Statistics for European Monetary Union Aug98

8/7/2019 Statistics for European Monetary Union Aug98

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Statistics for European Monetary Union

By Liz Dixon

Tel: 0171 601 5453

This article summarises the main recommendations of the EMIs July 1996 Implementation Package

report which set out the ECBs statistical requirements for Stage Three of Monetary Union. The UK is

not obliged to meet these requirements in full unless it decides to join the single currency the article

describes the preparations being made to enable the UK to supply the ECB with monetary data before

and after joining Monetary Union.

Background

The European Central Bank (ECB) and the statistical

arm of the European Commission, the Statistical Office

of the European Communities (EUROSTAT), will be

responsible for Monetary Union (MU) area macro-

economic statistics. The Treaty on the European Union

allows for the possibility of the ECB collecting data

directly from economic agents. The intention,

however, is that the national authorities1 will continue

to collect and compile the required statistics at national

level and supply the ECB and EUROSTAT with

aggregated data.

The main forum for co-operation between the ECB and

EUROSTAT is the Committee for Monetary, Financial and

Balance of Payments Statistics, which comprises heads

of statistics departments of national central banks and

senior officials of national statistical institutes in the

European Economic Area (EEA) and candidate EU

countries.2 A network of statistical committees,

working groups and task forces provides support at a

conceptual and practical level.

It was agreed between the European Monetary Institute

(EMI the forerunner to the ECB) and EUROSTAT that

the EMI had full responsibility for developing money

and banking statistics. The ECB is likely to retain

responsibility for this broad area of statistics as it

considers them to be at the heart of its monetary policy

and operational responsibilities (see Figure 1).

Moreover, expertise in their production tends to be

heavily concentrated in central banks.

In two other areas of close interest to the monetary

policy process, balance of payments and financial

accounts statistics, responsibility will be shared

between the ECB and EUROSTAT. This mirrors the

allocation of

responsibility at the national level and reflects the

wider general interest in these data (which form part of

the national economic accounts).

Other aggregate MU-level statistics such as those

relating to prices (including the harmonised index of

consumer prices (HICP)) and costs, government

finances and the labour market will be the

responsibility of EUROSTAT. Although not the

responsibility of ECB, these data will nevertheless be

used in the definition and conduct of monetary policy.

The ECB is liaising with EUROSTAT to ensure that its

needs will be met.

No decisions have been made about the disseminationof the ECBs statistics, but it is expected that a full

range of euro area statistics will be published.

EUROSTAT has already said that it intends to publish MU-

level aggregates, as well as EU/EEA aggregates for the

statistics that are its responsibility.

This article will consider the following:

The ECBs requirements for money and

banking statistics;

Compilation of euro area monetary aggregates;

Balance of payment statistics;

Statistical reporting by non-participating EU

Member States to the ECB;

Implications for money and banking statistics

in the UK, before and after any future decision to

adopt the single currency, and

The treatment of the euro in Bank of England

statistical returns.

In the UK, the Bank of England and the Office for National Statistics.2 Representatives of the ECB, the Bank for International Settlements, the United Nations and the International MonetaryFund have observer status on the CMFB.

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Figure 1. Responsibility for statistics at the single

currency area level

Money and banking statistics

In July 1996, the EMI outlined the statistics requiredfor Monetary Union in its Implementation Package

report.3

From July 1998, national central banks (NCBs) in the

single currency area are required to send the ECB

monthly balance sheet data consistent with the

harmonised framework set out in the Implementation

Package (see Annex 1). The data, which are to be sent

within 15 working days, cover separately the business

of the NCBs and other Monetary Financial Institutions

(MFIs the European statistical definition of a bank,see box). Individual institutions balance sheets will

provide the statistical basis for the system of minimum

reserves.

More detailed currency, geographical and sectoral

analyses are required quarterly within 28 working days

of the end of period to which they relate. These data

are not essential for compiling monetary aggregates,

but will allow further analysis of monetary

developments and may be used for other purposes (eg

in the financial accounts). The first quarterly data arerequired as at end-December 1998.

The extent to which Member States have had to change

their statistical systems in order to comply with the

Implementation Package has varied widely. The

balance sheet framework is closely modelled on

existing balance sheet reporting schemes, such as those

used in the UK and Germany. At the other extreme,

Luxembourg did not previously collect any statistical

data from domestic MFIs. Recognising that far-

reaching changes to collection procedures have been

required in some countries, the Implementation

Package requires back data to September 1997 only.

Compilation of monetary aggregates

Regardless of whether the ECB decides to use inflation

or monetary targeting (or a combination of the two) to

guide its monetary policy, it will almost certainly

monitor the growth in the money supply.

To enable the compilation of flows and growth rates of

monetary aggregates and counterparts, NCBs will be

required to submit monthly adjustments (for

revaluations, reclassifications, joiners/leavers to the

MFI population etc) in addition to balance sheet data.

