In 1931, when the UK abandoned the gold standard, sterling plummeted by 30%. Like now, the country relied heavily on exports of services – not just banking services but also shipping and insurance. And the external environment was even more unfavorable than it is now.He goes on to say with reference to Britain's current economic situation that currency flexibility - which members of the eurozone do not have - can be helpful. But it can't in itself restore full economic health.
Yet, despite these headwinds, the merchandise trade deficit fell by a quarter between 1931 and 1932. By 1933, the services balance was strengthening as well. At this point, the economy was on the road to recovery.
Three circumstances made this possible. First, excess capacity enabled companies to ramp up production. Second, Britain was able quickly to put in place a set of favorable trade deals, negotiated with Commonwealth countries at the Ottawa Conference in 1932. Third, political uncertainty fell sharply, as the Labour government, widely blamed for the 1931 crisis, was replaced by a Conservative-dominated cabinet with broad popular support.
Tuesday, September 13, 2016
Britain in the Great Depression and post-Brexit
Barry Eichengreen recounts an important piece of the history of the Great Depression in Brexit and the Pound in Your Pocket Project Syndicate 09/13/2016: