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Beyond the Sterling Devaluation: The Gold Crisis of March 1968

Published online by Cambridge University Press:  01 February 2008

ARRAN HAMILTON
ARRAN HAMILTON*
Affiliation:
[email protected].
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Abstract

The 1967 devaluation of sterling has been the subject of considerable academic interest. However, its aftermath represents one of the great silences in the literature. This article aims to rectify this deficiency. The principal argument is that the devaluation was not a significant event in its own right; its real importance rests in its legacy and the way in which it altered the context in which sterling's managers operated. In the aftermath, the problem of sterling was actually far greater than it had ever been before and consequently the solutions proposed were far more radical.

Au-delà la dévaluation de la livre sterling: la crise de l'or de mars 1968

La dévaluation de la livre sterling de 1967 a été le sujet d'un intérêt académique considérable. Néanmoins, ses conséquences constituent un des grands silences de la littérature. Cet article vise à corriger cette déficience. L'argument principal stipule que la dévaluation n'a pas été un événement significatif en lui-même. Sa véritable importance réside dans son héritage et la manière dont il a changé le contexte dans lequel les managers de la livre sterling fonctionnaient. Après la crise, le problème de la livre sterling était en fait beaucoup plus important qu'il n'avait jamais été auparavant et par conséquent les solutions proposées étaient beaucoup plus radicales.

Jenseits der abwertung des pfunds sterling: die goldkrise vom märz 1968

Die Abwertung des Pfunds Sterling 1967 war Anlaß für ein beachtliches akademisches Interesse. Über die Nachwirkung der Abwertung ist jedoch in der historischen Literatur kaum etwas zu finden. Dieser Artikel versucht, diesen Fehlbestand zu korrigieren. Das Hauptargument ist, daß die Abwertung in sich selbst kein bedeutendes Ereignis darstellte. Ihre wahre Bedeutung liegt in ihrem Erbe und der Art und Weise wie sie den Rahmen verändert hat, innerhalb dessen die Zentralbank und die britische Regierung operierten. Nach der Krise war das Problem des Pfunds Sterling tatsächlich viel größer als jemals zuvor, und deshalb waren die vorgeschlagenen Lösungen viel drastischer.

Type
Article
Information
Contemporary European History , Volume 17 , Issue 1 , February 2008 , pp. 73 - 95
Copyright
Copyright © Cambridge University Press 2008

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References

1 See for example Bale, T., ‘Dynamics of a Non-decision: The “Failure” to Devalue the Pound, 1964–67’, Twentieth Century British History, 10 (1999), 92–217CrossRefGoogle Scholar; Burk, K., ‘1967 Devaluation Symposium’, Contemporary Record, 1 (1987), 44–53Google Scholar; Roy, R., ‘The Battle of the Pound’, unpublished Ph.D. thesis, University of London, 2001; Ponting, C., Breach of Promise: Labour in Power 1964–70 (London: Hamish Hamilton, 1989)Google Scholar.

2 Cairncross, A., Managing the British Economy in the 1960s: A Treasury Perspective (London: Macmillan, 1996), 210–15CrossRefGoogle Scholar.

3 Cairncross was head of the Treasury's economic section.

4 Adapted from Hall, P., ‘Policy Paradigms, Social Learning and the State: the Case of Economic Policy-Making in Britain’, Comparative Politics, 25 (1992), 275–96CrossRefGoogle Scholar.

5 The National Archive (henceforth TNA), T267/36, ‘Treasury Historical Memorandum: The Break-Up of Bretton Woods’, 27.

6 TNA, T230/1052, Paper by Economic Section, ‘The Domestic Prospect after Devaluation’, January 1968.

7 Bank of England Archive (henceforth Bank), OV44/159, C. W. McMahon, ‘The Future of the Sterling Balances’, February 1968.

8 Bank, G3/287, Parsons to Armstrong, 7 March 68.

9 TNA, T295/493, ‘Cranmer Master plan’, September 1968.

10 Ibid.

11 Callaghan, J., Time and Chance (London: Collins, 1987), 214Google Scholar. See also Financial Statistics (Central Statistics Office (CSO), No. 93, January 1970), 95.

12 Burk, ‘1967 Devaluation Symposium’, 53; Foreign Relations of the United States (FRUS), Vol. 8, Fowler to Lyndon Johnson, 12 November 1968.

