§ Mr. Viggers
asked the Chancellor of the Exchequer if he will make a statement on the method by which the Treasury's exchange cover scheme operates.
§ Mr. Robert Sheldon
Under the exchange cover scheme the proceeds of any foreign currency borrowing by the United Kingdom public sector are sold to the Exchange Equalisation Account in exchange for sterling at the exchange rate then prevailing. The EEA undertakes to provide foreign currency for the service and repayment of such borrowing at the same rates of exchange, rather than the market rates at the time of the payments. In return the borrower surrenders to the EEA a proportion of the interest rate advantage of the foreign borrowing. This proportion is adjusted from time to time, with the broad objective of allowing borrowers an interest benefit of about 1 per cent. compared with the cost of their sterling borrowing.
asked the Chancellor of the Exchequer (1) what has been the cost since 1st March 1976 to the Treasury by reason of the Treasury's exchange cover 315W scheme as a result of the depreciation of the £ sterling;
(2) what has been the estimated benefit and the estimated cost since 1st March 1974 of the Treasury's exchange cover scheme.
§ Mr. Robert Sheldon
The sterling costs and benefits to the Exchange Equalisation Account of the exchange cover scheme depend upon the exchange rate relationships between sterling and the various currencies borrowed at the beginning and at maturity of individual loans and the movement in United Kingdom and overseas interest rates throughout the period of the loans. During the life of the loans the EEA benefits as the result of higher interest rates paid by the public sector borrowers. The cost to the EEA of the scheme consists of the increased sterling liability of the foreign currency borrowing when the loans mature. The assessment of any eventual net cost to the Exchange Equalisation Account can be completed only when a loan undertaken through this arrangement has been repaid.
Loans under the exchange cover scheme which were outstanding on 1st March 1974 are currently—30th April—equivalent to £1.7 billion, compared with £1.1 billion when the individual loans were negotiated. For 1st March 1976 the corresponding figures were £3.7 billion and £2.8 billion respectively.