The British Pound (£UK) has a long history as a currency. Prior to the 1707 Union of the Parliaments it was known as the English pound as the ‘Pund Scots’ was of rather less value—not least because of the country losing a quarter of its wealth in the Darien disaster. The exchange rate dropped from an initial parity under David I (12th ©) to 4:1 under the unpopular and ineffective James III (15th ©) and down to 12:1 when reformed under James I & VI (17th ©). It was at this rate it was phased out in the 18th ©.
Since then, the British pound has led a chequered life. Britain’s two centuries of industrial and colonial growth up to WWI saw its value and usage grow to dominate a global trade in which the Scots shared and benefited as much as anyone; around 1910 the highest per capita GDP was in Scotland.
The crippling debt accrued and the damaged trade that followed that global catastrophe was largely kept from the British public during the inter-war years but economic body blows to world trade like the 1929 Wall Street crash and the subsequent Depression cost Britain as the world’s leading trading nation dear.
Further outlays for another World War put such severe pressure on the £UK that Britain entered into an agreement with the USA known as the Bretton Woods system of fixed exchange rates, pegging the £UK at the $4 rate held through WW2 and $35 being the fixed value of an ounce of gold held as security in Fort Knox. (This led to slang of the time: 5s (a then-rare ‘crown’ = 25p) was called ‘a dollar’ and the much more common 2/6d (half a crown) as ‘half a dollar’.
Despite deep devaluations to $2.80 in 1949 and $2.40 in 1967, the global recovery of the 1950’s and ’60’s when people (in MacMillan’s phrase) “never had it so good” let this arrangement bring stability as it was effectively a formal currency union and tied UK fortunes to the now-much-stronger USA. Every chancellor of the time from Labour’s Stafford Cripps to Tories’ Anthony Barber saw this as a good thing, eschewing all control over exchange rate policy and taking credit for economic growth.
On August 15, 1971, President Nixon announced his New Economic Policy “to create a new prosperity without war.” Known colloquially as the “Nixon shock,” the initiative marked the beginning of the end for Bretton Woods; so many dollars were in global circulation that the even the US was having trouble holding enough gold to cover them all and there were speculative runs on the dollar.
After several failed attempts to realign currencies, in March 1973, the G–10 approved an arrangement wherein six members of the European Community tied their currencies together and jointly floated against the U.S. dollar, a decision that effectively signaled the abandonment of the Bretton Woods fixed exchange rate system in favor of the current system of floating exchange rates. The UK made a separate attempt to link the £UK to the $ but with similar ability to float and absorb vagaries of the market.
In the Louvre Accord of 1986, Thatcher agreed to switch the standard from the $ to the Deutschemark, followed up four years later by Major entering the Exchange Rate Mechanism or ERM. Membership lasted two years before currency speculators, led by George Soros realised that a killing could be made if major currency speculators ganged up by selling a particularly weak currency so that it was forced out of the system and effectively devalued.
This happened on ‘Black Wednesday’ in 1992 when all the Bank of England’s efforts to shore up the £UK failed and cost the British taxpayer over £3bn, a third of which would up in Soros’ piggybank. Despite this, attempts were made to keep the £UK linked to both other currencies and the value of gold but this was finally abandoned and the currency allowed to float freely on world markets under Gordon Brown in 1999.
Not such a bad idea in itself, Brown went further and sold off much of Britain’s carefully hoarded gold reserves as now superfluous—an evaluation that is highly questionable in view of later events. But, worse than that, he announced the sale and eventually sold about 395 tons of gold over 17 auctions from July 1999 to March 2002, at an average price of about US$275 per ounce, raising approximately US$3.5 bn
Had he held on and used it in 2008’s recession, prices were passing $1,000 (and are now nearer $1,500), it could have fetched an additional £10bn—or £400 off everyone’s tax bill. ‘Prudence’ did you say?
And if that’s not bottom line enough for any blog, consider that the above story of currency exchange rates demonstrates the UK has, in the last half-century, tried just about every option available. And George Osborne, latest author of and heir to the UK’s sorry fiscal decline in all that time, dictates unilaterally that Scotland, were it to become independent, cannot choose among those options?
Is this attitude by a partner in any union worth the name one that offers any value to us?