46/00
4 April 2000
UK OFFICIAL HOLDINGS OF FOREIGN CURRENCY AND GOLD:
Part I: UK Government Reserves - March 2000
1. The overall level of the UK Government's reserves, including the forward book, rose by $40 million in March, bringing the end-March total to $31,575 million (£19,794 million(1)) compared with $31,535 million (£19,972 million(2)) at the end of February 2000.
2. The underlying change in the reserves, including the forward book, was a fall of $3 million.
3. The underlying change excludes capital transactions that are included in the overall change. In March there were repayments of $18 million of Exchange Cover Scheme (ECS) borrowing.
4. The underlying change also excludes the difference between the valuation of the gold auctioned on 21 March at the "parity" rate of $209.59 per troy ounce and the auction allotment price ($285.25 per troy ounce) amounting to $61 million.
| $ million | |||
| Spot | Forward | Total | |
| end- March reserves | 33,478 | -1,903 | 31,575 |
| less | |||
| end- February reserves | 33,212 | -1,677 | 31,535 |
| OVERALL CHANGE | 266 | -226 | 40 |
| less adjustments | -43 | 0 | -43 |
| UNDERLYING CHANGE | 223 | -226 | -3 |
5. As set out in the Chancellor's letter of 6 May 1997 to the Governor, if the government so instructs then the Bank, acting as its agent, may intervene in the foreign exchange market by buying or selling the government's foreign exchange reserves. If intervention is undertaken, the monthly press release will provide details of the amount and date of the intervention and an explanation of why it was undertaken. No intervention operations were undertaken in March.
6. After the annual revaluation, the reserves stood at $30,455 million (£19,092 million(3))
7. Following the International Monetary Fund's revision to their Special Data Dissemination Standard (SDDS) and the G10 central bank report "Enhancing transparency regarding authorities' foreign currency liquidity position" the United Kingdom has decided to disclose additional information on its foreign currency assets and liabilities. On Wednesday 29 March 2000 the Bank of England published, on its webpage, data on UK foreign currency liquidity for end-February 2000. The data for end-June 1999 onwards can be found on the Bank of England website on the address below.
External links
i
Part II: Bank of England Holdings of Foreign Currency and Gold - March 2000
1. The overall level of the Bank of England's holdings of foreign currency and gold, including the forward book, rose by $1,107 million in March, bringing the end-March total to $9,174 million (£5,751 million(4)) compared with $8,067 million (£5,109 million(5)) at the end of February 2000.
2. There was no underlying change in the level of the Bank of England's holdings including the forward book.
| $ million | |||
| Spot | Forward | Total | |
| end-March holdings | 9,128 | 46 | 9,174 |
| less | |||
| end-February holdings | 11,974 | -3,907 | 8,067 |
| OVERALL CHANGE | -2,846 | 3,953 | 1,107 |
| less adjustments | 2,846 | -3,953 | -1,107 |
| UNDERLYING CHANGE | 0 | 0 | 0 |
Revision to end-February 2000 figures
The end-February 2000 figures for the Bank of England's holdings of foreign currency and gold published on 2 March 2000 have been revised as follows:
| $ million | |||
| Spot | Forward | Total | |
| From | 11,932 | -3,907 | 8,025 |
| To | 11,974 | -3,907 | 8,067 |
The Underlying Change remained zero for the month of February.
3. The adjustments to the overall change figure include the change in valuation over the month, changes in holdings arising from changes in foreign currency and gold deposits placed with the Bank by overseas central banks and other customers, changes due to the net effect of foreign exchange swaps conducted in the course of the Bank's money market operations, changes arising from the UK participation in the TARGET system, changes arising from the Bank's Euro Bill programme, and other capital items. The foreign exchange swaps are undertaken as a supplement to the Bank's usual money market techniques to provide sterling liquidity to the market, and are purely technical in nature. The proceeds of the Bank's Euro Bills are used to finance the provision by it of intra-day liquidity, on a secured basis, to participants in CHAPS euro, as part of the arrangements for TARGET.
4. The Bank's participation in the TARGET system has given rise to euro balances with other central banks operating the system. These are in effect off-set by similar balances that the other central banks hold at the Bank. As a result they are shown net in the table above, where they account for $212 million. The gross claim is $28,509 million.
