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The Pound in Post-War Britain — 1945 to 1976
Defending the number
Seven steps, about ten minutes, one question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Step 1 of 7
Britain came out of the war owing more than it ever had, borrowed dollars from America, cut the value of the pound in 1949, and then built a health service it could not afford alongside weapons it could not build.
The question
After 1949 the pound had a single published price in dollars, and every major country had made the same kind of promise about its own currency. Keeping the promise had a method, the method had a price, and the price was paid at home.
It ends on the comparison the whole period turns on: Britain grew faster in these years than in almost any other stretch of its history, and its neighbours grew faster still.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
A currency now costs whatever the market says it costs that morning. For a long stretch after the war it had one price instead, and a government that had promised to keep it there.
From September 1949 the pound had one published price in dollars, and it stayed there for eighteen years.
It buys its own currency whenever too many people are selling it. The money it buys with is the , so every day of pressure costs something real. The reserves can run out. A government that wants to keep the promise without emptying them has to act on the economy at home instead.
Put it another way. Think of it like a shopkeeper promising to buy back anything he sells at the sticker price: he can keep the promise exactly as long as the till holds out.
The promise behind the price was to buy the currency back whenever enough people wanted to sell it, paid for out of .
The price was $2.80, from 18 September 1949 until 18 November 1967.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Governments came and went, and the pound kept the same price in dollars all the way through. How many times was that price changed before 1967?
For scaleBefore it, the pound had been at $4.03, and the change to $2.80 was the last one for eighteen years.
Britain's one published price was not a British invention. Every major country had agreed to keep its currency fixed to the dollar, and the dollar was fixed to gold at $35 an ounce.
The rule allowed a country to change its price and did not allow it to let the price drift. Each government had to act whenever the market moved its currency beyond a narrow band, and Britain acted for eighteen years.
The agreement was signed in 1944. “In 1958, the Bretton Woods system became fully functional as currencies became convertible”, and Britain declared sterling convertible in December 1958.
Countries had to keep their currencies “fixed but adjustable” to the dollar. How far either side of the fixed price was a currency allowed to move before the government had to step in?
For scaleBritain took on the full obligations of the Fund's rules in February 1961, seventeen years after signing the agreement.
Governments made this promise to each other. It ended up deciding what a family could spend on a summer holiday.
Holding the price meant a British person could not freely move money out of the country.
Take it out of the country freely. Buying foreign currency, holding money abroad and investing overseas all needed permission, and the permission was not always given. Control on everyday spending abroad by British residents was lifted in 1961, but the machinery stayed in place and could be tightened again whenever the pressure returned, which is what happened in 1966.
Every pound sold for dollars is a pound the government may have to buy back, so buying foreign money, holding money abroad and investing overseas all needed permission.
The machinery had been in force since the war. It is what made a fixed price possible at all: a country cannot promise a price if its own residents may sell without limit.
The rule was never only about bankers. It set what an ordinary person could do with their own money in their own year.
In 1966, with the pressure back on, the Prime Minister told the Commons what one person would be allowed to take abroad for a whole year's travel outside the sterling area. How much?
For scaleThe allowance ran for the twelve months from 1 November 1966, and it applied to every country outside the sterling area.
Module 3 of 6 in The Pound in Post-War Britain — 1945 to 1976
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[1] The rule every country was under: Federal Reserve History, Creation of the Bretton Woods System.
[2] What exchange control was: Bank of England, The UK exchange control: a short history.
[3] When the system started working: The National Archives, The Cabinet Papers.
[4] How fast the economy grew, year by year: House of Lords Library, The UK economy in the 1950s and 1960s.
[5] What was actually slowed down, and who was told: Scott and Walker, Stop-go policy and the restriction of post-war British house building, Economic History Review 72(2).
[6] The 1956 crisis, told by the Fund: Boughton, Northwest of Suez: The 1956 Crisis and the IMF, IMF Staff Papers 48(3).
[7] What the Chancellor of the day was writing in private: The National Archives, Suez and the economy.
[8] How Britain did against its neighbours: Crafts, The Postwar British Productivity Failure, CAGE working paper 1142, University of Warwick.
[9] A fourth institution on the claim, with no figures: National Institute of Economic and Social Research, What is holding back UK productivity? Lessons from decades of measurement.
[10] How far the machinery could reach: Hansard, Commons, 20 July 1966, Economic Measures.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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