The Endless Fall of the Great British Pound Value During the 70 Years of Queen Elizabeth II’s Reign.
4 key events of this fall.
In the United Kingdom, it is no secret that Elizabeth II never holds any money, except on Sundays. It is on this day that she discreetly gives it to church charities. However, the real value of the 5 and 10-pound bills, bearing the effigy of the woman who celebrates her 70th year of reign in the United Kingdom, has been greatly reduced.
Her generosity is not in question. During her 70-year reign, inflation has undermined the pound. The pound sterling is a very old currency, originally backed by silver, and in the 10th century, it could buy 15 cows. In 2022, it will only be able to buy 0.0006 cows.
Today, inflation is making a comeback. One out of two Britons has not experienced such a high price increase in his lifetime (9% in April 2022), according to HSBC.
Here are 4 dates to remember the decline of the pound sterling which will have lost more than half its value since February 6, 1952, and the beginning of Elizabeth II’s reign.
On February 6, 1952, one pound sterling was worth $2.80
On February 6, 1952, at the beginning of Elizabeth II’s reign, one pound sterling was worth $2.80. Today it is worth more than half that, at $1.25. Today it is worth more than half that, at $1.25. In short, the British currency has not stood the test of time as well as the ever-popular monarchy.
More than three-quarters of the British people have a favorable opinion of Elizabeth II. On the last anniversaries of the Queen's accession to the throne, February 6, 2002, 2007, 2012, 2017, and 2022, the British pound had the good taste to progress and not spoil the festivities. Since the launch of the euro on January 1, 1999, the British currency has nevertheless lost 17% against its European counterpart.
A constant decline since the Second World War in the shadow of the American dollar
The two world wars turned Great Britain from the world's largest creditor to its largest debtor. In 1944, it was the dollar, convertible into gold, that was at the center of the international game. Other currencies, such as the pound, were tied to it and did not have this direct link to the precious metal.
Penalized by wartime debt, deficits, and falling productivity, the British government was forced to devalue the pound by 30% in 1949 and 14% in 1967. In the 1970s, weak growth, rising unemployment, and inflation, which reached a record high of 22.6% in 1975, caused the pound to fall.
The United States was very concerned about the weakening of the British currency after its last devaluation. They saw the pound as one of the first dominoes in the international financial system. After it, it was the dollar that was in the firing line and, with it, the whole Bretton Woods edifice.
The fall of the pound sterling, reflecting the erosion of the United Kingdom's position in world trade, had undermined its status as an international currency. The sterling zone, composed mainly of Commonwealth countries and colonies, disintegrated with the defections and ended in 1979. By regaining their independence, countries left the zone of influence of the British currency and the Bank of England (BoE) despite the disadvantages, such as the end of privileged access to the City of London.
The end of floating exchange rates: “Anarchy in the UK”
Since the end of Bretton Woods in 1971, the GBP has been under the close watch of the BoE. It protected the pound against speculative attacks and limited its fluctuations during the chaotic early days of floating exchange rates. The country, once the world's banker, was humiliated by an emergency loan from the International Monetary Fund (IMF) in 1976.
The following year, the punk group “Sex Pistols” released their anti-monarchy album “Anarchy in the UK”, which pinned the Queen and shocked Buckingham. It was a great success against a backdrop of social and economic crisis, a few days before the Queen's Silver Jubilee and two years before Margaret Thatcher came to power.
The BoE put an end to exchange controls to lower the pound and promote competitiveness. On the other side of the Atlantic, the Fed began to raise rates sharply, to a record 20%, to fight inflation. The greenback soared and in early 1985, the pound reached its lowest level in history, close to parity with the greenback at $1.05.
Five years later, the country joined the European Monetary System (EMS), which it hoped would curb inflation and discipline its economy. Instead, it was to lead it into chaos. Unable to follow the Bundesbank's lead in raising rates to fight inflation after reunification, the BoE is leaving the field open to speculators who are taking the pound out of the EMS. They made billions at the expense of the taxpayer.
Brexit, COVID-19, War in Ukraine: the shocks of deglobalization
“Every time we have to decide between Europe and the open sea, it is always the open sea we shall choose.”
Seventy-two years before the Brexit, Winston Churchill warned about his country's American tropism.
To the surprise of the foreign exchange markets, on June 23, 2016, the United Kingdom chose the open sea by leaving the European Union. Four years of negotiations, psychodramas, bluffs, and twists and turns ensued, to find an agreement in extremis.
The British currency then experienced volatility commensurate with the uncertainties.
Mark Carney, Governor of the BoE, shocked the City by comparing the pound sterling to an emerging currency given its erratic movements. The City's currency, the world's leading foreign exchange market, had entered like the others into one of the black holes of modern finance, a lightning speed crash or flash crash.
On October 7, 2016, in 40 seconds, the pound fell by 9%, from 1.26 to 1.14 dollars, its lowest level in thirty-one years. An error of a trader, derivatives, algorithms ...
The currency of the most international financial center has been caught up in the crises of deglobalization, Brexit, COVID-19, and the war in Ukraine. It is now at 1.25 dollars, far below its average of the last fifty years (1.70 dollars).
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