Selling Britain by the pound

Sterling's fall mirrors our national decline. And pretending otherwise only makes things worse
Click to follow
The Independent Online
Throughout my lifetime the value of the pound has declined. Graphs of sterling's performance against the dollar, the mark, the yen and the franc have decorated newspapers and television with a consistent, picturesque downward plunge. Irresistibly, that jagged, falling line has come to signify not simply a movement on the foreign exchange markets, but rather a movement of the nation. At one with its currency, Britain has done little since the war but fall.

This is, at the very least, an embarrassment. For the British these days getting off a plane can be a traumatic introduction to hitherto unplumbed depths of poverty. Last week in Switzerland I watched a pale, currency- shocked English couple discover that Swiss duty-free drink was more expensive than at their local off-licence, and a business lunch in Tokyo or Hong Kong is now about two or three times as expensive as in London. Holding pounds makes you a second-class citizen in the new world order.

The scale of the decline is horrific. In the Sixties, you could get almost nine deutschmarks for your pound or more than 1,000 yen; now you get 2.27 and 137, respectively. The US dollar, being almost as depraved a currency as the pound, provides some consolation in that we have only fallen from 2.80 in the Sixties to 1.56 now. But tracing the graphs back to just before the First World War, when the pound was worth eight dollars, detonates any complacency. The truth is that the bear market in the pound is now almost 100 years old.

Periodically we are assured that, on these graphs, down is good while up is bad. When Harold Wilson devalued, he famously insisted that the value of the pound in our pockets was unaffected as if a pocket constituted an effective insulation against the harshness of the outside world. When we plummeted out of the ERM, Norman Lamont sang in his bath, grotesquely euphoric at the restoration of our power to devalue our way out of trouble. And all the time exporters insist that the pound is too high - knock off another few pfennigs, cents or yen and we'll all be in gravy.

Now, with the Fat Eddie and Fat Ken show, the pound is back in play again. Once more the Governor of the Bank of England and the Chancellor are playing interest rate games and, once more, there is scare talk of a "run on the pound".

But, of course, the pattern is now so familiar that it is hardly noticed. We have, in spite of the pound, grown richer. So why worry? Exchange rates are just one more economic technicality among hundreds of others. If we can buy time and prosperity with devaluations, then that is what we should do.

The assumption here is that the foreign exchange markets are morally neutral, they do not imply a judgement. But, in reality, they do. The fall of the pound is a historic verdict on our national character. Since the height of the Edwardian summer, we have consistently been judged irresponsible. Either we have shown no inclination to support our currency through the control of inflation. Or we have consistently taken the easy option of protecting our industry through devaluation. The pound falls because we are known to be cowards.

Even in the Thatcher years - when, for a brief period, we were judged economically courageous - history got the better of us. The world does not owe Britain a living, she bracingly announced. But her Government, like every other, acted as if it did. To the tune of her rhetoric of "sound money", the pound continued to decline relentlessly. Then, under John Major, sterling bounced briefly and he spoke of the pound taking over from the mark as the strong European currency. But, almost at once, the pound resumed its favourite direction as, indeed, did Major. Nothing, it appears, can improve the economic image of Britain as a gracelessly declining also-ran.

The further moral point is the sheer tackiness of the process. Devaluing your currency to improve competitiveness is an admission that you cannot compete on quality or reliability. The only way we can sell anything is by cutting the price. What the "down is good, up is bad" ideology is doing is turning the nation into a discount store. It's so much easier than working for a living.

This is destined to become an even more acutely painful condition. Thanks, largely, to the Asian boom, the number of countries where the British are likely to suffer severe currency shock is increasing all the time. Sterling may not, in the medium term, decline so quickly in Europe, but, globally, the graphs have still a long way to fall. Furthermore, currency markets are now more important then ever. They are the hidden, uncontrollable force behind globalisation, subjecting all human activity to the same, simple numerical judgement.

Currency movements are now effectively thought of as superhuman, even godlike. They are the distillation of all economic power in the world. No corporation or government can stand in their way. And, thanks to the market phenomenon known as "overshoot", their vengeance has an Old Testament ferocity. Currencies plummet at the slightest whisper of monetary weakness.

Such is the power of these markets that they effectively define contemporary reality. Thanks to the strength of the yen and the weakness of the dollar, the Japanese economy is now, in strict currency terms, almost as large as the American. The US has twice the population of Japan - so any one Japanese has been judged as being worth any two Americans. A cartoon in the International Herald Tribune last week showed a businessman in Tokyo examining his loose change and trying to decide whether to buy a cup of coffee or a small town in Pennsylvania.

The human problem with this is that the whole system seems like a conspiracy of unreality. Floating exchange rates mean that money has no absolute value whatsoever. No matter how hard you work, the markets can decide your efforts are valueless. A task completed in Britain is daily less valuable than the same task completed in Japan. In the floating world, the only reality is the heaving currency sea.

Economists do not find this as depressing as normal people. In this century they have seen the demise of the two great attempts to peg currencies - the Gold Standard and Bretton Woods - and have generally taken the view that any link between currencies and a stable, external reality is doomed. This is not so bad, they say, because, in time, overshoots and undershoots are corrected and the market works things out.

Unfortunately for us, the long decline of sterling appears to be one of the few certainties in this floating world. Economically we may, for the moment, look OK, but still nobody believes in us, still we shall have to get off planes and feel the cold, salutary blast of poverty. This is a pity - if only for the sake of symmetry I would quite like my declining years to be accompanied by a rising currency. But the depreciation of both sterling and the dollar are just the most visible signs of the decline of the West and that, sadly, is a story that will run and run.

Comments