Surprising Success Can Grow out of What Appears to Be a Disaster; We Remain in Tough Financial Times. but the Lessons of History Show That Apparent Economic Disasters Can Sometimes Have Unexpectedly Beneficial Results, as Mike Hedges AM Argues

Western Mail (Cardiff, Wales), November 8, 2012 | Go to article overview

Surprising Success Can Grow out of What Appears to Be a Disaster; We Remain in Tough Financial Times. but the Lessons of History Show That Apparent Economic Disasters Can Sometimes Have Unexpectedly Beneficial Results, as Mike Hedges AM Argues


TWICE in the 20th century Britain made choices regarding its currency that, at the time, appeared to be disastrous but proved, in my view, to be beneficial to the economy.

The first occasion was the withdrawal from the gold standard in 1931, and the second was when Britain was forced out of the European Exchange Rate Mechanism (ERM) in the 1990s.

The British Gold Standard Act 1925 re-introduced the gold standard to Britain.

The law compelled the authorities to sell gold bullion on demand at a fixed price, but only in the form of bars containing approximately four hundred troy ounces of fine gold.

This gold bullion standard lasted until 1931 when speculative attacks on the pound forced Britain off the gold standard.

The combined loans from the US and French Central Banks of PS50m were insufficient to protect the pound and were exhausted in just a mere matter of weeks.

On September 19, 1931, the United Kingdom left the gold standard, being forced out due to the large outflows of gold across the Atlantic Ocean.

The British economy benefited from the departure as monetary policy could now be used to stimulate the economy through the lowering of interest rates.

This removal from the gold standard is believed by many economists to have stimulated the British economy as well as saved the country from an even more disastrous economic situation.

We also saw the deflation in Britain stop after leaving the gold standard and because the British pound sterling was now worth less, that meant that British goods were now cheaper to export to the rest of the world.

And so after Britain went off the gold standard, unemployment started declining and the economy started to improve.

The second occasion I alluded to above was when the British Conservative government was forced on the September 16, 1992, to withdraw from the European Exchange Rate Mechanism, after they were unable to keep the value of the pound above its agreed lower limit.

Although the UK had not originally joined the ERM when it was first set-up, from early 1987 to March 1988 the Treasury shadowed the Deutsche mark.

Matters came to a head in a clash between Chancellor of the Exchequer Nigel Lawson and Margaret Thatcher's economic adviser, Alan Walters, when Walters claimed that the Exchange Rate Mechanism was "half baked".

After the Prime Minister sided with her adviser, the Chancellor then resigned, to be replaced by John Major.

Britain eventually signed up to the ERM in October 1990, guaranteeing that the British Government would follow an economic and monetary policy that would prevent the exchange rate between the pound and other member currencies from fluctuating by more than 6%.

The pound sterling entered the mechanism at DM 2.95 to the pound. Hence, if the exchange rate ever neared the bottom of its permitted range (DM - 2.778), the government would be forced to intervene in order to support it.

High German interest rates were set by the Bundesbank (German Federal Bank) to counteract the inflationary effects related to the cost of German reunification when currency exchange of 1DM to one Oster Mark was agreed.

From the early 1990s, this caused significant stress across the whole of the ERM.

Issues of national prestige and the commitment to a doctrine that the fixing of exchange rates within the ERM was a pathway to a single European currency acted as a break on the adjustment of exchange rates which the "real" economies were demanding. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Surprising Success Can Grow out of What Appears to Be a Disaster; We Remain in Tough Financial Times. but the Lessons of History Show That Apparent Economic Disasters Can Sometimes Have Unexpectedly Beneficial Results, as Mike Hedges AM Argues
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.