Discuss on BIS's proceeding regarding data procurement in objectives such as a surveillance against AMF/CFT and financial stability. An investigation of the recent evolution of financial landscape is included.

1. BIS & Balance of Payment
Kan Yuenyong
February, 11, 2021
GSPA
NIDA DA8410: Fiscal and Monetary Policy Analysis
Keywords: KYC, AML/CFT, DeFi, FinTech, RegTech, GFS (Global Financial System), ABCD (AI, Big Data, Cloud, Distributed Ledger Tech)

2. https://doi.org/10.1111/1758-5899.12041

3. https://www.icij.org/investigations/paradise-papers/advocates-celebrate-major-us-anti-money-laundering-victory/

4. https://ace.globalintegrity.org/shellcompanies /

5. In the AML/CFT context, the term “typologies” refers to the various techniques used to launder money or finance terrorism. Criminals are very creative in developing
methods to launder money and finance terrorism. Money laundering and terrorism financing typologies in any given location are heavily influenced by the economy,
financial markets, and anti-money laundering/counter financing of terrorism regimes. Consequently, methods vary from place to place and over time.
https://www.imf.org/external/np/leg/amlcft/eng/aml1.htm

6. Money Laundering Typologies: https://www.gov.je/SiteCollectionDocuments/Crime%20and%20justice/
R%20Money%20laundering%20typologies%20and%20trends%20Jersey%2020150115%20LB.pdf

7. The digital underground economy: a social network approach to understanding cybercrime
https://www.semanticscholar.org/paper/The-digital-underground-economy%3A-a-social-network-Yip-Shadbolt/
89372e16d49ea36c1dd71e6842540366fd226695

8. DISRUPTING RESILIENT CRIMINAL NETWORKS THROUGH DATA ANALYSIS: THE CASE OF SICILIAN MAFIA
https://www.researchgate.net/publication/339873410_Disrupting_Resilient_Criminal_Networks_through_Data_Analysis_The_case_of_Sicilian_Mafia

9. Sicario: Day of the Soldado (2018)
Matt Graver : Just to be clear, you wanna see this thing through, I'm gonna have to get... dirty.
James Riley : Dirty is exactly why you're here.

10. Committee investigation on 2016 presidential election [on Russian folder]
https://www.rferl.org/a/how-much-did-russian-spy-agencies-
rely-on-bitcoin-new-hints-in-leaked-recordings-/30297083.html

11. FBI releases operation 'Ghost Stories' files on ring of
Russian sleeper agents including never-before-seen video
and photos of spy-turned lingerie model Anna Chapman
https://www.dailymail.co.uk/news/article-2055788/Anna-
Chapman-FBI-release-video-Russian-spy-turned-lingerie-
model-work.html

12. With a name like Blue Lantern, you might expect us to wear capes. While you’re unlikely to see anyone in masks or spandex in our office, make
no mistake: we fight crime and protect the United States’ national security. Blue Lantern is the name for the Department’s end-use monitoring
program, which works around the world to keep U.S. made defense products from falling into the wrong hands.
http://2007-2017-blogs.state.gov/stories/2016/08/26/blue-lantern-fights-illegal-arms-trafficking.html
A group of U.S.-made M60 machine guns owned by the Paraguayan military lined up
for inspection during a Blue Lantern check by U.S. Embassy personnel.
[State Deparment photo]

13. Behind the curtain: The illicit trade of firearms,
explosives and ammunition on the dark web
https://www.researchgate.net/publication/
318570855_Behind_the_curtain_The_illicit_trade_of_fire
arms_explosives_and_ammunition_on_the_dark_web
The dark web is an enabler for the circulation of illegal weapons
already on the black market, as well as a potential source of
diversion for legally owned weapons.Although the arms trade is
small in volume compared to other products trafficked online, its
potential impact on international security is significant.
https://www.rand.org/randeurope/research/projects/international-
arms-trade-on-the-hidden-web.html

14. The former The Economist’s editor, Bill Emmott’s question regarding capitalism:
unpopular, unstable, unequal and unclean
http://billemmott.com/books/2021-vision-twentieth-century-lessons-for-the-twenty-first-century/

