Audit Report

OIG-15-018

Audit of the Exchange Stabilization Fund’s Fiscal Years 2014 

and 2013 Financial Statements

December 8, 2014

Office of

Inspector General

Department of the Treasury
OFFICE OF

INSPECTOR GENERAL

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

December 8, 2014

MEMORANDUM FOR MARK SOBEL

DEPUTY ASSISTANT SECRETARY FOR INTERNATIONAL

 MONETARY AND FINANCIAL POLICY

FROM: Michael Fitzgerald

Director, Financial Audit

SUBJECT: Audit of the Exchange Stabilization Fund’s Fiscal Years 2014

and 2013 Financial Statements

I am pleased to transmit the attached audited Exchange Stabilization Fund (ESF) 

financial statements for fiscal years 2014 and 2013. Under a contract monitored 

by the Office of Inspector General, KPMG LLP (KPMG), an independent certified 

public accounting firm, performed an audit of the financial statements of ESF as of 

September 30, 2014 and 2013 and for the years then ended. The contract required 

that the audit be performed in accordance with generally accepted government 

auditing standards and Office of Management and Budget (OMB) Bulletin 

No. 14-02, Audit Requirements for Federal Financial Statements. 

The following reports, prepared by KPMG, are incorporated in the attachment:

• Independent Auditors’ Report; 

• Independent Auditors’ Report on Internal Control Over Financial 

Reporting; and 

• Independent Auditors’ Report on Compliance and Other Matters.

In its audit, KPMG found that the financial statements were fairly presented, in all 

material respects, in accordance with U.S. generally accepted accounting principles. 

However, KPMG identified a significant deficiency related to management’s review 

of its financial statements. Further, KPMG found no instances of reportable 

noncompliance with laws and regulations tested.
Page 2

In connection with the contract, we reviewed KPMG’s reports and related 

documentation and inquired of its representatives. Our review, as differentiated 

from an audit performed in accordance with generally accepted government 

auditing standards, was not intended to enable us to express, and we do not 

express, an opinion on the financial statements or conclusions about the 

effectiveness of internal control or compliance with laws and regulations. KPMG is 

responsible for the attached auditors’ reports dated December 5, 2014, and the 

conclusions expressed therein. However, our review disclosed no instances where 

KPMG did not comply, in all material respects, with generally accepted government 

auditing standards and OMB Bulletin No. 14-02.

Should you have any questions, please contact me at (202) 927-5789, or a 

member of your staff may contact Catherine Yi, Manager, Financial Audit 

at (202) 927-5591.

Attachment
EXCHANGE STABILIZATION FUND

Financial Statements

September 30, 2014
EXCHANGE STABILIZATION FUND

Table of Contents

Page(s)

Policy and Operations Statement 1 – 2

Independent Auditors’ Report 3 – 4

Independent Auditors’ Report on Internal Control Over Financial Reporting 5 – 7

Independent Auditors’ Report on Compliance and Other Matters 8

Financial Statements:

Balance Sheets 9

Statements of Income 10

Statements of Cash Flows 11

Notes to Financial Statements 12 – 25
EXCHANGE STABILIZATION FUND

POLICY AND OPERATIONS STATEMENTS

FISCAL YEAR 2014 

The Nature and Function of the Exchange Stabilization Fund

The Gold Reserve Act of 1934 established a fund to be operated by the Secretary of the 

Treasury, with the approval of the President. Section 10 of the Act provided that “For the 

purpose of stabilizing the exchange value of the dollar, the Secretary of the Treasury, with the 

approval of the President, directly or through such agencies as he may designate, is authorized, 

for the account of the fund established in this section, to deal in gold and foreign exchange and 

such other instruments of credit and securities as he may deem necessary to carry out the purpose 

of this section.” To this end, the Congress, in 1934, appropriated to the Exchange Stabilization 

Fund (ESF) the sum of $2 billion out of the increment resulting from the reduction in the “weight 

of the gold dollar.” Subsequent amendments to the Gold Reserve Act approved the operation of 

the ESF through June 30, 1945. Section 7 of the Bretton Woods Agreements Acts, approved 

July 31, 1945, continued its operations permanently. 

The Bretton Woods Agreements Act also directed the Secretary of the Treasury to pay 

$1.8 billion from the ESF to the International Monetary Fund (IMF), for the initial U. S. quota 

subscription in the IMF, thereby reducing the ESF’s appropriated capital to $200 million. 

Reflecting termination of the fixed exchange rate system, legislation enacted in 1976 

(P.L. 94-564, October 19, 1976) amended the language of Section 10 of the Gold Reserve Act to 

specify that the ESF is to be utilized as the Secretary “may deem necessary to and consistent 

with the United States obligations in the International Monetary Fund.” This amendment 

became effective on April 1, 1978, the date of entry into force of the Second Amendment of the 

IMF Articles of Agreement. In 1977, P.L. 95-147 further amended Section 10 of the Gold 

Reserve Act. Following codification, Section 10 now provides in relevant part: 

Consistent with the obligations of the Government in the International Monetary Fund on 

orderly exchange arrangements and a stable system of exchange rates, the Secretary or an 

agency designated by the Secretary, with the approval of the President, may deal in gold, 

foreign exchange, and other instruments of credit and securities the Secretary considers 

necessary. However, a loan or credit to a foreign entity or government of a foreign country 

may be made for more than 6 months in a 12-month period only if the President gives 

Congress a written statement that unique or emergency circumstances require the loan or 

credit be for more than 6 months (31 U.S.C. 5302 (b)).

Pursuant to the Special Drawing Rights Act of 1968 (P.L. 90-349, amended by P.L. 94-564), 

Special Drawing Rights (SDRs) allocated by the IMF to the United States or otherwise acquired 

by the United States are resources of the ESF.

