUCB profits (A3.48):
  - Distribution of CUCB profits should be classified as income on the financial asset to which member economies’ states’ subscriptions are attributed.

---

### Economic unions (EcUns): definition, purposes, and residence

### Role and data relevance (A3.49–A3.50)
- EcUns formulate specific data requirements for macroeconomic coordination and to assess integration, internal market performance, and share of trade with non-EcUn economies.
- At the EcUn level, the current account, capital account, and direct investment account are relevant for monitoring performance.
- Because different currencies may coexist and monetary authorities set national monetary policy objectives, portfolio and other investment categories are less meaningful at the EcUn level.
- Reserve assets of a union other than a CU equal the sum of national reserves (without consolidation) and have no specific meaning at the union level.

### Definition and residence (A3.51–A3.53)
- Definition (A3.51):
  - For statistical purposes, an EcUn is a union to which two or more economies belong, established by intergovernmental legal agreement to foster greater economic integration.
  - Elements that may be shared include:
    - (a) free movement of goods and services within the EcUn and a common tax regime for imports from non-EcUn economies (free trade zone);
    - (b) free movement of finance within the EcUn;
    - (c) free movement of persons within the EcUn.
  - Regional organizations are created to support these functions; cooperation in fiscal and monetary policy usually exists.
- Greater cooperation than customs unions (A3.51-1):
  - EcUns represent greater cooperation than customs unions because members harmonize substantial conditions for economic activity across the union (example: EU).
  - Economic unions aim to unify markets by enlarging size, improving efficiency, and promoting specialization; they typically achieve large or total freedom of circulation for goods, services, capital, and individuals.
- Residence (A3.52–A3.53):
  - Economic territory of an EcUn consists of economic territories of member countries/jurisdictions and regional institutions that manage the EcUn.
  - Being resident of an economy of an EcUn implies being resident of the EcUn.
  - Regional organizations whose membership is not the same as, nor a subset of, the EcUn should be regarded as nonresident of the EcUn.

*Source: draft BPM7 Annex 3, “Regional arrangements”*

### 2. Recording issues

### 2. Recording issues

### Scope and general principle
- Draft BPM7 Annex 3 notes that an economy, and by extension an economic union (EcUn), can include physical or legal (special) zones to which separate laws are applied.
- A key requirement for compiling EcUn balance of payments statistics is that EcUn member economies consistently follow internationally agreed standards for classification of transactions and assets and liabilities, and provide adequate metadata describing their methodology (paragraph A3.54).
- The geographic allocation guidance for transactions in goods in paragraphs A3.27–A3.28 applies to EcUns (paragraph A3.54).

### Customs unions: institutional and recording implications (Section D)
- Customs arrangements typically rely on a common customs tariff vis-à-vis nonmember economies and generally do not raise specific BOP issues; however, when customs unions generate cross-border flows (for example, via revenue-sharing formulas), recording is affected by the institutional and administrative arrangements of the customs union (paragraph A3.55).
- Example: imports recorded at CIF value at the first port of entry into the customs union may require adjustment to freight and insurance estimates to include freight and insurance from the first port of entry to the port of entry of the country of final destination (footnote and paragraph following A3.55).

- Recommendation: economies in a customs union are encouraged to agree on common, appropriate statistical recording procedures to ensure regional consistency and comparability (paragraph A3.56).
- Paragraphs A3.57–A3.68 describe possible arrangements and corresponding recording treatments.

Scenarios and recording treatments:
1. A designated agency levies, collects, and distributes the proceeds from the duties (paragraphs A3.58–A3.60)
- If the designated agency is an institutional unit, customs duties are classified as its own tax revenue (primary earned income) and recorded at the time the underlying economic event occurs, with a corresponding increase in financial assets.
- The importing economy records the accrual of taxes (taxes payable by the importer) and a reduction in financial assets or increase in liabilities.
- If payment occurs after the underlying event, the designated agency records an accounts receivable claim (debit) on the importer (financial account); the importing economy records an accounts payable liability (credit).
- If the designated agency distributes the revenue pool on the basis of the underlying economic event (import of goods), it records a current transfer (debit) and accounts payable (credit) at the time the underlying event occurs; member economies record a current transfer (credit) and accounts receivable. If distributions are made on an agreed formula, the current transfer is recorded when the member economy acquires an unconditional claim on the designated agency.
- At the time of distribution, the designated agency extinguishes accounts payable; member economies extinguish accounts receivable, with corresponding entries in foreign assets (designated agency records reduction in foreign assets; member economies record increase in foreign assets).
- Revenues distributed on preliminary estimates that are later adjusted should be recorded in the periods in which adjustments are made: increases result in a current transfer credit and accounts receivable debit (or cash if paid); decreases result in a current transfer debit and a negative accounts receivable (or cash if repaid) (footnote paragraph A3.59–A3.60 and related footnote).

2. A designated agency levies duties but member economies collect duties (paragraphs A3.61–A3.63)
- Collecting member economy records an accounts payable liability (credit) to the designated agency as customs duties accrue; the designated agency records an accounts receivable claim.
- Contra-entry reflected as an increase in taxes (primary earned income) payable by the importing economy and receivable by the designated agency.
- When payment is made to the designated agency, the collecting member economy records a reduction in cash and an elimination of the accounts payable liability (financial account).
- If a collecting member collects duties due from importers in other economies of the customs union, it records accounts payable to the designated agency and an increase in financial assets (cash received); the importing economy records taxes payable to the designated agency and a reduction in financial assets (increase in foreign liabilities); the designated agency records taxes (primary earned income) from the importing economy and accounts receivable from the collecting economy.
- Distributions by the designated agency are treated as in paragraph A3.59.

3. Member economies have collective rights to levy and collect the duties (paragraphs A3.64–A3.66)
- Each member economy records customs duties due on their imports on an accrual basis, regardless of how revenue is shared or where duties are collected.
- If the customs agreement gives a member a larger share of the customs pool than implied by underlying economic activity, a current transfer element exists between member economies; the transfer is recorded when unconditional claims are established, with corresponding accounts receivable/payable entries.
- If ports of entry are concentrated in one or a few members, discrepancies between revenue collected and each member’s share result in accounts receivable (importing economy) and accounts payable (collecting economy) recorded when claims can be established, with corresponding reductions/increases in financial assets for the importing/collecting economies. Discrepancies across members should sum to zero across the customs union (paragraph A3.66 and footnote).

4. Member economies have collective rights to levy the duty, but only one member collects the duties (paragraph A3.67)
- Recording follows the principles above; only the collecting economy records accounts payable; all other economies have claims on the collecting economy for their share.
- Recommendation: where small groups of economies have such arrangements, all economies involved should agree and follow the same recording procedures to avoid bilateral asymmetries (paragraph A3.68 and recommendation).

Notes on netting and recording
- Net recording of accounts payable or receivable might be appropriate when a member both receives more (less) of the customs pool than evidenced by underlying activities and collects more (less) of the revenue than its share of the revenue pool (footnote).

### Other regional statements (Section E)
- Regional statements can show a CU’s or EcUn’s external transactions with, or positions vis-à-vis, another selected group of economies or a particular economy (data by partner economy; paragraph A3.69).
- Recording principles for regional statements:
  - Concepts and recommendations in the Manual for BOP and IIP compilation apply, substituting residents of the relevant foreign economy or group for references to nonresidents/the rest of the world (paragraph A3.70).
  - Current and capital accounts: trade in goods allocated by change of ownership (exports to region of residence of new owner; imports to region of residence of former owner). Trade in services allocated to the region where provider or acquirer is resident; income allocated to the region on which the resident has the associated financial claim or liability; transfers allocated to region of donor or recipient (paragraph A3.71).
  - Financial account and IIP: allocation should be on the basis of the debtor-creditor principle (paragraph A3.72).

- Specific recording issues for regional statements:
  - Multilateral settlements: a statement vis-à-vis a subset of nonresidents generally will not balance because payments may take form of claims on other nonresidents; Draft BPM7 includes an item “multilateral settlements” to restore accounting balance as an offset to regional discrepancies (paragraph A3.73).
  - Data to compile multilateral settlements are seldom available; the item is usually derived as a residual and can be calculated only with net errors and omissions, which is also residual (paragraph A3.74).
  - Inconsistencies in regional classification do not affect a global statement because multilateral settlements in individual regional statements cancel when all regions are combined (paragraph A3.74).
  - Selection of regions: residence guidelines in Chapter 4 apply; a region comprises an economic territory or group of economic territories (paragraph A3.75).
  - International organizations are generally not resident in an economy or region; a separate region for international organizations is appropriate (paragraph A3.76).
  - The Manual does not prescribe a standard list of regions; the regional breakdown depends on intended use (paragraph A3.76).

