Exchange Equalization Account

Exchange Equalization Account

Exchange Equalization Account, in Britain a department of the Government; in other countries its functions are carried out by central banks. The main purposes are to place the international monetary position of the country under Government control, stabilize the exchange rate and cushion the impact on the internal monetary system of inconvenient changes in the balance of payments. The British Exchange Equalization Account holds reserves of gold and convertible currencies, particularly dollar assets, and has large sterling assets in the form of 'tap' Treasury bills. It can thus enter the market for foreign exchange as a buyer or a seller of sterling, and limit movements in the pt-ice at which sterling is bought and sold in foreign currencies (the exchange rates).

The system works as follows: the commercial banks obtain the gold and dollars, etc., they require to satisfy a net deficit on Britain's external transactions by selling some of their Treasury bill holdings to the Government. When there is a surplus in the balance of payments they sell their receipts of foreign exchange for interest-yielding bills.

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