Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

When retained at source by the employer, social contributions payable to the general government sector should be included in wages and salaries even if the employer did not in fact pass them on to the general government. The households sector is then shown as paying the full amount on to the general government sector. The amounts actually unpaid have to be neutralised under D.995 as a capital transfer from general government to the employers' sectors.

• 4.97. In the system of accounts, actual social contributions are recorded:

• (a) among uses in the secondary distribution of income account of households;

• (b) among uses in the external account of primary incomes and current transfers (in the case of non-resident households);

• (c) among resources in the secondary distribution of income account of resident insurers or employers;

• (d) among resources in the external account of primary incomes and current transfers (in the case of non-resident insurers or employers).

Imputed social contributions (D.612)

• 4.98. Imputed social contributions (D.612) represent the counterpart to social benefits (less eventual employees' social contributions) paid directly by employers (i.e. not linked to employers' actual contributions) to their employees or former employees and other eligible persons. They correspond to flow D.122. Their value should, in principle, be based on actuarial considerations.

• 4.99. It is necessary to introduce imputed social contributions if the social benefits distributed directly by employers are to be included in the accounts under the heading social benefits and if the cost of these benefits (for the part which is not covered by employees' actual contributions) is to be included in the compensation of employees paid by the employer.

When employers provide social benefits themselves directly to their employees, ex-employees or dependants out of their own resources without involving a social security fund, an insurance enterprise or an autonomous pension fund, and without creating a special fund or segregate reserve for the purpose, beneficiaries may be considered as being protected against various specific needs, or circumstances, even though no payments are being made to cover them.

Remuneration should therefore be imputed for employees equal in value to the amount of social contributions that would be needed to secure the de facto entitlements to the social benefits they accumulate. These amounts depend not only on the levels of the benefits currently payable but also on the ways in which employers' liabilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the numbers, age distribution and life expectancies of their present and previous employees. Thus, the values that should be imputed for the contribution ought, in principle, to be based on the same kind of actuarial considerations that determine the levels of premiums charged by insurance enterprises. When as a result of political events or economic changes, the ratio between the number currently employed and the number receiving pensions changes appreciably and becomes abnormal, the value of the imputed contributions for current employees should be estimated, which will be different from the actual value of the pensions paid out. A reasonable percentage of wages and salaries paid to current employees can be used for this purpose.

In practice, however, it may be difficult to decide how large such imputed contributions should be. The enterprise may make estimates itself, perhaps on the basis of the contributions paid into similar funded schemes, in order to calculate its likely liabilities in the future. Otherwise, the only practical alternative may be to use the unfunded social benefits payable by the enterprise during the same accounting period (after deducting actual contributions made by employees themselves) as an estimate of the imputed remuneration that would be needed to cover the imputed contributions. While there are obviously many reasons why the value of the imputed contributions that would be needed may diverge from the unfunded social benefits actually paid in the same period, such as the changing composition and age structure of the enterprise's labour force, the benefits actually paid in the current period (less employees' social contributions) may nevertheless provide sufficient estimates of the contributions and associated imputed remuneration.

• 4.100. Employers are recorded, in the generation of income account, as paying to their existing employees as a component of their compensation an amount described as imputed social contributions equal in value to the estimated social contributions that would be needed to provide for the unfunded social benefits to which they become entitled. Employees are recorded, in the secondary distribution of income account, as paying back to their employers the same amount of imputed social contributions (i.e. current transfers) as if they were paying them to a separate social insurance scheme.

• 4.101. Time of recording: imputed social contributions which represent the counterpart of compulsory direct social benefits are recorded at the time the obligation to pay the benefits arises.

Imputed social contributions which represent the counterpart of voluntary direct social benefits are recorded at the time the benefits are provided.

• 4.102. In the system of accounts, imputed social contributions are recorded:

• (a) among uses in the secondary distribution of income account of households and in the external account of primary incomes and current transfers;

• (b) among resources in the secondary distribution of income account of the sectors to which the employers belong and in the external account of primary incomes and current transfers.

SOCIAL BENEFITS OTHER THAN SOCIAL TRANSFERS IN KIND (D.62)

• 4.103. The heading D.62 is made up of four sub-headings:

Social security benefits in cash (D.621)

They are payable to households by social security funds (excluding reimbursements, see D.6311).

Those benefits are provided under social security schemes.

Private funded social benefits (D.622)

They are (in cash or in kind), payable to households by insurance enterprises or other institutional units administering private funded social insurance schemes.

Unfunded employee social benefits (D.623)

They are (in cash or in kind), payable to their employees, their dependants or survivors by employers administering unfunded social insurance schemes. They typically include:

• (a) the continued payment of normal, or reduced, wages during periods of absence from work as a result of ill health, accident, maternity, etc.;

• (b) the payment of family, education or other allowances in respect of dependants;

• (c) the payment of retirement or survivors' pensions to ex-employees or their survivors, and the payment of severance allowances to workers or their survivors in the event of redundancy, incapacity, accidental death, etc. (if linked to collective agreements);

• (d) general medical services not related to the employee's work;

• (e) convalescent and retirement homes.

Unfunded employee social benefits payable by employers to their former employees or other eligible persons should be recorded including employers' actual social contributions, i.e. payments made by the employers for the benefit of the persons concerned to insurers.

Social assistance benefits in cash (D.624)

They are payable to households by government units or NPISHs to meet the same needs as social insurance benefits but which are not made under a social insurance scheme incorporating social contributions and social insurance benefits. Such benefits do not include current transfers paid in response to events or circumstances that are not normally covered by social insurance schemes (i.e. transfers made in response to natural disasters, recorded under other current transfers or under other capital transfers).

SOCIAL TRANSFERS IN KIND (D.63)

• 4.104. | | | | --- | --- | | Definition: | Social transfers in kind (D.63) consist of individual goods and services provided as transfers in kind to individual households by government units and NPISHs, whether purchased on the market or produced as non-market output by government units or NPISHs. They may be financed out of taxation, other government income or social security contributions, or out of donations and property income in the case of NPISHs. |

Although some of the non-market services produced by NPISHs have some of the characteristics of collective services, all the non-market services produced by NPISHs are, for simplicity and by convention, treated as individual in nature. Services provided free, or at prices that are not economically significant, to households are described as individual services to distinguish them from collectve services provided to the community as a whole, or large sections of the community. Individual services consist mainly of education and health services, although other kinds of services such as housing services, cultural and recreational services are also frequently provided.

