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Home > Markets and Payments > The United Kingdom's Official Reserves of Foreign Currency and Gold

The United Kingdom's Official Reserves of Foreign Currency and Gold

Institutional Framework

The United Kingdom's official holdings of international reserves comprise gold, foreign currency assets, International Monetary Fund (IMF) Special Drawing Rights (SDRs), and the UK's Reserve Tranche Position (RTP) at the IMF. With the exception of the RTP, these reserves are held in a government account administered by Her Majesty's Treasury (HMT), the Exchange Equalisation Account (EEA). The Bank of England (the Bank) acts as HMT's Agent in the day-to-day management of the EEA. The Bank deals in foreign exchange and invests the reserves within the framework of a Remit set by HMT.

The EEA was established in 1932 to provide a fund which could be used "for checking undue fluctuations in the exchange value of sterling". Any exchange rate intervention undertaken by the UK government would therefore be conducted via the EEA *. The legislative underpinning for the EEA is now the EEA Act 1979. This states that the EEA may also be used "to secure the conservation or disposition in the national interest of the means of making payments abroad"; and for certain purposes arising from the UK's membership of the IMF. The EEA is used to provide foreign exchange services to Government Departments and Agencies, such as sales of foreign currency to Departments with foreign currency obligations.

The Bank also acts as HMT's Agent for foreign currency liability management, including the issuance of foreign currency debt.  This allows the foreign currency part of the government's balance sheet to be managed in an integrated way by the Bank as Agent.

HMT has published Key Performance Indicators for the Bank's management of the EEA.  Performance relative to these indicators is reported in the annual accounts of the EEA and Debt and Reserves Management Report.

As note above, the Bank manages the reserves in accordance with an annual Remit set by HMT. The main text is published in HMT's annual Debt and Reserves Management Report. The Remit summarises the benchmarks against which the reserves are actively managed; the investment constraints within which the Bank operates; the framework for risk control; and the arrangements for the audit of the EEA.

* As set out in the Chancellor of the Exchequer's letter of 6 May 1997 to the Governor of the Bank of England, the Bank can intervene in support of its monetary policy objective using the Bank's own resources rather than those of the EEA.


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