New Calculation of International Reserves

The calculation of international reserves has been revised in accordance with current International Monetary Fund (IMF) guidelines. These guidelines specify that reserve assets (also referred to as gross international reserves) are those foreign assets that are readily available to and controlled by monetary authorities for meeting balance of payments needs and maintaining economic stability. Given the need to be readily available, reserve assets must be liquid, denominated and settled in freely-usable (or widely-accepted) foreign currencies. N.b. As a general rule, freely-usable currencies are deemed as currencies that are commonly traded on international foreign exchange markets. Examples of freely-usable currencies include the US dollar, the Euro, the Chinese renminbi, the Japanese yen, the British pound sterling, the Canadian dollar and the Swiss franc.

Assets that are encumbered, such as pledged assets, are not readily available and therefore are excluded from reserve assets. Regional bilateral assets, which are generally receivables, are also excluded.

Following the conventions discussed above, illiquid assets and other non-reserve foreign assets are subtracted from total foreign assets of Barbados’ Monetary Authorities to arrive at gross international reserves (GIR). Nonetheless, it should be noted that these non-reserve foreign assets can be used to settle cross-border transactions in particular situations.

In line with current methodology, GIR is now being used in the presentation of Barbados’ balance of payments (BOP) statistics. Before the revision, a net concept of international reserves was used. (The old calculation of international reserves was: Monetary Authority’s total foreign assets minus short-term foreign-currency liabilities.)

For the purposes of the IMF Programme Quantitative Performance Criteria, a new measure of net international reserves (NIR) was established. This new measure of net reserves is derived by subtracting short-term foreign-currency liabilities of the Monetary Authorities and the stock of IMF credit from GIR. As such, the NIR is unaffected by IMF loan disbursements and repayments. It is worth noting that unlike GIR, there is no standard definition of NIR.

Both GIR and NIR are acceptable measures of international reserves, and are critical indicators of external sector stability and resilience. The GIR is now used in the computation of the import reserve cover. Table 1 compares the new calculation of international reserves to the old measure. 

* Includes foreign assets in Central Bank-staff pension fund as well as Government of Barbados foreign sinking funds