13 Cairncross, Managing, 180.

14 Wilson, H., The Labour Government 1964–1970: A Personal Record (London: Weidenfeld & Nicolson, 1971), 440Google Scholar; FRUS, Vol. 12, Rostow to Lyndon Johnson, ‘Contingency Support for Sterling’, 19 October 1967.

15 Ibid.

16 Callaghan, Time, 215; TNA, T318/188, Wiles to Copeman, ‘Reserve Losses and Recoveries’, 12 January 1968, which puts the under-recording of exports, resulting from the dock strikes, at £125 million.

17 TNA, T312/1828, Baldwin, ‘Note for the Record’, 4 December 1967.

18 See TNA, PREM 13/1447, PM to Chancellor, 5 November 1968; Crossman, R., The Crossman Diaries 1964–1970 (London: Book Club, 1979), 353Google Scholar.

19 TNA, PREM 13/1854, ‘Draft telegram to Washington’, undated; TNA, PREM 13/1447, ‘Note for the Record’, 9 November 67.

20 TNA, PREM 13/1447, ‘Message to the President from the Prime Minister’, 17 November 67.

21 TNA, PREM 13/1854, ‘Draft Telegram to Washington’, undated.

22 TNA, PREM 13/1447, ‘Draft Message to the President’, 9 November 1967.

23 Wilson, Labour, 451.

24 FRUS, 1968, Vol. 12, Rostow to Lyndon Johnson ‘Sterling Crisis’, 13 November 1968.

25 TNA, PREM 13/1854, ‘Tel. No. 3535’, 11 November 1967.

26 Ibid.

27 Ibid., ‘Tel. No. 3540’, 12 November 1967.

28 Ibid.

29 Callaghan, Time, 220.

30 Roy, ‘Battle of the Pound’, 302.

31 TNA, PREM 13/1854, ‘Tel. No. 3541’, 12 November 1967.

32 Ibid.

33 Ibid., ‘Tel. No. 3548’, 14 November 1967.

34 Wilson, Labour, 454.

35 TNA, PREM 13/1444, Trend to Wilson, ‘Cabinet: Operation Patriarch’, 16 November 1967.

36 TNA, PREM 13/1447, ‘Minute to Wilson’, 16 November 1967.

37 TNA, T318/1828, Baldwin, ‘Note for the Record’, 4 December 1967.

38 House of Commons Debates, Vol. 754 (London: HMSO,1967), cols. 632–5.

39 TNA, T318/183, ‘The Length of our Tether as at 17th November 1967’.

40 Rhodes-James, R., Ambitions and Realities: British Politics 1964–70 (London: Weidenfeld & Nicolson, 1972), 39Google Scholar; Stones, R., ‘Labour and International Finance’, 222–3, in Marsh, P. and Rhodes, R., Policy Networks in British Politics (Oxford: Clarendon Press, 1992)Google Scholar; Bale, ‘Dynamics’, 217; Bruce-Gardyne, J. and Lawson, N., The Power Game: An Examination of Decision-Making in Government (London: Macmillan, 1976), 118Google Scholar; Ponting, Breach, 290; Roy, ‘Battle of the Pound’, 302; Burk, ‘Symposium’, 52.

41 TNA, T312/1827, ‘Possible Short-Term Reflux Following a Devaluation, Table II’, undated.

42 Ibid.

43 TNA, T318/183, ‘The Length of our Tether as at 16th November 1967’.

44 TNA, T312/1827, ‘The Financial Position: Quick Assets and Liabilities’, October 1967, and TNA, T318/189, ‘Reserve Position at close of Business on 14th March’.

45 Modern Records Centre: University of Warwick (henceforth MRC), Crossman Papers, MSS.154 August 19120, 21 March 1968.

46 Bank, 2A93/1, O'Brien, ‘Cablegram 22145’, 18 November 1967.

47 TNA, T318/178, ‘Report on the Reserves and Exchange Rates: week ended Friday, 17 November', 1967’, undated.

48 TNA, T318/183, ‘The Length of our Tether as at 17th November 1967’.

49 TNA, T312/1401, F.U. (65) 10th Meeting', 29 July 1965.

50 Barbara, Castle, The Castle Diaries: 1964–70 (London: Weidenfeld & Nicolson, 1984), 325Google Scholar.

51 TNA, T312/1401, ‘F.U. (65) 6th Meeting’, 19 May 1965, and interview with Lord Croham (Sir Douglas Allen, Permanent Secretary, HM Treasury), 6 March 2003.