The heading social transfers in kind (D.63) includes social benefits in kind and transfers of individual non-market goods or services.

Social benefits in kind (D.631)

• 4.105. Social benefits in kind are social transfers in kind intended to relieve the households from the financial burden of social risks or needs (see paragraph 4.84). They can be subdivided into those where beneficiary households actually purchase the goods and services themselves and are then reimbursed, and those where the relevant services are provided directly to the beneficiaries. In this second case, general government units or NPISHs produce or purchase, entirely or in part, goods and services which are directly provided by their producers to the beneficiaries.

Social security benefits, reimbursements (D.6311)

These benefits consist of reimbursement by social security funds of approved expenditures made by households on specified goods or services.

When a household purchases a good or service for which it is subsequently reimbursed, in part or in whole, by a social security fund, the household can be regarded as if it were acting on behalf of the social security fund. In effect, the household provides a short-term credit to the social security fund that is liquidated as soon as the household is reimbursed.

The amount of the expenditure reimbursed is recorded as being incurred directly by the social security fund at the time the household makes the purchase, while the only expenditure recorded for the household is the difference, if any, between the purchaser's price paid and the amount reimbursed. Thus, the amount of the expenditure reimbursed is not treated as a current transfer in cash from the social security funds to households.

Other social security benefits in kind (D.6312)

These consist of social transfers in kind, except reimbursements, made by social security funds to households. Most other social security benefits in kind are likely to consist of medical or dental treatments, surgery, hospital accommodation, spectacles or contact lenses, medical appliances or equipment, and similar goods or services in the context of social risks or needs. The service is provided directly to the beneficiaries, without reimbursement, by market or non-market producers and should be valued accordingly. Any payments made by the householders themselves should be deducted. Other social security benefits in kind can be therefore subdivided into those for which the service is produced by market producers and purchased by general government units or NPISHs (D.63121), and those for which the service is produced by non-market producers (D.63122).

Social assistance benefits in kind (D.6313)

These consist of transfers in kind provided to households by government units or NPISHs that are similar in nature to social security benefits in kind but are not provided in the context of a social insurance scheme. Included are, if not covered by a social insurance scheme, social housing, dwelling allowance, day nurseries, professional training, reductions on transport prices (provided that there is a social purpose), and similar goods and services in the context of social risks or needs. Any payments made by the householders themselves should be deducted. Social assistance benefits in kind can be therefore subdivided into those for which the service is produced by market producers and purchased by general government units or NPISHs (D.63131), and those for which the service is produced by non-market producers (D.63132).

Transfers of individual non-market goods or services (D.632)

• 4.106. | | | | --- | --- | | Definition: | Transfers of individual non-market goods or services (D.632) consist of goods or services provided to individual households free or at prices which are not economically significant, by non-market producers or government units or NPISHs. They correspond to individual consumption expenditure of NPISHs and government (see paragraph 3.85), less social benefits in kind (D.631) granted to households under social security or social assistance arrangements. |

• 4.107. Time of recording of social benefits:

• (a) in cash, they are recorded when the claims on the benefits are established;

• (b) in kind, they are recorded at the time the services are provided, or at the time the changes of ownership of goods provided directly to households by non-market producers take place.

• 4.108. In the system of accounts, social benefits other than social transfers in kind (D.62) are recorded:

• (a) among uses in the secondary distribution of income account of the sectors granting the benefits;

• (b) among uses in the external account of primary incomes and current transfers (in the case of benefits granted by the rest of the world);

• (c) among resources in the secondary distribution of income account of households;

• (d) among resources in the external account of primary incomes and current transfers (in the case of benefits granted to non-resident households).

Social transfers in kind (D.63) are recorded:

• (a) among uses in the redistribution of income in kind account of the sectors granting the benefits;

• (b) among resources in the redistribution of income in kind account of households.

The consumption of the goods and services transferred is recorded in the use of adjusted disposable income account.

By convention there are no social transfers in kind with the rest of the world (they are registered in D.62 social benefits other than social transfers in kind).

OTHER CURRENT TRANSFERS (D.7)

NET NON-LIFE INSURANCE PREMIUMS (D.71)

• 4.109. Definition : Net non-life insurance premiums (D.71) are premiums payable under policies taken out by institutional units. The policies taken out by individual households are those taken out on their own initiative and for their own benefit, independently of their employers or government and outside any social insurance scheme ([^E0061]). Net non-life insurance premiums comprise both the actual premiums payable by policy holders to obtain insurance cover during the accounting period (premiums earned) and the premium supplements payable out of the property income attributed to insurance policy holders, after deducting the service charges of insurance enterprises arranging the insurance.

Net non-life insurance premiums are the amounts available to provide cover against various events or accidents resulting in damage to goods or property, or harm to persons as a result of natural or human causes (fires, floods, crashes, collisions, sinkings, theft, violence, accidents, sickness, etc.) or against financial losses resulting from events such as sickness, unemployment, accidents, etc.

• 4.110. Time of recording: net non-life insurance premiums are recorded when they are earned.

The insurance premiums from which the service charges are deducted are those parts of the total premiums paid in the current period, or previous periods, that cover risks outstanding in the current period.

Premiums earned in the current period must be distinguished from the premiums due for payment during the current period, which are likely to cover risks in future periods as well as the current period.

• 4.111. In the system of accounts net non-life insurance premiums are recorded:

• (a) among uses in the secondary distribution of income account of resident policy holders;

• (b) among uses in the external account of primary incomes and current transfers (in the case of non-resident policy holders);

• (c) among resources in the secondary distribution of income account of resident insurance enterprises;

• (d) among resources in the external account of primary incomes and current transfers (in the case of non-resident insurance enterprises).

NON-LIFE INSURANCE CLAIMS (D.72)

• 4.112. Definition : Non-life insurance claims (D.72) represent the claims due under contracts in respect of non-life insurance ([^E0062]); that is, the amounts which insurance enterprises are obliged to pay in settlement of injuries or damage suffered by persons or goods (including fixed capital goods).

• 4.113. Non-life insurance claims do not include payments which constitute social benefits.

• 4.114. As the service charges on non-life insurance are calculated by subtracting claims due from the combined value of the premiums earned and premium supplements, it follows that the total claims due must equal the net non-life premiums receivable by an insurance enterprise during the same accounting period. This underlines the fact that the essential function of non-life insurance is to redistribute resources.

