Jan Smets: "The problems in the subprime market over the past months have only enhanced the need for better insights into securities data." (IMF photo)
BOND MARKET CONFERENCE
After the conference, IMF Survey online spoke with Jan Smets, a Director at the National Bank of Belgium and Chairman of the Irving Fisher Committee for Central Bank Statistics (IFC), and Christian Dembiermont, an IFC Secretariat member at the Bank for International Settlements (BIS), about this initiative. The BIS provides the Secretariat for the IFC.
IMF Survey online: What were you hoping to accomplish at this conference?
Smets: The IFC brings together users and compilers of statistics that are relevant to central banks. What we wanted to do with this conference was to bring together experts—mostly from central banks but also from international bodies and other institutions—to share experiences on particular issues related to debt securities statistics. We listened to the perspectives of compilers, analysts, and policymakers to identify key areas in which follow-up would be useful, particularly with respect to the development of a methodology, and also to establish an active network amongst experts.
What the IFC does not want to do is duplicate the work of other organizations. We will not, for instance, develop a compilation guide. There are other international statistical bodies in charge of that. What we want is to promote an exchange of views and progress in statistical fields important for central banking.
IMF Survey online: How does greater transparency of domestic bond markets help emerging market economies and developing countries?
Dembiermont: As was mentioned at the conference, greater transparency of domestic bond markets is of key importance for their development in emerging market economies and developing countries. It contributes to building up investors' confidence in these markets and encouraging them to buy securities.
Dembiermont: "Transparency is only one aspect among many that play a role in the development of domestic bond markets." (IMF photo)
If there is an appetite from investors for securities, the domestic bond market will develop further—expanding from short-term to more long-term securities; from public sector to private sector, and, within the private sector; from financial corporations to nonfinancial corporations. This will increase the size of the domestic market and attract further investors from foreign countries. This is a real benefit for emerging market economies.
However, transparency is only one aspect among many that play a role in the development of domestic bond markets. These different aspects are discussed in the Basel-based Committee on the Global Financial System (CGFS) paper on financial stability and local currency bond markets, issued in 2007.
IMF Survey online: Who are the main users of debt statistics?
Smets: There are several categories of users. Securities statistics are very important for monetary authorities and central banks. Why? Because the development of securities markets affects the way monetary policy influences the economy—what we economists call the monetary policy transmission process—for instance, through the development of financial innovation or through the substitution of security financing for bank loans.
Securities statistics are also important for authorities who are in charge of financial stability. That is a main task for central banks. Think of the growing debt position in a number of countries and of maturity or currency mismatches. Financial stability authorities should know, for instance, to what extent countries are indebted in foreign currency. To give an example, if the exchange rate is depreciating, a mismatch can develop between the taxes that are raised in local currency and the repayment and interest payments on the debt, which become heavier when the exchange rate depreciates.
The problems in the subprime market over the past months have only enhanced the need for better insights into securities data. Securities statistics are also important in terms of macroeconomic analysis because you cannot, without such data, arrive at good statistics on, for example, balance of payments, international investment positions, or external debt. And, finally, market participants themselves are very interested in these data to see how the different segments of the securities markets develop. For all these reasons, and given the enormous growth of securities markets in recent years, it's necessary to have more complete statistics.
IMF Survey online: Several databases—for example, from the Bank for International Settlements (BIS) and the IMF—already contain information on debt securities. Will this effort to improve the coverage of debt securities create some duplication?
Dembiermont: Both institutions are trying to avoid any duplication in their statistical collection exercise. Fortunately, the databases from the BIS and the IMF are different. On the IMF side, there is one main collection exercise—the CPIS [Coordinated Portfolio Investment Survey], where cross-border holdings of securities are collected. This is crucial for the processing of the balance of payments of the various countries, in particular the financial account. At the BIS, we collect data on the issuance of international and domestic debt securities. Our focus is more on the financing of the different sectors of the economy through these domestic or international instruments. There is no duplication between these two exercises. In fact, they are useful complements.
IMF Survey online: Are you pleased with the outcome of this conference?
Smets: We are very pleased, especially with the fact that a large number of countries and central banks participated in a very active way. We also benefited from excellent presentations. I got the feeling that people were going home with a better understanding of the key issues in this area. And that's what the IFC is about. We want to promote a better understanding, offer an opportunity for exchanges of views, and provide good insights to the international community of central bank statisticians and economists.
And I'd like to mention some highlights of the conference. There was a consensus that there is an urgent need to develop a good compilation guide for securities statistics because there is no international standard for compiling these statistics.
A consensus also seems to have emerged on the advantages of the security-by-security collection method. You can collect statistics through aggregated reporting or a security-by-security approach, and the meeting highlighted the merits and costs of both systems. For both methods there certainly are costs in terms of development, technology, and human resources.
Developing a security-by-security database poses specific technical challenges, requiring serious quality management. But the conference also showed the benefits of such an approach, for instance, reducing the reporting burden. More long-term benefits include enhanced data quality and better information for users of these databases.
These are few examples of what came out of the conference. We are very grateful to the IMF for having accepted to host the conference in Washington, D.C., and look forward to continuing to associate it with the activities of the IFC.
This interview is an edited version of the audio file. As such, it does not constitute a transcript of the podcast interview. For exact quotes, please listen to the audio file.
Comments on this article should be sent to imfsurvey@imf.org.
