Sterling area

In June 1972, the British government unilaterally applied exchange controls to the other sterling area countries, with the exception of the Republic of Ireland, the Isle of Man and the Channel Islands.

During the rest of the 1970s and early 1980s, the remaining sterling balances were wound down to a level that represented the significance of Britain in contemporary world trade.

The sterling area was continued in the postwar era in an attempt to preserve the British Empire's superpower status during the Cold War between the United States and the Soviet Union.

So Canada and Newfoundland did not stand to gain by joining an exchange control bloc intended to protect the external value of sterling.

The absence of Canada and Newfoundland from the sterling area was beneficial to Britain, as it curtailed capital flight to the North American mainland.

[citation needed] Hong Kong originally declined to join the sterling area, due to its traditional use of the Spanish dollar.

After the end of the Second World War, the Hong Kong dollar was re-pegged to sterling at a fixed rate identical to the pre-war level.

Members enjoyed the benefits of stable exchange rates and permanent access to the financial resources of the City of London.

Meanwhile, the British government was able to use the pooled reserves of the entire area's membership to back sterling at times when there was a US dollar shortage.

According to the Chancellor of the Exchequer, Anthony Barber, this was to halt a recent increase in capital outflow to other parts of the sterling area.

A period after 1973 saw further decline to the special trade links the Commonwealth nations had with the United Kingdom, and ended their privileged access to UK markets.