The settlement of a non-life insurance claim is treated as a transfer to the claimant. Such payments are always treated as current transfers, even when large sums may be involved as a result of the accidental destruction of a fixed asset or serious personal injury to an individual. The amounts received by claimants are usually not committed for any particular purpose and goods or assets which have been damaged or destroyed need not necessarily be repaired or replaced.

Some claims arise because of damage or injuries that the policy holders cause to the property or persons of third parties. In these cases, valid claims are recorded as being payable directly by the insurance enterprise to the injured parties and not indirectly via the policy holder.

• 4.115. Time of recording: non-life insurance claims are recorded at the time the accident or other event insured against occurs.

• 4.116. In the system of accounts, they are recorded:

• (a) among uses in the secondary distribution of income account of resident insurance enterprises;

• (b) among uses in the external account of primary incomes and current transfers (in the case of non-resident insurance enterprises);

• (c) among resources in the secondary distribution of income account of the beneficiary sectors;

• d) among resources in the external account of primary incomes and current transfers (in the case of non-resident beneficiaries).

CURRENT TRANSFERS WITHIN GENERAL GOVERNMENT (D.73)

• 4.117. | | | | --- | --- | | Definition: | Current transfers within general government (D.73) include transfers between the different subsectors of general government (central government, state government, local government, social security funds) with the exception of taxes, subsidies, investment grants and other capital transfers. |

• 4.118. Current transfers within general government do not include transactions on behalf of another unit; these are recorded only once in the accounts, in the resources of the beneficiary unit on whose behalf the transaction is made. This situation arises particularly when a government agency (e.g. a central government department) collects taxes which are automatically transferred, in total or in part, to another government agency (e.g. a local authority). In this case, the tax receipts destined for the other government agency are shown as if they were collected directly by that agency and not as a current transfer within general government. This solution applies a fortiori in the case of taxes destined for another government agency which take the form of additional rates superimposed on taxes levied by central government. Delays in remitting the taxes from the first to the second government unit give rise to entries under ‘other accounts receivable/payable’ in the Financial Account.

On the other hand, transfers of tax receipts which form part of a block transfer from central government to another government agency are included in current transfers within general government. These transfers do not correspond to any specific category of taxes and they are not made automatically but mainly through certain funds (county and local authority funds) in accordance with scales of apportionment laid down by central government.

• 4.119. Time of recording: Current transfers within general government are recorded at the time the regulations in force stipulate they are to be made.

• 4.120. In the system of accounts, current transfers within general government are recorded among uses and resources in the secondary distribution of income account of the subsectors of general governmen ([^E0063]).

CURRENT INTERNATIONAL COOPERATION (D.74)

• 4.121. Definition : Current international cooperation (D.74) includes all transfers in cash or in kind between general government and governments or international organisations ([^E0064]) in the rest of the world, except investment grants and other capital transfers.

• 4.122. Heading D.74 covers:

• (a) the non-tax contributions of the government to the institutions of the European Union, except the ‘GNP’-based fourth own resource ([^E0065]);

• (b) the contributions of the government to international organizations (excluding taxes payable by member governments to supranational organizations);

• (c) any current transfers which general government may receive from the institutions or organizations referred to under (a) and (b) ([^E0066]);

• (d) current transfers between governments, either in cash e.g. payments intended to finance the budget deficits of foreign countries or overseas territories) or in kind (e.g. counterpart of gifts of food, military equipment, emergency aid after natural disasters in the form of food, clothing, medicines, etc.);

• (e) wages and salaries paid by a government, an institution of the European Union or an international organization, to advisers or technical assistance experts made available to developing countries.

Current international cooperation includes transfers between general government and international organizations located in the country, as international organizations are not treated as resident institutional units of the countries in which they are located.

• 4.123. Time of recording: the time the regulations in force stipulate the transfers are to be made (obligatory transfers), or the time the transfers are made (voluntary transfers).

• 4.124. In the system of accounts, current international cooperation is recorded:

• (a) among uses and resources in the secondary distribution of income account of the general government sector;

• (b) among uses and resources in the external account of primary incomes and current transfers.

MISCELLANEOUS CURRENT TRANSFERS (D.75)

Current transfers to NPISHs

• 4.125. Current transfers to NPISHs include all voluntary contributions (other than legacies), membership subscriptions and financial assistance which NPISHs receive from households (including non-resident households) and, to a lesser extent, from other units.

• 4.126. The following are included:

• (a) regular subscriptions paid by households to trade unions and political, sporting, cultural, religious and similar organizations classified in the sector NPISHs;

• (b) voluntary contributions (other than legacies) from households, corporate enterprises and the rest of the world to NPISHs, including transfers in kind in the form of gifts of food, clothing, blankets, medicines, etc. to charities for distribution to resident or non-resident households;

• (c) assistance and grants from general government, other than transfers made for the specific purpose of financing capital expenditure, which are shown under investment grants.

Excluded are payments of membership dues or subscriptions to market NPIs serving businesses, such as chambers of commerce or trade associations, which are treated as payments for services rendered.

• 4.127. Time of recording: current transfers to NPISHs are recorded at the time they are made.

• 4.128. In the system of accounts, current transfers to NPISHs are recorded:

• (a) among uses in the secondary distribution of income account of the contributing sectors;

• (b) among uses in the external account of primary incomes and current transfers;

• (c) among resources in the secondary distribution of income account of the NPISHs sector.

Current transfers between households

• 4.129. | | | | --- | --- | | Definition: | Current transfer between households consist of all current transfers in cash or in kind made, or received, by resident households to, or from, other resident or non-resident households. In particular, these comprise remittances by emigrants or workers permanently settled abroad (or working abroad for a period of a year or longer) to members of their family living in their country of origin, or by parents to children in another location. |

• 4.130. Time of recording: the time the transfers occur.

• 4.131. In the system of accounts, current transfers between households are recorded:

• (a) among uses and resources in the secondary distribution of income account of households;

• (b) among uses and resources in the external account of primary incomes and current transfers.

Fines and penalties

• 4.132. | | | | --- | --- | | Definition: | Fines and penalties imposed on institutional units by courts of law or quasi-judicial bodies are treated as compulsory current transfers. |

• 4.133. Not included under this heading are:

• (a) fines and penalties imposed by tax authorities for the evasion or late payment of taxes, which cannot usually be distinguished from the taxes themselves;

• (b) payments of fees to obtain licences, such payments being either taxes or payments for services rendered by government units (see D.29 and D.59).