15. https://www.intereconomics.eu/contents/year/2020/number/1/article/libra-a-differentiated-
view-on-facebook-s-virtual-currency-project.html

16. Decentralized Finance Is a Continuum: A fintech VC’s case for the end of Industrial-era finance
https://medium.com/@SeanLippel/decentralized-finance-is-a-continuum-179d43c6ef65

17. https://www.payments.ca/industry-info/our-research/payments-
perspectives/how-cross-border-payments-are-evolving
As mentioned above SWIFT had disconnected all Iranian banks from its
international network as a sanction against Iran. However, as of 2016
Iranian banks which are no longer on international sanctions lists were
reconnected to SWIFT. Even though this enables movement of money
from and to these Iranian banks, foreign banks remain wary of doing
business with the country. Due to primary sanctions, transactions of U.S.
banks with Iran or transactions in U.S. dollars with Iran both remained
prohibited.
Similarly, in August 2014 the UK planned to press the EU to block
Russian use of SWIFT as a sanction due to Russian military intervention
in Ukraine. However, SWIFT refused to do so. SPFS, a Russia-based
SWIFT equivalent, was created by the Central Bank of Russia as a
backup measure.
In 2014, SWIFT rejected calls from pro-Palestinian activists to revoke
Israeli banks' access to its network.
Alternatives to the SWIFT system include:
INSTEX – sponsored by the EU
CIPS – sponsored by China
SPFS – sponsored by Russia
Ripple (payment protocol) - sponsored by Ripple Labs Inc.
https://en.wikipedia.org/wiki/
Society_for_Worldwide_Interbank_Financial_Telecommunication
Note: BAHTNET (Bank of Thailand Automated High-value Transfer
Network) is a financial infrastructure serving for Real-Time Gross
Settlement (RTGS) of large value funds transfer between financial
institutions or other organizations maintaining deposit accounts at the
Bank of Thailand (BOT).

18. Irving Fisher Committee on Central Bank Statistics
IFC Working Papers No. 12: Balance of Payments Statistics
Abstract of proceedings of a workshop organized in cooperation with the Bank
of France held in Paris on 28 February - 1 March 2013, edited by Jacques
Fournier
January 2014

19. https://www.youtube.com/watch?v=axz6pMh2buo

20. BIS: Reparation -> Nazi’s Bank -> Facilitator among the central banks to pursue
for international financial stability

22. -500,000.00
0.00
500,000.00
1,000,000.00
1,500,000.00
2,000,000.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 p2020 p
Thailand BOP & Curent Account
(+) Capital & Finance Account
Normally, a “double
deficit” (current
account & fiscal
budget) will lead to
macroeconomics
instability
Y = C + I + G + (X - M)
Y = C + S + T
S + T = I + G + (X - M)
(S - I) + (T - G) = (X - M)
(negative) (T - G) = Budget Deficit
Budget Deficit by GDP
net export
net export
net export
(-) Current Account
(+) Balance of Payment
therefore,
https://www.bot.or.th/English/Statistics/EconomicAndFinancial/Pages/StatFinancialAccount.aspx
Fiscal Budget

23. Thailand FX reserve: CA + FDI & Portfolio investment
THB Exchange rate, caused from FX reserve only? (too high? too low? ok?)

24. The rebalancing debate has sparked renewed interest in Japan’s experience since the 1980s. Some argue
that this is a cautionary tale, exemplifying the dangers of reorienting economies through currency
appreciation (People’s Daily, 2010). They claim that the appreciation of the yen after the Plaza Accord
forced the authorities to introduce an offsetting macroeconomic stimulus, which then led to an extraordinary
asset price boom followed by an extraordinarily painful bust. Japan was one of the world’s fastest-growing
economies for three decades but has averaged only 1.1 percent real GDP growth since 1990, while prices
have steadily declined. Consequently, the size of Japan’s economy today is about the same as in the early
1990s. The sequence of events is clear and striking. But there are reasons to doubt that it was truly
inevitable, whether the Plaza Accord was really the direct cause of Japan’s “Lost Decades.”

