African Centre for Statistics Chapter 3.1: Central Bank ...ecastats.uneca.org/acsweb/Portals/0/Economic Statistics/AGNA Addis... · • Central banks carry out a number of functions,

African Centre for Statistics

United Nations Economic Commission for United Nations Economic Commission for AfricaAfrica

Chapter 3.1: Central Bank accounts to national accounts

Ramesh KOLLI

Senior Advisor on National Accounts,

African Centre for Statistics At Expert Group Meeting on Use of Administrative Data in National Accounts

23-27 June 2014, Umubano Hotel, Kigali, Rwanda

EN/ADM/2014/Pres/02


Outline of the presentation

• Introduction

• Definition and coverage of central bank

• Sources of data

• Structure of central bank accounts

• Few conceptual issues specific to central banks

• Adjustments

• Compilation of national accounts from central bank accounts


Introduction (1/2)

• Central banks carry out a number of functions, grouped under

– monetary policy,

– financial intermediation and

– regulatory/supervisory services.

• These services fall under collective and individual services and some of them are measured on non-market basis and some on market basis, depending on the nature of functions and the income received from the services provided.

• In the SNA, central bank transactions are recorded in a special manner, especially in respect of those relating to collective consumption and interest receipts and payments.


Introduction (2/2)

• Among the countries responded to the survey carried out by UNECA, it was observed that

– Central banks on less than third of countries distinguish between their three activities of monetary, supervisory/regulatory and banking, in their accounts.

– On the other hand, in about a quarter of the countries no information is available on any central bank activities.


Definition and Coverage (1/4)

•The central bank is the national financial institution that exercises control over key aspects of the financial system. It is the public financial corporation which is a monetary authority: that is, which issues banknotes and sometimes coins and may hold all or part of the international reserves of the country. The central bank also has liabilities in the form of demand or reserve deposits of other depository corporations and often government deposits.



• This sub-sector consists of the central bank together with any other agencies or bodies which regulate or supervise financial corporations and which are themselves separate institutional units

• Financial units classified under this subsector:

– The national central bank.

– Currency boards or independent currency authorities that issue national currency that is fully backed by foreign exchange reserves.

– Central monetary agencies of essentially public origin (for example, agencies managing foreign exchange or issuing bank notes and coin) that keep a complete set of accounts but are not classified as part of central government.



Some important points to note here are:

•Supervisory authorities that are separate institutional units are not included with the central bank but are included with financial auxiliaries.

•When the central bank is a separate institutional unit, it is always allocated to the financial corporations sector even if it is primarily a non-market producer.

•Many central banks also engage in some commercial banking. However, all activities of central bank, including its commercial banking activities, are classified under “central banks”.

•Some countries may not have central banks and their activities are performed by government units under the direct control and supervision of central government. Such government units are classified under government sector and not under financial corporations.



Services produced by the central bank are broadly classified under the following three groups:

•Monetary policy services.

– Monetary policy refers to measures or actions taken by the central bank to influence the general price level and the level of liquidity in the economy. These could include setting interest rates and determining the level of money supply in the economy through various tools, such as increasing/decreasing the reserve requirements. Monetary policy services are collective in nature, serving the community as a whole, and thus represent non-market output of the central bank. The output of these services is estimated on non-market basis.

•Financial intermediation services.

– Financial intermediation services are individual in nature and, in the absence of policy intervention in the interest rates charged by the central banks, would be treated as market production. The method to calculate the output of these financial intermediation services is the same as the method to calculate FISIM.

•Borderline cases, such as supervisory services.

– The borderline cases, such as supervisory services, may be classified as market or non-market services, depending on whether explicit fees are charged that are sufficient to cover the costs of providing these services.


Sources of data (1/3)

• The source of data for compiling national accounts in respect of central bank activities is the central bank itself.

• The central banks usually produce annual financial statements comprising income statement (sometimes referred to as profit and loss account) and balance sheet and publish them in their annual reports.

• These annual reports are generally public documents and national accountants can have direct access to the financial statements included in these reports.



• However, the financial statements published in the annual report of central banks may not provide the necessary details that are required for national accounts compilation, though they may have been prepared in compliance with International Accounting Standard (IAS) / International Financial Reporting Standard (IFRS) and also include explanatory notes to the accounts.

• Moreover, in most developing countries, the financial statements of central banks are presented together for all their activities, namely, the monetary policy, banking services and supervisory services, but not separately.

• On the other hand, central banks in some countries publish financial accounts separately for these services in respect of either profit and loss account or balance sheet or both, in their annual reports.

In summary, the data available from central bank accounts that are placed in public domain is generally insufficient for compiling national accounts.



• Irrespective of country practices in releasing the financial statements, central banks internally maintain detailed information (such as on establishment costs, purchases, travel and transportation expenses, repair and maintenance, rent and rentals, capital expenses, financial transactions, etc.) separately for different types of services (monetary policy, banking activities, and supervisory services) provided by them.

