Britain and European Monetary Cooperation, 1964–1979

283 Pages·2015·1.064 MB·English

by  Kiyoshi Hirowatari (auth.)

Britain and European Monetary Cooperation, 1964–1979
Palgrave Studies in the History of Finance
Series Editors: Adrian R. Bell, D’Maris Coffman, Tony K. Moore
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Titles include:
Adrian Williamson
CONSERVATIVE ECONOMIC POLICYMAKING AND THE BIRTH OF THATCHERISM,
1964–1979
Rafael Torres Sanchez
CONSTRUCTING A FISCAL MILITARY STATE IN EIGHTEENTH CENTURY SPAIN
Stuart J. Barton
POLICY SIGNALS AND MARKET RESPONSES
Ali Kabiri
THE GREAT CRASH OF 1929
Martin Allen, D’Maris Coffman
MONEY, PRICES AND WAGES
Guy Rowlands
DANGEROUS AND DISHONEST MEN: THE INTERNATIONAL BANKERS OF LOUIS
XIV’S FRANCE
Duncan Needham
UK MONETARY POLICY FROM DEVALUATION TO THATCHER, 1967–1982
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Britain and European
Monetary Cooperation,
1964–1979
Kiyoshi Hirowatari
© Kiyoshi Hirowatari 2015
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Hirowatari, Kiyoshi, 1955–
Britain and European monetary cooperation, 1964–1979 / Kiyoshi Hirowatari.
pages cm.—(Palgrave studies in the history of finance)
Summary: “The collapse of the Bretton Woods system in the early 1970s resulted in a
transition to fluctuating rather than fixed currency system. This brought sterling into the
turmoil of the world currency markets, and by the end of the 1970s, sterling had quietly
ended its role as an international currency. Sterling-dollar diplomacy collapsed, bringing to
an end what had hitherto been considered Britain’s prime relationship. Britain and European
Monetary Cooperation, 1964–1979 provides a unique perspective on these events, shedding
light on the complexities of the historical context of British monetary diplomacy and
exploring the country’s attempt at a European approach to sterling in the 1960s and ’70s.
The book describes the political and economic approach Britain took at the turn of the
1970s, and explains how the country became restricted by the burden of the sterling
balances. In this book, the author illustrates how these developments offered opportunity for
both cooperation and conflict in the light of monetary diplomacy. He demonstrates how
Britain’s struggle to achieve exchange rate stability, twinned with controversy over European
Economic Community membership, finally prompted serious reconsideration of economic
policy-making. This book challenges the commonly-held perception of the decline of sterling,
and explains that, although Britain’s attempt at a European approach failed, the decline of
the currency was more complicated than a ‘managed decline’”—Provided by publisher.