The M3H concept of harmonised broad money, which

is derived from national definitions of money, will

cease to exist from the start of Monetary Union. 4 The

following liabilities (possibly incorporating maturity

cut-offs)5 of MFIs to residents of the euro area are

likely components of a replacement to M3H (see Annex

1):

Notes and coin in circulation

Overnight deposits

Term deposits with an agreed maturity

Deposits redeemable at notice

Repos

Shares/units issued by money market funds

Debt securities issued

Money market paper

The balance sheet breakdown in the Implementation

Package is sufficiently flexible to allow the compilationof a range of measures of money (eg a narrow measure

of money could be constructed from notes, coin and

overnight deposits).

3 Copies of the Implementation Package and other EMI/ECB publications related to statistics are available fromMrs Collette Collings; Telephone 0171 601 4312.

4 In the UK, M3H is defined as M4 plus the M4 private sectors foreign currency deposits (including CDs and other short-term paper), and public corporations ( and foreign currency) deposits.5 The maturity breakdown in the IP allows for a cut-off at one or two years original maturity for deposits with an agreedmaturity and debt securities issued, and at three months for deposits redeemable at notice.

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ECB

Money and

banking statistics

EUROSTAT

Balance of payments,

financial accountsHICPs,

labour market,

government

finance statistics

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A Europe-wide statistical definition of a bank.

The Implementation Package introduced the term Monetary Financial Institution (MFI). MFIs are defined as credit

institutions as defined in Community Law, and all other resident financial institutions whose business is to receive

deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in

economic terms), to grant credits and/or make investments in securities. This coincides with the definition of the

central bank and other monetary financial institutions sub-sectors in the European System of National and Regional

Accounts (ESA95) which serves as the central framework of reference for EU economic statistics. In the UK, the MFIpopulation comprises the Bank of England, banks, building societies and money market funds. 6

The List of MFIs in the European Union, published in April 1998, defines a population of some 11,000 financial

institutions. The List will facilitate the production of money and banking statistics in the single currency area. It forms

the starting point for the selection of monetary policy counterparties and will be used to identify those institutions to be

subject to minimum reserves. The List will be accessible on the ECBs Internet site from September and will be

updated on a regular basis to ensure it remains accurate.

The Implementation Package foresees the collection of

additional monthly information to augment the balance

sheet data. The ECB is planning to collect data relating

to deposits with central government institutions (such

as post office or Treasury accounts).7 These deposits

account for a significant proportion of national money

measures, and M3H, in some MU countries (such as

France and Italy).

It is likely that the new broad measure of money will

include both euro and foreign currency liabilities.

Foreign currency liabilities contribute towards M3H at

present, and are included in many of the national

definitions of money currently compiled in MU

countries.

As noted above, fully harmonised NCB and MFI

balance sheet data will be available back to September

1997 only. In order to conduct econometric tests on

potential new monetary aggregates, the ECB will

require longer runs of data. These will be derived from

existing data sources, specifically a refinement of the

so-called building blocks exercise. The building

blocks present the components and counterparts of

M3H in each EU Member State, disaggregated as far as

possible into individual time series. The data are

compiled according to national definitions of money.

NCBs are supplementing the building blocks with

additional data series to overcome their relative lack of

harmonisation.

Balance of payments statistics

The Implementation Package requirement for monthly

balance of payments covers a number of key items (see

box) of the current account (goods, services, income

and current transfers), capital account and financial

account (direct, portfolio and other investment, and

reserve assets). The data are required by the ECB 30

working days after the end of the month to which they

relate and, so far as is practicable, will conform to the

IMF Balance of Payments Manual (5th edition).

A more detailed balance of payments for the single

currency area will be compiled quarterly and annually.

Broadly speaking, the ECB is responsible for the

compilation of the financial account (as well as

investment income) while EUROSTAT deals with the

remainder of the current and capital accounts. In

addition, the ECB will compile an annual statement of

external assets and liabilities (the International

Investment Position) for the single currency area.

The UK currently compiles balance of payments on a

quarterly basis (apart from trade in goods and services)and remains sceptical of the need for monthly data for

monetary policy and operational purposes. The UK is

currently reviewing its position and will deliver a report

to the ECB later this year. In the meantime it is

attempting to derive best estimates of the monthly key

items from the existing quarterly system.



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Key items required for the monthly balance

of payments of the single currency area

I. Current Account

Goods

ServicesIncome

Current transfers

II. Capital Account

III. Financial Account

Direct investment: Abroad

In the reporting economy

Portfolio investment: Equity securities

Debt securities, of which

Bonds and notes

Money market instruments

Financial derivatives

Other investment: Banks

Long term

Short term

General government

Monetary authorities

Other sectors

IV. Reserve Assets

(errors and omissions)

Statistical requirements on the non-

participating Member States

Because the monetary policy responsibilities of the

ECB (and hence its statistical needs) will be confined to

the single currency area, non-participating Member

States (MS) are not obliged to meet the full

requirements of the Implementation Package. There

are a number of reasons, however, why it is desirable

for the UK, and the other non-participating MS, to

submit data to the ECB:

The NCBs of all MS form part of the European

System of Central Banks and the General Council of

the ECB comprises the governors of all EU NCBs.