• Therefore, the national accounts compiling agency should establish a mechanism, whereby the central bank provides detailed information separately for the three different services for use in the compilation of national accounts.

• Such detailed information segregated by different functions of central bank is necessary for the national accounts compilation, as methods to calculate output and other economic variables is different for these services.


Structure of government accounts

• The central bank financial accounts generally follow the same structure as those of other financial and non-financial enterprises.

• These financial accounts include

– (a) income statement covering income and expenses transactions during the financial year, considered as flow accounts; and

– (b) balance sheet showing the value of assets and liabilities (financial and non-financial) at the end of the financial year, covering stock accounts.

– In addition, the financial statements include a statement of significant accounting policies and notes to the accounts (accounting policies and explanatory notes), which contain important information on accounting methodologies used for recording and reporting transactions, and additional information on the items included in the income statement and balance sheets.

• More detailed data on the financial statements that is required for national accounts compilation would be available with the central banks


Conceptual issuesProduction, output, value added (production account) 1/2

To the extent it is feasible, output of central bank may be estimated separately for its three main functions, as follows:

•Monetary policy services: output is estimated on non-market basis as sum of costs including consumption of fixed capital and other taxes less subsidies on production, as these services are collective in nature, serving the community as a whole and are part of government consumption expenditure.

•Financial intermediation services: If there is no policy intervention in the interest rates charged by the central banks, these services would be treated as market production and the method to calculate their output is the same as the method to calculate FISIM.

Output of Monetary policy services =

Intermediate consumption + Compensation of employees + Consumption of fixed capital + Other taxes (less subsidies) on production

FISIM = (rL-rr)*YL+(rr-rD)*YD, where rL, rD, rr, YL and YD represent the lending rate, deposit rate, reference rate, average stock of loans and average stock of deposits.


Conceptual issuesProduction, output, value added (production account) 2/2

• Borderline cases, such as supervisory services:

– classified as market or non-market services, depending on whether explicit fees are charged that are sufficient to cover the costs of providing these services.

» Market output is the value of the explicit fees.

» Non-market output is estimated as the sum of costs.

» However, if the fees are not sufficient to cover the supervisory costs incurred by the bank, then the services should be treated as non-market output and part of government consumption expenditure.

• Though it is recommended to distinguish market and non-market output of central bank services, but in practice the possible resource intensiveness of the exercise and the relative importance of making the distinction should be considered before implementing the conceptual recommendations.

• In cases where market output is not separated from non-market output, the whole of the output of the central bank should be treated as non-market and valued at sum of costs.


The secondary distribution of income account andUse of income account (1/3)

• The non-market output of the central bank should be recorded as collective consumption expenditure by general government.

• However, the general government does not actually make outlays on the non-market output of the central bank.

• Therefore, a current transfer equivalent to the value of the non-market output should be recorded as payable by the central bank and receivable by the general government to cover the purchase of the non-market output of the central bank by government.

• In the SNA, the current transfer is included in miscellaneous current transfers (D75)


The secondary distribution of income account andUse of income account (2/3)

Costs incurred by the central bank in producing non-market output

(Assuming no CFC and net other taxes on production)

Transactions are recorded as follows:

• In the production account of financial corporations, under resources, central bank output of (P1) 450 is recorded as non-market output.

•In the secondary distribution of income account of financial corporations, under uses, there will be other current transfers of (D75) 450. There will be a corresponding entry under resources, for general government against other current transfers of (D75) 450.

•In the use of income account of general government, under uses, there will be collective consumption (P32) of 450.

•This treatment has no effect on government saving or net lending/borrowing.

Item Value 2008 SNA code

Intermediate consumption 90 P1, P2

Compensation of employees 360 D1

Non-market output of the central bank 450 P1, P3, P32, D7, D75


Adjustments 1/4

• Apart from the usual adjustments concerning salaries and wages in kind, consumption of fixed capital, imputed social contributions, etc., central bank accounts also include adjustments when the of following three types of situations are encountered:

– The central bank is able to dictate below market rates for reserve deposits.

– The central bank pays above market rates in a situation where the external value of the currency is under pressure.

– The central bank acts as a development bank offering loans at below market rates to priority industries


Adjustments 2/4

The central bank is able to dictate below market rates for reserve deposits

•Prodn A/c - IC of banks and output of central bank (which is FISIM) is recorded as 0.0 (item 8).

•Allocation of primary income account of commercial banks, under resources, 2250.0 (item 5) is recorded as SNA interest, though they have actually received only 1500.0 (item 6).

