1993 SNA Update Information - AEG recommendations for issue:
Treatment of index linked debt instruments
|Issue description in [English] | [French] | [Russian] | [Spanish]|
|Treatment of index-linked debt instruments|
The guidance in the1993 SNA about how transactions relating to index-linked debt instrument is
not precise. When the principal is indexed, the redemption value is not known until maturity; as a
result, interest flows are not known before maturity. What should be recorded for interest and
principal repayment in the period before maturity? Further, for some instruments, the indexation
may lead to valuation gains. How should these be recorded?
Debt indexed to a foreign currency
For debt instruments with both principal and coupons indexed to a foreign currency, the currency of account is important for distinguishing transactions from holding gains and losses. These may be different from an assessment made on the basis of the currency of settlement. Does this mean that debt indexed to foreign currency should be treated in the same way as foreign currency debt, that is as if denominated in foreign currency?
|Number of AEG recommendations for selected issue:||2|
| Corresponding meeting||Date posted||Recommendation|
| July 2005||9/12/2005||Interest on index-linked debt instruments |
By a slight majority the AEG opted for a dual approach of using option (a) or option (c) depending on the circumstances. In so doing, the AEG recommended that guidance be provided in the updated SNA on the situations in which one or the other of these options would be preferred. Broadly, option (a) would be recommended in situations in which a broad index is used, one expected to change relatively smoothly over time (such as when the CPI is involved) while option (c) would be used when a narrow index is used with the possibility of volatile movements (e.g. when the index relates to commodities).
The AEG recognised that option (c) requires a change to be made to the SNA.
| July 2005||9/12/2005||Debt instruments indexed to a foreign currency|
The AEG agreed with the BOPCOM conclusions that:
(a) debt instruments with both principal and coupons indexed to a foreign currency should be classified and treated as being denominated in that foreign currency; and
(b) the currency of account and currency of settlement should be clearly distinguished in the new manuals.