Britain’s Exchange and Trade Relations

  • Sir Alec Cairncross
  • Barry Eichengreen


The pound sterling occupies a unique position in the history of the world economy. From the middle of the nineteenth century to the first quarter of the twentieth, no national currency rivalled sterling’s role in international transactions – as a unit of exchange, a means of payment or a temporary store of value. For almost a century, sterling remained the dominant vehicle currency in international trade. Considerable quantities of trade that neither touched British shores nor passed through the hands of British merchants were invoiced in British currency. Transactions the world over were settled with the transfer of sterling balances between accounts maintained in London. The imperial banks’ that provided commercial credit throughout the British Empire, and many European and American banks as well, habitually held sterling balances for transactions purposes. When Dominion central banks were established in the 1920s they adopted similar practices. Commercial traders found it convenient to maintain working balances in London not just to facilitate transactions, but because their funds could be lent when idle with minimal risk and at competitive interest rates through the facilities of the British money market. With the possible exception of the dollar in the three decades immediately after the Second World War, no other national currency has achieved a comparable position in the international economy.


Current Account Trade Relation National Currency Official Rate Import Duty 
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Copyright information

© The Estate of Sir Alec Cairncross and Barry Eichengreen 2003

Authors and Affiliations

  • Sir Alec Cairncross
    • 1
  • Barry Eichengreen
    • 2
  1. 1.St Peter’s CollegeOxfordUK
  2. 2.University of CaliforniaBerkeleyUnited States

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