chapter  VII
10 Pages

Direct Causes

As we have seen in the previous chapters, there were a number of fundamental tendencies at work to undermine the strength of sterling. In the present chapter we shall examine the immediate causes leading to its collapse. The most important of these was the economic crisis, as a result of which British overseas investments became largely immobilized. But for this circumstance the pound might, through the gradual realization of overseas investments, have withstood a prolonged strain. In normal conditions there would have been no need even to mobilize these investments. Lasting pressure on sterling would have necessitated the maintenance of a high bank rate, and this in turn would have resulted in the depreciation of securities with fixed interest. Foreign bonds issued in London would have become attractive to buy, and foreign dollar bonds placed in this country would have gradually been returned to the American market. At the same time the low price of British

Government securities would have stimulated foreign demand for them. Through the operation of these influences it would have been possible in normal, conditions to withstand the strain even though it had lasted for many years.