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UK currency takes another hit against the dollar

Sterling has again fallen against the US dollar amid signs that the Bank of England is looking to introduce a number of major changes to the way it operates with UK banks. It was leaked to the press that Mervyn King, the Gov of the Bank of England, has been in Sweden to talk to Central bank operators in that country with speculation that UK banks could be charged for leaving their money at the Bank of England.

At the moment UK banks receive interest on funds held with the Bank of England and while the bank has been looking to reduce this rate to try and generate further liquidity in the commercial market, there has been little success of late. However, the Swedish model allows the Swedish central bank to charge 0.25% on funds held overnight with the bank thereby encouraging commercial banks to lend to consumers and businesses.

It was also revealed within Commons Treasury Select Committee minutes than Mervyn King had actually considered this approach in August but decided to delay a final decision. Whether now is the time to introduce an overnight charge for funds held overnight is debatable but the Bank of England is certainly looking at all options.

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