Sterling Area - Purpose

Purpose

Before the First World War the British pound sterling was the most important international currency and the City of London was the world's most important financial centre. More than 60% of global trade was financed, invoiced and settled in sterling, and the largest proportion of official reserves, apart from gold, was held in sterling. Although not all the territories of the British Empire used sterling as their local currency, most of those that did not pegged their local currency at a fixed rate to sterling, as did many foreign countries outside the Empire. When Britain left the gold standard in 1931, many countries that had pegged their currencies to gold pegged their currencies to sterling instead; this group of countries became known as the "sterling bloc", though the term "sterling area" was used officially from at least 1935. When the Second World War broke out, the sterling bloc countries within the British Empire shared a desire to protect the external value of sterling; legislation was therefore passed throughout the Empire formalising the British sterling bloc countries into a single exchange control area.