Fundamentals of the euro area balance of payments and international investment position

1. ECB-RESTRICTED FINAL Gabriel QuirósDG-Statistics European Central Bank Fundamentals of the euro area balance of payments and international investment position Joint ECB NBRM Seminar on StatisticsSkopje, 3 October 2013

2. ECB-UNRESTRICTED Overview • Basic concepts • Method of compilation of euro area aggregates • ECB Publication

3. ECB-UNRESTRICTED Basic concepts • Transactions and positions with rest of the world • Residency concept… euro area • Methodology based on IMF Balance of payments Manual (BPM5)… move to BPM6 in June 2014 • Balance of payments • Transactions (not payments!) • Concept: cross border, change of ownership • Time of recording: when the ownership change • Value: transaction price • International investment position • Outstanding amounts at market prices

4. ECB-UNRESTRICTED Basic concepts • Balance of payments • Double entry system • Each transaction is reflected in two entries (credit and debit) • Imputed entries • Sign convention (new in BPM6) • Net increases of assets / liabilities (+) • Net decreases of assets / liabilities (-) • Mismatch owing to different sources: errors and omissions

5. ECB-UNRESTRICTED Basic concepts Main accounts in the balance of payments • Current account • Goods • Services • Primary Income • Secondary Income • Capital account • Financial account • Direct investment • Portfolio investment • Financial derivatives • Other investment • Reserve assets • Errors and Omissions

6. ECB-UNRESTRICTED Basic concepts Relationship between balance of payments and international investment position • Changes in i.i.p. = B.o.p. financial transactions + Changes related to exchange rates + Changes related to asset prices + Other changes (reclassifications, write-offs, etc.)

7. Basic concepts Relationship between b.o.p. and i.i.p.

8. ECB-UNRESTRICTED Method of compilation of euro area aggregates • Euro area as a single economic “entity” • Residency • Residents in euro area countries • ECB and ESM (not other EU institutions) • Importance (and complexity) of SPEs • Transactions and positions with rest of the world (“extra euro area”) • Criterion for geographical breakdown

9. ECB-UNRESTRICTED Method of compilation of euro area aggregates Euro area BOP and IIP aggregation • In general • Euro area members compile national BOP and IIP with a geographical breakdown (intra and extra euro area) • Reserve assets by definition are all extra euro area (claims on non-residents of the euro area) • Add-up extra transactions and positions • Country contributions to the aggregate are not disclosed by the ECB

10. ECB-UNRESTRICTED Method of compilation of euro area aggregates • Exception: Liabilitiesof portfolio investment and related income • Difficulties to identify geographical breakdown of creditors (holders of securities) • Deduct intra euro area assets from national liabilities • Assumes matching of mirror data (no asymmetries!) • Collection security-by-security and classifications with the CSDB

11. ECB-UNRESTRICTED Method of compilation of euro area aggregates Basis for an accurate euro area aggregation Contributions should be: • Consistent on • methodologies and definitions • valuations • recording time • instrument and type of investment classification • Accurate geographical breakdown • Full coverage of SPEs • Otherwise, we accumulate errors…….

12. ECB-UNRESTRICTED Method of compilation of euro area aggregates • Euro area net errors & omissions (n.e.o) = National net errors & omissions + euro area asymmetries Chart: Cumulative n.e.o. in the b.o.p. of the euro area, US, UK and Japan

13. ECB-UNRESTRICTED Method of compilation of euro area aggregates • From 2007, WG-ES has worked intensively to improve the internal consistency of euro area b.o.p. • Adjustments at euro area level (macro corrections) • Correcting for geographical allocation of loans by non-MFIs • Grossing-up for euro area investment funds shares held by euro area households • Use of BIS data for deposits and loans vis-à-vis foreign banks

14. ECB-UNRESTRICTED Method of compilation of euro area aggregates • Changes to national data collection and compilation methods • Transit trade treatment (services vis-à-vis non-residents) • Debtor/creditor principle • S-B-S compilation • Coverage of SPEs • Improve coverage in financial derivatives • FDI network… • talk to the other members and share information

15. ECB Publication • Euro area balance of payments • Monthly (7 weeks after end of period) • Includes current account seasonally adjusted • Monetary presentation of the balance of payments • Quarterly geographical breakdown (4 months) • Euro area International investment position • Quarterly (4 months after end of period) • Annual geographical breakdown (11 months)

16. ECB publication Quarterly b.o.p. and annual i.i.p. From 2003 From 2003 • From 2005 • Brazil, Russia, India, China and Hong Kong • From 2006: BRIC countries + Hong Kong

17. ECB Publication • Monthly international reserves assets and foreign currency liquidity template • Only for the Eurosystem (Central Government not covered) • Euro area external debt • Quarterly (4 months after end of period)

18. ECB-UNRESTRICTED Thanks!