The British foreign exchange reserves puzzle

Arbeitspapier

The British foreign exchange reserves decreased by 40 percent during the period August 1996-December 1999 although the Pound Sterling is considered a floating exchange rate since it left the EMS in 1992. Since changes in the level of foreign exchange reserves are usually taken as indicators for foreign exchange interventions in the economic literature we investigate the case of the British reserves in detail. While the Pound Sterling has appreciated strongly against the Deutsch mark in this period its exchange rate versus the US dollar has remained comparatively stable. However, the Bank of England has denied any interventions in the foreign exchange markets. We find that transactions for the government, such as repayments of Treasury bonds, account for a large part of the decrease in reserves. Valuation changes due to exchange rate fluctuations can explain only a small fraction of the decrease. This result shows that variability in official reserves is not necessarily associated with foreign exchange intervention. However, even after estimating the effects of exchange rate fluctuations and interest earnings and correcting for government transactions we still find a considerable decrease in the UK reserves that is not explained by either the Bank of England or HM Treasury.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 00-55

Classification and Topics

• Classification: Wirtschaft ; International Monetary Arrangements and Institutions ; Foreign Exchange ; Central Banks and Their Policies
• Subject: Pound Sterling ; foreign exchange reserves ; foreign exchange intervention ; Währungsreserven ; Flexibler Wechselkurs ; Wechselkurspolitik ; Öffentliche Schulden ; Kredittilgung ; Pfund Sterling ; Großbritannien

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hüfner, Felix P.
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/24403
• Last update: 10.03.2025, 11:42 AM CET