26. https://mgronline.com/daily/detail/9630000097752
https://www.thaipost.net/main/detail/92447
“Thailand’s financial status is robust, no bankruptcy,
thanks to the surplus of FA” (implies prudential
macroeconomics stability” (July 24, 2020)
“Our Baht exchange rate is too strong. Thai
investors should help making investment.
We have too much surplus of FA & CA. But
the investors yet to have some
confidence.” (implies problem in exports)
(February, 9, 2021)
(S - I) + (T - G) = (X - M)

27. Solving the contradiction between excessive FX & high exchange rate -> SWF? Beware Political Economy of SWF:
Financial data reported by Temasek Holdings and Singapore reveal problematic characteristics. First, Temasek reports an average annual return
of 16% for 40 years despite Singaporean and global stock returns averaging less than 8% during this same time period. Given the range of stock
market returns and its portfolio companies’ returns, it is difficult to reconcile claimed returns. Second, Singapore has become one of the most
indebted countries in the world despite supposedly running large and sustained government surpluses. Given publicly available economic data
on Singaporean finances, there is an expected asset gap of more than $800 billion SGD unaccounted for from historical surpluses and financing
operations when factoring in claimed interest. Third, given total Singaporean net incurrence of liabilities plus operational surpluses since 1974 of
$822 billion SGD and balance sheet holdings of $834 billion SGD, the returns claimed by Temasek and GIC cannot be reconciled. This leaves a
few scenarios. Either financial returns have been drastically overstated, there are large unreported Singaporean asset holdings, or significant
unreported financial leakages have reduced investment capital. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2657386

28. https://www.gotoknow.org/posts/591807

29. • How recent institutional and economic changes do impact external sector statistics
(5a, 5c)
• How to deal with specific items that prove difficult to compile (5d, 6, 1, 3c)
• Where we stand regarding the ever-improving technicalities in compilation (5b, 5c,
3b)
• How to improve the reliability and relevance of balance of payments as a global
statistical account (2, 3a, 4)
• How structural, institutional and technical changes interact to influence the practices
of statisticians.
• Sixth Edition of the IMF's Balance of Payments and International Investment Position
Manual (BPM6) https://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm
Four Debates

30. • The dismantling of exchange controls has a major impact on the
compilation processes based on International Transaction Reporting
Systems (ITRS), i.e. reporting by banks of their customers’ cross-border
transactions.
• The financial crisis led to a burst in the demand for statistics, not least
through the G20 data gaps initiative.
• New consistency challenges -> Internal (BOP, International Investment
Position, FDI, Foreign Affiliates Trade Statistic, International Trade in
Service Statistics, International Banking Statistics, External Debt
Statistics) + External namely with the national accounts.
• Needs more active and enlarge network of BOP compilers
Two other concerns

31. • Multiplication of subsidies of branches abroad + Multiplication of
related financial flows that underlie management decisions (i.e.
investment, working capital financing, cash-pooling and optimization
of market financing)
• BPM5 -> Assets/Liabilities and the directional principle
• BPM6 -> Assets/Liabilities and the extended directional principle
• Asymmetries could be related to the methods for calculating retained
earnings, the position of the Irish Affiliates in the organization of
Multinational Companies (MNCs), transfer pricing and payments for
intellectual property assets.
1- Direct Investment Flows and Incomes

32. • Bilateral flow shouldn’t make asymmetries between BOP of each country, i.e.
mismatch between export & import, esp in Euro area
• Possible causes: Indirect trade of third party-country (between China &
Indonesia)
• IMTS (International Merchandise Trade Statistics) -> country of original
(import) + country of last known destination (export)
• Other possible causes: coverage (subject to customs declaration), unrecorded
transaction (illegal?), valuation (CIF/FOB), merchanting (margin value), time lag
and declaration errors
• Need to enhancing methodological harmonization between countries, revising
data collection models, and fostering common solutions.
2- Asymmetries in mirror data: a problem to be
solved or a piece of information?