• 4.134. Time of recording: fines and penalties are recorded at the time the liabilities arise.

Lotteries and gambling

• 4.135. The amounts paid for lottery tickets or placed in bets consist of two elements: the payment of a service charge to the unit organizing the lottery or gambling and a residual current transfer that is paid out to the winners. The service charge may be quite substantial and may have to cover taxes on the production of gambling services. The transfers are regarded in the system as taking place directly between those participating in the lottery or gambling, that is, between households. When non-resident households take part there may be significant net transfers between the household sector and the rest of the world. The current transfers are recorded at the time they are made.

Payments of compensation

• 4.136. | | | | --- | --- | | Definition: | Payments of compensation consist of current transfers paid by institutional units to other institutional units in compensation for injury to persons or damage to property caused by the former, excluding payments of non-life insurance claims. Payments of compensation could be either compulsory payments awarded by a court of law, or ex gratia payments agreed out of court. This heading covers ex gratia payments made by government units or NPISHs in compensation for injuries or damage caused by natural disasters other than those classified as capital transfers. |

• 4.137. Time of recording: payments of compensation are recorded when they are made (ex gratia payments) or when they are to be made (compulsory payments).

GNP-based fourth own resource

• 4.138. The ‘GNP-based fourth own resource’ created by the Council Decision of 24 June 1988 on the system of Communities' own resources is a current transfer paid by the general government of each Member State to the institutions of the European Union.

It is a residual contribution to the budget of those institutions, which is assessed on the levels of GNP of each of the countries.

Time of recording: GNP-based fourth own resource is recorded when it is to be paid.

In the system of accounts, GNP-based fourth own resource appears:

• (a) among uses in the secondary distribution of income account of general government;

• (b) among resources in the external account of primary incomes and current transfers.

Other

• 4.139. - (a) Current transfers from NPISHs to general government which are not taxes.

• (b) Payments by general government to public enterprises classified in the sector non-financial corporate and quasi-corporate enterprises intended to cover abnormal pension charges.

• (c) Travelling fellowships and awards paid to resident or non-resident households by general government or NPISHs.

• (d) Bonus payments on savings granted at intervals by general government to households in order to reward them for their saving during the period.

• (e) The refunds by households of expenditure incurred on their behalf by social welfare organizations.

• (f) Current transfers from NPISHs to the rest of the world.

• (g) Sponsoring by corporations if those payments cannot be regarded as purchases of advertising or other services (for instance, transfers for a good cause, or scholarships).

• (h) Current transfers from general government to households in their capacity as consumers, if not recorded as social benefits.

• 4.140. Time of recording: these transfers are recorded when they are made, except those from or to general government, which are recorded when they are to be made.

In the system of accounts, miscellaneous current transfers appear:

• (a) among resources and uses in the secondary distribution of income account of all sectors;

• (b) among resources and uses in the external account of primary incomes and current transfers.

ADJUSTMENT FOR THE CHANGE IN THE NET EQUITY OF HOUSEHOLDS IN PENSION FUNDS RESERVES (D.8)

• 4.141. | | | | --- | --- | | Definition: | The adjustment for the change in the net equity of households in pension funds reserves (D.8) represents the adjustment needed to make appear in the saving of households the change in the actuarial reserves on which households have a definite claim (a claim which reappears at the financial level as an asset under heading F.61) and which are fed by premiums and contributions recorded in the secondary distribution of income account as social contributions. |

• 4.142. Since households are treated in the financial accounts and balance sheets of the system as owning the reserves of private funded schemes, both autonomous and non-autonomous, an adjustment item is necessary to ensure that any excess of pension contributions over pension receipts (i.e. of ‘transfers’ payable over ‘transfers’ receivable) does not affect household saving.

In order to neutralize this effect, an adjustment equal to:

	the total value of the actual social contributions in respect of pensions payable into private funded pension schemes
plus	the total value of contribution supplements payable out of the property income attributed to insurance policy holders
minus	the value of the associated service charges
minus	the total value of the pensions paid out as social insurance benefits by private funded pension schemes
is added to the disposable income, or adjusted disposable income, of households in the use of income accounts before arriving at saving.	is added to the disposable income, or adjusted disposable income, of households in the use of income accounts before arriving at saving.

In this way, the saving of households is the same as what it would be if pension contributions and pension receipts had not been recorded as current transfers in the secondary distribution of income account. This adjustment item is necessary in order to reconcile the saving of households with the change in their net equity in pension funds reserves recorded in the financial account of the system. Opposite adjustments are, of course, needed in the use of income accounts of the insurance enterprises or autonomous pension funds or employers maintaining non-autonomous pension funds.

• 4.143. Time of recording: the adjustment is recorded according to the flows which compose it.

• 4.144. In the system of accounts, the adjustment for the change in the net equity of households in pension funds reserves is recorded:

• (a) among uses in the use of income accounts of the insurance enterprises sector and other sectors administering non-autonomous pension funds;

• (b) among uses in the external account of primary incomes and current transfers (in the case of non-resident institutions);

• (c) among resources in the use of income accounts of the households sector;

• (d) among resources in the external account of primary incomes and current transfers (in the case of non-resident households).

CAPITAL TRANSFERS (D.9)

• 4.145. Capital transfers are different from current transfers by the fact that they involve the acquisition or disposal of an asset, or assets, by at least one of the parties to the transaction. Whether made in cash or in kind, they should result in a commensurate change in the financial, or non-financial, assets shown in the balance sheets of one or both parties to the transaction.

• 4.146. A capital transfer in kind consists of the transfer of ownership of an asset (other than inventories and cash), or the cancellation of a liability by a creditor, without any counterpart being received in return.

A capital transfer in cash consists of the transfer of cash that the first party has raised by disposing of an asset, or assets (other than inventories), or that the second party is expected, or required, to use for the acquisition of an asset, or assets (other than inventories). The second party, the recipient, is often obliged to use the cash to acquire an asset, or assets, as a condition on which the transfer is made.

• 4.147. Capital transfers cover capital taxes (D.91), investment grants (D.92) and other capital transfers (D.99).

CAPITAL TAXES (D.91)

• 4.148. | | | | --- | --- | | Definition: | Capital taxes (D.91) consist of taxes levied at irregular and very infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts inter vivos or other transfers. |

• 4.149. Capital taxes include:

• (a) taxes on capital transfers: inheritance taxes, death duties and taxes on gifts inter vivos, which are deemed to be levied on the capital of the beneficiaries (except taxes on sales of assets, as these are not transfers);

• (b) capital levies: occasional and exceptional levies on assets or net worth owned by institutional units ([^E0067]). These include betterment levies, that is taxes on the increase in the value of agricultural land due to planning permission to develop the land for commercial or residential purposes.

