History of Sterling….. 1947-1971 – The pound was in a formal currency union with the US dollar in a fixed exchange rate known as the Bretton Woods system. In effect, the UK used the dollar and did not have an independent monetary system. This period is remembered for a long trend of economic growth, albeit not directly related to currency management. 1971 – After Nixon ended Bretton Woods so that he could pay for Vietnam, the GBP moved to a floating exchange rate with the USD similar to the way that Denmark is pegged to the euro today. In the same year, Decimalisation was introduced. This re-denomination remains the most drastic and noticeable change in money handling that the British public has seen in living memory. Only limited control of the pound is possible. 1976 – Economic turmoil results in the UK asking the IMF for a bailout loan. One of the conditions of the loan is tighter management of the currency peg. 1979 – 1986 – Thatcher’s government adopts monetarist policies involving loosening but not abandoning the informal peg with the USD. 1986 – The Louvre Accord. Thatcher’s government agrees to change the benchmark of the currency peg from the USD to the German Deutsche Mark. The UK still does not have an “independent currency”. 1990 – John Major’s government signs a formal currency union taking the pound into the Exchange Rate Mechanism, the forerunner to the euro. 1992 – Black Wednesday. The pound is taken out of the ERM, not because of any failure of the Mechanism itself but because currency speculators, encouraged under Thatcher’s policies of the ’80′s, realised that they could make a quick buck by crashing the system. George Soros infamously made himself £1 billion by this move. The pound is now “independent” of any other currency though still partially pegged to gold and silver. The Treasury estimates that the move cost British taxpayers around £3.3 billion. 1999 – Gordon Brown announces in advance that he’ll sell the UK’s remaining gold reserves and buy euros. Traders short the value of gold and drive it to a near historical low price. By 2002 the move is completed and the UK, for the first time ever, has a fully, freely traded and independent currency. You’ll notice all of the options on this list: Formal Currency Union, Informal currency union, fixed peg, floating peg, mixed basket peg and freely floating. All of these options are currently on the table for Scotland’s currency choice post independence. The UK has actively used all of them in the last 60 years. I don’t recall at any time the UK declaring that it was no longer an independent country.
Posted on: Sat, 09 Aug 2014 19:23:18 +0000
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