The UKís total foreign exchange reserves- which are utilised to protect the pound in times of financial difficulty, is currently lower than a number of unexpected countries such as Poland, the Philippines and. Libya.
Research released by the Deutsche Bank, entitled ìMapping the Worldís Financial Marketísî, has indicated that the UK currently stands at 24th place on the list of the globes biggest holders of foreign currency reserves, with the Treasury holding around $70 billion dollars, or £42 billion.
China topped the charts with over 40 times as much in their federal reserve as the UK, with $3246 billion, whilst Japan, Saudi Arabia, Switzerland and Russia followed them in the proceeding places.
Britainís precarious position on the ranking board clearly illustrates how vulnerable it is to a currency crash should a new financial crisis arise in the near future, and the low reserve total would make any policymakers ability to influence markets that are in trouble, highly difficult.
The last major occasion in whcih the reserves were utilised was back in 1992, when then Chancellor Norman Lamont had the Bank of England externally intervene within currency markets in a bid to try and retain the pound within the EUís Exchange Rate Mechanism.
The move was a disaster and a completle financial failure as billions of pounds within the reserves were wasted in a lost cause of puchasing the pound. Eventually, Prime Minister John Major had no choice but to leave the mechanism which culminated in the devlaution of the pound on the notorious day ìBlack Wednesdayî.
Two weeks ago, Chancellor George Osborne revealed within his budget his intention to raise Britainís foreign exchange reserves, though sceptics have argued that this is a political move to bolster the country export levels through the control and prevention of the pound getting too powerful.
Foreign exchange reserves are assets that are typically placed into the possession of financial authorities or central banks. Usually, the reserves are held in foreign currencies, such as the euro, or the yen, but are most prominently found in the form of the dollar.
A strong federal reserve is vital to reinforcing liabilities, such as local currency distributed, and other reserves that are placed into the central bank by the government.
The Bank of England released a statement saying: “As part of the monetary policy framework introduced by the Chancellor of the Exchequer in 1997, the Bank holds its own foreign exchange reserves in support of its monetary policy objective. These reserves are separate from the UK’s official reserves, which the Bank manages on behalf of HM Treasury.”
They also sought to allay fears that have been incurred from the Deutche Bankís data by pointing out that a large proportion of the UKís reserves are actually held in a separate account, called the Exchange Equalisation Account, which was created back in 1932 in order to supply the bank with a fund which could be utilised ìfor checking undue fluctuations in the exchange value of sterling”.