Over the centuries, British leaders have often gone to great lengths to protect the value of the pound.Published by Henry I edict In 1125, he ordered those who produced substandard currency to “lose their right hands and be castrated.”
In the 1960s, the Labor government, led by Harold Wilson, was very resistant to the devaluation of the pound, which at the time was set at a fixed rate of $2.80, high enough to depress the UK economy. BurnIn 1967 the government finally cut that value $2.40, up 14%.
Another economic crisis sent the pound plummeting. When oil prices soared in the 1970s and Britain’s inflation rate exceeded her 25%, the government was forced to ask the International Monetary Fund for her $3.9 billion loan. In the mid-1980s, when high US interest rates and Reagan administration spending boosted the value of the dollar, the pound fell to its lowest point at the time.
After World War II, the pound’s dominance is waning. Today, the global economy is going through a particularly tumultuous time as it recovers from the aftermath of the COVID-19 pandemic, supply chain disruptions, Russia’s invasion of Ukraine, energy shortages and soaring inflation.
As Richard Ports, professor of economics at the London Business School, said, exchange rates fluctuate greatly over time. The euro was worth 82 cents in the early days, he recalled, and people called it the “toilet paper” currency. However, by 2008, the value had doubled to his $1.60.
It is not clear what will revive the pound.
The Truss government’s economic program has strongly accelerated the depreciation of the pound. It’s the latest in a string of events that many economists see as grave economic missteps that peaked with Brexit.
It relies heavily on the Truss government.
“The plunge in the pound is the result of a policy choice, not a historical inevitability,” said Ian Shepardson, chief US economist at Pantheon Macroeconomics. “Whether this is a new tough era or just an unfortunate start depends on whether we turn around or get kicked out in the next election.”