Sterling gets a boost

Press, 12 January 1977, Page 6

Sterling gets a boost

NZPA-Reuter Basle, Switzerland Leading industrial nations are giving Britain’s ailing currency a psychological boost by setting up a SUS 3 billion scheme to help cover any withdrawals of official sterling balances held by foreigners in London. In Washington, the United States Treasury announced that it would put up a third of the money needed to protect sterling’s exchange value. Other countries involved in the decision, announced by the Bank for International Settlements (8.1.5.), include Belgium, Canada, West Germany, Japan, the Netherlands, Sweden and Switzerland.

The news had an immediate effect in the United States, where sterling closed two U.S. cents up at 1.7245 to the U.S. dollar. At one stage it reached a high of 1.74 during a flurry of frantic buying. The 8.1.5. said the aim of the bankers’ discussions was to prevent instability caused by fluctuations in the official sterling balances. Official sterling balances are those held by foreign governments, while others are in the hands of private individuals and institutions. The 8.1.5. said that Mr Johannes W’itteveen, managing director of the International Monetary Fund, which last month formally approved a 5U5.3.9 billion loan to Bri-

tain, is being asked to help put the agreement into operation.

As part of the plan, Britain intends to offer securities in the form of foreign currency bonds to present official sterling holders. These would have the effect of reducing the part played by the British currency in international reserves.

The new international support will alleviate at least one source of instability for sterling. Withdrawals by official holders last year aggravated the currency’s problems caused by Britain’s economic ills, including inflation and big balance of payments deficits.