STERLING PARITY

Press, Volume CXII, Issue 33003, 24 August 1972, Page 13

STERLING PARITY

Unforeseen difficulty (N.Z. Press Assn. —Copyright) LONDON, Aug. 23. Official plans for sterling to return to a fixed parity have run into difficulty because of an unforeseen complication in the Basle Agreement, “The Times” reports. The agreement, signed in 1968, guarantees the foreign exchange value of overseas sterling area reserves held in sterling. Britain is required to make good most of the exchange loss suffered by the signatories if sterling falls below SUS 2.38 —the lower intervention point when parity was SUS2.4O. Acute difficulty in interpreting the agreement if parity returns to SUS2.4O is foreseen. Under the system of wider parity bands established by the Smithsonian Agreement last December, the pound sterling would be able to fall as low as 5U52.3460 if Common Market currencies were also at the lower end of their dollar range. To avoid a situation in which sterling could move below SUS2.3B, parity would have to be at least 5U52.4348, which is more than most observers originally expected. It seems unlikely that Britain will devalue to 5U52.3276, with SUS2.3B the upper intervention point, which would mean paying sterling area countries their insurance money, “The Times” says. If parity was established anywhere between the two extremes, a decision would have to be taken on how the guarantees should apply if the rate moved below SUS2.3B on a day-to-day basis.