§ Captain Kerby
asked the Chancellor of the Exchequer on what grounds he reached his decision that gold coin and bullion valued at £361,499 is a sufficient backing for the Bank of England note issue, at 31st May, 1961, of £2,325,361,499; and if he will increase the gold backing.
§ Mr. Selwyn Lloyd
At the beginning of the Second World War the whole of the gold reserve in the Issue Department of the Bank of England—except for a token amount—was transferred to the Exchange Equalisation Account, where it became, and remains, available for the purposes authorised by Section 24 of the Finance Act, 1932, as amended by Section 63 of the Finance Act, 1946. The creation of the Exchange Equalisation Account in 1932 and later the transfer to it of the gold reserve served to break finally the links between the gold reserve and the note issue and thus to insulate the latter from the direct impact of fluctuations in the gold reserve as a result of movements across the exchanges. I am satisfied that these arrangements, which appear to have been found acceptable by the Committee on the Working of the Monetary System, have been greatly to the public advantage, and I see no reason to alter them.