Section 286p of Title 22 of the United States Code allows for SDRs to be 

monetized/demonetized through the issuance/redemption by the Secretary of the Treasury of 

SDR certificates to the Federal Reserve Banks in exchange for dollars. The total amount of SDR 

Unaudited – see accompanying auditor’s report 1 
EXCHANGE STABILIZATION FUND

POLICY AND OPERATIONS STATEMENTS

FISCAL YEAR 2014

certificates outstanding cannot exceed the dollar equivalent of ESF (i.e., U. S.) holdings of 

SDRs; such certificates are a liability of the ESF.

I. Foreign Currency Operations

a. Euros and Japanese Yen

The ESF had a net valuation loss of $970 million on its holdings of euros and yen. The 

ESF had investment income of $85.1 million equivalent on its euro and yen assets.

b. Mexico

In December 2013, the Treasury and Federal Reserve Bank of New York, acting as 

Treasury’s fiscal agent, renewed the Exchange Stabilization Agreement with Mexico 

for another year to December 2014. 

II. SDR Operations

As of September 30, 2014, U.S. holdings (assets) of SDRs totaled SDR 35.8 billion 

($53.1 billion equivalent), a net change of 0 SDR during Fiscal Year 2013. However, as 

the SDR depreciated against the dollar in this period, there was a net valuation loss of $1.8 

billion on U.S. holdings of SDRs. The ESF reimbursed the Treasury’s General Fund 

$28.1 million for SDRs received from the IMF as remuneration on the U.S. reserve 

position in the IMF. The ESF earned interest of $54.1 million equivalent on its SDR 

holdings.

As of September 30, 2014, cumulative allocations to (liabilities of) the United States

totaled SDR 35.3 billion ($52.4 billion equivalent). These liabilities would come due only 

in the event of liquidation of, or U.S. withdrawal from, the SDR Department of the IMF, or 

cancellation of SDRs.

There were $5.2 billion of SDR certificates that had been issued to the Federal Reserve 

System prior to fiscal year 2014.

III. Income and Expense

Interest revenue totaled $147.2 million, consisting of $8.0 million in interest on dollar 

holdings invested in U.S. Government securities, $54.1 million equivalent in interest on 

SDR holdings, and $85.1 million equivalent in interest on foreign currency investments.

Interest expense totaled $53.3 million, primarily representing interest charges on SDR 

Allocations.

Unaudited – see accompanying auditor’s report 2
Independent Auditors’ Report

Inspector General

U.S. Department of the Treasury: 

Report on the Financial Statements

We have audited the accompanying financial statements of the U.S. Department of the Treasury’s 

Exchange Stabilization Fund (ESF), which comprise the statements of financial position as of 

September 30, 2014 and 2013, and the related statements of operations, comprehensive operations and 

retained earnings, and cash flows for the years then ended, and the related notes to the financial statements. 

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in 

accordance with U.S. generally accepted accounting principles; this includes the design, implementation, 

and maintenance of internal control relevant to the preparation and fair presentation of financial statements 

that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted 

our audits in accordance with auditing standards generally accepted in the United States of America; the 

standards applicable to financial audits contained in Government Auditing Standards issued by the 

Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 14-

02, Audit Requirements for Federal Financial Statements. Those standards and OMB Bulletin No. 14-02, 

require that we plan and perform the audit to obtain reasonable assurance about whether the financial 

statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 

financial statements. The procedures selected depend on the auditors’ judgment, including the assessment 

of the risks of material misstatement of the financial statements, whether due to fraud or error. In making 

those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair 

presentation of the financial statements in order to design audit procedures that are appropriate in the 

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal 

control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of 

accounting policies used and the reasonableness of significant accounting estimates made by management, 

as well as evaluating the overall presentation of the financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 

audit opinion. 

KPMG LLP

Suite 12000

1801 K Street, NW 

Washington, DC 20006

KPMG LLP is a Delaware limited liability partnership,

the U.S. member firm of KPMG International Cooperative

(“KPMG International”), a Swiss entity.
Opinion on the Financial Statements

In our opinion, the financial statements referred to above present fairly, in all material respects, the 

financial position of the U.S. Department of the Treasury’s Exchange Stabilization Fund as of 

September 30, 2014 and 2013, and the results of its operations and its cash flows for the years then ended 

in accordance with U.S. generally accepted accounting principles.

Other Matters

Other Information

Our audits were conducted for the purpose of forming an opinion on the basic financial statements as a 

whole. The Policy and Operations Statements section is presented for purposes of additional analysis and is 

not a required part of the basic financial statements. Such information has not been subjected to the 

auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not 

express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 5, 

2014 on our consideration of the ESF’s internal control over financial reporting and our report dated

December 5, 2014 on our tests of its compliance with certain provisions of laws, regulations, contracts, and 

other matters. The purpose of those reports is to describe the scope of our testing of internal control over 

financial reporting and compliance and the results of that testing, and not to provide an opinion on the 

internal control over financial reporting or on compliance. Those reports are an integral part of an audit 

performed in accordance with Government Auditing Standards in considering ESF’s internal control over 

financial reporting and compliance. 

December 5, 2014 
Independent Auditors’ Report on Internal Control Over Financial Reporting 

Inspector General

U.S. Department of the Treasury

We have audited, in accordance with auditing standards generally accepted in the United States of 

America; the standards applicable to financial audits contained in Government Auditing Standards issued 

by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin 

No. 14-02, Audit Requirements for Federal Financial Statements, the financial statements of U.S. 

Department of the Treasury’s Exchange Stabilization Fund (ESF), which comprise the statements of 

financial position as of September 30, 2014 and 2013, and the related statements of operations, 

comprehensive operations and retained earnings, and cash flows for the years then ended, and the related 

notes to the financial statements, and have issued our report thereon dated December 5, 2014. 

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements as of and for the year ended September 30, 

2014, we considered the ESF’s internal control over financial reporting (internal control) to determine the 

audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the 

financial statements, but not for the purpose of expressing an opinion on the effectiveness of the ESF’s

internal control. Accordingly, we do not express an opinion on the effectiveness of the ESF’s internal 

control. We did not test all internal controls relevant to operating objectives as broadly defined by the 

Federal Managers’ Financial Integrity Act of 1982. 

A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, or 

detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination 

of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of 

the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A 

significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe 

than a material weakness, yet important enough to merit attention by those charged with governance. 