33. • Cumulative level of errors = problem in financial account, (see in time-series of
net flows in fa + “errors and omissions”) esp during size of balance sheets is
expanding quickly
• Identify changing patterns of market infrastructure on flows in securities + large
value payments. Check 1) institutional investors’s behavior + relationship with
the custodians, 2) major issuances of gov securities
• Possible cumulated unmeasured flows causes by households + SME
• How to address real flows of current account caused by large MNE, or intra-
group flows related to Direct Investment.
• Investigate more impact on BOP caused by repos, short selling, intra-group
transactions
3a- Net errors and omissions: respective role of
primary data and allocation policy

34. • Best practices on interest and limitations of the production of early estimates for BOP
statistics -> sooner, quicker to attain solution
• Brazil -> early estimates of BOP relevance on prevent, detect and react to crisis.
Main source = online ITRS based on FX settlement (flexible enough to support
BPM6). Proved by 2008/2009 crisis.
• Italy -> constraints on data and the existence of benchmark data
• Thailand -> rely less on ITRS more on surveys, administrative data and data models,
BOP forecasts for analytical purpose also available (for internal MPC meeting only,
projected 8 quarters ahead), using GDP (nominal/real), major trading partners’ GDP,
CPI, hedging ratio.
• Roles of estimates of BOP: a) fill in gaps of information during the production cycle,
b) get earlier BOP if extended periodicity, c) forecasting purpose
3b- Early estimates for BOP: feasibility/robustness*

35. • The alignment of the methodology for statistics on goods -> BOP & National
Account to guarantee the consistency between BPM6 & System of National
Accounts (SNA) 2008. -> very important to internationalization of the value chain
• Factors to re-estimation of the CA and GDP: misrepresented industries,
improvement of data captured ITRS, signify transaction outside custom data
(3rd country acts as the processing country), computation of proper deflator on
services, update and refine input-output tables -> needs to negotiate between
customs agencies + industry
• To better understand international trade pattern: BOP compilers get some
information on gross flows in goods + improved net flow information
• Some improvement might based on estimates (computed from structural
surveys), i.e. to distinguish income related to the processing and merchanting
3c- Compilation of statistics on good for processing,
as outlined in BPM6 and its impact on GDP

36. • Modern world economy = imbalance in CA and very slow in reduction of this imbalance,
relationship between CA imbalances vs competitiveness
• Unit Labor Costs (ULC) -> starting point for competitiveness analysis
• Need to monitor both ULC in manufacturing & services sector (dificult to assess market
services)
• Price inelastic + non-price competitiveness should be considered
• Poland: decreasing ULC = higher increasing in productivity > labour costs (+ high rate FDI)
• Increasing ULC -> CA deficit following a shock from imbalance between savings and
investment; reversal of capital flows -> rebalancing on CA
• Beware “double counting” in trade low, value added regarding each flow might be different,
OECD TIVA (trade in value added) project acmes addressing this issue.
4- BOP as an indicator of imbalances or
competitiveness: robustness

37. • Additional sets of data apart of BOP, i.e. FDI, International Investment Position (IIP),
Foreign Affiliates Trade Statistics (FATS), Coordinated Investment Portfolio Survey
(CPIS), International banking statistics, Service by Mode of Supply
• Ambiguity in residence boundaries + fragmented production chaines accrocs
countries
• More demand in surveillance, analysis of globalization, policy-making in the areas of
taxation, trade negotiation, liberalization, infrastructural development, etc.
• Should develop “demand control mechanism” in a more systematic and organized
manner both on demand side (prioritization, integration, “one-in, one-out) & supply
side (micro-data collection system)
• Shifting from BOP statistics -> external sector statistics, “multi-source - multi-
purpose” framework
5a- BOP data and new initiatives in statistics - data
gaps/banking statistics, statistics on trade in services

38. • External sector statistics: BOP, IIP, External Debt Statistics (EDS), FDI, International
Banking Statistics (IBS), International Trade on Service Statistics (ITSS), also include
National Accounts, Monetary and Financial Statistics, and Government Financial
Statistics.
• Integration not an objective per se but help improving statistical framework to boost the
analytical potential of the data.
• Need to improve consistency, i.e. legal constraints to streamline data collection framework
and share raw data between agencies, teams with different trainings and backgrounds,
and diversity and volatility of the expectations from users
• Guideline in covering methodologies and compilation, i.e. SDDS -> unification of
dissemination rules, SDMX DSD -> standardize the data provision
• Should setting up common references tables, shared infrastructures, and flexible data
warehouses, joint survey may help
5b- An integrated approach of external sector
statistics: country experiences

