The British Exchange Equalisation Fund

SINCE Great Britain left the gold standard on September 2ISt, I93I, the main instrument by which official control has been exercised over the exchange value of sterling is the Exchange Equalisation Account. The decision to set up the Account, the reasons for that decision, and the general statement of the purposes for which the Account would be used were announced by M'vIr. Chamberlain in-his financial statement to the House of Commons on April igth, 1932. The main purpose of the Account, or Fund, as it is more commonly termed, was to offset purely speculative movements in sterling exchange rates, while allowing real movements to have their normal effect. Subsidiary purposes were to permit the Bank of England to buy or sell gold at its old gold parity without showing in its accounts losses on purchases or profits on sales due to the depreciation of sterling below its old gold parity, and to provide a means of taking over the losses incurred by the Bank and the Treasury on the repayment of their foreign credits. The Fund is managed by the Bank of England, and all its transactions are kept as secret as possible. The Fund's assets consist of two parts-its sterling assets, originally issued to it in the form of Treasury Bills and believed still to be kept almnost exclusively in that form ; and its non-sterling assets, consisting of foreign balances or of gold. If there is an increased demand for foreign exchange, the Fund can, if it sees fit, prevent sterling from depreciating by selling foreign exchange at existing prices to whatever extent is needed to satisfy the demand, and increasing its sterling assets ; conversely, it can satisfy an increased demand for sterling by allowing its sterling assets to fall and its foreign assets to rise. If it chose, the Fund, so long as its reserves of sterling or of foreign exchange lasted, could peg the exchange absolutely

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