Our consideration of internal control was for the limited purpose described in the first paragraph of this 

section and was not designed to identify all deficiencies in internal control that might be material 

weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may 

exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies 

in internal control that we consider to be material weaknesses. However, we did identify a certain 

deficiency in internal control, described below titled as item “Management Review of Financial 

Statements”, that we considerto be a significant deficiency. 

KPMG LLP

Suite 12000

1801 K Street, NW 

Washington, DC 20006

KPMG LLP is a Delaware limited liability partnership,

the U.S. member firm of KPMG International Cooperative

(“KPMG International”), a Swiss entity.
2014-01 Management Review of Financial Statements 

Management, during the course of its reviews of the financial statements, did not identify mistakes in the 

supporting records that eventually flowed to the notes to the financial statements that related to other-thantemporary impairment (OTTI) of investments and cash and cash equivalents. 

The manual process of tracking certain investment data needed for the financial statement note disclosures 

is performed outside of the general ledger utilizing several spreadsheets. Accordingly, the review of this 

information and the notes to the financial statement requires management to have specific knowledge of the 

on-ledger and manual components as well as specifically relevant accounting rules and interpretations that 

are relevant to those financial investment transactions. 

This deficiency caused the disclosures in the notes to the financial statements to be initially misstated. 

Specifically, the amortized cost basis and gross unrealized losses related to the Japanese bond portfolio was

overstated by $491 million related to the OTTI recognized in the current year, and the the Eurodenominated cash and cash equivalents was overstated by $677 million, conversely understating the Yen 

cash and cash equivalents balances. Such amounts were corrected in the financial statements. 

Recommendations 

We recommend that ESF management: 

1. Prepare an accounting policy and procedures document detailing applicable accounting standards, the 

preparation of financial statement support schedules, and suitable review procedures and controls. 

2. Consider tracking investment cost adjustment information in the general ledger at the transaction level 

and enhancing the automation in the financial statement preparation process. 

3. Consider enhancing existing procedures to ensure accounting personnel are appropriately 

knowledgeable of applicable accounting standards requirements specific to investment impairment and 

their impact on the financial statements through internal training or consultation with appropriate 

resources. 

4. Ensure those performing financial statement reviews are appropriately trained and knowledgeable of 

such processes over investment impairment so that their review is performed at a level of precision 

sufficient to prevent and detect significant misstatements.

ESF’s Response to Finding

Management concurs with the finding and recommendations. 

Treasury management will assess the possibility of implementing KPMG’s recommendations for 

improvements in ESF’s internal controls. We aggressively address control weaknesses and, in FY 2014, 

management made significant improvements in this area, including strengthening our review process. 

However, we acknowledge further efforts are required to address the causes of these errors.
ESF’s response to the significant deficiency identified in our audit is described previously. ESF’s response

was not subjected to the auditing procedures applied in the audit of the financial statements and, 

accordingly, we express no opinion on the response. 

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and the result of 

that testing, and not to provide an opinion on the effectiveness of the ESF’s internal control. This report is 

an integral part of an audit performed in accordance with Government Auditing Standards in considering 

the ESF’s internal control. Accordingly, this communication is not suitable for any other purpose. 

December 5, 2014
Independent Auditors’ Report on Compliance and Other Matters 

Inspector General

U.S. Department of the Treasury: 

We have audited, in accordance with auditing standards generally accepted in the United States of 

America; the standards applicable to financial audits contained in Government Auditing Standards issued 

by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin 

No. 14-02, Audit Requirements for Federal Financial Statements, the financial statements of the U.S. 

Department of the Treasury’s Exchange Stabilization Fund (ESF), which comprise the statements of 

financial position as of September 30, 2014 and 2013, and the related statements of operations, 

comprehensive operations and retained earnings, and cash flows for the years then ended, and the related 

notes to the financial statements, and have issued our report thereon dated December 5, 2014. 

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the ESF’s financial statements are free from 

material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, 

contracts, noncompliance with which could have a direct and material effect on the determination of 

financial statement amounts, and certain provisions of other laws and regulations specified in OMB Bulletin 

No. 14-02. However, providing an opinion on compliance with those provisions was not an objective of our 

audit, and accordingly, we do not express such an opinion. The results of our tests of compliance disclosed 

no instances of noncompliance or other matters that are required to be reported herein under Government 

Auditing Standards or OMB Bulletin No. 14-02. 

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of compliance and the result of that 

testing, and not to provide an opinion on the ESF’s compliance. This report is an integral part of an audit 

performed in accordance with Government Auditing Standards in considering the ESF’s compliance. 

Accordingly, this communication is not suitable for any other purpose. 

December 5, 2014

KPMG LLP

Suite 12000

1801 K Street, NW 

Washington, DC 20006

KPMG LLP is a Delaware limited liability partnership,

the U.S. member firm of KPMG International Cooperative

(“KPMG International”), a Swiss entity.
9

DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

STATEMENTS OF FINANCIAL POSITION

(In Thousands)

As of September 30 2014 2013

Assets

Cash and Cash Equivalents (Note 2) $ 27,087,365 $ 30,561,249

Securities Purchased Under Agreement to Resell (Note 3) 0 2,233,275

Investment Securities and Other Foreign Currency Denominated Assets, at fair value (Note 5) 17,835,201 14,016,912

Special Drawing Right Holdings (Note 4) 53,148,237 54,966,034

Interest Receivable 69,204 79,133

Interest Receivable on Special Drawing Right Holdings 5,359 6,430

Total Assets $ 98,145,366 $ 101,863,033

Liabilities and Equity

Liabilities:

Special Drawing Rights Certificates Issued to Federal Reserve Banks (Note 7) $ 5,200,000 $ 5,200,000

Special Drawing Right Allocations (Note 4) 52,358,322 54,177,080

Interest Payable on Special Drawing Right Allocations 5,279 6,338

Other 153 124

Total Liabilities 57,563,754 59,383,542

Commitments and Contingencies (Note 9)

Equity:

Appropriated Capital 200,000 200,000

Retained Earnings 41,562,620 42,467,000

Accumulated Other Comprehensive Loss (Notes 1 and 6) (1,181,008) (187,509)

Total Equity 40,581,612 42,479,491

Total Liabilities and Equity $ 98,145,366 $ 101,863,033

See accompanying notes to financial statements. 
10

DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

STATEMENTS OF OPERATIONS, COMPREHENSIVE OPERATIONS AND RETAINED EARNINGS

(In Thousands)

For the years-ended September 30 2014 2013

Interest Income

Interest on Cash and Cash Equivalents $ 10,705 $ 14,107

Interest on Securities Purchased Under Agreement to Resell 2,116 159

Interest on Investment Securities and Other Foreign Currency Denominated Assets 80,305 101,558

Interest on Special Drawing Right Holdings 54,055 40,183

Total Interest Income 147,181 156,007

Interest Expense

Interest on Special Drawing Right Allocations (53,265) (39,614)

Interest on Special Drawing Right -

 Remuneration due to the U.S. Treasury (1) (1)

Total Interest Expense (53,266) (39,615)

Net Interest Income 93,915 116,392

Net Gains/(Losses) 

Gain/(Loss) on Foreign Currency Valuation of:

Special Drawing Rights Holdings (1,846,456) (290,222)

Special Drawing Rights Allocations 1,818,927 286,312

Investment Securities and Other Foreign Currency Denominated Assets, net (Notes 1 and 5) (Includes net (477,914) (841,198)

gain of $68,249 and $175,539 in fiscal years 2014 and 2013, respectively, in accumulated other comprehensive 

income reclassifications for previously unrealized net gains on available-for-sale securities) 

Other-Than-Temporary Losses on Investment Securities (491,256) (527,727)

Securities Purchased Under Agreement to Resell (1,200) 89,278

Total Net Losses (997,899) (1,283,557)

Other Expenses

International Monetary Fund Annual Assessment (396) (156)

Total Other Expenses (396) (156)

Net Loss (904,380) (1,167,321)

Other Comprehensive Loss

Unrealized Holding Loss, net (Notes 1 and 6) (993,499) (542,406)

Comprehensive Loss $ (1,897,879) $ (1,709,727)

Retained Earnings, Beginning of Year $ 42,467,000 $ 43,634,321

Net Loss (904,380) (1,167,321)

Retained Earnings, End of Year $ 41,562,620 $ 42,467,000

See accompanying notes to financial statements. 
11

DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

STATEMENTS OF CASH FLOWS

(In Thousands)

For the years-ended September 30 2014 2013

Cash Flows from Operating Activities:

Interest Received on:

 Cash and Cash Equivalents $ 10,312 $ 14,123

 Securities Purchased Under Agreement to Resell 2,151 179

 Investment Securities and Other Foreign Currency Denominated Assets 158,273 183,326

 Other (7,326) (11,664)

Net Cash Provided by Operating Activities 163,410 185,964

Cash Flows from Investing Activities:

Net (Purchases)/Maturities of Securities Purchased Under Agreement to Resell 2,232,075 (1,372,637)

Purchases of Investment Securities and Foreign Currency Denominated Assets (14,733,840) (9,728,406)

Maturities of Investment Securities and Foreign Currency Denominated Assets 9,317,318 9,624,858

Reimbursement for Remuneration Received (28,056) (23,586)

Other 367 298

Net Cash Used in Investing Activities (3,212,136) (1,499,473)

Effect of Exchange Rate on Cash (425,158) (558,433)

Net Decrease in Cash and Cash Equivalents (3,473,884) (1,871,942)

Cash and Cash Equivalents,

 Beginning of Year 30,561,249 32,433,191

Cash and Cash Equivalents,

 End of Year $ 27,087,365 $ 30,561,249

Reconciliation of Net Loss to Net Cash Provided by

 Operating Activities 

Net Loss $ (904,380) $ (1,167,321)

Adjustments to Reconcile Net Loss to Net Cash Provided by 

 Operating Activities:

 Net Exchange Rate Loss on Repos, FCDAs, and Investment Securities 479,114 751,920

 Decrease in Special Drawing Right Holdings Due to Valuation 1,846,285 290,321

 Net Increase in Special Drawing Rights Holdings (799) (577)

 Decrease in Accrued Interest Receivable 11,001 11,379

 Amortization of Bond Premium/(Discount) (net) 60,721 59,752

 Decrease in Special Drawing Right Allocations Due to Valuation (1,818,758) (286,410)

 Decrease in Accrued Interest Payable and Other (1,030) (827)

 Other-Than-Temporary Losses on Investment Securities 491,256 527,727

Total Adjustments 1,067,790 1,353,285

Net Cash Provided by Operating Activities $ 163,410 $ 185,964

See accompanying notes to financial statements. 
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES 

A. Entity 

The Exchange Stablization Fund (ESF) was originally established pursuant to section 10 of the Gold Reserve 

Act of 1934 for the purpose of stabilizing the exchange value of the dollar. Section 10 has been amended

several times since 1934. This section currently authorizes the Secretary, with the approval of the President, 

to deal in gold, foreign exchange, and instruments of credit and securities consistent with US obligations in 

the International Monetary Fund on orderly exchange arrangements and a stable system of exchange rates. 31 

U.S.C. 5302(b). 

The Federal Reserve Bank of New York (FRBNY) acts as the fiscal agent for the ESF, as permitted by the 

Federal Reserve Act. As the fiscal agent, the FRBNY plays a significant role in the processing of foreign 

currency transactions that the Secretary of the Treasury authorizes. The manager of the ESF foreign currency 

portfolio at the FRBNY consults regularly with the Federal Open Market Committee and the U.S. Department 

of the Treasury (Treasury) about the disposition of investments and the status of the portfolio. The level and 

currency composition of the ESF foreign currency portfolio are the products of Treasury policy 

determinations. The ESF management is responsible for the record keeping and investment decisions for 

foreign currency transaction activity carried out by the FRBNY.

