Reserve Bank of Australia Annual Report – 2021 Financial Statements Note 16 – Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date. This is the quoted market price if one is available. The RBA's financial assets measured at fair value include its holdings of Australian dollar securities, foreign government securities, bond futures, foreign currency swap contracts and its shareholding in the BIS. Non-financial assets carried on the balance sheet at fair value include the RBA's property and gold holdings. Other than derivatives, there are no financial liabilities measured at fair value.
AASB 13 requires financial and non-financial assets and liabilities measured at fair value to be disclosed according to their position in the fair value hierarchy. This hierarchy has three levels: valuation for Level 1 is based on quoted prices in active markets for identical assets; for Level 2, valuation is based on quoted prices or other observable market data not included in Level 1; Level 3 includes inputs to valuation other than observable market data.
The table below presents the RBA's assets and liabilities measured and recognised at fair value and their classification within the fair value hierarchy at 30 June 2021.
| Fair Value | Amortised Cost $M |
Total $M |
|||
|---|---|---|---|---|---|
| Level 1 $M |
Level 2 $M |
Level 3 $M |
|||
| As at 30 June 2021 | |||||
| Financial assets | |||||
| At fair value through profit or loss | |||||
| Australian dollar securities | 250,029 | 2,705 | – | na | 252,734 |
| Foreign government securities | 35,386 | 4,982 | – | na | 40,368 |
| Foreign currency swaps | – | 212 | – | na | 212 |
| At fair value through other comprehensive income | |||||
| Shares in international and other institutions | – | – | 510 | na | 510 |
| At amortised cost | na | na | na | 239,125 | 239,125 |
| 285,415 | 7,899 | 510 | 239,125 | 532,949 | |
| Non-financial assets | |||||
| Land and buildings | – | – | 597 | 12 | 609 |
| Gold holdings | 6,021 | – | – | na | 6,021 |
| Other | – | – | – | 318 | 318 |
| 6,021 | – | 597 | 330 | 6,948 | |
| Total assets | 291,436 | 7,899 | 1,107 | 239,455 | 539,897 |
| Financial liabilities | |||||
| At fair value through profit or loss | |||||
| Foreign currency swaps | – | 220 | – | na | 220 |
| Not at fair value through profit or loss | na | na | na | 516,409 | 516,409 |
| – | 220 | – | 516,409 | 516,629 | |
| Non-financial liabilities | na | na | na | 263 | 263 |
| Total liabilities | – | 220 | – | 516,672 | 516,892 |
| Fair Value | Amortised Cost $M | Total $M |
|||
|---|---|---|---|---|---|
| Level 1 $M |
Level 2 $M |
Level 3 $M |
|||
| As at 30 June 2020 | |||||
| Financial assets | |||||
| At fair value through profit or loss | |||||
| Australian dollar securities | 72,880 | 368 | – | na | 73,248 |
| Foreign government securities | 32,263 | 5,664 | – | na | 37,927 |
| Foreign currency swaps | – | 204 | – | na | 204 |
| At fair value through other comprehensive income | |||||
| Shares in international and other institutions | – | – | 521 | na | 521 |
| At amortised cost | na | na | na | 159,273 | 159,273 |
| 105,143 | 6,236 | 521 | 159,273 | 271,173 | |
| Non-financial assets | |||||
| Land and buildings | – | – | 567 | 12 | 579 |
| Gold holdings | 6,614 | – | – | na | 6,614 |
| Other | – | – | – | 305 | 305 |
| 6,614 | – | 567 | 317 | 7,498 | |
| Total assets | 111,757 | 6,236 | 1,088 | 159,590 | 278,671 |
| Financial liabilities | |||||
| At fair value through profit or loss | |||||
| Foreign currency swaps | 3 | 60 | – | na | 63 |
| Not at fair value through profit or loss | na | na | na | 247,776 | 247,776 |
| 3 | 60 | – | 247,776 | 247,839 | |
| Non-financial liabilities | na | na | na | 500 | 500 |
| Total liabilities | 3 | 60 | – | 248,276 | 248,339 |
The RBA's Level 2 financial instruments include foreign currency swaps priced with reference to an active market yield or rate, but which have been interpolated to reflect maturity dates. Prices for some Australian dollar and foreign currency-denominated securities are derived from markets that are not considered active.
Level 3 assets include the RBA's shareholding in the BIS and its property (excluding leased property, which is recorded at amortised cost). The shareholding in the BIS is valued using the net asset value, as published in annual financial statements of the BIS, less a discount of 30 per cent. The discount applied is based on a Hague Arbitral Tribunal decision on compensation paid to former private shareholders in 2002, which remains the latest repurchase conducted by the BIS. Fair values of the RBA's property incorporate factors such as net market income and capitalisation rates, for property valued using an income capitalisation or a discounted cash flow approach, and depreciation rates for property valued using a depreciable replacement cost methodology.
Australian dollar securities valued at $164 million at 30 June 2020 were transferred from Level 1 to Level 2 during the year, as prices for these bonds are derived from markets that are considered less active. There were no other transfers between levels within the fair value hierarchy during the financial year.
Movements in the fair value of the RBA's property during the financial year are detailed in Note 8. Fair value changes in the RBA's shareholdings in international and other institutions solely reflect valuation movements recognised in Other Comprehensive Income.