52 TNA, PREM 13/1447, Crossman to Wilson, 13 November 1967.

53 TNA, T230/1052, Posner to Armstrong, ‘Export Prices and Devaluation’, 2 January 1968.

54 Callaghan, Time, 222.

55 Dell, E., The Chancellors: A History of the Chancellors of the Exchequer 1945–90 (London: HarperCollins, 1997), 354Google Scholar.

56 Jenkins, R., A Life at the Centre (London: Macmillan, 1991), 221Google Scholar.

57 TNA, T230/889, Butler to Hawtin, ‘An Early Budget’, 3 January 1968.

58 TNA, CAB128/43, ‘Conclusions of a Meeting’, 4 January 1968; ibid., ‘Conclusions of a Meeting’, 15 January 1968.

59 Ibid., ‘Conclusions of a Meeting’, 4 January 1968.

60 Wilson, Labour, 484.

61 TNA, T230/889, Butler to Hawtin, ‘An Early Budget’, 3 January 1968.

62 Jenkins, Life, 227.

63 TNA, PREM 13/2051, Note by the Treasury, ‘Contingency Planning’, undated.

64 TNA, T295/493, ‘Operation Cranmer: Master Plan’, August 1968.

65 Of course, this does not mean that this was the first time that the Treasury had engaged in contingency planning under Wilson, merely that it was the first time that it was done with the blessing of the prime minister. See TNA, T312/1635, Walker to Armstrong, ‘Contingency Planning’, 5 May 1966, which sets out an account of the formation and operation of the Forever Unmentionable (FU) group, which secretly planned for the possibility of a devaluation between 1964 and 1967.

66 TNA, T267/21, ‘THM: March Gold Crisis 1968’, undated.

67 Roy, R., ‘The Battle for Bretton Woods: America, Britain and the International Financial Crisis of October 1967–March 1968’, Cold War History, 2, 2 (2002), 51CrossRefGoogle Scholar.

68 TNA, PREM, 11/4203, Maudling to Hume, ‘Gold’, 20 November 1961. The Bank of England files on the development of the gold pool (Bank G1/280–284) are still classified.

69 TNA, T267/21, ‘THM: March Gold Crisis 1968’, undated; Bank, OV31/125, Rickett to the Governors, 29 September 1966.

70 Bank, OV53/56, Kessler, ‘The Gold Problem’, 4 March 1968.

71 TNA, T312/1735, Paper by Bank of England, ‘The Gold Pool’, 10 August 1967.

72 TNA, T267/21, ‘THM: March Gold Crisis 1968’, undated.

73 Bank, OV53/56, Kessler, ‘The Gold Problem’, 4 March 1968.

74 TNA, T267/21, ‘THM: March Gold Crisis 1968’, undated.

75 Bank, OV53/38, ‘Tel No. Eager 2’, 14 March 1968.

76 TNA, T318/189, Copeman to Goldman, ‘Reasons for Outflow from Reserves’, 27 March 1968.

77 Ibid.

78 TNA, T312/189, ‘Reserve Position’, 14 March 1968.

79 TNA, T 318/183, ‘The Length of our Tether as at 16th November 1967’. After Callaghan's statement in the House the reserves fell to half the level that they were at in March 1968.

80 TNA, PREM 13/2036, Balogh to Wilson, ‘Exchange Control’, 10 January 1968.

81 Ibid.

82 TNA, PREM 13/2036, Dawe to Baldwin, 11 January 1968.

83 Ibid., Dyer to Dawe, 19 January 1968.

84 See TNA, PREM 13/2036, ‘Blocking the Sterling Balances’, 19 January 1968; TNA, T312/1398, ‘Blocking’, 12/4/65.

85 Interview with Lord Croham; TNA, T199/1239, ‘Treasury Organisational Chart: May 1968’.

86 TNA, T295/604 Rawlinson, ‘Brutus 8’, 16 May 1968; TNA, T295/495 Hughes to Allen, ‘Brutus: Implications of International Trade’, 17 June 1968; TNA, T295/510, Rawlinson to Figgures, ‘Cranmer: Telling Whitehall’, 8 July 1968; TNA, T230/1052, Posner to Cairncross, ‘The Future of Sterling’, 19 March 1968.