By law, the ESF is not available to pay administrative expenses. Instead, the Treasury’s Office of International 

Affairs has responsibility for managing ESF operations, and Treasury’s Office of the Deputy Chief Financial 

Officer provides the recordkeeping and financial reporting services for the ESF. These Treasury offices bear 

all administrative expenses of the ESF. Accordingly, there are no administrative expenses reported in the 

financial statements.

B. Basis of Accounting and Presentation

The ESF has historically prepared its financial statements in accordance with generally accepted accounting 

principles, based on accounting standards issued by the Financial Accounting Standards Board (FASB), the 

private-sector standards-setting body. 

C. Risks and Uncertainties

The ESF faces certain risks and uncertainties as a result of holding foreign currency securities. The price of 

ESF’s holdings of such securities may widely fluctuate as a result of volatility in foreign currency markets 

and changes in real and perceived credit of ESF’s counterparties. 

Credit risk related to its holdings, is the potential, no matter how remote, for financial loss from a failure of a 

borrower or counterparty to perform in accordance with underlying contractual obligations. 

 

The preparation of financial statements requires management to make estimates and assumptions that affect 

the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the 

financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates are used in the preparation of amounts related to the valuation of investments and 

contingent liabilities. Actual results could differ from those estimates. 

12
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

D. Cash and Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are both readily convertible to known 

amounts of cash, and so near their maturity that they present insignificant risk of change in value due to 

changes in interest rates. Cash and Cash Equivalents consist of the following:

• U.S. Government Securities, and

• Short-term Foreign Currency Denominated Assets (FCDAs) – including deposits and securities 

denominated in both euro and yen.

E. Investments

Held-to-maturity securities are those securities in which the entity has the ability and intent to hold the security 

until maturity. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization and 

accretion of premiums or discounts.

Available-for-sale securities are those which are neither trading nor held-to-maturity. ESF’s Other FCDAs 

and Investment Securities are classified as available-for-sale. Available-for-sale securities are recorded at fair 

value. Unrealized holding gains and losses on available-for-sale securities, including amounts related to 

foreign currency valuation, are excluded from earnings and are reported as a separate component of 

accumulated other comprehensive income until realized or deemed to be other than temporary. Realized gains 

and losses from the sale of available-for-sale securities are determined on a specific-identification basis. 

Interest on investments, amortization of premiums, and accretion of discounts are reported in Interest Income 

and are recognized on an accrual basis. Premiums and discounts are amortized or accreted over the life of the 

related investment security as an adjustment to yield using the effective–interest method.

Foreign currency assets (FCA) include interest-bearing foreign deposit accounts and investments in foreign 

government securities.

FCAs also include FCDAs reported as Cash and Cash Equivalents, Other FCDAs, and Investment Securities. 

These categorizations are based on maturity. FCDAs have terms of 3 months or less. Other FCDAs have terms 

of less than or equal to a year but greater than 3 months and Investment Securities have terms greater than a 

year.

F. Securities Purchased Under Agreement to Resell

Securities Purchased Under Agreement to Resell generally have agreement terms that do not exceed 90 days.

These securities are generally treated as collateralized financial transactions and are carried at amounts at 

which the securities were acquired, adjusted for translation gains/losses if such agreements pertained to FCAs.

13
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

G. Foreign Currency Valuations

In accordance with Foreign Currency Matters (FASB ASC 830), FCAs as well as Special Drawing Rights

and related accrued interest receivable or payable, discussed below, are revalued to reflect exchange rates in 

effect as of the reporting date. Such gains or losses, recognized in the period of the fluctuations, are reported 

on the Statements of Operations, Comprehensive Operations and Retained Earnings as Gains (Losses) on 

Foreign Currency Valuation. Gains and losses related to foreign currency valuations of Investment Securities 

and Other FCDAs are excluded from earnings and are reported as a component of Other Comprehensive 

Income until realized. 

H. Other-Than-Temporary Impairment

A decline in the market value (either due to credit, price or currency) of any investment below cost that is 

deemed to be other-than-temporary is accounted for as an impairment and the carrying value is reduced to 

fair value for financial statement reporting purposes. The impairment is charged to earnings and the charge 

establishes a new cost basis for the investment. To determine whether impairment is other-than-temporary, 

the ESF considers whether it has the ability and intent to hold the investment until a market price recovery 

and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to 

the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity 

and duration of the impairment, changes in value subsequent to year-end, forecasted performance of the 

investee, remaining maturity of the investment and the general market condition in the geographic area or 

industry in which the investee operates. ESF regularly evaluates whether unrealized losses on investment 

securities indicate other-than-temporary impairment that would require recognition in the financial 

statements. 

I. Fair Values of Financial Instruments

Fair Value Measurements and Disclosures (FASB ASC 820-10) establishes a fair value hierarchy that 

prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest 

priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) 

and lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The 

three levels of the fair value hierarchy are as follows:

• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities 

accessible to the reporting entity at the measurement date.

• Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset 

or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent 

that observable inputs are not available, thereby allowing for situations in which there is little, if 

any, market activity for the asset or liability at measurement date.

All of the ESF’s investments and other foreign currency denominated assets are Level 1 measurements 

since these financial assets are traded in active markets where quotable values are readily available. 

14
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 1 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

J. Special Drawing Right Certificates Issued to Federal Reserve Banks 

Special Drawing Right Certificates issued to Federal Reserve Banks (FRB) are reflected on the Statements 

of Financial Position at their face value. Under the terms of the agreement, there is no set repayment date 

and no interest accrued while certificates remain outstanding. As a result, the carrying amount represents

the face value.

K. U.S. Government Securities

The ESF invests dollars in excess of its immediate needs in overnight, nonmarketable U.S. government 

securities issued by the Treasury. The interest rate earned on the investments is equal to the overnight 

repurchase agreement rate as established by the Treasury’s Bureau of the Fiscal Service.

L. Other Comprehensive Income/(Loss)

Accumulated Other Comprehensive Income/(Loss) is made up of changes in the fair value of investments 

classified as available-for-sale. Unrealized gains and losses, if any, are subsequently reclassified into 

income in the same period the underlying investment is either sold, deemed to be other than temporary or 

transferred to the Trading classification.

