The British Exchange Equalisation Fund in 1935

As this note is merely an addition to my article of a year ago (ECONOMICA, February, 1935, pp. 6I-74), I shall not repeat my description of the method used in estimating movements of the nonsterling assets of the British Exchange Equalisation Account (or, as it is more frequently termed, Equalisation Fund). It is, however, necessary to remind readers that this estimate is largely based on two assumptions, both of which are very uncertain, so that the final estimates can at best represent only a very rough approximation to the truth. The first of these assumptions is that the Exchange Equalisation Fund keeps the whole of its sterling assets in the form of Treasury Bills obtained direct from the Treasury through the tap. If the Fund were to buy or sell bills in the market, or obtain them by tender, or were to hold other types of sterling assets, the calculations would be to that extent erroneous. To tender for or buy large quantities of bills, or to hold long-dated sterling securities, would probably prove inconvenient in practice. There are, however, two other types of sterling assets which the Fund conveniently might, and probably does, hold in moderate quantities from time to time-Deposits with the Bank of England, and Ways and Means Advances to the Treasury. Since, however, the total of these owned by all government departments is small as compared with the total of Treasury Bills, any large and continued use by the Fund of these outlets for its sterling assets would leave evidence in the published figures that something unusual had occurred. In practice, the use of these methods probably tends in general rather to delay than to conceal the effects on the bill figures of changes in the total of the Fund's sterling assets, though the effects of quite temporary changes might be concealed altogether. There are of course other methods by which the Fund might conceal its operations still more effectively-as, for instance, by holding the fluctuating margin of its sterling assets on deposit with the joint stock banks. There is no evidence that such methods are in fact used. The second assumption is perhaps even more doubtful. This is that the volume of tap bills held by other government departments

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