Labour's sale of half the Bank of England's reserves
to invest in euro and yen was 'impatient' and 'badly timed'
By Jason Niss
The Independent, London
Sunday, May 14, 2006
http://news.independent.co.uk/business/news/article422920.ece [1]
Gold hit record highs on Friday, raising the cost of Gordon Brown's
decision to sell half of the UK's reserves to more than $6.5 billion
(3.4 billion).
Between 1999 and 2002 the Chancellor made the Treasury sell 395 tons
of gold -- around 50 percent of the reserves held by the Bank of
England -- taking in $3.5 billion. This was re-invested in foreign
currencies including the euro and the yen.
During the sale, the move was criticised for its bad timing and its
potentially political motivation, allegedly supporting the weak
single currency in its difficult early days.
At the time, however, Mr Brown defended the move as diversifying the
UK's reserves, and he pressed for the International Monetary Fund to
follow suit. He was criticised by the then head of the World Gold
Council, Haruko Fukuda, who said: "Gold has been held as a reserve
for thousands of years."
The rise in the value of gold since then has led to further
questions over the strategy and its execution.
On Friday the gold price was $725.75 in London, a record high,
having gone up more than 60 per cent in the past year. Its rise has
come along with a general commodities boom and has been pushed by
demand from India.
At this price, the 395 tons of gold would be worth $10.1 billion --
nearly three times the amount the Chancellor banked when he sold it.
"The Treasury's impatience over timing has been very costly," said
Vince Cable, the Liberal Democrats' Treasury spokesman.
The $6.6 billion difference between today's price and the amount the
Treasury received does not represent pure losses for the British
taxpayer. Much of the money was invested in euros and the yen. The
euro has risen over 10 percent against sterling in the period, and
the yen by nearly 25 percent.
However, even if the Treasury had invested in both currencies at the
right time, the losses from the gold selloff would be approaching $6
billion. This is the equivalent of at least 1 percent off income tax
in one year, and is more than four times the 750 million deficit in
the National Health Service budget that is leading to wide-scale
cuts at hospitals up and down the country.
The Treasury is adamant that the selloff was the right thing to
do. "Anyone can use hindsight to say there was a better time to
sell, but no one argues that it was the wrong thing to do," said a
source close to the Chancellor.
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