The two sterling crises of 1964: a reply to Oliver

Oliver's Comment on my recent article challenges my argument that there were two sterling crises in the autumn of 1964. He argues that there was one only and that the Labour government mishandled it. Oliver has, however, reached these conclusions on the basis of a partial reading of the evidence and a failure to grasp how the changing international context imposed constraints on national economic sovereignty.     

The two sterling crises of 1964 and the decision not to devalue1

Conventional wisdom is critical of the newly elected Labour government's reaction to external financial difficulties in the autumn of 1964. Anxious about its political position, it avoided the necessary measures, involving stringent deflation and possibly devaluation. This article seeks to revise the traditional view by re‐examining the response to what were actually two sterling crises. The first was handled efficiently. The second was provoked by speculation stemming from market expectations of devaluation. The decision not to devalue but seek external support was justifiable, given changes within the international economy which were to create problems for many postwar nation states.     

Strong sterling pound and weak European currencies in the crises: Evidence from covered interest parity of secured rates

In the post Lehman period, the interest rate of the US dollar became low on the forward contract because of“flight to quality” to the international currency. However, in the Euro crisis, that of the Sterling pound became equally low, while the other European currencies such as the Danish kroner increased its their interest rate. By using secured rates, the following analysis examines why the Sterling pound and the Danish kroner showed asymmetric features in deviations from the covered interest parity (CIP) condition. The regression results suggest that there was a structural break in the determinants of the deviations across the European currencies in the two crises. Currency-specific money market risk was critical in explaining the deviations in the global financial crisis (GFC), while EU bank credit risk and global market risk were useful in explaining the deviations in the Euro crisis. In particular, EU bank credit risk and global market risk had asymmetric effect on the deviations. The asymmetry explains contrasted features between the Sterling pound and the Danish kroner.     

The two crises in the Netherlands in 1557

Abstract

It is an axiom of economists of today that in the treatment of the economic conditions of a country the financial policy of the government, insofar as it may possibly react on economic life, must be considered and vice versa, that anybody undertaking an investigation into the finances of a state cannot pass any judgement on measures taken without having adequate knowledge of the prevailing economic conditions. In addition the political situation will for an economic historian form part of the picture. These remarks apply without gainsay I suppose to any treatment of developments of the present century.     

The market as a commons: A further comment

Summary The Copes model, where an open access market is expected to result in nonoptimal levels of capacity and output, is demonstrated to be applicable where there is simultaneity of production and sale of output. Particular reference is made to the service sector, where customers are regarded as necessary inputs into the production activity of a service sector firm and as necessary for sales (output) of the firm to occur. It is further shown that the criticisms of the Copes Model leveled by Gordon and Stegman in terms of market rent, the nature of the free entry supply curve, and the equilibrating role of price do not hold in our analysis of service sector activities.     

Britain as a debtor: Indian sterling balances, 1940–53

The British war effort in the Second World War depended on US Lend‐Lease and the accumulation of sterling balances by other countries, including the Empire. By the end of the war outstanding balances were equivalent to 60 per cent of British net receipts under Lend‐Lease. Of the total sterling balances, about a third was accumulated by India. This article seeks to evaluate the costs incurred by India in the reduction of balances after the war. The accumulation of balances and their use to repatriate India's sterling debt is described. British efforts to convince India to accept a partial cancellation of the balances are analysed, singling out the crucial role of Keynes. The negotiations after independence are detailed, including releases, transfers to Pakistan, settlement of pensions, purchase of military stores, and gold sales. The possible contribution of British divestment to reduce outstanding balances is assessed. The Indian case is compared with those of other holders, such as Portugal, Brazil, Argentina, and Egypt. The links between the accumulation of sterling balances and inflation are considered. In the end there was a significant reduction in the purchasing power of sterling balances, but not for the reasons anticipated by London.     

Downhill from devaluation: The battle for sterling, 1968–721

The devaluation of 1967 and the float of 1972 have become two of the key cornerstones in the analysis of sterling under the Bretton Woods system. Sterling’s fortunes between 1968 and 1972 have not been so well documented. This article uncovers new evidence about the pound for this period, including the British government’s contingency plans for blocking the sterling balances as a means to negate the weakness of sterling following the 1967 devaluation, the discussions with the United States on the reform of the international monetary system, and the preparations made for floating the pound.     

