Sterling Crisis

Only available on StudyMode
  • Download(s) : 192
  • Published : October 30, 2012
Open Document
Text Preview
After World War II, the British economy had again lost huge amounts of absolute wealth. Its economy was driven entirely for the needs of war and took some time to be reorganised for peaceful production. Anticipating the end of the conflict, the United States had negotiated throughout the war to liberalise post-war trade and the international flow of capital in order to break into markets, which had previously been closed to it, including the British Empire's Pound Sterling bloc. Immediately after the war had ended, the U.S. halted free Lend-Lease.

 In 1947, the Great Britain was still suffering from various post-war economic problems. An unusually cold winter in the beginning of the year aggravated the economy. Britain was under high war-debt. Supplies to home consumer were cut severely as the dollar reserves of Britain became exhausted. As the demand of the European countries for American goods increased, the prices of US raw materials rose and British import program turned out to be more expensive than originally expected. Lack of coal and a cut in timber imports led to a housing problem.   According to the Anglo-American Loan Agreement, Britain on July 15th 1947 declared the convertibility of the Pound Sterling into any currency. However, Britain had to revoke the convertibility on August 20 as massive demands of Sterling-holders for an exchange of their Sterling holdings into US Dollars rapidly drained the British Dollar reserves. 

Prime minister Attlee was pursuing a policy of building a welfare state, which would add to the strain on the British economy. In August 1947 when convertibility was due to begin, the economy was not as strong as it needed to be. When the Labour Government enacted convertibility, there was a run on Sterling, meaning that Sterling was being traded in for dollars, seen as the new, more powerful and stable currency in the world. This damaged the British economy and within weeks it was stopped. Sterling crisis was one of the...
tracking img