### Illustrative materials and tables
- Table A3.1 presents main characteristics of several currency unions and includes numeric and institutional details such as:
  - CEMAC: composition = Six Central African countries; Reserve pooling: French Treasury acts as guarantor; Repatriation requirements: Yes.
  - ECCU: composition = Six Caribbean countries and two territories; Reserve pooling: ECCB maintains a peg to the U.S. dollar through a quasi-currency board arrangement; Repatriation requirements: In the ECCU, these vary country by country.
  - WAEMU: composition = Eight West African countries; Reserve pooling: French Treasury acts as guarantor; Repatriation requirements: Yes.
  - EMU: composition = 20 European countries; Type of currency union = “De-centralized”; Reserve pooling: Reserves are partially transferred to the ECB; Repatriation requirements: No.
- Numerical Example headings list transactions including exports and imports with exact values:
  - Economy A exports 100 of goods to Economy Y (not a member), paid in foreign exchange—extra union transaction of member Economy A.
  - Economy A exports 100 of goods to B, external transaction settled in domestic currency—intra-union transaction.
  - Economy A imports goods for 400 from Economy Y (not a member), paid in foreign exchange—extra union transaction of member Economy A.
  - CUCB lends 100 to a bank in Economy A (funds channeled through NA of Economy A).

*Source: Draft BPM7 Annex 3, “Regional arrangements” (Recording issues).*

### 6.    Following (5), the bank in Economy A lends 100 to a bank of Economy B (which

### draft-bpm7-annex-3-v7-regional-arrangements — Illustrative transactions and balance‑sheet recordings for a currency union central bank (CUCB) and national agencies (NAs)

### Overview and accounting principles
- The annex illustrates how transactions involving members of a currency union (CU), the CU central bank (CUCB), national agencies (NAs), residents and nonresidents are recorded in CUCB and NA balance sheets.
- Transactions are classified as intra‑union, extra‑union (member economy), CUCB own‑account with nonresidents, or funds channeled through a NA for statistical recording.
- When national shares within the common pool of reserve assets are maintained, net claims of member economies on the CUCB are adjusted in the NAs’ balance sheets (see A3.37 guidance referenced in the annex).
- For member states that adhere to the solidarity principle, certain domestic‑currency transactions may instead be classified under other investment in BOP/IIP.

### Example 1 — Opening period (CUCB has no own‑account assets/liabilities)
- CUCB Balance Sheet (Assets = Liabilities = 2000)
  - RA 500
  - Claims on CU residents 1500
  - Banknotes 1600
  - Deposits of CU banks 400
- NA Balance Sheet — Economy A (Assets = Liabilities = 1250)
  - Net claim on CUCB‑RA 300
  - Domestic assets (residents of A) 950
  - Banknotes 1000
  - Bank deposits (residents of A) 250
- NA Balance Sheet — Economy B (Assets = Liabilities = 750)
  - Net claim on CUCB‑RA 200
  - Domestic assets (residents of B) 550
  - Banknotes 600
  - Bank deposits (residents of B) 150

### Example 2 — Economy A exports 100 to Economy Y (paid in foreign exchange); commercial bank sells foreign currency to CUCB
- Transaction effects:
  - Exporter sells foreign currency (100); commercial bank account credited (100).
  - Commercial bank sells foreign currency to the CUCB (100); commercial bank’s account at CUCB increases from 250 to 350.
  - For statistical purposes, NA of Economy A is assumed to hold the commercial bank’s account and acquires the foreign currency from the CUCB.
- CUCB Balance Sheet (Total 2100)
  - RA 600
  - Claims on CU residents 1500
  - Banknotes 1600
  - Deposits of CU banks 500
- NA Balance Sheet — Economy A (Total 1350)
  - Net claim on CUCB‑RA 400
  - Domestic assets (residents of A) 950
  - Banknotes 1000
  - Bank deposits (residents of A) 350
- NA Balance Sheet — Economy B unchanged (Total 750)
  - Net claim on CUCB‑RA 200
  - Domestic assets (residents of B) 550
  - Bank deposits (residents of B) 150

