XN000022-1972-12-13 — Page 42

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Wednesday, December 13, 1972

the 1968 Agreements brought about and which was halted by our action in

July this year can now be partially reversed. In other words, a small part of the banks' sterling reserves which has been classified as official sterling

reserves for the purposes of the Sterling Guarantee Agreement will revert to its former private status and will no longer be guaranteed.

Implementation of S.G.A.

After an initial plunge which de-fused the speculative pressures which gave rise to the decision to float sterling in the first place, the U.S. dollar/sterling rate hovered around $2.45 for some 10 weeks and then

at the end of September the rate began to fall again until it went below the trigger point of $2.3760 on 24th October and remained there for a

continuous period of 30 days. Accordingly, on 23rd November the British

Government announced that the guarantee would be implemented and called

for the necessary returns of total official external reserves and the actual

sterling assets held on the appropriate dates. The closing rate on the 23rd November was US$2.3506 and the first adjustment payments from the

British Government will be based on this rate. If the rate should fall

below this level by more than 1% for further periods of 30 days further

adjustment payments will be due. Contrariwise, if there is any recovery

before the establishment of a new fixed rate with the U.S. dollar, refunds

will have to be made. But even after the re-fix the Sterling Guarantee Agreement will remain in force until 24th September 1973.

So within