Defending sterling may have cost dollars 30bn

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The Independent Online
THE UNSUCCESSFUL defence of the pound last month may have amounted to as much as dollars 30bn, official British and German figures suggest.

The UK Treasury said yesterday that its official reserves fell by dollars 7.69bn, to dollars 42.67bn.

The sum was much less than expected and was explained by the fact that a huge portion of the defence was financed by the Bundesbank. Earlier this week, Helmut Schlesinger, the Bundesbank's president, said 'the greater part' of its intervention in the week of 'Black Wednesday', of DM44bn (dollars 31bn), had been to support the pound.

Market estimates put this sum at about DM33bn (dollars 23bn), and suggest that the overall defence totalled about dollars 30bn. The cost to Britain will be a fraction of the total, roughly related to the depreciation of the pound against the mark. Since much of this money was lent by the Bundesbank to the Bank of England the impact on UK reserves will not show up until the sums are repaid.

Britain could take up to nine months to repay the total amount. Yesterday, Mr Schlesinger also revealed that since the beginning of September, the German central bank spent a total of DM92bn (dollars 65bn) intervening on the foreign exchanges during the European currency crisis. But he refused to be drawn further into the verbal crossfire of earlier this week and expressed hopes of an improvement in Anglo-German monetary relations.

The Bundesbank, whose policymaking council met yesterday morning, meanwhile announced that its interest rates would remain unchanged for the time being, a development which contributed to a steep fall in the pound.

Mr Schlesinger said that inflationary trends in Germany remained 'unsatisfactory' and were the main reason for holding rates steady.

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