§ Mr. Bruce-Gardyneasked the Chancellor of the Exchequer what is the aggregate value of sterling balances plus overseas borrowing by United Kingdom nationalised industries currently guaranteed against depreciation in the parity of the £ sterling; at what parity rates such guarantees would be activated; and what would be the cost to the reserves of each one point depreciation in the pound/dollar parity below those rates.
§ Mr. NottIn respect of the official sterling balances, the eligibility of official holders for the guarantee offered by Her Majesty's Government on 6th September will depend on compliance with certain conditions in the management of their reserves between 24th September 1973 and the end of March 1974. The amount of sterling holdings eligible for any guarantee payment that might be necessary can thus be determined only after the end of this period when the necessary information and returns from sterling holders have been received. The guarantee will be implemented in respect of eligible balances if the average sterling/dollar rate over the period of the 215W Guarantee arrangement is below $2.4213, the average of the exchange rates at noon on the three working days before announcement of the guarantee offer on 6th September.
The nationalised industries and local authorities had by the end of September borrowed U.S. $1,365 million and U.S. $405 million respectively under the exchange cover scheme introduced earlier this year. Under the terms of this scheme, public sector borrowers are entitled to buy dollars from the Exchange Equalisation Account for the purpose of making interest payments and capital repayments on their loans at the same rates of exchange as the original loan proceeds were sold to the Exchange Equalisation Account. No estimate can be given of the net cost to the account that might arise in the event of a depreciation of sterling below the rate at which borrowed dollars were taken into the reserves since this depends on a complex of factors. These include the disposition of the assets of the account, the income earned on such assets and the charges levied on public sector borrowers for use of the cover facility, as well as for the amount of any sterling depreciation.