87 Interview with Michael Posner (economic adviser to the Treasury), 24 January 2003.

88 Ibid.

89 TNA, CAB 130/497, ‘MISC205 (68) – International Monetary Situation’, 17 March 1968, and interviews with Posner, Sir Kit McMahon (12 Feb. 2003) and Sir Samuel Goldman (6 Feb. 2003).

90 TNA, T295/489 Goldman to Dowler, ‘Contingency Planning’, 15 March 1968; Ibid., ‘Operation Brutus (edition 3)’, 16 March 1968.

91 Interview with McMahon.

92 This is supported by TNA, T312/189, ‘Reserve Position’, 14 March 1968.

93 Interview with McMahon; TNA, T295/489, Goldman to Principal Private Secretary, ‘Contingency Planning’, 15 March 1968.

94 Interview with Sir Jeremy Morse, 29 Jan. 2003; TNA, T318/189, ‘Credits utilised and remaining facilities-end-March 1968’; Bank, OV53/38 Morse to Governors, 14 March 1968.

95 Bank, G3/287, O'Brien to Armstrong, 21 March 1968. The governor recognised that in accepting credit the Bank would be putting itself into a situation where ‘it might not be able to meet its repayment obligations on the due date’.

96 TNA, T295/489, ‘Guarantees’, 15 March 1968.

97 Cairncross, Managing, 285.

98 TNA, PREM 13/2051, ‘Blocking’, 17 March 1968.

99 TNA, T295/489, Goldman to PPS, ‘Contingency Planning’, 15 March 1968.

100 Bank, OV53/38, Morse to Governors, 14 March 1968.

101 Interview with Morse.

102 Interview with McMahon.

103 TNA, PREM 13/2051, Balogh to Wilson, ‘For the Record’, 16 March 1968.

104 TNA, T295/501, ‘The Euro-Dollar Market’, 10 June 1968.

105 Ibid.

106 TNA, T295/606, Rawlinson to Allen, ‘The Euro-Dollar Market’, 17 June 1968.

107 TNA, PREM 13/2051, ‘Blocking’, 17 March 1968. For the proposed solution see TNA, T295/580, Rawlinson, ‘Brutus: Mobilising Private Overseas Portfolios’, 13 June 1968.

108 Interview with McMahon; Bank, OV53/38 Morse to the Governors, 14 March 1968; ibid., ‘Note for the Record’, 18 March 1968

109 TNA, T295/489, ‘Contingency Planning’,15 March 1968.

110 Bank, OV53/38, Morse to Governors, 14 March 1968. Morse states that ‘it [floating] would be unlikely to leave the same long-run scars as a blocking operation’.

111 Ibid.; interview with McMahon.

112 TNA, CAB130/497, ‘MISC 205 (68), International Monetary Situation’, 17 March 1968, and T295/489, Goldman to Dowler, ‘Contingency Planning’, 15 March 1968;

113 Ibid.

114 Ibid. and T295/502, ‘Cranmer: Relations with the IMF and OECD’, 20 June 1968.

115 T295/489, Goldman to Principal Private Secretary, ‘Contingency Planning’, 15 March 1968.

116 Ibid.

117 Interview with Anthony Glover (assistant to Anthony Rawlinson), 13 Feb. 2003.

118 Cairncross, Managing, 209.

119 TNA, CAB130/497, ‘MISC 205 (68), International Monetary Situation’, 17 March 1968

120 Jenkins, Life, 235. Crossman states that the, ‘Bank, of England utterly betrayed the government by leaving [it] in the dark to the very last minute and not foreseeing and warning them of the catastrophe.’ MRC MSS.154 August 19120, 21 March 1968. However, Kit McMahon and Jeremy Morse both denied this in recent interviews. Their version of events is supported by the fact that daily EEA reports were supplied to the Treasury between February and March 1968. See TNA, T318/184, ‘Daily Reports to the Chancellor on Sterling and the Foreign Exchange Market’, 6/2/68–17 May 1968.

121 Jenkins, Life, 235; TNA, CAB128/46, ‘CC(68) 21st Conclusions’, 15 March 1968; FRUS, Vol.12, Rostow to Johnson, 14 March 1968.

