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 UK Government has published a Service Delivery Agreement (SDA) target to minimise the cost of holding reserves while reducing risk. Performance relative to this target is reported in detail in HMT's annual report on the expenditure plans of the Chancellor of the Exchequer's Departments.
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.
Key Resources
|
The United Kingdom's
Official Reserves of Foreign Currency and Gold Complete document (112k) Download PDF |
