1967 sterling devaluation

1967 sterling crisis On 18 November 1967, the British government devalued sterling from US$2.80 to $2.40 per pound (correspondingly changing its gold parity for £1 from 2.48828 g to 2.13281 g). It ended a long sterling crisis that had started in 1964 with the election of Labour in the 1964 general election,Bordo Michael MacDonald Ronald Oliver Michael 2009 Sterling in crisis: 1964-1967 European Economic History Review Cambridge, MA 10.3386/w14657 free but originated in the balance of payments crises of the preceding Conservative government. Historical background Harold Macmillan#Economy (1959–1963) Harold Wilson#Economic policies James Callaghan#Chancellor of the Exchequer, 1964–1967 As soon as Harold Wilson's newly elected Labour government took power after winning the 1964 general election, vowing to end the Conservatives' "stop-go" economic policies, sterling came under pressure because the market feared that Labour would devalue the currency so as to be able to implement a looser monetary policy, favouring growth.Cairncross Alec https://link.springer.com/book/10.1057/9780230596306 Sterling in Decline, The Devaluations of 1931, 1949 and 1967 Eichengreen Barry Springer 2003 978-0-230-59630-6 2nd en 10.1057/9780230596306 Upon coming to power, the government was informed that they had inherited an exceptionally large deficit of £800 millionabout £UK-GDP 0.8 1967 2024 billion at 2024 prices, using GDP deflator on Britain's external balance of trade, partly caused by the preceding (Conservative) government's expansive fiscal policy in the run-up to the 1964 election. Wilson wrote in his autobiography that the life of his government was "dominated by an inherited balance of payments problem which was nearing a crisis at the moment we took office".Harold Wilson The labour government, 1964-70 : a personal record 1974 Penguin Books 0-14-021762-2 1321981339 Immediately on announcing the trade figures, the pound came under increased pressure. Many economists advocated devaluation of the pound in response, but Wilson resisted, reportedly in part out of concern that Labour, which had previously devalued sterling in 1949, would become tagged as "the party of devaluation". Wilson also believed that a devaluation would disproportionately harm low-income Britons with savings and poorer Commonwealth of Nations countries in the sterling area. The government instead opted to deal with the problem by imposing a temporary surcharge on imports, and a series of deflationary measures designed to reduce demand and therefore the inflow of imports.Thorpe Andrew http://link.springer.com/10.1007/978-1-349-25305-0 A History of the British Labour Party 1997 Macmillan Education UK 978-0-333-56081-5 London 10.1007/978-1-349-25305-0 125–145 In the latter half of 1967, an attempt was made to prevent the recession in activity from going too far, in the form of a stimulus to consumer durable spending through an easing of credit, which in turn prevented a rise in unemployment.Townsend Peter Bosanquet Nicholas Fabian Society Labour and inequality: Sixteen Fabian Essays 978-0-7163-4004-1 1972 International aid is mostly what had helped maintain the $2.80 value of sterling between 1964 and 1967, thanks to "lines of credit from central banks and the IMF and [...] a swap network with the Federal Reserve Bank of New York". These enabled the Bank of England to intervene on the foreign exchange market. Nevertheless, in the absence of improvements to the fundamental economic situation of the United Kingdom, delaying the devaluation only served to reduce the Bank of England's dollar reserves.Schenk Catherine R. The decline of sterling : managing the retreat of an international currency, 1945-1992 2013 Cambridge Univ. Press 978-0-521-87697-1 155 934197928 Consequences According to Catherine Schenk, the 1967 devaluation became "emblematic of the inability of the Labour Party to cope effectively with the reduction of sterling's international role". After the devaluation, the IMF sent a mission to London and on 29 November 1967 offered a £1.4 billion loan to the UK.Duncan Needham UK monetary policy from devaluation to Thatcher, 1967-82 2014 Palgrave Macmillan 978-1-137-36954-3 964759941about £UK-GDP 1.4 1967 2024 billion at 2024 prices, using GDP deflator While the 1949 devaluation helped the British economy, the 1967 version did not improve the United Kingdom's economic position.Forrest Capie The Bank of England : 1950s to 1979 2012 Cambridge University Press 978-1-107-62169-5 372 816047261 The devaluation also failed to improve the Bank of England's reserve position. To appear stronger than it was towards the markets after the devaluation, the Bank of England started manipulating or "window dressing" its reserve figures.Naef Alain Dirty float or clean intervention? The Bank of England in the foreign exchange market https://doi.org/10.1093/ereh/heaa011 European Economic History Review 2021 25 1 180–201 10.1093/ereh/heaa011 subscription Notes References See also Sterling crisis (disambiguation) list of sterling crises Category:November 1967 in the United Kingdom Category:1967 in economic history Category:Economic crises in the United Kingdom Category:History of pound sterling Category:Financial crises in the United Kingdom Category:Harold Wilson Category:History of the Labour Party (UK)