39. • Sharing of experience
• Should concern on “mix and balance” between complexity + internationalization,
and the different constraint and objectives (costs, data quality and reporting burden)
• Brazil - Internatonal Transactions Reporting System (ITRS) is still main data source to
compile flows, collected via Electronic Registration System (RDE) of foreign capital
• Germany - Single European Payment Area (SEPA) framework in 2008 simplified
banks transfers -> improve efficiency of cross-border payments. Enterprises’
behavior changed in 2000s (netting, cash pooling), large pat of statistical
information was not transmitted with SEPA and no report from banks. Bundesbank
collect information directly from enterprises (via an electronically reporting
mandatory system) to conform BPM6.
5c- Data collection techniques: trends and issues

40. • France - data collection for the French Balance of Payments trade in
services: ITRS -> direct reporting system based on a generic
business survey (Enquête Complémentaire sur les Echanges
Internationaux de Services: ECEIS survey).
• Turkey - legal framework and methodology to conform with IMF’s
BPM5 and United Nations Statistics Division (UNSD)’s Manual on
Statistics of International Trade in Services (MSITS). Major sources
of data: ITRS (tends to be less), direct reporting and administrative
data (tends to be more in the future)
5d- Compiling data on cross-border services

41. • Impact on BOP statistics caused from structural financial changes, i.e. banking business model,
deleveraging, globalization and “deglobalization” dialectics, shadow banking and new market infrastructures
• Cross-border derivatives transactions (although addressed in BPM6) have been practiced significantly
different from country to country
• Challenges: new data sources integration (nonbank financial corporations, nonfinancial corporations),
valuation methods, holdings of securities and equities, additional breakdowns of cross-boded transactions or
the use of new micro databases, and gross flows and positions.
• Risk-transfer related to cross-border gross flows, i.e. flow of funds account might lead to better
understanding on US and EU financial crisis in 2000s. The Japanese banker identifies 3 methods: 1)
enhanced data collection and direct compilation rom individual financial institution, 2) micro data collected
by banks, trust banks, dealers complemented by information from settlement institutions (clearing house,
CCPs.), and (3) use of information and data released by individual corporations and business associations.
• The 2007-2008 turmoil revealed the structural risks of OTC markets which were characterized by massive
volumes based on significant leverage, transaction opacity, uncontrolled systemic positions and insufficient
collateral.
6- BOP and recent developments in the financial system -
shadow banking, complex operations, market infrastructure

42. • the panelists unanimously supported the view that they constitute
key warning signals of local or regional macroeconomic
imbalances.
• a trade-off between the legibility of BOP numbers for non experts
and the precision/reliability of these statistics, unanimous on how to
strike the best balance between those two objectives
7- Enhancing BOP quality, the way forward

43. • 1. Being a key macro-economic dataset, BOP statistics should deserve closer attention from policy
makers and the general public.
• 2. The education of the users of BOP data should be enhanced. The presentation of BOP statistics,
including their semantics, should be adapted to diverse user needs in order to ensure that data are
understood correctly.
• 3. The official release of updated international standards for external sector statistics, in particular
the sixth edition of the IMF’s Balance of Payments and International Investment Position Manual
(BPM6), is a much welcomed development.
• 4. Growing errors and omissions undermine the quality and usability of BOP statistics. Further
progress in improving the quality of these statistics could be achieved by enhancing data
collections so as to keep them fit for capturing data from global chains of international trade as well
as cross-border financial positions and transactions in complex and globalised financial markets.
• 5. There would be clear benefits from establishing a global network of BOP compilers. This could
significantly contribute towards improving the quality of data underlying the official BOP statistics.
Paris Statement

44. Q & A?
END
GSPA
NIDA DA8410: Fiscal and Monetary Policy Analysis