• 4.150. Taxes recorded in the accounts may be derived from two sources: amounts evidenced by assessments and declarations or cash receipts.

• (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors could be recorded equal to the same ajdustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes.

• (b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the tax liability (or when the amount of tax was determined). This adjustment may be based on the average time difference between the activity (or the determination of the amount of tax) and cash tax receipt.

• 4.151. In the system of accounts, capital taxes are recorded:

• (a) among changes in liabilities and net worth (-) in the capital account of the sectors in which the taxpayers are classified;

• (b) among changes in liabilities and net worth (+) in the capital account of general government;

• (c) among changes in liabilities and net worth in the capital account of the rest of the world.

INVESTMENT GRANTS (D.92)

• 4.152. Definition : Investment grants (D.92) consist of capital transfers in cash or in kind made by governments or by the rest of the world ([^E0068]) to other resident or non-resident institutional units to finance all or part of the costs of their acquiring fixed assets.

• 4.153. Investment grants can be made in cash or in kind. Investment grants in kind consist of transfers of transport equipment, machinery and other equipment by governments to other resident or non-resident units and also the direct provision of buildings or other structures for resident or non-resident units.

• 4.154. Investment grants do not include transfers of military equipment in the form of weapons or equipment whose sole function is to fire such weapons, as they are not classified as fixed assets.

• 4.155. The value of capital formation carried out by general government for the benefit of other sectors of the economy is also to be shown under investment grants whenever the beneficiary is identifiable and becomes the owner of the capital. In such cases, the capital formation is recorded among changes in assets in the capital account of the beneficiary and is financed by an investment grant which appears among changes in liabilities and net worth in the same account.

• 4.156. Heading D.92 includes not only single non-recurrent payments designed to finance capital formation during the same period, but also instalment payments in respect of capital formation carried out during an earlier period. Thus, those parts of the annual payments by general government which represent the amortization of debts, contracted by enterprises for the purpose of capital formation projects for whose amortization the government has assumed total or partial responsibility, are also treated as investment grants.

Grants for interest relief made by general government are, however, excluded, even when the object of the relief is to encourage capital formation. In practice, the assumption by public authorities of part of the interest charges constitutes, like the flow of interest itself, a current distributive transaction. Nevertheless, when a grant serves the dual purpose of financing the amortization of the debt contracted and the payment of the interest on the capital borrowed, and when it is not possible to separate these two elements, the whole of the grant is treated in the accounts as an investment grant.

• 4.157. Investment grants to the sector non-financial corporate and quasi-corporate enterprises include, in addition to grants to private enterprises, capital grants to public enterprises recognized as independent legal entities, provided that the government department which makes the grant does not retain a claim against the public enterprise.

• 4.158. Investment grants to the households sector include equipment and modernization grants to businesses other than corporate or quasi-corporate enterprises and grants to households for the construction, purchase and improvement of dwellings.

• 4.159. Investment grants to general government include all payments (except grants for interest relief) made to subsectors of general government ([^E0069]) for the purpose of financing capital formation. The most important examples are transfers from central government to local authorities for the specific purpose of financing their gross fixed capital formation. It should be emphasized that transfers of a general nature intended for various or indeterminate purposes are shown under current transfers within general government, even if they are partly used to cover expenditure on capital formation.

• 4.160. Investment grants to non-profit institutions from general government and from the rest of the world are distinguished from current transfers to non-profit institutions by using the same criterion.

• 4.161. Investment grants to the rest of the world should also be restricted to transfers with the specific objective of financing capital formation by non-resident units. They include, for example, unrequited transfers for the construction of bridges, roads, factories, hospitals or schools in developing countries, or for constructing buildings for international organizations. They may comprise instalment payments over a period of time as well as single payments. This heading also covers the supply of fixed capital goods free of charge.

• 4.162. Time of recording: investment grants in cash are recorded when the payment is due to be made. Investment grants in kind are recorded when the ownership of the asset is transferred.

• 4.163. In the system of accounts, investment grants are recorded:

• (a) among changes in liabilities and net worth (-) in the capital account of general government;

• (b) among changes in liabilities and net worth (+) in the capital account of the sectors receiving the grants;

• (c) among changes in liabilities and net worth in the capital account of the rest of the world.

OTHER CAPITAL TRANSFERS (D.99)

• 4.164. | | | | --- | --- | | Definition: | Other capital transfers (D.99) cover transfers other than investment grants and capital taxes which do not themselves redistribute income but redistribute saving or wealth among the different sectors or subsectors of the economy or the rest of the world. |

• 4.165. Other capital transfers include the following transactions:

• (a) payments by general government or by the rest of the world to the owners of capital goods destroyed or damaged by acts of war, other political events or natural disasters (floods etc.);

• (b) transfers from general government to non-financial corporate and quasi-corporate enterprises to cover losses accumulated over several financial years or exceptional losses from causes beyond the control of the enterprise;

• (c) transfers between subsectors of general government designed to cover unexpected expenditure or accumulated deficits ([^E0070]);

• (d) non-recurrent bonus payments on savings granted by general government to households to reward them for their savings carried out over a period of several years;

• (e) legacies, large gifts inter vivos and donations between units belonging to different sectors, including legacies or large gifts to NPIs (for example, gifts to universities to cover the costs of building new residential colleges, libraries, laboratories, etc.);

• (f) the counterpart transaction of cancellation of debts by agreement between institutional units belonging to different sectors or subsectors (for example, the cancellation by the government of a debt owed to it by a foreign country; payments in fulfilment of guarantees which free defaulting debtors from their obligations) — except the particular case of taxes and social contributions payable to the general government sector (see 4.165 (j)). Such cancellations by mutual agreement are treated as a capital transfer from the creditor to the debtor equal to the value of the outstanding debt at the time of cancellation. Likewise the counterpart transaction of debt assumption is another capital transfer. However, excluded are:
• 1. cancellation of financial claims against and assumption of liabilities from quasi-corporations by the owner of the quasi-corporation. This case is treated as a transaction in shares and other equity (see paragraph 5.16);
• 1. debt cancellation against and debt assumption from a public corporation by government which disappears as an institutional unit in the system. This case is recorded in the other changes in the volume of assets account (see paragraphs 5.16, 6.29 and 6.30);
• 1. debt cancellation against and debt assumption from a public corporation by government as a part of an ongoing process of privatization to be achieved in a short term perspective. This case is treated as a transaction in shares and other equity (see paragraph 5.16). The writing-off of debt is not a transaction between institutional units and therefore does not appear in either the capital account or the financial account of the system. If the creditor decides such a write-off, it should be recorded in the other changes in the volume of assets accounts of the creditor and the debtor (see paragraph 6.27. d)). Provisions for bad debt are treated as book-keeping entries that are internal to the institutional producer unit and do not appear anywhere in the system. The unilateral repudiation of debt by a debtor is also not a transaction and is not recognized in the system;