M. Tax-Exempt Status

As a component of the Treasury, which is a federal agency, the ESF is not subject to federal, state, or local 

income taxes, and accordingly, no provision for income taxes is recorded. 

NOTE 2 –CASH AND CASH EQUIVALENTS

Cash and cash equivalent amounts held as of September 30, 2014 and 2013 are as follows: 

September 30 (In Thousands) 2014 2013

Cash and cash equivalents:

U. S. government securities $ 22,649,209 $ 22,669,271

Short-term FCDAs:

European euro 1,626,653 4,759,250

Japanese yen 2,811,503 3,132,728

Total short-term FCDAs 4,438,156 7,891,978

Total cash and cash equivalents $ 27,087,365

 

 

 $ 30,561,249 

 

15
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 2 –CASH AND CASH EQUIVALENTS(Continued)

As of September 30, 2014 and 2013, $0 and $2.4 billion, respectively of the Japanese yen short-term FCDA’s 

were part of the Bank of Japan’s Automatic Investment Facility, investing funds overnight in short-term 

Japanese government financing bills and/or treasury bills.

NOTE 3 – SECURITIES PURCHASED UNDER AGREEMENT TO RESELL

The FRBNY, on behalf of the ESF, enters into transactions to purchase foreign-currency-denominated 

government-debt securities under agreements to resell for which the accepted collateral is the debt 

instruments, denominated in euro, and issued or guaranteed in full by European governments. These 

agreements are subject to daily margining requirements. 

NOTE 4–SPECIAL DRAWING RIGHTS

The SDR is an international reserve asset created by the International Monetary Fund (IMF) in 1969 to

supplement the existing reserve assets of IMF member countries, including the United States. In addition 

to its role as a supplementary reserve asset, the SDR serves as a means of payment within the IMF, as well 

as the unit of account for the IMF and several other international organizations. SDRs may be held only by 

the official sector – IMF member countries and certain institutions designated by the IMF as prescribed 

holders. On several occasions SDRs have been allocated by the IMF to members participating in the IMF’s 

SDR Department, including the United States. SDR transactions by the United States require the explicit 

authorization of the Secretary of the Treasury.

The SDR’s value is based on a weighted average of a basket of key international reserve currencies issued 

by IMF members (or monetary unions that include IMF members) which have been determined by the IMF 

to be freely usable currencies. These currencies are the U.S. dollar, the Euro, the Japanese yen, and the 

pound sterling. The SDR carries a variable interest rate, calculated weekly as a weighted average of 

representative interest rates on short-term debt in the money markets of the SDR basket currencies. The 

ESF’s SDR Allocations and Holdings (see below) are revalued monthly, based on the SDR valuation rate 

calculated by the IMF, and unrealized gains or losses on revaluation are recognized. SDR Holdings and 

SDR Allocations are reported as an asset and liability respectively in the financial statements of the ESF.

SDR Allocations

SDRs, once allocated to the United States, are permanent resources unless:

a. They are canceled by an 85 percent majority decision of the total voting power of the Board of 

Governors of the IMF;

b. The SDR Department of the IMF is liquidated;

c. The IMF is liquidated; or

d. The United States chooses to withdraw from the IMF or terminate its participation in the SDR 

Department. 

Due to the fact that the SDRs are able to be withdrawn, the ESF carries a liability related to such allocations.

16
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 4–SPECIAL DRAWING RIGHTS(Continued)

Except for the payment of interest and charges on SDR allocations to the United States, the payment of the 

ESF’s liability related to the SDR allocations is conditional on events listed above, in which the United 

States has a controlling voice. Allocations of SDRs were made during 1970, 1971, 1972, 1979, 1980, 1981, 

and 2009. As of September 30, 2014 and 2013, the value of SDR allocations to the United States was the 

equivalent of $52.4 billion and $54.2 billion, respectively.

SDR Holdings 

Pursuant to the Special Drawing Rights Act of 1968, as amended, SDRs allocated by the IMF to, or 

otherwise acquired by the United States, are also resources (holdings) of the ESF. SDR Holdings represent 

transactions resulting from these SDR activities, primarily the result of IMF allocations. Other transactions 

reported in this account are recorded as they are incurred and include any SDR acquisitions and sales, 

interest received on SDR Holdings, interest charges on SDR Allocations, and other SDR related activities,

as well as valuation adjustments. 

Other SDR Activities

The U.S. Government receives remuneration in SDRs from the IMF on the U.S. claim on the IMF, 

represented by the U.S. Reserve Position. The ESF is the only agency within Treasury permitted to transact 

in SDRs. SDRs received become the resources of the ESF, as required by law, and the ESF pays the dollar 

equivalent to the U. S. Government’s Treasury General Account (TGA). The ESF's receipt of the SDRs 

and payment of the dollar equivalent to the TGA are not simultaneous. Typically, the payment is several 

weeks after the receipt of SDRs from the IMF. Therefore, the ESF must reimburse the TGA the interest it 

earned on the dollar equivalent of the SDRs held on behalf of the TGA during the period which elapsed 

between the receipt of the SDRs and the dollar payment to the TGA.

The ESF paid to the TGA $565 and $980 in fiscal years 2014 and 2013, respectively, in interest due on the 

transferred dollars. The ESF did not transact to buy or sell SDRs to any participating members during fiscal 

year 2014 or 2013.

The following schedule reflects the activity related to SDR Holdings during fiscal years 2014 and 2013 in 

SDR and dollar equivalent. 

September 30 (SDRs In Thousands) 2014 2013

Beginning balance 35,829,965 35,814,322

Interest credits on holdings 35,710 26,859

Interest charges on allocations (35,190) (26,481)

Remuneration 18,231 15,464

IMF annual assessment (238) (199)

Total SDR - Holdings 35,848,478 35,829,965

17
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 4 – SPECIAL DRAWING RIGHTS(Continued)

September 30 (Dollar Equivalent In 

Thousands) 2014 2013

Beginning balance $ 54,966,034 $ 55,232,490

Interest credits on holdings 54,955 40,975

Interest charges on allocations (54,155) (40,398)

Remuneration 28,055 23,586

IMF annual assessment (367) (298)

Net loss on valuation of holdings (1,846,285) (290,321)

Total Dollar Equivalent – Holdings $ 53,148,237 $ 54,966,034

The table above reflects the actual dollar equivalent amount of SDRs received or transferred by the ESF. 

