U.K. reserves a record

Press, Volume CXI, Issue 32703, 4 September 1971, Page 17

U.K. reserves a record

(N.Z.P. A.-Reuter —Copyright) LONDON, September 3. Shortly after the Government slashed its 6 per cent Bank Rate by 1 per cent yesterday, it disclosed that its gold and dollar reserves had soared by a record £39om to a record level of £2003m.

Both announcements were a direct result of the flow of "hot money” stemming from the dollar crisis. Foreign investors have been getting rid of their dollars to buy sterling in a massive gamble that if the British currency is revalued as part of an international package deal to realign all currencies against the lower value of the dollar, they would reap an enormous profit by selling their sterling at its then higher value. To make the possibility of such transactions less attractive, the Government last week-end. stopped payment of interest to foreign holders of sterling. Now, by cutting back the interest rate they hope to stall further sterling speculative buying. There is also a certain degree of international unity in yesterday’s cut because it brings British interest levels more into line with those in West Germany and the United States. It was very largely because of the big inflow of dollars to buy sterling that Britain’s stock-pile of gold and dollars rose in August by £39om—the bigges’ monthly rise—to the all-time record. The real gain during the month, however, was even greater because the £39om was what was left of the incoming foreign currency after overseas debts amounting to £26lm had been cleared—some of them more than a year before they were due to be settled. Most of the extra money came in during the first part

of the month, before President Nixon announced his economic package on August 15 which included an import surcharge and suspension of the dollar’s convertibility into gold. British Government spokesmen went out of their way to stress that although a cut in the Bank Rate would normally be designed to make borrowing cheaper for industrial expansion, this time it was dictated by international events and was not specifically to boost the domestic economy. Extracts from editorials in British newspapers today were compiled by the Associated Press: , The “Financial Times” commenting on the position, said: “The SUS937m inflow of reserves into London in August, before allowing for repayments and associated factors, was not in fact particularly large in the context of the prevailing dollar crisis. “The political directive under which the authorities have been acting is to avoid both any major purchases of dollars and any significant appreciation in the sterling rate. Both the exchange controls announced over the week-end and yesterday’s Bank Rate reduction were designed to reconcile these two objectives. . . . “The measures ar- to a large extent precautionary. Since sterling began its controlled float there has been very little upward pressure on the rate.”