A Description of the Data Used in this Study
Michael D. Bordo, Owen F. Humpage, and Anna J. Schwartz
Disclaimer: These data were compiled by the authors, not by the Federal Reserve Bank of New York, the Board of Governors of the Federal Reserve System, or the U.S. Treasury. The presentation, findings, and conclusions are solely those of the authors and not those of the Federal Reserve Bank of New York, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of Cleveland, or the U.S. Treasury.
The data on official U.S. foreign currency balances contained in this work originated in documents provided to us by the Federal Reserve Bank of New York with the permission of the U.S. Treasury and the Board of Governors of the Federal Reserve System. We alone constructed the data from myriad tables in these reports. Beyond providing us with the original data sources, neither the Treasury nor the Federal Reserve assisted in the actual assemblage of the data set. Neither the Treasury nor the Federal Reserve verified our final compilation. The elements of our data set and the conclusions that we draw from it are ours alone. They do not represent the views of the U.S. Treasury, the Federal Reserve System, or the Federal Reserve Bank of Cleveland.
For the most part, the data come from tables contained in internal annual reports that the Federal Reserve Bank of New York prepared for the Federal Open Market Committee (FOMC) detailing official foreign currency operations for the U.S. Treasury and the System Open Market Accounts (SOMA). We have access to data from 1962, when the reports begin, to 1997. (Data after 1998 remained confidential under the FOMC's five-year rule.) Between 1962 and 1983, the data generally appear at a monthly frequency and in substantial detail. Between 1984 and 1997, however, flow variables appear at a monthly frequency with much less detail and documentation, and stock values only appear annually. Consequently, our compilation of annual data is substantially more complete and more reliable than our data at higher frequencies. We compiled separate tables for each currency in the U.S. Treasury's portfolio and for each currency in the Federal Reserve System's portfolio. Table 1 lists the currencies found in each portfolio. In all cases, we record the net of receipts and disbursements for each type of transaction in each period.
Even prior to 1984, the reported categories for transactions did not remain consistent. Sometimes, for example, the data would list a transaction to meet a maturing forward commitment, but would not explain if the counter party was a central bank, the market, or some agency. Sometimes entries aggregated transactions of different types. These problems required some judgments about the nature of specific transactions. In a few cases, transactions could not be tracked, or photocopied tables proved difficult to read. As explained below, we include an "errors and omissions" category, which generally turned out to be quite small.
1. Currency Balances
The first four columns of each table refer to the balances of foreign currency held by the Federal Reserve System or the U.S. Treasury.
Column 1 expresses these balances in foreign currency units.
Column 3 is the dollar equivalent of the portfolio valued at its historical exchange rates.
Column 2--column 1 divided by column 3--is the weighted average exchange rate at which the Federal Reserve or the Treasury acquired its portfolio of foreign exchange.
Column 4 is the change in the dollar equivalent value of the portfolio.
Data on the dollar equivalent value of the portfolio (column 3) generally are available at a monthly frequency for both the Federal Reserve and the Treasury between 1962 and 1983. Thereafter, the data are available on an annual basis. One can construct estimates at a higher frequency from the monthly data on transactions.
Data on the foreign-currency value of the Federal Reserve's portfolio is available annually (year's end) since 1962. For the Treasury, the data are available annually (year's end) beginning in 1985. One can construct estimates for missing years or at a higher frequency by using dollar equivalent values and historical exchange rates.
2. Transactions Affecting Currency Balances
This section of the tables records the various transactions that altered the Federal Reserve and Treasury portfolios. The Treasury accounts include more columns to reflect bond issuance and interest payments associated with these bonds. Considerable judgment was involved in the classification of certain transactions.
Columns 5 and 6 include transactions with the market and with foreign central banks. Prior to 1965, the data offered no distinction between these two. Moreover, we could not always discern the motive behind a transaction with a central bank. Some transactions with foreign central banks seemed to finance intervention, while others seemed to help reshuffle portfolios. In the Treasury accounts, transactions with foreign central banks include sales of bonds to foreign central banks.
