Forty years on, we’re still confused

Next weekend is the 40th anniversary of Harold Wilson slashing sterling’s official value from $2.80 to $2.40 and telling us the pound in our pocket had not been devalued. It was a disaster, Wilson later confessed in his memoirs: a national shame that interrupted the Swinging Sixties. And now the pound has risen above $2 to its highest level for more than quarter of a century and we rejoice at sterling’s strength, gloating over the dollar’s misfortunes.

That $2 is ‘high’ when Wilson devalued the pound to a then record low of $2.40 shows not only that today’s rate is a blip in a long-term slide from the pre-war rate of above $5; it reflects Britain’s perpetually confused attitude to exchange rates. Perhaps because our only direct experience of currency rates is converting holiday cash or planning New York shopping sprees, we regard a strong pound as good and a slide in sterling as bad.

It is a premise that infects politicians of all parties. Labour’s 1949 devaluation from $4.03 was seen as a cruel blow to a nation that had won the war; as in 1967, the banks and stock exchange were closed by royal proclamation to provide a day of mourning. Black Wednesday in 1992 is still regarded as Britain’s recent economic nadir and the politicians’ language does not change: John Major and Norman Lamont echoed Wilson in talking of political disaster. Devaluation was ‘an easy way out’, said Wilson; ‘a soft option’, said Major.

Indeed, the whole ritual hardly changes. After the denial (Sir Stafford Cripps said nine times he would not devalue before doing so) comes the run on sterling, with billions spent on futile defence; then sombre ministerial broadcasts and Draconian measures are followed quickly by the Chancellor’s departure.