Non-participating MS will have close financial and

economic ties with the single currency area and

there may be an interest, both within the ECB and

more generally, in monitoring statistics that are

compiled on a comparable basis to those of the

Monetary Union countries.

The ECB has some Treaty responsibilities towards

non-participating MS, including statistical

harmonis-ation and the compilation of convergence

reports (at least biennially or as requested by the

non-participating MS).

If a non-participating MS joins Monetary Union

(which, in principle, it could do at short notice), it

must fulfil all the requirements of the

Implementation Package from the date of joining.

Non-participating MS will retain responsibility for their

monetary policy, and will continue to compile money

and banking statistics according to their national

definitions. To fulfil the ECBs data requirements,

each non-participating MS will be sending monthly

balance sheet data for the MFI sector that are as

comparable as possible with the balance sheets

submitted by Monetary Union countries. These data

need to be timely enough to fit the likely monthly

briefing cycle in the ECB. Ideally, NCBs in non-

participating MS will provide the data set out in Annex

1 (both stocks and flows), and a table showing the main

monetary aggregates and counterparts used

domestically, which may or may not be derivable from

the MFI balance sheet.

A breakdown ofexternal positions of non-participating

MS MFIs with residents of the euro area is not required

to compile monetary aggregates. Where these data are

available, however, the ECB wants to receive them.

Such data may prove to be of interest to both the ECB

and domestic policy makers in non-participating MS in

monitoring any shifts in business which occur following

the introduction of the single currency.

A three-way currency split(into national currency, euro

and other foreign currencies) will allow a more

complete analysis of the growth of the use of the euro

in non-participating MS (and to what extent it becomes

established as an alternative to the national currency).

The shared responsibility for balance of payments

statistics leads to a data need from non-participating

MS because the ECB will be compiling the BoP

financial account of the EU as well as of the euro area.



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Money and banking statistics in the UK

The current UK statistical system is broadly compatible

with the Implementation Package in terms of the

monthly coverage of the MFI sector and the timeliness

of balance sheet data. However, fully harmonised data

cannot be derived from the existing suite of reporting

forms. Discussions have taken place with the British

Bankers Association to agree an additional reporting

framework which, to minimise the reporting burden on

institutions, will be introduced only if the UK decides

to participate in Monetary Union. Building societies

will probably need to supply similar data.

While the UK remains a non-participating MS, it is

committed to supplying the ECB with monthly balance

sheet data compatible with the Implementation Package

compiled on a best endeavours basis. Reasonable

estimates of some of the missing data items may be

derived from alternative sources (eg monthly

projections of business with residents of the euro area

can be made from the country claims and liabilities

data reported on the quarterly Forms CC and CL). In

other areas (such as breakdowns of deposits by

maturity), there are little relevant data available. The

Bank is relying on market intelligence and ad-hoc

information from banks to construct an accurate a

picture as possible.

Two additional statistical returns the EMU forms:

monthly Form EM and quarterly Form EQ have been

developed to collect the missing data items if and when

the UK adopts the single currency. These will include

details of the maturity breakdown of deposits and

lending, sectoral and instrument analyses of business

with residents of the euro area to a similar level of

detail as is currently provided for domestic residents,

and a small amount of additional information on

business with residents of the rest of the world.

It is anticipated that the EMU forms will have a

limited reporting population, covering approximately

95% of the banking sector by total balance sheet size.

The Implementation Package makes explicit provision

for having a tail of small institutions, who may report

less detailed balance sheet data to a lower frequency.8

The total balance sheet footings of this tail must not

exceed 5% of the aggregated balance sheet of the MFI

sector.

The forms have been structured into three geographical

sections so that banks are not obliged to report all

sections if they have minimal business in one (or more)

area.

On joining Monetary Union, some additional monthly 9

information will be required from allbanks to allow the

accurate calculation of individual institutions reserves

bases under the system of minimum reserves. Theseitems are currently included in the draft Form EM, but

it may prove more practicable to move them to the

Form BT (or introduce a supplementary monthly

return).

Treatment of the euro in Bank of England

statistical returns

The Bank has issued guidance to reporting institutions

on the statistical treatment of the euro. Euro boxes

have been introduced in all statistical returns so that

detailed statistics on the euro business of the banking

sector can be compiled. From end-January 1999, banks

will report, in the euro boxes, all business

denominated in euros and the eleven participating

currencies.

Before the start of Monetary Union, any balance sheet

positions resulting from transactions in grey euros

will be reported under other currencies. The only

exception to this would be any position that is

effectively an ECU position (eg holdings of ECU/Euro

Treasury notes and bills) which will continue to be

reported as ECU on forms where ECU is identified as a

separate currency.

8 Money market funds and the smaller building societies will also fall below the cut-off size for full monthly statisticalreporting.9 Existing quarterly reporters will be allowed to report these additional data quarterly.

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Statistics for European Monetary Union Aug98