UK OFFICIAL HOLDINGS OF FOREIGN CURRENCY AND GOLD: AUGUST 1998

Part I: UK Government Reserves

The overall level of the UK Government's spot reserves fell by $5 million in August, bringing the end-August total to $35,289 million (£21,218 million) compared with £35,294 million ($21,580 million at the end of July).

The underlying change in the reserves was an increase of $4 million.

The underlying change excludes capital transactions that are included in the overall change. In August there were repayments of $9 million of public-sector borrowing for which the Government has provided an exchange-rate guarantee under the Exchange Cover Scheme (ECS).

	$ million
end-August reserves	35,289
less
end-July reserves	35,294
OVERALL CHANGE	-5
less adjustments	9
UNDERLYING CHANGE	4

Part II: Bank of England Holdings of Foreign Currency and Gold

The level of the Bank of England's spot holdings of foreign currency and gold was $5,476 million (£3,292 million) at end- August compared with $5,255 million (£3,213 million) at the end of July.

	$ million
end-August holdings	5,476
less
end-July holdings
OVERALL CHANGE	221

The change in the Bank's holdings includes changes in foreign-currency and gold deposits placed with the Bank by overseas central banks and other customers, and the change in valuation over the month.

The change also includes a reduction of $20 million in the Bank's spot holdings due to the net effect of foreign-exchange swaps conducted in the course of the Bank's money-market operations. These foreign exchange swaps are undertaken as a supplement to
the Bank's usual money market techniques to provide sterling liquidity to the market. The operations are purely technical in nature and have no monetary policy significance; they are likely to be used from time to time in the future, depending on market
conditions.

NOTES TO EDITORS

1. Due to the two-day settlement lag in the foreign-exchange market, both the UK Government figures and the Bank of England figures include transactions conducted in the last two working days of July and exclude transactions conducted in the last two
days of August.

2. The Quarterly Report on UK Official Holdings of Foreign Currency and Gold, to be published on 2 December 1998 and covering the quarter ending 30 September 1998, will contain further information about the foreign-currency and gold holdings of the Government and the Bank of England. This will include, for each, the size of the forward foreign-exchange position, the currency composition of foreign-currency assets, the size and currency composition of foreign-currency liabilities and information on intervention operations, if undertaken.

3. The Government and Bank of England figures have been produced on the basis of different accounting methodologies. Therefore, no overall total for the two is shown. Details of the accounting methodologies were included in the Quarterly Report published on 3 March 1998 (covering October-December 1997) and will be included in future Quarterly Reports.

4. The underlying change in the Government's reserves is the result of a variety of transactions, both debits and credits, including, for example, transactions for Government departments, transactions with other central banks and interest receipts and
payments. For these reasons, the underlying change should not be taken as an indication of market intervention.

5. Repayments under the Exchange Cover Scheme in August were as follows:

Organisation	$ million
West Midlands County Council	4.826
Northern Ireland Department of Finance	1.639
Central Regional Council	1.190
Lothian Regional Council	1.181
Other smaller repayments	0.505
Total	9.341

6. The figures contained in this press release can also be obtained from the Reuters Monitor (page TREA), Bridge News (page 170), Telerate (p22494) and Topic (p6800).

Q&A BRIEFING

What are the reasons behind the changes in the levels of the Government's reserves and the Bank's holdings?

Some explanation is provided in Parts I (Government) and II (Bank). Further explanation will be included in the Quarterly Report on UK Official Holdings of Foreign Currency and Gold to be published on 2 December 1998, covering the quarter ending 30 September 1998.

Why are forward purchases and sales of currency not shown in the monthly figures?

The aim in the monthly figures is to publish the basic information, covering the month's change in the spot reserves as quickly as possible. Further details, covering the currency breakdown of assets and liabilities and forward purchases and sales, are provided regularly in the Quarterly Reports.

Why does the Bank have holdings of foreign currency and gold on its balance sheet?

The Bank's holdings arise mainly from foreign-currency and gold deposits placed with the Bank by overseas central banks and other customers in the course of their banking business with the Bank.

Why is a total for the foreign-currency and gold holdings of the Bank and the Government not shown?

An overall total is not shown because different methodologies are used to account for Bank holdings and the reserves in the Exchange Equalisation Account. The principal difference relates to the exchange rates used for valuation purposes: the Bank's holdings are translated into US dollars at prevailing market rates whereas the EEA's holdings are translated at "parity" exchange rates set once per year. A combined total would therefore be misleading.

Are the Bank's holdings of foreign currency and gold part of the UK's foreign-exchange reserves?

The Bank's holdings are available for the purposes of intervention in the foreign-exchange market. However, since they mainly arise from the Bank's routine banking business, it would be misleading to term them "reserves." It should also be noted that, whereas the EEA reserves are under the direction of the Treasury, the Chancellor's statement of 6 May 1997 included provisions for the Bank to hold a separate pool of foreign-currency assets available for intervention in support of its monetary-policy objective.

Will the holdings on the Bank's balance sheet be used for intervention?

The Bank's holdings could be used for a variety of purposes, including intervention if the Bank so decided.

Will the Bank be increasing the size of its holdings by some other means?

The Bank may change the size of its holdings in the management of its balance sheet or to meet operational requirements.

Press Notices 1998 July to December Index