See tables 4.4 and 4.5 of Scottish Government (2014), “Government expenditure and revenue, Scotland 2012-3”. 12  Exchange rate effects alone led to an improvement of £ billion to the UK’s net international investment position between 2006 and 2008, estimated in Whittard (2012), “The UK’s External Balance Sheet – The International Investment Position (IIP)”, ONS, March. 13  See Carney (2014), Speech at the 146th Annual Trades Union Congress, Liverpool. 4  BIS central bankers’ speeches  Our remit recognises that the inflation rate may, on occasion, depart from the target and that attempts to keep it at the target may cause undesirable volatility in output. That flexibility and focus meant that the Bank’s Monetary Policy Committee (MPC) could provide additional stimulus through historically low interest rates, large scale asset purchases and monetary policy guidance even when inflation was temporarily above target. Inflation has recently dropped sharply to 0.5% – equalling its lowest rate on record. So next month I will write the first open letter from a Bank of England Governor to a Chancellor explaining why the inflation rate is too low and what we are going to do about it. The why is relatively straightforward. The majority of the weakness is caused by sharp falls in commodity prices, most notably oil, which has suffered its third largest fall in the past half century. Lower energy and food prices are unambiguously positive for the UK. Temporarily low inflation will boost real take-home pay and help household finances.
The Asset Management unit then implements this strategy, monitored by the Risk Management unit. Risk Management is also tasked with reporting regularly to the Governing Board and the Bank  2  BIS central bankers’ speeches  Council, which oversees the entire process. This multiplicity of players involved in foreign exchange reserve management, as well as the division of responsibilities, enable conflicts of interest to be reduced as far as possible, and allow effective control of the actual management of reserves. How do these guidelines translate into foreign exchange reserve allocation in practice? Last week, we published the data on the allocation of our foreign exchange reserves for the third quarter of 2012. I would like to take you through those data, and highlight the main areas which may have given rise to discussion. This is the breakdown of foreign exchange reserves by currency (cf. slide 3). As you can see, the euro is our principal investment currency, and its share in our investments has remained largely unchanged for the past number of years. If we take quarterly data as a basis, we can see that this share has fluctuated between 45% and 65%. These fluctuations come about because of the time it takes us to reallocate our portfolio following large inflows of new foreign exchange reserves. These amounts are then gradually diversified across other currencies in order to restore the original allocation.