### Example 3 — Economy A exports 100 to Economy B; settled in domestic currency via CUCB accounts
- Transaction effects:
  - B’s commercial bank account at CUCB is debited from 150 to 50.
  - A’s commercial bank account at CUCB is credited from 250 to 350.
  - Net claim of Economy A on CUCB increases from 300 to 400.
  - Net claim of Economy B on CUCB declines from 200 to 100.
- CUCB Balance Sheet (Total 2000)
  - RA 500
  - Claims on CU residents 1500
  - Banknotes 1600
  - Deposits of CU banks 400
- NA Balance Sheet — Economy A (Total 1350)
  - Net claim on CUCB‑RA 400
  - Domestic assets (residents of A) 950
  - Bank deposits (residents of A) 350
  - Banknotes 1000
- NA Balance Sheet — Economy B (Total 650)
  - Net claim on CUCB‑RA 100
  - Domestic assets (residents of B) 550
  - Bank deposits (residents of B) 50
  - Banknotes 600

### Example 4 — Economy A imports goods for 400 from Economy Y (paid in foreign exchange); government buys foreign currency with bank deposits and funds a loan
- Transaction effects:
  - Government of A buys foreign currency with bank deposits (250) and records a loan for the difference (150).
  - A’s commercial bank account at CUCB debited from 250 to 0.
  - Net claims of Economy A on CUCB become negative: from 300 to -100.
- CUCB Balance Sheet (Total 1750)
  - RA 100
  - Claims on CU residents 1650
  - Banknotes 1600
  - Deposits of CU banks 150
- NA Balance Sheet — Economy A (Total 1000)
  - Net claim on CUCB‑RA -100
  - Domestic assets (residents of A) 1100
  - Bank deposits (residents of A) 0
  - Banknotes 1000
- NA Balance Sheet — Economy B unchanged (Total 750)
  - Net claim on CUCB‑RA 200
  - Domestic assets (residents of B) 550
  - Bank deposits (residents of B) 150
  - Banknotes 600

### Example 5 — CUCB lends 100 to a bank in Economy A (regular monetary authority function)
- Transaction effects:
  - CUCB claims on residents increase by 100.
  - CUCB deposits of CU banks increase from 400 to 500.
- CUCB Balance Sheet (Total 2100)
  - RA 500
  - Claims on CU residents 1600
  - Banknotes 1600
  - Deposits of CU banks 500
- NA Balance Sheet — Economy A (Total 1350)
  - Net claim on CUCB‑RA 300
  - Domestic assets (residents of A) 1050
  - Bank deposits (residents of A) 350
  - Banknotes 1000

### Example 6 — Following example 5, the bank in Economy A lends 100 to a bank of Economy B (intra‑union)
- Transaction effects:
  - Bank of Economy A acquires an external asset (recorded on the bank’s balance sheet, not shown); bank deposits of A decrease and net claim on CU of NA of Economy A decreases.
  - Bank of Economy B incurs an external liability (recorded on the bank’s balance sheet, not shown); bank deposits of B increase and net claim on CU of NA of Economy B increases.
- CUCB Balance Sheet (Total 2100)
  - RA 500
  - Claims on CU residents 1600
  - Banknotes 1600
  - Deposits of CU banks 500
- NA Balance Sheet — Economy A (Total 1250)
  - Net claim on CUCB‑RA 200
  - Domestic assets (residents of A) 1050
  - Bank deposits (residents of A) 250
  - Banknotes 1000
- NA Balance Sheet — Economy B (Total 850)
  - Net claim on CUCB‑RA 300
  - Domestic assets (residents of B) 550
  - Bank deposits (residents of B) 250
  - Banknotes 600