Amounts within the financial statements computed on an accrual basis will thus differ due to changes in foreign 

exchange rates since actual SDR movements occur shortly after the balance sheet date.

NOTE 5 – INVESTMENT SECURITIES AND OTHER FOREIGN CURRENCY DENOMINATED ASSETS

The amortized cost, gross unrealized holding gains and losses, and fair value of available-for-sale and held-tomaturity debt securities by major security type and class of security at September 30, 2014 and 2013 were as 

follows: 

Gross 

Unrealized

Gross 

Unrealized

September 30, 2014

(In Thousands)

Amortized

Cost

Holdings

Gains

Holding 

(Losses) Fair Value

Available for sale:

FIXBIS $ 1,123,626 $ - $ (87,803) $ 1,035,823

French Time Deposits 6,013,196 (423,816) 5,589,380

German Bonds 2,452,794 3,766 (96,262) 2,360,298

French Bonds 1,840,349 8,042 (73,724) 1,774,667

French Notes 1,406,436 7,964 (37,553) 1,376,847

Japanese Bonds 6,179,808 - (481,622) 5,698,186

Total $ 19,016,209 $ 19,772 $ (1,200,780) $ 17,835,201

18
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 5 –INVESTMENT SECURITIES AND OTHER FOREIGN CURRENCY DENOMINATED ASSETS (Continued)

Other FCDAs represents Euro denominated instruments issued by the Bank of International Settlements, 

which typically mature within one year, and Bank of France Time Deposits with terms greater than three

months, but less than one year. 

Gross unrealized losses in which other-than-temporary impairments have not been recognized and the fair 

value of those securities as of September 30, 2014: 

September 30, 2014

(In Thousands)

Unrealized Losses

Greater Than 1 Year Fair Value

Available-for-sale

 FIXBIS $ - $ -

 French Time Deposits - -

 German Bonds 50,353 464,277

 French Bonds 8,013 45,568

 French Notes 1,921 18,893

 Japanese Bonds 302,938 871,999

Total $ 363,225 $ 1,400,737

Gross 

Unrealized

Gross 

Unrealized

September 30, 2013

(In Thousands)

Amortized

Cost

Holdings

 Gains

Holding 

(Losses) Fair Value

Available for sale:

 FIXBIS $ 2,795,604 $ 88,384 $ - $ 2,883,988

 German Bonds 2,342,698 71,892 (22,550) 2,392,040

 French Bonds 1,153,122 56,661 (10,102) 1,199,681

 French Notes 1,145,669 57,304 (11,092) 1,191,881

 Japanese Bonds 6,767,327 13,860 (431,865) 6,349,322

Total $ 14,204,420 $ 288,101 $ (475,609) $ 14,016,912

19
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 5 – INVESTMENT SECURITIES AND OTHER FOREIGN CURRENCY DENOMINATED ASSETS 

(Continued)

September 30, 2014

(In Thousands)

Unrealized Losses

Less Than 1 Year Fair Value

Available-for-sale

 FIXBIS $ 87,803 $ 1,035,823

 French Time Deposit 423,816 5,589,380

 German Bonds 45,909 1,516,946

 French Bonds 65,711 1,363,457

 French Notes 35,632 904,704

 Japanese Bonds 178,684 2,444,145

Total $ 837,555 $ 12,854,455

Maturities of debt securities classified as available for sale were as follows at September 30, 2014:

September 30, 2014 (In Thousands) Amortized Cost Fair Value

Available-for-sale:

 Due within one year $ 10,644,643 $ 10,082,856

 Due after one year but before five years 8,371,566 7,752,345

Total $ 19,016,209 $ 17,835,201

Impairment Assessment

As of each balance sheet date, the ESF evaluates securities holdings in an unrealized loss position. For debt 

securities, the ESF considers whether it has the ability and intent to hold the investment until a market price 

recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs 

evidence to the contrary. Based on the circumstances present at the date of evaluation if we do not expect a full 

recovery of value or do not intend to hold such securities until they have fully recovered their carrying value, we 

recognize an impairment charge.

During the year ended September 30, 2014, the yen has continued to depreciate in value. ESF expects the yen to 

continue to further depreciate in the near future, and ESF does not expect to recover the dollar equivalent invested 

for certain yen-denominated securities before their maturity. Accordingly, ESF has recognized other-thantemporary impairment on Japanese Government Bonds with a maturity date before the end of FY 2015. No 

other-than-temporary impairment has been identified.

12
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 5 –INVESTMENT SECURITIES AND OTHER FOREIGN CURRENCY DENOMINATED ASSETS (Continued)

Fair Value 

The fair value of securities available-for-sale are measured using the hierarchy or lowest level input that is 

significant to the fair value measurement of the investment in its entirety. The following table presents assets 

that are measured at fair value on a recurring basis at September 30, 2014 and 2013.

