Gold Reserves Stock

Gold Reserves Stock

Gold Reserves, stock of gold (supplemented by foreign currencies) held by a country to meet possible demands for payment arising out of its foreign trade. In Britain the gold and convertible currency reserves are held in the Exchange Equalization Account. The importance of the reserves is that they are necessary to meet demands for foreign currency which may be made on Britain as a result of a temporary balance of payments deficit. In total they have fluctuated with changes in the balance of trade on current account (in corn-modifies, services, interest, etc.) and in the short-term and long-term movements of capital (by overseas holders of balances in sterling). The gold and currency reserves of members of the Sterling Area are also held in Britain.

Pressure on the reserves may be countered by (1)raising Bank rate, which attracts foreign capital holders to invest in Britain for the interest; (2) devaluing or depreciating the exchange rate, which makes imports more expensive and exports cheaper, improves the balance of payments, and so increases the reserves; (3) administrative devices (such as exchange control) which prevent individuals from taking gold and currency out of the country either for current transactions or long-term investment. These measures may not be effective if other countries take counter-measures.

Examples Economic Environment - Socio Economic Environment

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