Finances & Operations
ESF Assets
and Liabilities
The following lists show the types of assets and liabilities
that are on the ESF's balance sheet. These balance sheet
items are described below. The latest ESF financial statements
are also available.
Assets
- Special Drawing Rights
- U.S. Government Securities
- Euros
- Yen
Liabilities
- SDR Allocations
- SDR Certificates
US Government Securities.
Under current Treasury policy, the ESF's dollar funds are
invested in one-day, non-marketable US Treasury securities,
redeemable on demand, bearing interest at a market-related
overnight rate of return.
SDRs.
US holdings of SDRs and transactions in SDRs are for the
ESF's account. Currency payments for purchases of SDRs,
payments of charges and assessments and receipts of interest
on SDR balances are also for the ESF's account.
Yen and Euros.
The ESF's foreign currency assets are invested in foreign
central bank deposit accounts and marketable investments
in foreign government securities. Currently, these deposits
and securities are only yen- and euro-denominated.
The ESF's foreign currency portfolio includes cash accounts
at official institutions, securities issued by foreign governments,
and, in the case of euros, investments through repurchase
agreements in foreign government securities.
SDRCs.
Under the Special Drawing Rights Act of 1968, the Secretary
of the Treasury is authorized to issue SDRCs to the Federal
Reserve in return for dollars. The dollars received increase
the ESF's assets, but with a corresponding increase in liabilities
in the form of the SDRCs that are issued. Treasury has a
written understanding with the Fed that the SDRCs will be
redeemed when ESF dollar holdings appear to be in excess
of foreseeable requirements. Treasury does not pay interest
on SDRCs.
SDR Allocations.
SDR allocations are a liability of the ESF. However, the
ESF would have to repay them only if the IMF decided to
cancel allocations, the US withdrew from participating in
the SDR Department, or the IMF itself was dissolved. Members
of the SDR Department are charged interest on their SDR
allocations and receive interest on their SDR holdings.
Because the ESF's SDR holdings are greater than allocations,
the ESF receives net interest on its SDR position.
The ESF's SDR holdings came to exceed its SDR allocations
primarily as a result of net acquisitions of SDRs by the
ESF in transactions with other IMF members over the years.
These issues are further discussed in Treasury's
quarterly report to Congress on the cost of US participation
in the IMF.
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How The ESF Operates.
The ESF can undertake three main types of operations --
the purchase or sale of foreign currency, the acquisition
or use of SDRs, and loans or credits to foreign governments
or entities. Also, the ESF can also enter into "warehouse"
swaps with the Federal Reserve System, but there have been
no warehouse swaps outstanding since 1992. Each of the types
of operations is described below.
Purchase or Sale of Foreign Currency.
When the Secretary of the Treasury authorizes intervention
in the foreign exchange market, the ESF enters the market
to purchase or sell foreign currencies against dollars.
As fiscal agent of the ESF, the Federal Reserve Bank of
New York (FRBNY) executes the actual trading of foreign
currencies and dollars for the account of the ESF, handles
the "back office" documentation of the trades,
and invests ESF foreign currency balances. The foreign currency
assets of the ESF are invested by FRBNY either in marketable
foreign government securities or in demand and time deposit
instruments provided by foreign central banks. Dollars held
by the ESF are invested in non-marketplace Treasury securities
by Treasury's Bureau of Public Debt.
Acquisition or Use of Special Drawing Rights.
The SDR holdings of the United States are resources of the
ESF. From time to time, the ESF may sell SDRs to or buy
SDRs from other IMF member countries; usually, these transactions
are arranged by the IMF. Also, SDRs have been used in paying
the reserve asset portion of some past IMF quota increases.
Treasury may issue SDRCs to the Federal Reserve, against
the ESF holdings of SDRs, in return for dollars for purposes
of financing SDR acquisitions or exchange stabilization
operations.
Loans or Credits.
The ESF can make loans or credits through temporary swap
lines pre-negotiated with a prospective borrower. The ESF
maintains a standing $3 billion short-term swap line, the
Exchange Stabilization Agreement, with Mexico under the
1994 North American Framework Agreement.
When a loan in the form of a "swap agreement"
is drawn upon by the borrower, an agreed amount of ESF dollars
is exchanged for an equivalent amount of the borrower's
currency at an agreed exchange rate (generally, the current
spot exchange rate) with a commitment to reverse the transaction
at the same exchange rate at maturity. Treasury has the
right at any time to terminate the swap agreement and require
immediate repayment of the total amount drawn.
From the mid-1970s to the early 1990s, almost all ESF
credits were swap agreements providing "bridge"
loans, i.e., short-term in maturity and expressly linked
to, and repaid by a scheduled disbursement from an IFI (usually
the IMF). However, the rationale for classic bridge loans
diminished at the end of the 1990s, when the IMF and World
Bank developed procedures allowing for more rapid disbursement
of resources. When the ESF provided financial support for
Mexico in 1995, it was through a medium-term credit. More
recently, medium-term support was provided in 1998 through
the ESF's participation in a multilateral guarantee of a
Bank for International Settlements credit facility for Brazil.
Under the ESF statute, "a[n ESF] loan or credit to
a foreign entity or government of a foreign country may
be made for more than 6 months in any 12-month period only
if the President gives Congress a written statement that
unique or emergency circumstances require the loan or credit
be for more than 6 months." Such notifications were
provided regarding ESF credit exposure to Mexico in 1982,
to Mexico in 1995, and to Brazil in 1998.
Warehousing.
The Federal Open Market Committee of the Federal Reserve
can permit the Treasury to "warehouse" some amount
of foreign currency, if needed and appropriate, with the
Federal Reserve System for the purposes of making more dollar
resources available for ESF operations. Warehousing arrangements
have only been used in a few specific instances.
In a warehousing transaction, the ESF makes a spot sale
of foreign currency to the Federal Reserve System and simultaneously
commits to repurchase the currency at a market-determined
forward price on a specific future maturity date. Authorization
to conduct warehousing operations has been renewed annually
by the FOMC as a part of its foreign currency directive
to the Federal Reserve Bank of New York for the System Open
Market Account. The limit on warehousing is $5 billion,
but this limit was temporarily raised to $10 billion in
1989 and $20 billion in 1995. The last use of the warehousing
arrangement was during the period 1988-1992.
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Last Updated: March 28, 2007