• (g) that part of realized capital gains (or losses) which is redistributed to another sector, as, for example, capital gains redistributed by insurance companies to households. However, the counterpart transactions of transfers to general government of the proceeds of privatization made indirectly (through a holding company for example) have to be recorded as financial transactions in shares and other equity (F.5) and have therefore no direct impact on the level of net lending/net borrowing of the general government;

• (h) major payments in compensation for extensive damage or serious injuries not covered by insurance policies (except payments by general government or by the rest of the world described in (a)). The payments may be awarded by courts of law or settled out of court. They include payments of compensation for damage caused by major explosions, oil spillages, the side-effects of drugs, etc.;

• (i) extraordinary payments into social insurance funds made by employers (including government) or by government (as part of its social function), in so far as these payments are designed to increase the actuarial reserves of these funds. The accompanying adjustment from social insurance funds to households is also recorded as other capital transfers (D.99) (see Annex III ‘Insurance’, paragraph 20);

• (j) when taxes and social contributions payable to the general government sector are recorded on the basis of assessments and declarations, the part unlikely to be collected has to be neutralised in the same accounting period. This can be done by an ‘Other capital transfer’ (D.99), inside the specific line D.995, between general government and the relevant sectors. This D.995 flow has to be subdivided according to the coding of the different taxes and social contributions concerned.

• 4.166. Time of recording:

• (a) other capital transfers in cash are recorded when the payment is due to be made;

• (b) other capital transfers in kind are recorded when the ownership of the asset is transferred or the liability cancelled by the creditor.

• 4.167. In the system of accounts, other capital transfers are shown among changes in liabilities and net worth in the capital account of sectors and of the rest of the world.

CHAPTER 5

FINANCIAL TRANSACTIONS

• 5.01. | | | | --- | --- | | Definition: | Financial transactions are transactions in financial assets and liabilities between institutional units, and between them and the rest of the world. |

• 5.02. Considering the definition of a transaction (see paragraph 1.33), a financial transaction is an interaction between institutional units, or between an institutional unit and the rest of the world, by mutual agreement, involving a simultaneous creation or liquidation of a financial asset and the conterpart liability, or a change in ownership of a financial asset, or an assumption of a liability.

• 5.03. Financial assets are economic assets, comprising means of payment, financial claims and economic assets which are close to financial claims in nature.

• 5.04. Means of payment consist of monetary gold, special drawing rights, currency and transferable deposits.

Financial claims entitle their owners, the creditors, to receive a payment or series of payments without any counter-performance from other institutional units, the debtors, who have incurred the counterpart liabilities.

Examples of economic assets which are close to financial claims in nature are shares and other equity and partly contingent assets. The institutional unit issuing such a financial asset is considered to have incurred a counterpart liability.

• 5.05. Contingent assets are contractual arrangements between institutional units, and between them and the rest of the world, which specify one or more conditions which must be fulfilled before a financial transaction takes place. Examples are guarantees of payment by third parties, letters of credit, lines of credit, underwritten note issuance facilities (NIFs) and many of the derivative instruments. In the system, a contingent asset is a financial asset in cases where the contractual arrangement itself has a market value because it is tradable or can be offset on the market. Otherwise, a contingent asset is not recorded in the system ([^E0071]).

• 5.06. Seven categories of financial assets are distinguished: monetary gold and special drawing rights (AF.1), currency and deposits (AF.2), securities other than shares (AF.3), loans (AF.4), shares and other equity (AF.5), insurance technical reserves (AF.6) and other accounts receivable/payable (AF.7).

• 5.07. In the system, each financial asset has a counterpart liability, with the exception of those financial assets classified in the category monetary gold and special drawing rights (AF.1). Six categories of liabilities are distinguished corresponding to the categories of the counterpart financial assets.

• 5.08. The classification of financial transactions corresponds to the classification of financial assets and liabilities. Seven categories of financial transactions are distinguished: transactions in monetary gold and special drawing rights (F.1), transactions in currency and deposits (F.2), transactions in securities other than shares (F.3), transactions in loans (F.4), transactions in shares and other equity (F.5), transactions in insurance technical reserves (F.6) and transactions in other accounts receivable/payable (F.7).

• 5.09. The financial assets held and the liabilities outstanding at a particular point in time (of a sector or the rest of the world) are recorded in the balance sheet (see chapter 7). Financial transactions result in changes in balance sheets. However, the changes between the opening balance sheet and the closing balance sheet may also include other flows (see chapter 6). They are not due to interactions between institutional units, or between them and the rest of the world, by mutual agreement. The other flows are broken down into revaluations in financial assets and liabilities, and changes in the volume of financial assets and liabilities not due to financial transactions. The former are recorded in the revaluation account and the latter in the other changes in the volume of assets account under the categories catastrophic losses, uncompensated seizures, other volume changes in financial assets and liabilities n.e.c., and changes in classifications and structure.

• 5.10. Financial transactions between institutional units are recorded in the financial accounts of the sectors involved. Financial transactions between institutional units and the rest of the world are recorded in the financial accounts of the sectors involved and the external financial account, that is the financial account of the rest of the world (see chapter 8).

The financial account (of a sector or the rest of the world) shows on its left side acquisitions less disposals of financial assets, while its right side shows the incurrence of liabilities less their repayment. The balancing item of the financial account, that is net acquisition of financial assets less net incurrence of liabilities, is net lending (+)/net borrowing (-) (B.9).

• 5.11. The financial account of a sector may be consolidated or non-consolidated. The non-consolidated financial account of a sector shows the changes in financial assets and liabilities due to all financial transactions in which institutional units classified in the sector are involved. The consolidated financial account of a sector shows the changes in financial assets and liabilities due to financial transactions between institutional units classified in the sector under consideration and other institutional units or the rest of the world. Compared to the non-consolidated financial account, the financial transactions between institutional units classified in the sector under consideration are eliminated from the consolidated financial account. The external financial account is consolidated by definition.

