UK International Reserves and Foreign Currency Liquidity Template
Main Page | Introduction | Summary | Methodology
Background Information on UK Reserves and the Development of the Template
The term Reserve Assets (or International Reserves) is commonly used to represent the foreign currency assets of monetary authorities, where monetary authorities are defined as the central government and/or the central bank. Reserve Assets are comprised of foreign exchange (a range of financial instruments, including various types of deposits and securities), International Monetary Fund (IMF) Reserve Tranche Position, SDRs (Special Drawing Rights), Gold and Other Reserve Assets (which includes repurchase agreements and derivatives).
For further information on these instruments go to the UK Methodology and Definitions page
Countries often hold substantial sums in the form of reserve assets. The reasons for doing so will vary from country to country. The size of reserves will depend on a number of variables such as the exchange rate regime, the extent to which the economy is open to trade, the level of foreign currency debt. Some of the reasons why countries may hold reserves are listed below:
- A tool of exchange rate or monetary policy -
Most obviously if countries have fixed exchange rates. - To pay for government purchases of foreign goods -
Countries may set foreign currency aside to meet future needs. - To service and ultimately repay foreign currency debt -
Adequate reserve levels give confidence to creditors. - Insurance against emergencies -
Likely to be of relevance to smaller countries with variable export receipts - A source of income -
Few countries will rank this as a high priority. However, earning income on the reserves or preserving their value are reasons why reserve assets may be actively managed once the decision to hold them has been made
Framework for Managing the Reserves United Kingdom's Foreign Currency Reserves:
The Exchange Equalisation Account (EEA) holds the United Kingdom's reserves of gold, foreign currencies and IMF SDRs. These holdings, together with the United Kingdom's Reserve Tranche Position at the IMF, make up the United Kingdom's official reserves. The reserves are owned by Her Majesty's Treasury but the Bank of England acting as their agent carries out day-to-day management of the account dealing in foreign currencies and the investment of the reserves.
The EEA was established in 1932 to provide a fund which could be used for "checking undue fluctuations in the exchange value of sterling" (Section 24 of the Finance Act 1932). Any United Kingdom Government intervention in the foreign exchange market would therefore be conducted through the EEA. Subsequent legislation extended the possible use of the fund; and, under the consolidating Exchange Equalisation Account Act 1979, it is now also 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 United Kingdom's membership of the IMF, including the holding, purchase and sale of SDRs.
The Bank of England manages the reserves in accordance with the criteria set annually by the Treasury in a document known as the Remit. The Remit specifies:
- Limits on reserve transactions during the year,
- Benchmarks for investing the reserves with limits to the Bank's discretion to take currency or interest rate positions relative to these benchmarks,
- The framework for controlling credit and market risk,
- The framework for the National Loans Fund (NLF) foreign currency borrowing program which is used to finance part of the reserves
Bank of England's Holdings of Foreign Currency and Gold
In addition to the United Kingdom's Official Reserves the Bank of England manages its own holdings of foreign currency assets and gold. In accordance with the Chancellor of the Exchequer's letter of 6 May 1997 to the Governor of the Bank of England, the Bank may intervene in the foreign exchange market in support of its monetary policy objective.
Publication of Reserve Assets in the UK
Historically, UK reserves data have been published in official or "parity" dollars. Foreign currency data were converted into official dollars using parity exchange rates. Parity exchange rates were set by taking the average of the daily exchange rates prevailing in the three months to the end of March each year or the daily exchange rate prevailing on the last working day of March, whichever was lower. The advantage of this approach was that it allowed the presentation of reserves data without the effect of exchange rate movements. The disadvantage was that this fell short of best accounting practice and masked changes in the market value of the reserves. Data in parity dollars format was disseminated by means of the HMT UK Official Holdings of Foreign Currency and Gold press release.
The presentation and accounting basis of the UK reserves has changed radically in recent years. The UK has been at the forefront internationally in promoting openness and transparency in reserves data. The Chancellor announced in September 1997 that the information on the United Kingdom's forward book (trades that have been done but that are settled in the future) would be published along with the spot book on a quarterly basis. This quarterly report, which was published with a two month lag, also provided a breakdown of assets and liabilities into broad currency blocks, SDRs and gold. The first report covering the period July to September 1997 was published in December 1997. In October 1998 the Chancellor announced that information on the forward book would be published on a monthly rather than a quarterly basis. This was begun in November 1998 in the press release covering the October 1998 reserve figures.
Since July 1999, monthly reserves data in the IMF template format (see below) have been published on the Bank of England's website.
Development of the International Reserves and Foreign Currency Liquidity Template
The United Kingdom has been at the forefront internationally in promoting openness and transparency in reserves data. International financial crises in recent years have emphasised the importance of disseminating timely and meaningful data for both reserve assets and also potential drains on those reserves. In response to the international environment a number of international committees were set up to focus on the role of reserves data in financial crises. In particular, the BIS G10 Committee for Global Financial Stability, and the IMF under the auspices of the Special Data Dissemination Standard developed the current template framework. For more information on the SDDS see the Dissemination Standards Bulletin Board on the IMF website.
The framework is aimed at producing timely data on reserves and potential drains on the reserves. The template is specified in such a way that it captures all possible instrument categories used in reserves management. This aspect is particularly important since it is crucial that all relevant foreign currency assets and the drains upon them are reported.
Key Resources
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Detailed Current Data Download Spreadsheet (805kb) |
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Detailed Current Data Download PDF (239kb) |
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Detailed Historic Data Download Spreadsheet (2095kb) |
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Detailed Historic Data Download PDF (531kb) |
