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Foreign Currency Bonds

Volume 929: debated on Monday 4 April 1977

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asked the Chancellor of the Exchequer what is the position with regard to the issue of foreign currency bonds in substitution for official holdings of sterling.

Following earlier discussions with the main official holders of sterling, the Bank of England, acting on behalf of the Treasury, has today advised official holders of sterling of the detailed terms of the offer of foreign currency bonds. The date of subscription will be 10 calendar days later, 14th April.2. The issue will be in the form of bearer bonds, to be denominated in four separate currencies: US dollars, deutschemarks, Swiss francs and Japanese yen. The dollar bonds will be issued with three different maturities, of five, seven and 10 years, and the issues in other currencies will be for a single maturity of seven years. Subscribers are expected to subscribe to the bonds solely from then existing holdings of sterling and will be expected normally to retain the bonds to redemption. The bonds will, however, be negotiable, and a number of leading banks and securities houses have agreed to assist holders to sell their bonds should they need to do so. While the initial offer is limited exclusively to official holders of sterling, there is no bar on subsequent disposal of bonds to others, including private buyers. Her Majesty's Government has no obligation to buy any bonds before maturity.3. Subscriptions will be payable in sterling on 14th April at the Bank of England. Because the bonds are denominated in foreign currency, it has been necessary to specify an exchange conversion formula. The sterling price of the bonds of each denomination has been based on the average of the spot rates for each currency in London at noon on the 10 business days preceding 4th April or, where it was more favourable to subscribers, the appropriate rate for such currency in London on 1st April.4. Unlike the foreign currency borrowing undertaken by Her Majesty's Government and public sector bodies hitherto, this operation is not intended to raise foreign currency in the markets for balance of payments purposes but to fund part of the existing liabilities to official holders of sterling and, simultaneously, to convert these onto a foreign currency basis. It will not, therefore, increase the total of our external debt. In order to encourage official holders to accept the change in the currency composition and maturity structure of their reserves that holdings of these bonds will involve, the terms, while based on such market analogues as there are, also incorporate deliberate adjustments to reflect that the bonds are not on all fours with normal market issues or placements.5. The terms offered, at par in all cases, are as follows:

per cent.
5-year dollar bonds8⅜
7-year dollar bonds8⅝
10-year dollar bonds8⅞
7-year deutschemark bonds
7-year Swiss franc bonds5⅞
7-year Japanese yen bonds8

6. Information on the amounts subscribed for each of these bonds will be made available after subscription day, 14th April.