Watching former British Prime Minister Tony Blair speak in response to the Chilcot report, was depressing. Blair clearly hadn’t grasped, or at least wasn’t prepared to acknowledge the sheer cost in lives and money of going to war. Wars are expensive, very expensive.
As of writing this morning, the UK/British Pound is worth $1.2989. Essentially an all time low. My prediction is that it will settle around $1.25. That is a staggering decline over the last 100-years from all time high of nearly $5.
I’ve been sorting through my archives over the last 5-months, written, photographic and audio. I’ve even spent a few days building shelving to organize it, from scrap wood discarded by the local construction projects. I came across the WQXI Atlanta news piece last night, and it reminded of the first time I became aware of the exchange rate.
I was only 10 years old at the time, but I can still recall to this day how serious the devaluation of the pound was at the time. The devaluation was done over the weekend and in a broadcast at the time, Prime Minister Harold Wilson said this, which I can still hear in my head and a phrase that came to Haunt Wilson.
It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalue
The Pound has declined in lockstep with the fall of the British Empire. The first major fall was post the failure of the classical Gold standard in 1914; when the cost of entering the World War meant the British had to assume massive debt. and as a result, devalued the pound. After the war was finished, Britain spent 10-years trying to return the pound to it’s prior value, using severe fiscal and monetary austerity. In 1925, Britain returned to the Gold Standard for a short time until 1931, post the great crash, when Britain again devalued the Pound.
The Pound bounced back again shortly later in the 1930’s, but rather than being a strength of the pound, it was actually due to the weakness of the US Dollar following the 2nd FDR New Deal reflation.
With the start of the Second World War, Britain again took on great debt; by 1944, that debt, combined with the debt from the First World which they’d never paid off, forced another devaluation and for Britain to join the Bretton Woods Exchange rate system which fixed the pound to the US Dollar, and the dollar was still linked to the Gold Standard. While the British could argue they’d defeated the Germans and ensured the freedom for all Europeans, it was at a massive cost that Britain has never recovered from. Politicians of the time tried, they’d set the exchange rate too high for a damaged economy. By 1949, they were again forced to devalue by 30% and the pound fell for the first time to sub $3.
For the next 18-years Britain struggled, and the government had to go to the IMF more than once for help. The Pound was finally allowed to float freely against the US Dollar in 1979, but only after 1978’s winter of discontent. What followed for the next 30-years was increasingly futile efforts through the disastrous entry into the ERM, informally linking the Pound to the German Mark, and more, all to no real effect.
Britain has consistently failed to recognize the real impact of the fall of British Empire, and the loss of the Pound as a reserve currency. Prior to World War 1, Britain, and by implication the pound was the dominant currency. It has gradually declined since then and while Britain still likes to think of itself as a global economy, but it really isn’t.
When politicians like Andrea Leadsom, Former Economic Secretary to the Treasury and leading contender for next British Prime Minister, deny the financial impact of BREXIT, she clearly hasn’t learned the lessons of the past. Prime Minister Wilson’s government denied devaluation 27 times the same year they went on to devalue the pound. If Britain were in a fixed exchange rate system, BREXIT would have been another devaluation. The fall of the Pound since the BREXIT vote is the biggest since 1967 potentially. Welcome to the era of $1.25 and pray the Pound never falls below the mythical $1.00 rate.
Making Britain great again… didn’t happen under Blair, won’t happen under Leadsom.
*Footnote – This is of significant interest to me as I have an inheritance in the UK that I’d like to transfer to the US, and a former employer’s pension is both impacted by BREXIT and will be paid in UK Pounds, so it’s already worth less, and given the exchange, has probably halved in value this year.