•Therefore, in the generation of income account of commercial banks, under uses, 750.0 (item 7) is recorded as other taxes on production; and is the resource of general government

•In the secondary distribution of income account this amount of 750.0 is recorded as miscellaneous current transfer under uses of government and resource of central bank

Item Value 2008 SNA Code1. Average stock of reserve deposits from commercial banks 50000.0 2. Interbank interest rate (reference rate) (%) 4.5

3. Actual interest rate (payable to commercial banks) (%) 3.0 4. FISIM using the actual and interbank interest rates (1)*[(2)-(3)]/100.0 750.0 5. SNA interest income payable by the central bank to commercial banks (1)*(2)/100.0 2250.0 D4, D41

6. Actual interest income payable by the central bank to commercial banks (1)*(3)/100.0 1500.0 7. Other taxes on production payable by commercial banks (1)*[(2)-(3)]/100.0 750.0 D2, D29, D7, D758. FISIM of the central bank using market interest rates (1)*[(2)-(2)]/100.0 0.0 P1, P2


Adjustments 3/4

The central bank pays above market rates when external value of the currency is under pressure

•Prodn A/c - IC of banks and output of central bank (which is FISIM) is recorded as 0.0 (item 8).

•Allocation of primary income account of commercial banks, under resources, 2250.0 (item 5) is recorded as SNA interest, though they have actually received only 3500.0 (item 6).

•Therefore, in the generation of income account of commercial banks, under uses, -1250.0 (item 7) is recorded as other subsidies on production; and is the resource of general government

•In the secondary distribution of income account this amount of 1250.0 is recorded as miscellaneous current transfer under uses of central bank and resource of government

Item Value 2008 SNA Code1. Average stock of reserve deposits from commercial banks 50000.0 2. Interbank interest rate (reference rate) (%) 4.5 3. Actual interest rate (payable to commercial banks) (%) 7.0 4. FISIM using the actual and interbank interest rates (1)*[(2)-(3)]/100.0 -1250.0

5. SNA interest income payable by central bank to comml. banks (1)*(2)/100.0 2250.0 D4, D416. Actual interest income payable by central bank to comml. banks (1)*(3)/100.0 3500.0 7. Other subsidies on production receivable by commercial banks (1)*[(3)-(2)]/100.0 1250.0 D3, D39, D7, D758. FISIM of the central bank using market interest rates (1)*[(2)-(2)]/100.0 0.0 P1, P2


Adjustments 4/4

Central bank acts as a development bank by offering loans at below market rates to priority industries

•Prodn A/c - IC of NF corpns. and output of central bank (which is FISIM) is recorded as 500 (item 9)

•Allocation of primary income account of NF corpns, under uses, SNA interest of 4,500.0 is recorded. The non-financial corporations deemed to have paid 5000 (calculated at market interest rate of 5%) interest, split into 4,500.0 as SNA interest (item 6) and 500 as FISIM, though they have actually paid 3,000 (item 7).

•Therefore, in the generation of income account of NF corpns, under uses, -2000 (item 8) is recorded as other subsidies on production; and is the resource of general government

•In the secondary distribution of income account this amount of 2000.0 is recorded as miscellaneous current transfer under uses of central bank and resource of government

Item Value SNA Code1.Average stock of loans to priority industries (NF Corporations) 100,000.0 2.Interbank interest rate (reference rate) (%) 4.5 3.Actual interest rate (%) 3.0 4.Market interest rate for loans (%) 5.0 5. FISIM using actual interest rate and interbank interest rate (1)*[(3)-(2)]/100.0 -1,500.0

6. SNA interest receivable by central bank from priority industries

(1)*(2)/100.0 4,500.0 D4, D41

7.Actual interest receivable by central bank from priority inds. (1)*(3)/100.0 3,000.0 8.Other subsidies on production receivable by priority industries (1)*[(4)-(3)]/100.0 2,000.0 D3, D39, D7, D759.FISIM of the central bank (1)*[(4)-(2)]/100.0 500.0 P1, P2


Sequence of accounts

• Bridge table of central bank


Concluding remarks

• This section of chapter 3 presents a broad summary of SNA guidelines on preparation of sequence of accounts for central bank

• Central bank when identified as a separate institutional unit is always part of financial corporations.

• If the government units carry out normal central bank functions, they are part of general government sector

• This chapter includes a bridge table for a model central bank accounts, whose output is estimated on non-market basis

• Details of entries in central bank accounts are generally not available in public domain. They need to be collected from the central bank authorities.


United Nations Economic Commission for United Nations Economic Commission for AfricaAfrica

Thank youThank you

Ramesh KOLLI

Senior Advisor on National Accounts, African Centre for Statistics At Expert Group Meeting on Use of Administrative Data in National Accounts

23-27 June 2014, Umubano Hotel, Kigali, Rwanda

Documents

African Centre for Statistics Chapter 3.1: Central Bank ...ecastats.uneca.org/acsweb/Portals/0/Economic Statistics/AGNA Addis... · • Central banks carry out a number of functions,