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22 September 1997
CHANCELLOR ANNOUNCES NEW OPEN POLICY ON OFFICIAL RESERVES
A new policy of openness on the UK Government's gold and foreign exchange reserves has been announced by the Chancellor Gordon Brown.
Addressing the International Monetary Fund (IMF) Interim Committee in Hong Kong, the Chancellor said he would publish a new quarterly report on foreign exchange operations, which would include the UK's forward foreign exchange position. He would also be publishing an annual set of accounts.
The Chancellor said:
"Most governments, including my own, have maintained a veil of secrecy over official forward exchange transactions. This can mean that markets have incomplete, and sometimes quite misleading, information about a government's foreign exchange reserves and the scale of intervention that has been undertaken.
"Today, I want to announce an end to all that. Full information on our outstanding forward position will be published - with a short delay - in a quarterly report. And full accounts of spot and forward positions will be published annually. So we are literally opening up the books."
NOTES TO EDITORS
1. The full text of the Chancellor's speech to the IMF Interim Committee is available to the media from the Treasury Press Office on 0207 270 5185. Other copies of the speech are available from the Treasury Public Enquiry Unit on 0207 270 5448.
2. The UK's official gold and currency reserves are held under Treasury control in the Exchange Equalisation Account (EEA). The Bank of England acts as the Treasury's agent in the foreign exchange markets.
3. The Treasury currently publishes the gross level of official reserves on the second working day of each month, along with the change in reserves taking account of foreign currency capital transactions. The Bank of England publishes a monthly breakdown of the gross reserves and public sector foreign currency liabilities on a monthly basis with a three month lag, in Monetary and Financial Statistics.
4. None of these figures include transactions or outstanding positions in the forward foreign exchange market. Forward foreign exchange transactions are agreements to buy or sell foreign currency for sterling at a fixed rate at a specified time in the future. Buying and selling in the forward market has an indirect impact on spot exchange rates and carries the same currency risk as ordinary spot market intervention.
5. By revealing its forward positions, the Government will show for the first time the true extent of its intervention in the foreign exchange markets and its outstanding foreign currency assets and liabilities. The new report will be published around two months after the end of each quarter and will include a commentary on market developments, and a breakdown of reserve assets and liabilities on a consistent basis, including forward positions.
6. The decision to publish with a short lag ensures that the market gets a full report covering all the relevant information and that the authorities do not shy away from appropriate policy action because of short-term concerns. Similar arrangements are in place for the Bank of England's new Monetary Policy Committee, which publishes full details of its discussions up to six weeks after each meeting.
7. A full set of annual accounts for the EEA will also be published, to bring the reserves up to the same high levels of accountability and transparency that apply to other UK government accounts.
8. Few other countries publish their forward foreign exchange positions. Examples of some that do are Sweden and Hong Kong, both of whom publish monthly details of their forward positions, and the US which publishes quarterly details of its outstanding foreign currency swap positions.
9. This move to increase openness and transparency builds on previous initiatives which provide greater openness in monetary and fiscal policy making: the publication of MPC minutes, the open letter system, the auditing of public finances by the National Audit Office and the forthcoming Green Budget.