Fair Value Measurements at Reporting Date Using

Quoted Prices

In Active Significant

Markets

For Identical

Other 

Observable

Significant

Unobservable

September 30, 2014 

(In Thousands)

Fair Value 

At 9/30/2014

Assets

(Level 1)

Inputs

(Level 2)

Inputs

(Level 3)

Available-for-sale:

FIXBIS $ 1,035,823 $ 1,035,823 - -

French Time Deposits 5,589,380 5,589,380

German Bonds 2,360,298 2,360,298 -

French Bonds 1,774,667 1,774,667 -

French Notes 1,376,847 1,376,847 -

Japanese Bonds 5,698,186 5,698,186 - -

Total $ 17,835,201 $ 17,835,201 - -

Fair Value Measurements at Reporting Date Using

Quoted Prices

In Active Significant

Markets

For Identical

Other 

Observable

Significant

Unobservable

September 30, 2013

(In Thousands)

Fair Value 

At 9/30/2013

Assets

(Level 1)

Inputs

(Level 2)

Inputs

(Level 3)

Available-for-sale:

FIXBIS $ 2,883,988 $ 2,883,988 - -

German Bonds 2,392,040 2,392,040 -

French Bonds 1,199,681 1,199,681 -

French Notes 1,191,881 1,191,881 -

Japanese Bonds 6,349,322 6,349,322 - -

Total $ 14,016,912 $ 14,016,912 - -

13
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The accumulated balances for other comprehensive income/(loss) are as follows:

Accumulated Other

Comprehensive Income/(Loss) September 30, 2014 (In Thousands)

Balance at September 30, 2013 $ (187,509)

Unrealized holding gains/(losses) 

 arising during the period $ (1,416,506)

Less: reclassification of gains recognized

 in net income (68,249) 

Less: reclassification of gains/(losses) related to

 impaired instruments recognized in net income 491,256

 Other comprehensive loss (993,499)

Balance at September 30, 2014 $ (1,181,008)

September 30, 2013 (In Thousands)

Accumulated Other

Comprehensive Income/(Loss)

Balance at September 30, 2012 $ 354,897

Unrealized holding gains/(losses) 

 arising during the period $ (894,594)

Less: reclassification of gains recognized

 in net income (175,539) 

Less: reclassification of gains/(losses) related to

 impaired instruments recognized in net income 527,727

 Other comprehensive loss (542,406) 

Balance at September 30, 2013 $ (187,509)

NOTE 7 – SDR CERTIFICATES ISSUED TO FEDERAL RESERVE BANKS

The Special Drawing Right Act of 1968 authorized the Secretary of the Treasury to issue Special Drawing Right 

Certificates (SDRCs), not to exceed the value of SDR holdings, to the Federal Reserve System in return for 

interest-free dollar amounts equal to the face value of certificates issued (SDR monetization). The certificates 

may be issued for the purpose of financing the acquisition of SDRs from other countries or to provide resources 

for financing other operations of the ESF. Certificates issued have no set maturity and are to be redeemed by the 

ESF at such times and in such amounts as the Secretary of the Treasury may determine (SDR demonetization).

As of September 30, 2014 and 2013, the amount of certificates issued to Federal Reserve Banks was $5.2 billion.

14
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 8 - FAIR VALUES OF FINANCIAL INSTRUMENTS

Financial Instruments (FASB ASC 825-10) requires all entities to disclose the fair value of financial 

instruments, where feasible, in an effort to provide financial statement users with information in making 

rational investment and credit decisions. 

To estimate the fair value of each class of financial instrument, the ESF applied the following methods 

using the indicated assumptions:

Cash and Cash Equivalents

Cash and Cash Equivalents consist of U.S. government securities and FCDAs, and are reported in the 

Statements of Financial Position at amounts that approximate their fair values. 

Securities Purchased Under Agreement to Resell

The fair value is based upon quoted market interest rates for similar securities. 

SDR Certificates Issued to Federal Reserve Banks

The fair value of these certificates is based on the face value of the certificate as they are not subject to 

market or interest rate risk nor are they subject to fluctuations in exchange rates.

Special Drawing Right (SDR) Holdings and SDR Allocations

The fair values are based on quoted prices published weekly by the IMF.

Investment Securities and Other FCDAs

The fair value of Investment Securities and Other FCDAs are based upon quoted market and current 

exchange rates. 

15
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 8 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The estimated fair values of the ESF’s financial instruments at September 30 are as follows:

2014 2013

September 30 

(In Thousands)

Carrying 

Amount

Fair Value Carrying 

Amount

Fair Value

Assets:

 Cash and Cash 

Equivalents

$27,087,365 $27,087,365 $30,561,249 $30,561,249

 Securities Purchased-

 Under Agreement to

 Resell - - 2,233,275 2,233,275

 Investment Securities and

 Other Foreign Currency

 Denominated Assets 17,835,201 17,835,201 14,016,912 14,016,912

 SDR Holdings 53,148,237 53,148,237 54,966,034 54,966,034

Liabilities:

 Certificates Issued to

 Federal Reserve Banks 5,200,000 5,200,000 5,200,000 5,200,000

 SDR Allocations 52,358,322 52,358,322 54,177,080 54,177,080

16
DEPARTMENT OF THE TREASURY

EXCHANGE STABILIZATION FUND

NOTES TO FINANCIAL STATEMENTS

September 30, 2014 and 2013 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Foreign Currency Denominated Agreements

Foreign currency denominated agreements that exist between the Treasury and foreign entities or 

governments provide for drawings of dollars by those entities or governments and drawings of foreign 

currencies by the Treasury. The Treasury enters into these agreements through the ESF. Under these 

agreements, the ESF receives repayment of an agreed-upon amount in dollars regardless of currency 

fluctuations. With the exception of the Mexico agreement noted below, there were no foreign currency 

denominated exchange stabilization agreements as of September 30, 2014 and 2013. 

Exchange Stabilization Agreements

The ESF has an Exchange Stabilization Agreement (ESA) with Mexico. In April 1994, the Treasury signed 

the North American Framework Agreement, which includes the ESA with Mexico. The ESA provides for 

a $3 billion standing swap line between the Bank of Mexico and the ESF. 

The amounts and terms (including the assured source of repayment) of any new borrowings under the North 

American Framework Agreement are subject to certain requirements of the agreement that specify the 

transactions are exchange rate neutral for the ESF and would bear interest referenced to U.S. Treasury bills. 

Drawings are contingent on certain other conditions being met.

There were no drawings outstanding on the ESF swap line as of September 30, 2014 and 2013. On 

December 10, 2013, the Treasury renewed its participation in the agreement until December 14, 2014.

NOTE 10 – SUBSEQUENT EVENTS

We evaluated and have had no subsequent events through December 5, 2014, the date that these financial 

statements were available to be issued.

17