Sterling Area - Demise

Demise

The devaluation of the pound sterling in November 1967 from £1= $2.80 to £1 = $2.40 was not welcomed in many parts of the sterling area and, unlike in the 1949 devaluation, many sterling area countries did not devalue in sympathy. This was the beginning of the end for the sterling area. The Basel agreements of 1968 were designed to minimise flight from sterling to the US dollar within the sterling area. On 22 June 1972 Britain imposed exchange controls on the sterling area, with the exception of Ireland, the Isle of Man and the Channel Islands. At the same time Britain floated the pound sterling. According to Chancellor of the Exchequer Anthony Barber, this was to halt a recent increase in capital outflow to other parts of the sterling area.

Opponents argued that the real reason was related to Britain's impending entry to the EEC, and that France was concerned about Britain's close economic ties to the Commonwealth and the sterling area while at the same time France continued to have favoured economic relations with its less successful former colonies in the CFA and CFP franc zones. One of the issues covered in negotiations for the UK to join the EEC was the problem of "sterling balances", balances held in sterling in London by governments of countries which were members of the sterling area, in many cases the result of debts incurred by Britain during the war. France argued that these obligations were potentially a threat to the stability of the pound and that this could cause turbulence for the whole of the EEC. Agreement on winding down these balances was thus a necessary part of the agreement for Britain to join the EEC, and removed the main reason for continuing the area.

Gibraltar was re-included in the new miniature sterling area on 1 January 1973, and the other sterling area countries responded as they chose—in fact, some of these countries had already taken similar measures throughout the 1950s and 1960s. Following the British government's decision in June 1972, some countries immediately copied the British government, and others did so over the next few months. Singapore continued operating sterling area exchange controls till as late as 1978, and Brunei did not alter its sterling area exchange controls until the year 2001.

After 1972 the sterling area was no longer what it used to be, but it continued to exist in that the UK still recognised the existence of the 'overseas sterling area' as a distinct group of countries for the purposes of exchange control policy. In 1979, due to an improving economic situation and with the Second World War now in the past, Britain removed all its exchange controls: the sterling area had ceased to exist.