Exchange Rate Stupidity

kernals12

Banned
In the postwar years, Britain obsessed over balance of payments crisis, the fact that she imported more goods and services than she exported. The government's response to this was a modicum of measures to increase exports such as allocating steel to companies that exported. The reason they did this was a supposed shortage of foreign currency. This was all done at a time when Britain needed substantial external investment to rebuild from war damage. There's a reason why this doesn't happen anymore, exchange rates are now floating which allows them to reach the proper rate to balance the combined current and capital accounts. Now back in the 1940s, the simple solution to the balance of payments problem would've been devaluing the pound, yet they didn't do this until 1949 and it apparantly wasn't enough as even in the early 50s, they still prioritized exporting companies for steel. My question is: why didn't they just devalue? It seems to me it would've saved a lot of pain in the postwar era.
 

kernals12

Banned
The old men who run things are often stuck in the past.
I just watched a newsreel from 1949 about the devaluation. The narrator and even the chancellor say that the price of bread will increase. The more accurate way to say that is: the price of bread will rise from the current artificially low level which means more foreign companies will be willing to sell bread in this country so people won't have to worry about empty shelves or long lines at the market anymore.
 
Devalue? the Pound Sterling? the Coin of the Empire? "lose" value of our money? NEVER. I´m being Sarcastic, but the most probable reason was politics, devalue the money was basically accept that the empire was not as powerful anymore, when you come from a long history of being "THE MONEY" the idea of that your money it´s not as powerful as before can come to a Shock.
It´s more or less the same reason USA, as long as he can, will never devaluated his money even has his Balance of Paymet is $783 Billions of dollar in negative (https://atlas.media.mit.edu/es/profile/country/usa/) and has being in negative since the 2007-2008 crisis
 

kernals12

Banned
Devalue? the Pound Sterling? the Coin of the Empire? "lose" value of our money? NEVER. I´m being Sarcastic, but the most probable reason was politics, devalue the money was basically accept that the empire was not as powerful anymore, when you come from a long history of being "THE MONEY" the idea of that your money it´s not as powerful as before can come to a Shock.
It´s more or less the same reason USA, as long as he can, will never devaluated his money even has his Balance of Paymet is $783 Billions of dollar in negative (https://atlas.media.mit.edu/es/profile/country/usa/) and has being in negative since the 2007-2008 crisis
The US dollar's exchange rate is set by the market. The reason we run a trade deficit is that we run a capital surplus ie more foreigners invest in America than Americans invest in foreign countries. Floating exchange rates have eliminated balance of payments crises.
 
The US dollar's exchange rate is set by the market. The reason we run a trade deficit is that we run a capital surplus ie more foreigners invest in America than Americans invest in foreign countries. Floating exchange rates have eliminated balance of payments crises.


The balance issue I was pointing is only on the trade goods, so the USA are importing more things than that he is exporting (is this a good redaction? i´m not sure).

If you want to point that beside That "more foreigners invest in America than Americans invest in foreign countries" you are right( you could see the data here https://data.worldbank.org/indicato...tions=US&name_desc=true&start=2007&view=chart) but the Foreign investment are not used to calculate the Trade Deficit, the trade deficit is only of trade goods, physical concrete things not the capital market, and in the capital market USA are also run in deficit(more money are getting out to pay previous foreign investment than money are getting in as payment of previous foreign investment)
 

kernals12

Banned
The balance issue I was pointing is only on the trade goods, so the USA are importing more things than that he is exporting (is this a good redaction? i´m not sure).

If you want to point that beside That "more foreigners invest in America than Americans invest in foreign countries" you are right( you could see the data here https://data.worldbank.org/indicato...tions=US&name_desc=true&start=2007&view=chart) but the Foreign investment are not used to calculate the Trade Deficit, the trade deficit is only of trade goods, physical concrete things not the capital market, and in the capital market USA are also run in deficit(more money are getting out to pay previous foreign investment than money are getting in as payment of previous foreign investment)
Our trade deficit also includes services. And the trade deficit is meaningless. The exchange rate adjusts to a level that balances the amount of money going in and going out of the country.
 
Our trade deficit also includes services. And the trade deficit is meaningless. The exchange rate adjusts to a level that balances the amount of money going in and going out of the country.

Again I´m not talking about the Services industry the Balance issue I Speaking its only Trade Good the $783 Billions of dollars of Deficit is in Physical goods(cars, computer, bred,ETC) not including the Services part of the economy, if you want to include the Service economie the USA run in a Superavit of 252 billions of Dollars on Services and a Deficit of 783 Billons on goods, so a General Deficit of 500 billions of dollars, the "more foreign investment make our trade deficit" don´t hold water.
The big problem of this situation it´s not that USA are going Broke, it´s that a lot of Countries(mine included) use the Dollar as fiat currency and/or reserve currency which can cause a lot of serious problem in the medium term if this situation continues
 
Britain also had a Sterling Area, where quite a lot of currencies were pegged to the Pound rather than the US dollar, which gave the Sterling a new lease of life in the Bretton Woods System and allowed Britain to trade without using up Dollar balances. The Sterling Area fell over in 1967, a mere 4 years before the entire Bretton Woods System fell over in 1971.

So it wasn't all stupidity of old men.

Sterling_zone.png
 
My understanding is that is was simply unacceptable to devalue the Pound, it was part pride, part politics, as a fiat currency it made a mess of things and the decision makers did not want to reduce their fortunes. In theory the Gold Standard had restrained any trade imbalances and its function was lost during and after the First World War, then it got sidetracked by the Depression. In theory any manufacturing nation would benefit from a less valuable currency, it does not hurt too bad to buy raw materials and lets stronger economies buy your goods. The UK was an importer, it drew in luxury goods, foods and seems to have relied on having a strong currency both to let it buy and to give it more weight in investing abroad. London invested money, traditionally a lot flowed out and it was not as much interested in the domestic manufacturers. So I would say the power brokers were biased to prop up the Pound and let the rest slide.
 

kernals12

Banned
My understanding is that is was simply unacceptable to devalue the Pound, it was part pride, part politics, as a fiat currency it made a mess of things and the decision makers did not want to reduce their fortunes. In theory the Gold Standard had restrained any trade imbalances and its function was lost during and after the First World War, then it got sidetracked by the Depression. In theory any manufacturing nation would benefit from a less valuable currency, it does not hurt too bad to buy raw materials and lets stronger economies buy your goods. The UK was an importer, it drew in luxury goods, foods and seems to have relied on having a strong currency both to let it buy and to give it more weight in investing abroad. London invested money, traditionally a lot flowed out and it was not as much interested in the domestic manufacturers. So I would say the power brokers were biased to prop up the Pound and let the rest slide.
To paraphrase William Jennings Bryan, they crucified mankind on a cross of overvalued pounds.
 
To paraphrase William Jennings Bryan, they crucified mankind on a cross of overvalued pounds.

After a fashion I think so. I am no PhD in economics but I am reading it enough to try to guess how things turn out different for my own draft TL. As much as it might pain the English among us I do see a fatal flaw in the British economy that seems to steer them off the cliff time and again. The Pound was much more than the national currency, it was pushed and pulled by other strings that left the British isles balanced far closer to peril than the outward strength of London's markets and her Pound betrays. I struggle to quantify it but it does give me pause even as I take the UK out of the Great War and dampen the Depression, the niggling thing is that the British Empire was not so easily destined to steer clear of economic decline. That is my read of things but I cannot wholly defend it, it just feels that their is something amiss deep in there.
 
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