Britain and the Sterling Area: From Devaluation to by Dr Catherine Schenk

By Dr Catherine Schenk

To counterpoint present paintings at the British household economic climate within the post-war interval it is crucial to envision exterior financial coverage. when significant paintings has been performed on Britain's kinfolk with Europe and with the United States, the complexities of the sterling sector have remained vague. This quantity makes an important contribution to unravelling the strands of British exterior monetary coverage within the post-war interval.

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In the next two years, further arrangements were agreed and further drawings made. Public awareness of these short-term lines of credit, however, did not overcome the persistence of speculation against sterling, and the ensuing balance of payments crises ultimately led to the devaluation of sterling in 1967. Thus, a guarantee of Britain’s ability to survive a run on the reserves would probably not have been enough to eliminate the strains on the balance of payments in the 1950s either. The assertion that it was the threat of the sterling balances being run-down without an adequate cushion of short-term assets that was the major destabilising force is unsupported by subsequent events.

These balances represented minimum working balances which were unlikely to be liquidated all at once. One area which was taking up the slack as the proportion of Commonwealth sterling balances declined was the oil-rich Middle East. These territories became rich through the mid-1950s, earning sterling in amounts that their development plans had difficulty absorbing. Between 1951 and 1956 Iraq’s sterling assets more than doubled from £52m to £127m. The Persian Gulf Protectorates (which 26 BRITAIN AND THE STERLING AREA included Kuwait) increased their holdings from a mere £3m at the end of 1951 to £260m by the end of 1958, rivalling those of Australia.

50 The reluctance to publicise the real level of foreign exchange reserves on the basis that these assets were not really liquid, mirrors the fact that the liabilities due to the sterling area had a significant (if unquantifiable) hard core of illiquid assets whose market value would also fall in the event of liquidation. Both the American shares and the hard core of sterling balances would only be sold off in an unprecedentedly severe crisis. In such a crisis the IMF quota would also be drawn on to forestall bankruptcy.

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