The Exchange Crisis of 1966
Over the winter of 1965-6 there was a marked improvement in the balance of payments. In the final quarter of 1965 the current account was in surplus and the outflow of long-term capital was relatively small. As a result, the dollar spot rate rose above par in September and remained there until February. The three month forward premium on dollars fell from 2.5 per cent in August to 0.8 per cent in January 1966 and 0.5 per cent in May. The forward commitments of the Bank of England started to fall in September, continued to fall until in January 1966 they were less than in January 1965 and fell heavily in February. In the first quarter of 1966 it was possible to repay £200 million and, by transferring £316 million from the dollar portfolio, to increase the reserves by a net £200 million.
KeywordsPrime Minister Public Expenditure Bank Rate British Economy Exchange Crisis
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