The forward exchange rate for sterling and the efficiency of expectations

Zusammenfassung Die Terminkurse für das Pfund Sterling und die Effizienz von Erwartungen. — Dieser Aufsatz untersucht die Effizienz von Erwartungen auf dem Terminmarkt für das Pfund Sterling gegenüber fünf bedeutenden W?hrungen in den Jahren von 1972 bis 1978. Dabei wird unterstellt, daΒ der Terminkurs das gewogene Mittel aus dem sich aus der Zinsparit?t ergebenden Terminkurs und dem erwarteten Kassakurs ist. Unter der Annahme, daΒ die Erwartungen hinsichtlich der zukünftigen Kassakurse rational sind, zeigen die Gleichungen deutliche Anzeichen von falscher Spezifizierung. Eine allgemeinere Spezifizierung gestattet es, den Mechanismus der Erwartungsbildung endogen durch die Daten bestimmen zu lassen. Diese Gleichungen sind gut spezifiziert und deuten darauf hin, daΒ die sich aus den Daten ergebenden Werte für die erwarteten Kassakurse zwar unverzerrte, aber ineffiziente Sch?tzungen für die tats?chlichen Kassakurse sind.

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Résumé Le taux de change à terme pour la livre sterling et l’efficience des expectatives. — Cet article analyse l’efficience des expectatives sur le marché de change à terme pour la livre sterling vis-à-vis cinq monnaies importantes pendant la période 1972–1978. Il est postulé que le taux à terme est une moyenne pondérée du taux à terme d’intérêt-parité et du taux au comptant attendu. Sous la supposition que les expectatives sur le taux au comptant futur soient rationelles, les équations estimées démontrent des clairs signes de mis-spécification. Une spécification plus générale permet de déterminer endogènement le mécanisme de formation des expectatives. Ces équations sont bien spécifiées et suggèrent que les taux au comptant attendus qui sont révélés par les données sont des variables de pronostic sans biais mais pas efficientes du taux au comptant actuel.

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Resumen La tasa de cambio a futuro para la libra esterlina y la eficiencia de las expectativas. — En este articulo se investiga la eficiencia de las expectativas en el mercado cambiario a futuro para la libra esterlina frente a cinco monedas importantes para el período entre 1972 y 1978. La tasa de cambio a futuro se define como el promedio ponderado de la tasa de interés de paridad a futuro y la tasa ?spot? esperada. Bajo el supuesto que las expectativas de la tasa spot futura son racionales, las ecuaciones estimadas muestran claros signos de mala especificación. Una especificación más general permite que el mecanismo de generación de expectativas sea determinado endógenamente por los datos. Estas ecuaciones están bien especificadas y sugieren que las series de las tasas spot esperadas reveladas por los datos han sido predictores sin sesgo pero ineficientes de la tasa spot real.

     

Speculative attacks and currency crises: The Mexican experience

By using data from the Mexican economy, this paper estimates a speculative attack model of currency crises in order to identify the role of macroeconomic fundamentals and early warning signals of a potential currency crisis. A deterioration in fundamentals appears to generate high one-step-ahead probabilities for the observed regime changes during the sample period 1982–1994. Particularly, foreign reserve losses, expansionary output, monetary and fiscal policies, an increase in inflation differentials and the share of short-term foreign currency-indexed debt, and an appreciation of the real exchange rate appear to have contributed to the speculative pressures and the associated regime changes.     

The empire strikes back: Hong Kong and the decline of sterling in the 1960s1

The aftermath of the sterling devaluation of 1967 is usually portrayed only in terms of the performance of the British economy, but it had more far‐reaching implications, exposing the changed financial relationship between Britain and its overseas dependencies and prompting the end of the sterling reserve system. This article explores the reasons why Britain was forced to offer its first exchange guarantee to Hong Kong in May 1968. Prolonging the colonial monetary system devised in the period from the 1930s to the late 1960s created problems for Britain that shifted the balance of power to the point where Hong Kong and other colonies were able to force a re‐negotiation of their link to sterling.