5. As set out in the Chancellor's letter of 6 May 1997 to the Governor, the Bank may also undertake foreign exchange operations to intervene in support of its monetary policy objective. If intervention is undertaken, the monthly press release will provide details of the amount and date of intervention and an explanation of why it was undertaken. No intervention operations were undertaken in March.
6. Following the International Monetary Fund's revision to their Special Data Dissemination Standard (SDDS) and the G10 central bank report "Enhancing transparency regarding authorities' foreign currency liquidity position" the Bank of England has decided to disclose additional information on its foreign currency assets and liabilities. On Friday 29 March 2000 the Bank of England published, on its webpage, data on UK foreign currency liquidity for end-February 2000. The data for end-June 1999 onwards can be found at the Bank of England website.
Notes to Editors
1. The Quarterly Report on UK Official Holdings of Foreign Currency and Gold, to be published on 2 June 2000 and covering the quarter ending 31 March 2000, 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 currency composition of foreign-currency assets, the size and currency composition of foreign-currency liabilities and information on intervention operations, if undertaken.
2. 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.
3. 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.
4. Repayments under the Exchange Cover Scheme in March were as follows:
| Organisation | $ million |
| Derby County Council | 12.908 |
| Rotherham Metropolitan Borough Council | 0.785 |
| Lancashire County Council | 0.550 |
| West Glamorgan County Council | 0.539 |
| Merseyside County Council | 0.510 |
| Other Smaller Repayments | 2.433 |
| Total | 17.725 |
5. Under the current accounting methodology valuation of foreign currency and gold is based on "parity" rates fixed annually for the following financial year. The "parity" rate for gold in use during the financial year 1999-2000 is $ 209.59 per troy ounce.
6. The figures for April 2000 will be published on Wednesday 3 May 2000.
7. 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 June 2000, covering the quarter ending 31 March 2000.
Why are forward purchases and sales of currency now being shown in the monthly figures?
By publishing timely information on the forward book and spot reserves, accurate and comprehensive information about the United Kingdom's foreign exchange liquidity position will be available.
Why is publishing the forward book important?
Publishing the forward book means publishing the total effect of all market operations, including intervention. Countries that do not publish their forward books can conceal their intervention. This is not consistent with accountability, nor with the need to keep financial markets fully informed.
Why does the Bank have holdings of foreign currency and gold on its balance sheet?
See text of Press Notice.
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 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.
Why are there no capital receipts from/repayments of Government Euro Treasury Bills?
As announced on 5 January 1999 the Bank of England has taken over as the issuer of Euro Treasury Bill during 1999. The Government's own Euro Treasury Bill programme was completed in September 1999.
Why do the Government's spot reserves rise and the forward book fall?
This reflects foreign currency swaps out of sterling which are replacing that part of the financing of the Government's foreign exchange reserves previously provided by its Euro Treasury Bills programme.
What factors lay behind the changes in the Bank of England's holdings of foreign currency (spot and forward)?
The level of the bank's spot and forward foreign currency holdings will vary as a result of the factors listed in the press notice (paragraph 3). Further questions should be addressed to the Bank of England.
Does the change in the overall level of the UK's reserves reflect changes in the price of gold?
No. The press notice provides a valuation based on "parity" rates fixed annually and used during the financial year. Under the accounting methodology used gold is valued at the average of the London fixing price for the three months to end-March, less 25%; or 75% of its final fixing price on the last working day in March, whichever is lower.
Do the reserve figures reflected the gold sold at the auctions in July, September, November, January and March?
Yes. The overall change to the reserves reflects the allotment price at all five auctions. The underlying change however excludes the difference between the valuation of the gold auctioned at the "parity" rate of $209.59 per troy ounce and the auction allotment prices.
Questions on the restructuring of UK's reserves holdings/sale of UK gold
Refer to latest version of DRM's standard Q&A briefing - circulated on 20 March
Questions on the publication of information on the UK's foreign currency assets and liabilities on the Bank of England webpage
Refer to separate Q&A briefing provided at the time of the publication of data for end-June on Friday 30 July.