122 TNA, T267/21, ‘THM: March Gold Crisis 1968’, undated.

123 Jenkins, Life, 236

124 TNA, T230/997, ‘Parliamentary Debates’, 15 March 1968.

125 TNA, CAB128/46, ‘Note of a Meeting at No.10 Downing Street’, 17 March 1968.

126 Wilson, Labour, 509; TNA, CAB128/46, ‘CC(68) 21st Conclusions’, 15 March 1968.

127 It later emerged that the bank holiday had technically been illegal, since the banks had remained open for domestic business. See TNA, T312/2132, ‘Priam: Stopping an immediate outflow’, undated.

128 Brown, G., In My Way (Middlesex: Penguin, 1971), 161Google Scholar.

129 See Wilson, Labour Government, 509–10; Brown, My Way, 161–79.

130 TNA, CAB128/46, ‘Note of a Meeting at No.10 Downing Street,’ 17 March 1968.

131 MRC, MSS.154/8/120, 17 March 1968.

132 Cairncross, Managing, 210.

133 TNA, CAB128/46, ‘CC(68) 21st Conclusions’, 15 March 1968.

134 Ibid.

135 Castle, Diaries, 400.

136 TNA, CAB128/46, ‘CC(68) 22nd Conclusions’, 18 March 1968.

137 Benn, T.Office Without Power: Diaries 1968–72 (London: Hutchinson, 1988), 47Google Scholar.

138 Castle, Diaries, 462. Crossman also confirms its importance; see MRC MSS.154/8/153, 18 November 1968.

139 TNA, CAB 130/497, ‘MISC 205 (68): First Meeting’, 17 March 1968.

140 Jenkins, Life, 235.

141 Ibid.; interview with Goldman.

142 Bank, OV53/38, Armstrong to Jenkins, 17 March 1968.

143 TNA, CAB 130/497, ‘Minutes of Misc 205(68) 1st Meeting’, 17 March 1968

144 Under Brutus I, balance holders would still have been able to use their sterling to pay for British goods, but under all other versions of the plan this courtesy was rescinded and the balances would have been inconvertible and frozen.

145 TNA, CAB 130/497, ‘Minutes of Misc 205(68) 1st Meeting’, 17 March 1968.

146 Ibid.

147 FRUS Vol. 12, ‘Telegram from Wilson to Johnson’, 18 March 1968, 617.

148 Bank, OV53/38, ‘Telegram No. 925’ 16 March 1968

149 Interview with Goldman; FRUS, Vol. 12, ‘Paper Prepared in the Department of State’, undated; Bank, OV53/38, Armstrong to Jenkins, 17 March 1968.

150 Bank, OV53/38 Morse, ‘New Arrangements for Sterling’, $1,150 millon 18 March 1968. This comprised existing standbys totalling $2,835 million, plus an additional 1,150 million. Of the additional credits $700 million came from the United States, 50 million each from Italy, Switzerland, Belgium and the Netherlands, $150 million from Germany and 100 million from the BIS.

151 TNA, CAB 130/497, ‘Minutes of Misc 205(68) Second Meeting’, 17 March 1968.

152 TNA, T295/605, Rawlinson to Hoskin, ‘Cranmer’, 22 July 1968.

153 TNA, T295/604, Rawlinson to Hawtin, ‘The Horror of Brutus’, 11 June 1968.

154 TNA, T312/2131, Posner to Allen, ‘Contingencies’, 11 September 1968. The code name for the floating operation was Hecuba. See TNA, T312/2544, ‘Hecuba: Note of a Meeting in the Chancellor of the Exchequer's Room’, 22 January 1969.

155 TNA, T312/1636, Ryrie, ‘Fixed or Flexible Rates’, 22 September 1966; TNA, T312/1398, ‘Blocking’, 12/4/65.

156 Interview with Goldman.

157 Interview with McMahon.

158 Bank, OV44/160, ‘Extending the Basle Arrangements’, 10 April 68; Bank, OV44/164, ‘The Sterling Area and the Basle Negotiations’, 19 June 1968; PREM13/1402, Balogh to Wilson, ‘Bank, of England’, 20 May 1966.

159 TNA, T295/489, ‘Operation Brutus’, 14 March 1968.

160 TNA, CAB130/497, ‘MISC205 (69)’, undated.

161 TNA, T267/21, ‘THM: The March Gold Crisis 1968’, undated.

162 Ibid.; Bank, OV53/38, ‘Telegram No. 2603’, 14 March 1968.