Reserve Bank of Australia Annual Report – 1972 Financial Statements Notes on Financial Statements

Following the realignment of international currency values in December 1971 the Bank wrote down the Australian currency value of its holdings of foreign currencies. In the past when changes in official par values have occurred, the initial revaluation of the Bank's holdings has been based on the relevant parity changes, differences between par values and market rates being taken into account in the annual balance sheet by revaluing to a market rate basis at 30 June. On this occasion the Government's decision to retain the gold parity of the Australian dollar but establish the market rate in terms of the U.S. dollar at the lower end of the permissible range for fluctuations made the previous procedure inappropriate; the initial revaluation was therefore based on market rates. Revaluation on this basis in December decreased the Australian dollar value of the Bank's foreign currency holdings by about $46 million. Subsequent fluctuations, particularly after sterling floated, increased that figure to $111 million for the year. Of this total, $10 million has been charged against Reserve Bank Reserve Fund and the balance against the Bank's internal reserves. If the sterling exchange rate continued at the level ruling on 30 June, deliveries under outstanding forward exchange contracts would involve a further charge against reserves of $33 million.

The further major changes in currency relationships during the year have served to underline the importance of making adequate provision for contingencies. This has been a major factor affecting the level of net profits in the year under review.

BALANCE SHEETS

Total assets and liabilities shown in the Reserve Bank Aggregate Balance Sheet at 30 June 1972 were $4,604 million, $943 million higher than at 30 June 1971. The significant changes are summarized below with references to earlier parts of this Report which discuss factors affecting the items concerned.

GOLD AND BALANCES HELD ABROAD rose by $1,340 million and OTHER OVERSEAS SECURITIES rose by $69 million. INTERNATIONAL MONETARY FUND SPECIAL DRAWING RIGHTS increased by $63 million. These items comprise the major part of official reserve assets and changes are covered in the section headed The Australian Economy (see page 23); for the purposes of the statistical series used in that context, however, official parity relationships provide the basis of valuations.

AUSTRALIAN GOVERNMENT SECURITIES (INCLUDING TREASURY BILLS) decreased by $402 million; Treasury notes fell by $17 million and other Australian Government securities fell by $385 million. No Commonwealth Treasury bills were held at the end of the year. Factors affecting these items are discussed in the section headed The Australian Economy.

LOANS, ADVANCES AND BILLS DISCOUNTED decreased by $97 million reflecting net reductions in loans made by the Rural Credits Department (page 46) and in loans to other Reserve Bank customers.

BILLS RECEIVABLE AND REMITTANCES IN TRANSIT were $39 million lower. The change was mainly in respect of exchange clearances with other banks on 30 June.

SPECIAL RESERVE — INTERNATIONAL MONETARY FUND SPECIAL DRAWING RIGHTS increased by $63 million as a result of transfers from the Commonwealth Government of the further allocation of Special Drawing Rights in January (page 25) and a small net settlement in respect of interest and charges for the year.

AUSTRALIAN NOTES ON ISSUE rose by $139 million (pages 26 and 44).

DEPOSITS, BILLS PAYABLE AND ALL OTHER LIABILITIES, which includes deposits of trading and savings banks, Australian Governments, overseas institutions, other customers and provisions for contingencies, increased by $746 million.

Changes in deposits of trading banks, savings banks and overseas institutions are shown in the balance sheet for Central Banking Business. STATUTORY RESERVE DEPOSIT ACCOUNTS OF TRADING BANKS decreased by $63 million, a combination of the reduction in the SRD ratio from 8.9 per cent to 7.1 per cent during 1971/72 and the higher level of deposits with trading banks (page 32). TERM LOAN FUND ACCOUNTS OF TRADING BANKS and FARM DEVELOPMENT LOAN FUND ACCOUNTS OF TRADING BANKS increased by $26 million and $5 million respectively (page 33). DEPOSITS OF SAVINGS BANKS with the Reserve Bank were $187 million higher. DEPOSITS OF OVERSEAS INSTITUTIONS rose by $42 million, mainly as a result of Australian currency transactions between the International Monetary Fund and other countries (page 25).

Other deposits, provisions for contingencies and miscellaneous liabilities in the various sections of the Bank increased by $554 million.

Inter-departmental accounts amounting to $1,032 million have been offset in the aggregate balance sheet. These comprise mainly:

1. Deposits lodged with the Central Bank by the Note Issue Department which increased by $387 million. These funds are included under BALANCES WITH CENTRAL BANK in the Note Issue Department balance sheet and OTHER LIABILITIES in the Central Banking Business balance sheet. The deposits, which attract interest, are maintained to alleviate investment management problems which arise because of the limitations on the types of assets Note Issue Department can hold in terms of Section 38 of the Reserve Bank Act.
2. Advances to Rural Credits Department by Central Bank which decreased by $51 million; these advances appear in ALL OTHER LIABILITIES in the Rural Credits Department balance sheet and in LOANS, ADVANCES AND BILLS DISCOUNTED in the Central Banking Business balance sheet.

PROFIT AND LOSS APPROPRIATION STATEMENT

The total net profits of the Bank in 1971/72, after deducting amounts written off bank premises and amounts provided for contingencies were $31,581,619 ($59,811,234 in 1970/71). Of this amount $25,177,870 was paid to the Commonwealth of Australia, $5,654,155 to the published reserve funds of the Bank and $749,594 to the Rural Credits Development Fund.

Profits in 1971/72 from Central Banking Business and in the Note Issue Department, before deducting provisions for contingencies, were much the same in aggregate as in the previous year; the effect of the higher level of average assets was largely offset by lower average earning rates on overseas investments and increased interest paid by the Bank on deposits. The reduction in net profit of the Rural Credits Department reflects the lower average of outstanding advances.