Date: 2009-02-03 04:27 pm (UTC)
From: [identity profile] osymandias.livejournal.com
Not necessarily - you can simply have it there backing up the currency, even if there's no expectation that it'll ever be sold.

Date: 2009-02-03 04:33 pm (UTC)
From: [identity profile] philmophlegm.livejournal.com
Instead of a foreign currency reserve you mean?

But why do we need a foreign currency / old painting reserve when we have a floating exchange rate?

Date: 2009-02-03 04:44 pm (UTC)
From: [identity profile] osymandias.livejournal.com
I was thinking more along terms of gold reserves. However, I suspect we start to move way beyond my economic understanding as to why exactly one needs such things :-) I'd assumed that the central bank/government keeps such things in the same way that banks need a certain amount of reserve currency - am I naieve here?

Date: 2009-02-03 06:29 pm (UTC)
From: [identity profile] philmophlegm.livejournal.com
The currency literally was backed by gold in the days of the Gold Standard, but that was decades ago.

More recently, central banks held reserves of other currencies to use to manipulate the value of their own currency. (That is, if the Bank of England wanted the pound to be stronger, it could use reserves of dollars, yen etc to buy Sterling on the foreign currency markets, thus pushing the 'price' of Sterling higher.)

Nowadays, we're all more enlightened and central banks (or at least the sensible ones) no longer try to manipulate the markets this way. Instead they leave currencies to find their natural value. Because of this, we don't actually need reserves of gold or foreign currency any more. When he was chancellor, Gordon Brown sold off a large part of Britain's remaining reserves. He can be criticised for doing so when some of the assets he was selling (especially gold) were at a lower than usual price, but I don't think you can criticise him just for selling off reserves.

Date: 2009-02-03 10:21 pm (UTC)
From: [identity profile] didiusjulianus.livejournal.com
Hm. IMO we might not need reserves when things are going all right, but it's common sense to keep sensible reserves of everything from gold to oil to capacity for food production in case the sh*t REALLY hits the fan.

While I'm on the fence over whether they SHOULD stump up the money (ie. be morally obliged to kind of thing), I have no particular objection to some government money going towards the Titian, after all they waste enough on botched IT projects, wild schemes for this and that, and goodness knows what else, at least the Titian has both cultural and monetary value.

Date: 2009-02-04 01:19 pm (UTC)
From: [identity profile] philmophlegm.livejournal.com
There might be a reason to keep reserves of commodities which have a real value like oil or food, but not gold. What are you going to do with gold reserves in a world of floating exchange rates? Much more sensible to have a basket of foreign currency reserves.

Date: 2009-02-07 06:35 pm (UTC)
From: [identity profile] tigerfort.livejournal.com
Sell them to computer companies?

(Not a serious suggestion, given the tiny amount of gold you need for a typical computer. But it does have more industrial uses than you might think, and many of them are vital to a modern economy. Of course, since Britain doesn't manufacture anything any more....)

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