The Sterling Area 1945–1972

Abstract

The sterling area was an international monetary system that operated for almost 30 years after the end of the Second World War. Born from wartime exchange controls, it was initially a short-term response to global imbalances in the wake of the war and the failure of the new Bretton Woods institutions to support multilateral trade and payments. From 1945 to 1972, members of the sterling area agreed to maintain fixed exchange rates with sterling, to hold the bulk of their foreign exchange reserves in sterling, and to impose exchange control in common with Britain to protect against possible flight from sterling to other currencies. In return, members enjoyed freer trade with Britain and freer access to British capital than other countries. In the early years, it was defined by Britain’s war debts, but through the 1950s these were retired and replaced by fresh accumulations of sterling by other members. But by the 1960s, a weaker pound and waning enthusiasm for monetary cooperation among its members undermined the system, and it became part of the crumbling of the wider Bretton Woods system. A concerted multilateral effort supported the gradual retreat from sterling until it was finally abandoned without fanfare in 1972.