## Treatment of Securities Under Reverse Transactions in Reserve Assets—Clarification ## Source details **Canonical URL:** [Treatment of Securities Under Reverse Transactions in Reserve Assets—Clarification](https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/clarification-note-treatment-of-securities-under-reverse-transactions-in-reserve-assets.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bpm6/approved-guidance-notes/clarification-note-treatment-of-securities-under-reverse-transactions-in-reserve-assets.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bpm6/approved-guidance-notes/clarification-note-treatment-of-securities-under-reverse-transactions-in-reserve-assets.pdf.json) --- ### Issue and current guidance - Reverse transactions (RTs) include securities repurchase agreements (repos), securities lending, and gold swaps. - A repo is an arrangement involving the provision of securities in exchange for cash with a commitment to repurchase the same or similar securities at a fixed price; the commitment may be on a specified future date or an “open” maturity (paragraph 5.52 of the BPM6). - BPM6 records a repo as a loan or deposit with the securities provided as collateral kept on the balance sheet of the original owner because there is no change of economic ownership of the securities. - BPM6 provides two treatment options for securities provided under RTs (paragraph 6.88): - (a) include the securities as reserve assets with the loan generated reported as a reserve-related liability (a memorandum item) if the liability is to a nonresident; or - (b) exclude the securities from reserve assets and reclassify them as portfolio investment assets. - BPM6 paragraph 6.64 defines reserve assets as external assets that are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, intervention in exchange markets, and related purposes. - The IRFCL Guidelines (updated in 2013) clarify that to be recorded in reserve assets, securities under repos should meet the same criteria as other reserve assets: if they are not liquid or readily available for meeting balance of payments financing needs (or are available only if a substitute reserve asset is provided as collateral), they should be excluded from the cash borrower’s reserve assets (Paragraph 85 (i)). - Country practice: As of March 2022, 24 out of 29 economies reporting RT activities in the IRFCL Template declared securities or monetary gold provided as collateral under RTs as not being deducted from official reserve assets. The metadata of these countries do not clarify the accounting basis or economic rationale for maintaining collateralized securities in reserve assets. Only five countries reported such collateral as deducted from official reserve assets in the IRFCL Template. ### Clarification and recommended recording - The note recommends adopting the IRFCL Guidelines’ treatment: when securities provided as collateral are not readily available for meeting balance of payments financing needs, they should be excluded from the cash borrower’s reserve assets and reclassified to portfolio investment assets. - Rationale: the core characteristic of reserve assets—ready availability—should not be violated by keeping collateralized securities in reserve assets if they are not readily available for meeting balance of payments financing needs. This includes cases where securities are available for meeting balance of payments financing needs only if a substitute reserve asset is provided as collateral. - Gold swaps: monetary gold provided as collateral that is not readily available for meeting balance of payments financing needs should be excluded from the cash borrower’s reserve assets and either removed from financial assets (gold bullion) or reclassified as other investment, currency and deposits, assets (unallocated gold accounts). - Countries that currently include both the cash received and the securities or monetary gold provided as collateral in reserve assets are strongly encouraged to reclassify those securities or monetary gold if they are not readily available for meeting balance of payments financing needs. Until reclassification, predetermined future drains should be recognized and reported as discussed in paragraph 85 of the IRFCL Guidelines; predetermined drains from RTs are recorded in Section II.3 of the IRFCL Template. - The value of securities included in reserve assets and out on repo for cash collateral should be identified in the international investment position as a memorandum item. The received loan is also recognized as a reserve-related liability (a memorandum item in BPM6) if the loan is received from a nonresident as described in BPM6 paragraph 6.88. - The guidance in this note may also be applied in the compilation of monetary and financial statistics, specifically the central bank sectoral balance sheet, to identify foreign assets that meet the definition of reserve assets as defined in BPM6. ### Implementation and scope - The recommendation applies equally to securities repurchase agreements, securities lending (where securities are lent with securities as collateral), and gold swaps. Securities lent with securities as collateral reported in Section IV(1)(d) of the IRFCL Template should not be deducted from reserve assets. - The updated Balance of Payments Manual and the updated IRFCL Guidelines (discussion for updating the IRFCL Guidelines had not started when the clarification note was prepared) will follow the recommendation of this note. The note clarifies treatment solely in regard to inclusion in/exclusion from reserve assets; existing recordings of RTs in other functional categories should be maintained. - The value of securities included in reserve assets and out on repo for cash collateral is to be identified in the international investment position (a memorandum item) to facilitate an assessment of reserves adjusted for repo activities. Predetermined future drains should be reported in II.3 (outflows related to repos) of the IRFCL Template. ### Key statistics and impacts (IRFCL Template as of March 2022) - Reclassification could affect reserve assets by a maximum of 0.2 percent to 36.5 percent (10.6 percent on average) for countries that include collateralized securities and monetary gold in their reserve assets (as shown in Annex I). - As of September 2022, 89 countries/economies report the IRFCL Template to the IMF. - In the March 2022 IRFCL Template reporting: number of countries reporting RTs = 29; of these, lent/repoed not included in Section I: 5; lent/repoed included in Section I: 24; borrowed/acquired not included in Section I: 25; borrowed/acquired included in Section I: 1. - Examples from Annex I (US$ billion; column “Lent/repoed included in Section I (As % of Total Reserves Assets)” shown where available): - Argentina: Lent/repoed included in Section I = -0.25; Total Reserves Assets = 43.14; percentage = -0.6% - Japan: Lent/repoed included in Section I = -205.72; Borrowed/acquired included in Section I = 212.21; Total Reserves Assets = 1,356.07; percentage = -15.2% - Mexico: Lent/repoed included in Section I = -26.64; Borrowed/acquired not included in Section I = 21.56; Total Reserves Assets = 209.58; percentage = -12.7% - Portugal: Lent/repoed included in Section I = -11.47; Total Reserves Assets = 31.46; percentage = -36.5% - Philippines: Lent/repoed included in Section I = -38.49; Total Reserves Assets = 107.31; percentage = -35.9% - Euro Area: Lent/repoed included in Section I = -21.73; Borrowed/acquired not included in Section I = 4.47; Total Reserves Assets = 1,224.24; percentage = -1.8% - Switzerland: Lent/repoed included in Section I = -25.3; Borrowed/acquired not included in Section I = 29.5; Total Reserves Assets = 1,064.8; percentage = -2.4% - United Kingdom: Lent/repoed included in Section I = -19.98; Borrowed/acquired not included in Section I = 28.60; Total Reserves Assets = 231.29; percentage = -8.6% - Additional country-level values are reported in Annex I of the note. --- _Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/clarification-note-treatment-of-securities-under-reverse-transactions-in-reserve-assets.pdf_