LONDON (Reuters) – Sterling fell to an all-time low on Monday as international investors reacted to plans by the country’s new prime minister and finance minister to cut taxes and increase spending to ease higher energy prices.
The coin fell to $1.0327 at one point. It is down nearly 8% since Thursday and 21% since the start of the year, in accelerating comparisons to the currency crises that have marked Britain’s post-war history.
Those panic attacks often included attempts to keep the pound sterling at a fixed rate against other currencies, which is no longer a problem for the pound to float.
However, the huge amounts of wasted reserves and blows to national dignity always took a heavy toll on the governments of that time.
Here are the main episodes of the British currency drama since World War II:
Brexit vote, 2016
Sterling fell 8% a day after British voters voted to leave the European Union. It was already on the decline for about a year and fell at $1,145 in early October 2016 – a 28% drop from peak to trough.
Black Wednesday, 1992
At a turning point for its membership in the European Union, Britain collapsed from the exchange rate mechanism – a system designed to reduce currency fluctuations prior to the launch of the euro – in September 1992.
This led to a sharp drop in the value of the pound and, despite the economy’s eventual boom, infected the Conservative Party’s reputation for economic management, culminating in the defeat of Prime Minister John Major in the 1997 election.
In an effort to prop up the pound, the government raised interest rates to 15% and the Bank of England sold $40 billion worth of reserves in the months leading up to Black Wednesday.
Britain has also used some creative accounting to hide the size of its foreign exchange losses, such as a “secret negative forward ledger” of £12.5 billion.
In 1997, the Treasury said the final cost of the disaster exceeded £3 billion.
Super Dollar, 1985
The 1980s pound started at $2.30, but in early 1985 reached a record high of $1.05. Against the rising US currency inflated by global trade imbalances, parity with the dollar – previously unimaginable – has become a real possibility.
Although the government raised interest rates to prevent further slippage, some of the pound’s decline was of its own making.
A briefing to the media in January 1985 by Prime Minister Margaret Thatcher’s press secretary, intended to reassure financial markets, backfired poorly.
And one of the ministers complained, according to minutes published by the government years later, that “things were not helped by the press reaction that confused the fact that the government did not have a specific target for the pound with complete uncertainty about its level.”
Ultimately, the pound rose against the dollar after the five leading industrialized nations of the world at the time concluded the Plaza Accord in which they agreed that the US dollar was overvalued and would take action to weaken it.
IMF crisis 1976
By the mid-1970s, the British economy was in dire straits. Attempts to fuel the boom early in the decade led to a sharp crash a few years later, exacerbated by the oil crisis.
Inflation topped 25% in 1975 and the newly floating pound was in free fall, eventually reaching its then-record low of $1.58 in October 1976.
A bleak set of government borrowing forecasts suggested Britain may no longer be able to afford it, forcing Finance Minister Dennis Healy to seek external assistance from the International Monetary Fund – a blow to Britain’s standing as a major economic power.
The $3.9 billion loan, the largest ever obtained from the International Monetary Fund, came at the cost of deep cuts in public spending.
Healey later lamented that government borrowing was much better than expected, which raised questions about whether the loan, which was paid off early, was really needed.
Successive Labor and Conservative governments struggled to contain spending in the 1960s, adding pressure on sterling, which was steady at $2.80.
By 1967 the pressure had become irresistible, but disagreement across the government and with the Bank of England – which had been opposed to devaluing sterling as an easy way out of Britain’s troubles – meant the devaluation was poorly managed.
Investors knew the game was up in November 1967 when Treasury Secretary James Callahan chose not to confirm or deny in Parliament whether talks about devaluation or an emergency loan were taking place.
The Bank of England had no choice but to burn up reserves for a day until Labor Prime Minister Harold Wilson officially announced a devaluation to $2.40, for which the pound was a symbol of national status.
He was mocked for telling the public that the pound “here in Britain, in your pocket” would not depreciate after the devaluation.
(dollar = 0.9358 pounds)