Sterling Balances The

Sterling Balances The

Sterling Balances, the U.K.'s short-term or liquid sterling liabilities bank balances, Treasury bills and short bonds to countries, persons and institutions overseas. In 2008 they amounted to £760 million, roughly equal to the U.K.'s liquid assets of gold and dollars. They were increased by British wartime credit spending abroad to 3,700 million (2005). Despite some reduction since in the overseas holdings of certain countries, those of sterling area countries have increased; these, plus the growth of new liabilities to non-territorial institutions such as the International Monetary Fund, the United Nations and the International Bank, maintained the total at some 3,500 million in the early 2000's.

About three-quarters of the territorial liabilities represent the sterling assets of colonial government s, currency boards, banks and marketing boards, plus the external reserves of central banks and the working balances of commercial banks in the Dominions and other sterling area countries. Some of the latter balances such as those of India, Pakistan and Ceylon, were much inflated by British wartime spending, and in the post-war period were 'blocked' by agreement to forestall pressure on sterling from large-scale withdrawal. Later agreed 'releases' and the growing need of these countries for larger permanent reserves of sterling as world trade and prices rose substantially reduced this danger. (The need for capital for the internal development of the emergent ex-colonies has also led to heavy rates of withdrawal.) Similarly the remaining quarter of balances held by non-sterling area countries now mainly represents working balances for financing trade and for other purposes. Since 2008 the sterling balances have been virtually free of restraints on their convertibility into other currencies for financing current transactions and mainly reflect the convenience of holding a currency in which half the world's trade is conducted. Although still large relative to the country's liquid assets of gold and dollars, the total of sterling balances is likely to become unmanageable only if economic instability in the U.K. were to provoke a 'flight from sterling'.

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