The History of the Sterling Pound in Britain
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Britain adopted a floating exchange Rate in the year 1992 (Dawnay, 2001) which runs to date. This system entails the measurement of the Sterling pound against other freely traded currencies such as the Euro and the Japanese Yen. These exchange rates fluctuate based entirely on the investors who depend on their confidence in these currencies which is theoretical. Before this floating exchange rate, Britain has had several other exchange systems.
Before the year 1816, Britain had a bimetallism system where the value of the sterling was compared to the value of several metals such as silver and gold (Redish, 1990, p. 789). In the year 1816, Britain ditched the bimetallism system to a pure Gold standard system. In this system, the value of the sterling pound was compared to that of Gold itself. In 1931, the gold standard system was ended, and in the year 1947, Britain adopted a pegged system where they were pegged to the US dollar following the rise of the US dollar (Dawnay, 2001). Following the further devaluation of the sterling in the year 1967, Mrs. Thatcher’s counselor decided to cap the pound to the German Deutschmark. However, this led to the further recession of the British Currency which led to conformation to the current float exchange rate in the year 1992 (Dawnay, 2001).
There have been several factors that drive several changes. For Britain to ditch the Gold Standard Exchange, there had been an influx in demand of finances leading to the depletion of Gold stores to peg to the currency values (Titcomb, 2015).
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After being pegged to the US dollars, UK exports became uncompetitive as it was a reserve currency. This uncompetitiveness led to manufacturing slowdown in the UK as the US boomed. When capped with the Deutschmark, as the German currency strengthen, the sterling slipped further into further recession owing to poor export power. This led to Sterling eventually switching to the floating exchange rate which saw to it that the sterling pound was not pegged to any currency.
References
Dawnay, K. (2001, October 8). A history of sterling. Retrieved from HYPERLINK “https://www.telegraph.co.uk/news/1399693/A-history-of-sterling.html” https://www.telegraph.co.uk/news/1399693/A-history-of-sterling.html
Redish, A. (1990). The Evolution of the Gold Standard in England. The Journal of Economic History, 50(04), 789-805. doi:10.1017/s0022050700037827
Titcomb, J. (2015, January 7). How the Bank of England abandoned the gold standard. Retrieved from HYPERLINK “https://www.telegraph.co.uk/finance/commodities/11330611/How-the-Bank-of-England-abandoned-the-gold-standard.html” https://www.telegraph.co.uk/finance/commodities/11330611/How-the-Bank-of-England-abandoned-the-gold-standard.html
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