• 5.12. A financial transaction between two institutional units increases net lending/net borrowing of one institutional unit and, by the same amount, decreases net lending/net borrowing of the other institutional unit. Financial transactions between institutional units classified in the same sector do not change net lending/net borrowing of the sector. The consolidated and the non-consolidated financial account of a sector show the same amount of net lending/net borrowing. By the same token, financial transactions between institutional units do not change net lending/net borrowing of the total economy. It is of equal amount but opposite sign to net lending/net borrowing in the external financial account. Therefore, total net lending/net borrowing of all institutional units and the rest of the world is zero.

• 5.13. The financial account by debtor/creditor ([^E0072]) (of a sector or the rest of the world) is an extension of the financial account, showing in addition a breakdown of the net acquisition of financial assets by debtor sector and a breakdown of the net incurrence of liabilities by creditor sector. Therefore, it provides information on debtor/creditor relationships and it is consistent with the financial balance sheet by debtor/creditor (see paragraph 7.69). In the case of financial transactions on secondary markets, however, it does not provide information on the institutional units to whom financial assets were sold or from whom financial assets were bought, that is to say the financial account by debtor/creditor provides not a complete answer on the question who is financing whom in an accounting period.

• 5.14. The financial account is the final account, in the full sequence of accounts that records transactions (see chapter 8). Therefore, the financial account does not have a balancing item that is carried forward to another account. In the system, the balancing item of the financial account is identical with the balancing item of the capital account. In practice, a discrepancy will usually be found between them because they are calculated on the basis of different statistical data.

• 5.15. Financial transactions always have counterpart transactions in the system. Those counterparts may be other financial transactions or non-financial transactions.

The simultaneous rise or reduction of both financial assets and liabilities, or the exchange of one financial asset for another are recorded wholly within the financial account (of a sector or the rest of the world). In cases where a transaction and its counterpart are both financial transactions, they change the portfolio of financial assets and liabilities and they may change the totals of both financial assets and liabilities of the institutional units involved or the rest of the world, but they do not change net lending/net borrowing or net worth.

The counterparts of financial transactions may also be transactions in products (see chapter 3), distributive transactions (see chapter 4) or transactions in non-financial non-produced assets (see paragraph 6.06). In cases where the counterpart transaction of a financial transaction is not a financial transaction, net lending/net borrowing of the institutional units involved or the rest of the world will change.

• 5.16. The counterpart transaction of a financial transaction may be a (current or a capital) transfer (see chapter 4). In this case, the financial transaction involves a change in ownership of a financial asset, or an assumption of a liability as debtor (debt assumption), or the simultaneous liquidation of a financial asset and the counterpart liability (debt cancellation or debt forgiveness). The counterpart transaction of debt assumption and debt cancellation is classified in the category capital transfers (D.9) and is recorded in the capital account.

If the owner of a quasi-corporation assumes liabilities from or cancels financial claims against the quasi-corporation, the counterpart transaction of debt assumption or debt cancellation is a transaction in shares and other equity (F.5).

If government cancels or assumes debt from a public corporation which disappears as an institutional unit in the system, no transaction is recorded in the capital account or the financial account. In this case a flow is recorded in the other changes in the volume of assets account (chapter 6, ‘Other flows’).

If government cancels or assumes debt from a public corporation as part of an ongoing process of privatization to be achieved in a short term perspective, the counterpart transaction is a transaction in shares and other equity. Privatization means the giving up of control over that public corporation (see paragraph 2.26) by the disposal of shares and other equity. Such a cancellation or assumption leads to an increase of the own funds (see paragraph 7.05), regardless as to whether or not this increase of the own funds is due to an issue of shares and other equity.

The writing-off or writing-down of bad debts by creditors and the unilateral cancellation of a liability by a debtor (debt repudiation) are not classified as financial transactions because they do not involve interactions between institutional units, or between institutional units and the rest of the world, by mutual agreement. The writing-off or writing-down of bad debts by creditors is recorded in the other changes in the volume of assets account (see paragraph 6.27. d). Debt repudiation is not recognized in the system.

• 5.17. The counterpart transaction of a financial transaction may be interest (D.41). Interest is receivable by the creditors and payable by the debtors of certain kinds of financial claims classified in the categories currency and deposits (AF.2), securities other than shares (AF.3), loans (AF.4) and other accounts receivable/payable (AF.7). In the system, interest is recorded on an accrual basis, that is to say interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding (see paragraph 4.50). The counterpart transaction of an entry in interest (D.41) is always a financial transaction creating an additional financial claim of the creditor against the debtor. The effect of this financial transaction is that interest is reinvested. The actual payment of interest is not recorded in interest (D.41), but it involves a transaction relating to the change in ownership of the means of payment. The counterpart transaction is a financial transaction reducing the net financial claim of the creditor against the debtor. When accrued interest is not paid when due, this gives rise to interest arrears. As accrued interest is already recorded in the system, interest arrears do not change the total of financial assets or liabilities but possibly their classification (see paragraph 5.131).

• 5.18. The counterpart transaction of a financial transaction may be property income allocated but not distributed. Examples are interest (D.41) and dividends (D.421) received by mutual funds from the investments they have made and which are allocated but not distributed to shareholders (see paragraphs 4.49. b and 4.54. b), reinvested earnings on direct foreign investment (D.43) and property income attributed to insurance policy holders (D.44) in case of individual life insurance policies not taken out under social insurance schemes. The effect of the counterpart financial transaction is that the (positive or negative) property income is reinvested.

CLASSIFICATION OF FINANCIAL TRANSACTIONS

• 5.19. The financial transactions are classified in categories subdivided into sub-categories and some of which are further subdivided into sub-positions. The classification of the transactions in financial assets and liabilities corresponds to the classification of financial assets and liabilities (see paragraphs 5.06 to 5.08). Therefore, the definitions of the categories, sub-categories and sub-positions and the supplementary explanations are provided only once in the ESA — in this section of the financial transactions chapter. The balance sheets chapter does not repeat the definitions and their explanations in its main text but it provides in its Annex 7.1 a summary of all assets and liabilities defined in the system.

