Treasury and Federal Reserve foreign exchange operations - August - October, 1991

Federal Reserve Bulletin, Jan, 1992 by Margaret L. Greene, Roger M. Scher

As previously reported, the ESF repurchased a total of $2,500 million of foreign currency warehoused by the Federal Reserve in August. These repurchases reduced the amount of ESF foreign currency balances warehoused with the Federal Reserve from $4,500 million equivalent to 2,000 million equivalent.

During the August-October period, the Federal Reserve realized profits of $105.1 million and the Treasury realized profits of $9.4 million from the currency exchanges described above conducted directly with foreign monetary authorities. Cumulative bookkeeping or valuation gains on outstanding foreign currency balances at the end of October were $2,764.8 million for the Federal Reserve and $1,132.6 million for the ESF (the latter figure includes valuation gains on warehoused funds). These valuation gains represent the increase in the dollar value of outstanding currency assets valued at end-of-period exchange rates, compared with rates prevailing at the time the foreign currencies were acquired.

The Federal Reserve and the ESF regularly invest their foreign currency balances in a variety of instruments that yield market-related rates of return and that have a high degree of quality and liquidity. A portion of the balances is invested in securities issued by foreign governments. As of the end of October, holdings of such securities by the Federal Reserve amounted to $7,583.4 million equivalent, and holdings by the Treasury amounted to $8,684.9 million equivalent, both valued at the end-of-period exchange rates.

1. The charts for the report are available on request from Publications Services, Board of Governors of the Federal Reserve System, mail stop 138, Washington, D. C. 20551.

2. The trade-weighted basis is as measured by the Federal Reserve Board index.