studies from the sterling area in the 1950s-60s

The sterling area was a financial alliance of countries using sterling as their principal international reserves. Recent studies have highlighted how external assistance prolonged the international use of sterling in the 1950s-60s. This thesis explores the sterling area’s internal institutional arrangements (e.g. reserve management practices and the set-up of central banks), which had complex effects on the member countries. Three case studies examine reserve developments in Australia, Ireland and the UK. Together they reveal a currency construction that supported the persistent use of sterling, but lacked stability. The first paper presents a new account of Australia’s reserve management in 1950-68, emphasising the importance of reserve pooling. Acquisition of non-sterling assets in 1951-61 was limited to gold production and undermined by Australia’s balance-ofpayments volatility. Diversification (substituting other assets for sterling) only began in 1962, largely through the build-up of the IMF ‘gold tranche’. Diversification was gradual, hidden, and constrained by sterling area membership. The second paper examines the development of Ireland’s central bank, with its currency board arrangements, before and after the sterling devaluation of 1967. Before 1967, development was constrained, as an under-resourced central bank and independent commercial banks competed for sterling liquidity. Meanwhile government treated sterling area membership as a contract with the UK. Devaluation broke both constraints, leading to a forceful diversification, and centralisation of commercial bank reserves in the central bank in 1968-9. The third paper applies a contemporary methodology to review sterling crises during the years 1950-67, identifying balance-of-payments flows associated with each crisis. The ‘sterling balances’ of the sterling area underwent significant changes in all the crises, and notable (balance-of-payments) declines in those of 1951-2, 1955 and 1957. Sterling’s recurring problem was the balance of payments of the sterling area as a whole. The system’s limited cohesion failed to address this, contributing to instability.