1949 sterling devaluation
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The devaluation of sterling in 1949 (or 1949 sterling crisis) was a major currency crisis in the United Kingdom that led to a 30.5% devaluation of sterling from $4.04 per pound to $2.80 on 18 September 1949.[1][2] Although the devaluation was made in the United Kingdom, more than 19 countries had currencies pegged to sterling and also devalued.
The devaluation, unlike the competitive 1931 sterling devaluation, was done in cooperation between all European nations.[3] There was a general understanding among European nations that the sterling was overvalued and would need to be devalued. The IMF was in favour of a devaluation and wanted it to happen to allow other European currencies to also devalue.[4] The timing of the devaluation remained unsure, in part because Chancellor of the Exchequer Stafford Cripps opposed devaluation.[5] This led to progressive pressure on the currency, up to a breaking point forcing the British government to devalue.
The fundamental cause of the devaluation was a structural trade deficit of the United Kingdom with the United States. But in the short run, speculation also played a role. As there were capital controls in place, speculation could not take place through regular currency markets as speculative purchases of currency were forbidden by the controls. Instead, speculative pressure mounted through leads and lags.[6]
Decision
The decision to devalue the pound was made in Cripps’ absence (he departed for a sanatorium in Switzerland in July 1949). The decision was taken by Minister of Fuel and Power Hugh Gaitskell, Economic Secretary to the Treasury Douglas Jay, and then-President of the Board of Trade (and future Prime Minister) Harold Wilson; the three moved for devaluation within days of Cripps’ departure, and he only heard of the decision through a letter from Clement Attlee in August.[5]