Column 7 records exceptional items, including customer transactions. Generally, if the transactions did not seem directly related to an intervention or the financing of an intervention, we recorded it as exceptional category, but we generally followed the classification offered in the official reports. The greatest uncertainty appears between exceptional transactions and transactions with central banks. In the Treasury accounts, exceptional items include transactions with the International Monetary Fund.
Columns 8, 9, and 10 refer to drawing on U.S. swap lines in a specific currency. Swaps have both spot and forward components. We record the outstanding forward commitments associated with swap drawing in column 16 for Federal Reserve and column 18 for the Treasury. The swap drawing and repayments include third-party swaps. These are swaps of one foreign currency for another foreign currency (e.g., German marks for Belgian francs).
Column 11 and 12 (Treasury only) record transactions associated with the U.S. Treasury's issuance of foreign-currency-denominated bonds. Column 11 shows interest payments on outstanding debt obligations. Column 12 reflects bond issuance or redemptions.
Column 11 (SOMA) or column 13 (UST) reports transactions between the Federal Reserve and the U.S. Treasury. Although the column is labeled warehousing transactions, prior to the early 1970s, the data often are unclear as to weather specific transactions are outright exchanges, or swap-like transactions. Warehousing is a swap transaction wherein the Treasury temporarily exchanges foreign currency for U.S. dollars with an explicit obligation to buy back the foreign exchange within a specific period of time. Warehousing creates forward transactions, which we record separately under new forward commitments and outstanding forward commitments.
Column 12 (SOMA) or column 14 (UST) records implied realized profits associated with various types of foreign exchange transactions. These include realized capital gains or losses and interest earnings (see below) less various fees and charges. Realized exchange rate gains or losses result whenever the Federal Reserve or the Treasury sells foreign exchange at a rate different than the average historical exchange rate in column 3. Such transactions affect the dollar value of the portfolio.
Column 13 (SOMA) or column 15 (UST) shows interest earnings when data are available. For the U.S. Treasury this data is not available prior to 1985. These data are already reflected in columns 12 (SOMA) and 14 (UST).
Column 14 (SOMA) or column 16 (UST) contains any errors or omissions in the data. Absent any measurement error, the sum of the transactions-columns 5 through 13 (SOMA) or columns 5 through 15 (UST)-should equal the net change in the currency balances (column 4).
3. Other Factors Affecting the United States Foreign Currency Exposure
Column 15 (SOMA) or column 17 (UST) shows the net-open position. The net open position represents an agency's foreign-currency exposure. It equals the currency balances held by either the Federal Reserve or the Treasury plus any current obligations associated with forward commitments to purchases or sell foreign exchange.
Column 16 (SOMA) or 18 (UST) reports forward commitments resulting from swap transactions with foreign central banks or with the BIS.
Column 17 (SOMA) or 19 (UST) shows new forward commitments arising from transactions with the market or from warehousing.
Column 18 (SOMA) or 20 (UST) contains outstanding forward commitments arising from transactions with the market or from warehousing. Notice that new forward commitments generally do not match the change in the outstandings. The difference reflects changes in the currency balances to meet maturing forward commitments.
4. Year-end Valuations, Profits or Losses on Currency Balances
Column 19 (SOMA) or 21 (UST) shows the currency balances in column 3 marked to market using year-end exchange rates. For the years 1971 through 1997, we obtained the exchange rates from the Board of Governors H.10 Statistical Release. The exchange rates pertain to the last day of the year. For the years 1961 through 1970, we obtained exchange rates for the end-of-period from the IMF International Financial Statistics. Using the Board's exchange rate we were able to replicate official marked-to-market values for 1994 through 1997. We then applied this procedure to all previous years. The appropriate exchange rates appear in column 20 (SOMA) or 22 (UST).
Column 21 (SOMA) or 22 (UST) shows unrealized valuation gains or losses associated with marking the currency balances to market. These reflect differences between the end of period exchange rate, column 20 (SOMA) or 22 (UST), and the implied average exchange rate in column 3.
Column 25 (UST) shows the value of outstanding foreign currency securities.
Column 24 (UST) is an unusual adjustment factor that is associated with changes in the valuation of outstanding securities stemming from currency revaluations.