### Example 7 — Government of Economy A borrows 100 from IMF (extra‑union transaction of member Economy A)
- Transaction effects at inception:
  - Government of Economy A incurs an external liability of 100; matching deposit with NA/CUCB increases (not shown).
  - Bank deposits of residents of A increase and net claim on CU of NA of Economy A increases.
  - Total reserve assets (RA) of the CU increase by 100.
- CUCB Balance Sheet (Total 2100)
  - RA 600
  - Claims on CU residents 1500
  - Banknotes 1600
  - Deposits of CU banks 500
- NA Balance Sheet — Economy A (Total 1350)
  - Net claim on CUCB‑RA 400
  - Domestic assets (residents of A) 950
  - Bank deposits (residents of A) 350
  - Banknotes 1000
- NA Balance Sheet — Economy B unchanged (Total 750)
  - Net claim on CUCB‑RA 200
  - Domestic assets (residents of B) 550
  - Bank deposits (residents of B) 150
  - Banknotes 600
- Alternative recording if contractual debtor is the NA of Economy A:
  - NA Balance Sheet — Economy A (Total 1350)
    - Net claim on CUCB‑RA 400
    - Domestic assets (residents of A) 950
    - Bank deposits (residents of A) 250
    - IMF credit and loans 100
    - Banknotes 1000

### Example 8 — HQ of the CUCB borrows 300 from government of Economy Y (nonmember) — CUCB own‑account transaction with nonresidents
- Transaction effects:
  - Reserve assets (RA) of the CU increase by 300 matched by an increase in liabilities to nonresidents (loans to nonresidents 300 recorded on CUCB balance sheet).
  - This is recorded in the balance sheet of the CUCB but not attributed to any NA.
- CUCB Balance Sheet (Total 2300)
  - RA 800
  - Claims on CU residents 1500
  - Loans to nonresidents 300
  - Banknotes 1600
  - Deposits of CU banks 400
- NA Balance Sheet — Economy A unchanged (Total 1250)
  - Net claim on CUCB‑RA 300
  - Domestic assets (residents of A) 950
  - Bank deposits (residents of A) 250
  - Banknotes 1000
- NA Balance Sheet — Economy B unchanged (Total 750)
  - Net claim on CUCB‑RA 200
  - Domestic assets (residents of B) 550
  - Bank deposits (residents of B) 150
  - Banknotes 600

### Example 9 — Following example 8, CUCB lends 300 to the government of Economy B (channeled through NA of Economy B)
- Transaction effects:
  - CUCB’s claims on CU residents increase by 300 and deposits of CU banks increase by 300; counterpart entries recorded in NA of Economy B for statistical purposes.
- CUCB Balance Sheet (Total 2600)
  - RA 800
  - Claims on CU residents 1800
  - Loans to nonresidents 300
  - Banknotes 1600
  - Deposits of CU banks 700
- NA Balance Sheet — Economy A unchanged (Total 1250)
  - Net claim on CUCB‑RA 300
  - Domestic assets (residents of A) 950
  - Bank deposits (residents of A) 250
  - Banknotes 1000
- NA Balance Sheet — Economy B (Total 1050)
  - Net claim on CUCB‑RA 200
  - Domestic assets (residents of B) 850
  - Bank deposits (residents of B) 450
  - Banknotes 600

### Example 10 — Following example 9, government of Economy B uses funds for imports 300 from Economy Y (paid in foreign exchange)
- Transaction effects:
  - Government of B buys foreign currency with bank deposits; B’s commercial bank account at CUCB is debited from 450 to 150.
  - Net claims of Economy B on the CUCB become negative: from 200 to -100.
- CUCB Balance Sheet (Total 2300)
  - RA 500
  - Claims on CU residents 1800
  - Loans to nonresidents 300
  - Banknotes 1600
  - Deposits of CU banks 400
- NA Balance Sheet — Economy A unchanged (Total 1250)
  - Net claim on CUCB‑RA 300
  - Domestic assets (residents of A) 950
  - Bank deposits (residents of A) 250
  - Banknotes 1000
- NA Balance Sheet — Economy B (Total 750)
  - Net claim on CUCB‑RA -100
  - Domestic assets (residents of B) 850
  - Bank deposits (residents of B) 150
  - Banknotes 600

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/draft-chapters/draft-bpm7-annex-3-v7-regional-arrangements.pdf_