• 5.20. The classification of financial transactions and of financial assets and liabilities is based primarily on the liquidity and the legal characteristics of the financial assets. The classification does not contain functional categories with the exception of a memorandum item related to direct foreign investment. The definitions of the categories, sub-categories and sub-positions are in general independent of the classification of institutional units. As the need arises, however, the classification of financial assets and liabilities can be further detailed by a cross-classification with the classification of institutional units. The class deposits between monetary financial institutions would be an example. The detail in which the classification of financial assets and liabilities may be employed depends on the institutional sector to be analysed.

Table 5.1 — Classification of financial transactions

Classification of financial transactions	Code	Code	Code
Monetary gold and special drawing rights (SDRs)	F.1
Monetary gold		F.11
Special drawing rights (SDRs)		F.12
Currency and deposits	F.2
Currency		F.21
Transferable deposits		F.22
Other deposits		F.29
Securities other than shares	F.3
Securities other than shares, excluding financial derivatives		F.33
Short-term			F.331
Long-term			F.332
Financial derivatives		F.34
Loans	F.4
Short-term		F.41
Long-term		F.42
Shares and other equity	F.5
Shares and other equity, excluding mutual funds shares		F.51
Quoted shares			F.511
Unquoted shares			F.512
Other equity			F.513
Mutual funds shares		F.52
Insurance technical reserves	F.6
Net equity of households in life insurance reserves and in pension funds reserves		F.61
Net equity of households in life insurance reserves			F.611
Net equity of households in pension funds reserves			F.612
Prepayments of insurance premiums and reserves for outstanding claims		F.62
Other accounts receivable/payable	F.7
Trade credits and advances		F.71
Other		F.79
Memorandum item: Direct investment	F.m	F.m	F.m

• 5.21. Analyses of the monetary policy transmission channels may require to identify measures of money in the balance sheets and also in the financial accounts of the sectors and the rest of the world. However, the definitions of the measures of money applied vary among countries and in time. In addition, they are composed of components which in most of the cases do not correspond with the categories, sub-categories or sub-positions of financial assets and liabilities as defined in the system. Moreover, the money-creating, money-holding and money-neutral sectors depend on the definition of the monetary aggregate under consideration. Therefore, measures of money are not defined in the system. Nevertheless, a method is provided in the Annex 5.1 to this chapter which allows any measure of money in the balance sheets and the financial accounts to be shown.

• 5.22. Innovations in financial markets have diminished the usefulness of a short-term/long-term distinction for financial assets and liabilities. However, when maturity analysis is important, such as for analysis of interest rates and asset yields, a breakdown of a range of maturities may be required. Therefore, maturity distinction is recognized as a secondary classification criterion when relevant.

Definition	:	Short-term financial assets (liabilities) are financial assets (liabilities) whose original maturity is normally one year or less, and in exceptional cases two years at the maximum ([^E0073]) Long-term financial assets (liabilities) are financial assets (liabilities) whose original maturity is normally more than one year, and in exceptional cases more than two years at the minimum.

• 5.23. Many of the categories, sub-categories and sub-positions of the financial assets and liabilities may be broken down by the units in which they are denominated.

Definition:	Financial assets (liabilities) in national currency are financial assets (liabilities) which are denominated in the currency unit(s) of the country's legal tender. Financial assets (liabilities) in foreign currency are financial assets (liabilities) which are not denominated in the currency unit(s) of the country's legal tender.

Financial assets in foreign currency include financial assets denominated in a currency basket, for example ecus or SDRs, and financial assets denominated in gold. A distinction between national and foreign currency is particularly useful for the category currency and deposits (AF.2).

MONETARY GOLD AND SPECIAL DRAWING RIGHTS (SDRs) (F.1)

• 5.24. Category F.1 consists of two sub-categories of financial transactions:

• (a) monetary gold (F.11);

• (b) special drawing rights (SDRs) (F.12).

• 5.25. The financial assets classified in the category monetary gold and SDRs (AF.1) are the only financial assets for which there are no counterpart liabilities in the system. Therefore, transactions in monetary gold and SDRs (F.1) always involve changes in ownership of financial assets (see paragraph 5.02).

Monetary gold (F.11)

• 5.26. | | | | --- | --- | | Definition: | The sub-category monetary gold (F.11) consists of all transactions in monetary gold (AF.11) that is gold held as a component of foreign reserves by monetary authorities or by others who are subject to the effective control of the authorities. |

• 5.27. The monetary authorities sector, which is based on a functional concept, consists of the subsector the central bank (S.121) and central government institutions which carry out operations usually attributed to the central bank. Such operations include the issue of currency, maintenance and management of international reserves and the operation of exchange stabilization funds.

Therefore, gold can normally be a financial asset only for the central bank or central government. However, in some circumstances, other financial corporations may hold title to gold that can only be sold with the specific consent of the monetary authorities. In such restricted circumstances, the concept of effective control can be applied to the gold holdings of financial corporations other than the central bank.

• 5.28. Monetary gold normally takes the form of bars with a purity of at least 995/1000.

• 5.29. Transactions in monetary gold consist predominantly of sales and purchases of monetary gold among monetary authorities. Purchases of monetary gold are recorded in the financial accounts of the domestic monetary authorities as increases in financial assets. The counterpart entries are decreases in financial assets of the rest of the world.

• 5.30. Transactions in non-monetary gold, that is in gold other than monetary gold, are treated as acquisitions less disposals of valuables (if the sole purpose is to provide a store of wealth) and otherwise as final or intermediate consumption and/or change in inventories. Transactions in non-monetary gold include transactions by the monetary authorities in gold that is not a component of their foreign reserves.

• 5.31. If monetary authorities add non-monetary gold to their holdings of monetary gold or release monetary gold from their holdings for non-monetary purposes, they are deemed to have monetized or demonetized gold, respectively. Monetization or demonetization of gold does not give rise to entries in the financial accounts; instead, the change in balance sheet positions is accounted for by entries in the other changes in the volume of assets account as a reclassification, i.e. the reclassification of gold as valuables (AN.13) to monetary gold (AF.11) (see paragraph 6.32). Demonetization of gold is recorded symmetrically.

• 5.32. Deposits, securities and loans denominated in gold are treated as financial assets other than monetary gold and are classified along with similar financial assets in foreign currency in the appropriate category.

Non-monetary gold swaps, that is arrangements involving the temporary exchange of non-monetary gold for deposits, are treated as collateralized loans (see paragraph 5.81. e).

Special drawing rights (SDRs) (F.12)