Sterling area

Before the First World War, the British pound sterling was the most important international currency, and the City of London was the world's most important financial centre. More than 60 per cent of global trade was financed, invoiced, and settled in sterling, and the largest proportion of official reserves, apart from gold, was held in sterling. Although not all the territories of the British Empire used sterling as their local currency, most of those that did not pegged their local currency at a fixed rate to sterling, as did many foreign countries outside the Empire. When Britain left the gold standard in 1931, many countries that had pegged their currencies to gold pegged their currencies to sterling instead; this group of countries became known as the "sterling bloc", though the term "sterling area" was used officially from at least 1935. When the Second World War broke out, the sterling bloc countries within the British Empire shared a desire to protect the external value of sterling; legislation was therefore passed throughout the Empire formalising the British sterling bloc countries into a single exchange control area. The sterling area was continued in the postwar era in an attempt to preserve the British Empire's superpower status during the Cold War between the United States and the Soviet Union. ==Canada and Newfoundland==

Canada and Newfoundland did not join the sterling area because their dollar currencies had effectively been linked to the US dollar (since 1858). In 1931, Britain and its Dominions abandoned the gold standard during the Great Depression. But while Australia, New Zealand, and South Africa all responded to the end of the gold standard by pegging their pounds to the pound sterling, Canada and Newfoundland instead pegged their dollars to the US dollar. So Canada and Newfoundland did not stand to gain by joining an exchange control bloc intended to protect the external value of sterling. The absence of Canada and Newfoundland from the sterling area was beneficial to Britain, as it curtailed capital flight to the North American mainland. Canada nevertheless introduced its own exchange controls at the outbreak of war; these were maintained until 1953. Canada's exchange controls were 'sterling area-friendly', in that their purpose was more to prevent capital flight to the US than to prevent flight to the sterling area. ==Hong Kong==

Hong Kong originally declined to join the sterling area, due to its traditional use of the Spanish dollar. After the end of the Second World War, the Hong Kong dollar was re-pegged to sterling at a fixed rate identical to the pre-war level. Nevertheless, its unique geo-economic position afforded Hong Kong the ability to defy exchange controls by operating a dual system with the sterling area and a free exchange market principally with the US dollar, which was technically illegal from 1949 to 1967. In the 1967 sterling crisis, Hong Kong only partially followed Britain in devaluing its currency. In 1972, Hong Kong finally ended the currency peg with sterling. ==Member benefits==

At the end of the war in 1945 the sterling area remained the largest and most coherent currency bloc in the world, and it provided its members with freedom to settle payments in sterling anywhere within the area without exchange controls. Members enjoyed the benefits of stable exchange rates and permanent access to the financial resources of the City of London. Meanwhile, the British government was able to use the pooled reserves of the entire area's membership to back sterling at times when there was a US dollar shortage. ==Demise==

Towards the end of the 1950s, with the British Empire in decline, political opinion rapidly shifted towards the view that trade with Europe was more important to the future of the United Kingdom than the historical preferential trading with the Commonwealth nations. This resulted in the UK attempting to join the European Communities (E.C) (the Common Market), formed in 1957. The UK government devalued the pound sterling in November 1967 from £1 = $2.80 to £1 = $2.40. This was not welcomed in many parts of the sterling area, and, unlike in the 1949 devaluation, many sterling area countries did not devalue their currencies at the same time. This was the beginning of the end for the sterling area. The Basel agreements of 1968 were designed to minimise flight from sterling to the US dollar. On 22 June 1972, Britain imposed exchange controls between Britain and other members of the sterling area, with the exception of the Republic of Ireland and the Crown Dependencies (the Isle of Man and the Channel Islands). At the same time, Britain floated the pound sterling. According to the Chancellor of the Exchequer, Anthony Barber, this was to halt a recent increase in capital outflow to other parts of the sterling area. Opponents of these changes argued that the real reason for them was Britain's impending entry to the EEC, and that France was concerned about Britain's close economic ties with the Commonwealth and the sterling area, even though France continued to have special economic relations with its less successful former colonies in the CFA and CFP franc zones. The attempts by the United Kingdom to join the European Economic Community (EEC) in 1961 and 1967 were blocked by the French, but eventually, on 1 January 1973, the United Kingdom became a European Communities member state after France formally lifted its veto on UK membership. ==List of original member countries==

• Aden and later South Yemen • Sudan • Australia until 1910 • Bahamas • Bahrain • Bangladesh • Barbados • Basutoland (Lesotho) • Bermuda • Botswana • • British Guiana (Guyana) • British Honduras (Belize) • British Indian Ocean Territory • British Virgin Islands • Brunei • Burma (left in 1966) • Cayman Islands • Ceylon (Sri Lanka) • Cyprus • Egypt (left in 1947) • Fiji • The Gambia • Ghana • Gilbert and Ellice Islands (Kiribati and Tuvalu) • British Hong Kong (until 1972) • Iceland • Ireland (until 30 March 1979) • Iraq (left in 1959) • Jamaica • Jordan • Kenya • Kuwait • Leeward Islands (comprising Anguilla, Antigua and Barbuda, Montserrat, and Saint Kitts (Saint Christopher and Nevis)) • Libya (expelled in 1971) • Malawi • Malaysia • Maldive Islands • Malta • Mauritius • Muscat and Oman (Sultanate of Oman) • Nauru • New Zealand (including Cook Islands, Niue, and Tokelau Islands) • Nigeria • British Mandate for Palestine (required to withdraw in 1948, following the creation of the state of Israel) • Pakistan • Papua New Guinea • Pitcairn Islands • Qatar • Rhodesia (Zimbabwe) (expelled in 1965) • (including Ascension Island and Tristan da Cunha) • Seychelles • Sierra Leone • Singapore • British Solomon Islands Protectorate • British Somaliland Protectorate (left in 1964) • South Africa • South West Africa (Namibia) • Swaziland • • Tonga • Trinidad and Tobago • Trucial Oman (United Arab Emirates) • Turks and Caicos Islands • Uganda • United Kingdom • Western Samoa • Windward Islands (comprising Dominica, Grenada, Saint Lucia, and Saint Vincent and the Grenadines) • Zambia • Zanzibar ==Notes==