1. Monetary policy—Europe. 2. Monetary policy—Great Britain. 3. Currency question—
Great Britain. 4. Great Britain—Politics and government—1964–1979. I. Title.
HG925.H567 2015
339.5’309409047—dc23 2015004031
Contents
List of Tables vi
Preface vii
Acknowledgements viii
List of Abbreviations ix
Chronology xi
Introduction 1
Part I The Conservatives and European Monetary Cooperation 25
1 The Conservatives and European Monetary Cooperation 27
2 The Conservatives and Monetary Sovereignty 53
3 The Heath Government and External Economic Policy 65
Summary of Part I 81
Part II Labour and European Monetary Cooperation 83
4 Labour and Sterling 85
5 Harold Wilson, the 1964–66 Sterling Crisis and ‘The Second Try’ 105
6 The European Approach versus Sterling–Dollar Diplomacy 137
7 The 1976 IMF Crisis and Its Aftermath 151
Summary of Part II 175
Conclusion 179
Appendices 187
List of Names 197
Notes 201
Bibliography 257
Index 269
List of Tables
1.1 UK balance of payments, 1968–71 (£ million) 30
1.2 Inflation and productivity 32
5.1 UK balance of payments: Comparison (£ million) 109
5.2 The breakdown of pressures on spot financing,
October 1964–August 1965 110
5.3 Forward premium on the dollar, January 1964–December 1967
(Last working days) 112
7.1 UK balance of payments, 1974–77 (£ in millions) 152
7.2 Exchange reserves in sterling held by overseas monetary
authorities, 1974–77 (£ in millions) 154
vi
Preface
The collapse of the Bretton Woods system resulted in a transition to currency
floating in the early 1970s, and as a result sterling became enmeshed in
the turmoil of the world currency markets. Consequently, by the end of the
1970s, sterling had quietly ended its role as an international currency. The
central aim of this book is to examine this process in the context of Britain’s
relationships with the Common Market.
Britain did not fully commit itself to efforts to create European monetary
integration and, according to the literature, Atlanticism or anti-federalism
contributed to this. However, a confluence of events after the sterling crisis
of the mid-1960s fostered an awareness that Britain was at risk of losing
its monetary sovereignty. This was closely allied to the realisation that ster-
ling–dollar diplomacy had collapsed, bringing to an end what had hitherto
been considered Britain’s prime relationship. This book casts doubt on this
interpretation and sheds light on the complexities of the historical context
in which British monetary diplomacy, hamstrung by the burden of the ster-
ling balances, vacillated between its hope of regaining monetary sovereignty
through a European approach to sterling and its attachment to sterling–
dollar diplomacy. It was a process offering possibilities for both coopera-
tion and conflict in the light of monetary diplomacy. It was also a process
of ‘muddling through’, in which Britain’s struggle to achieve exchange rate
stability, twinned with controversy over EEC membership, prompted serious
reconsideration of economic policy-making.
vii
Acknowledgements
To Professor Martin Daunton, whose help in sharpening my arguments and
giving the most careful reading and criticism to the work, I owe fundamen-
tal gratitude. I am thankful, too, to Dr Richard Toye, who made me refine
my ideas on Britain’s postwar external economic policy, and to Professor
Catherine Schenk, who proffered constructive advice. I also owe a great debt
to Professors Masao Susaki and Tadao Hata, chief economists at the Bank of
Tokyo, who helped me understand international economics and the postwar
international monetary system at a more practical level. I would also like to
thank Gordon Pears, who worked for the Conservative Research Department
under Edward Heath in the late 1960s, for his suggestions on parts of my
work. Librarians at the archives mentioned in the bibliography supported
much of my basic research; I would like to single out Ben White and the staff
at the Bank of England Archive. Furthermore, I am grateful to Ruth Willats,
who checked and edited the manuscript. Finally, my heartfelt thanks go to
Dr D’Maris Coffman. Without her encouragement and assistance, this book
would not have seen the light of day.
This book is dedicated to my late wife, Seiko, who lost her life in 2005. Her
assistance has been invaluable to my life.
Needless to say, any shortcomings, errors or faults that remain are my own.
viii
List of Abbreviations
BIS Bank for International Settlements
BOE Bank of England
CAP Common Agricultural Policy
CCOC Conservative Commonwealth and Overseas Council
CRD Conservative Research Department
CRU Composite (Collective) Reserve Unit
DM or Deutschmark
D-mark
EC European Community
ECA Economic Cooperation Administration
ECU European Currency Unit
EEA Exchange Equalisation Account
EEC European Economic Community
EFTA European Free Trade Association
EMA European Monetary Agreement
EMCF European Monetary Cooperation Fund
EMS European Monetary System
EMU European Monetary Union
EPU European Payments Union
ERM Exchange Rate Mechanism
ESCS European Coal and Steel Community
EUA European Unit of Account
FECOM Fonds Européen de Coopération Monétaire (see EMCF)
FRB Federal Reserve Bank
GAB General Agreements to Borrow
GATT General Agreement on Tariffs and Trade
ILO International Labour Organization
IMF International Monetary Fund
ISA International Stabilisation Account
LSE London School of Economics
MCA Multiple Currency Account
NAFTA North Atlantic Free Trade Area
NATO North Atlantic Treaty Organization
NEC National Executive Committee
NIESR National Institute of Economic and Social Research
NSA Non-sterling Area
OEEC Organisation for European Economic Co-operation
ix