Managed decline: muddling through with the Sterling (dis)Agreements, 1968-74

How do policymakers manage the decline of an international currency? This paper revisits the view that the ‘Sterling Agreements’ of 1968-74 — bilateral contracts between the UK and sterling-holding governments — marked a successful paradigm shift towards sterling’s managed ‘retirement’. Archival evidence reveals no strategic coherence to British policy in this period, a case of ‘muddling through’. Phased reductions in the amount of sterling protected by ‘guarantee’ were presented as steps on a path to ‘winding down’ sterling. But, when given options, British officials prioritized maintaining, rather than reducing, international sterling holdings, and the Agreements, if anything, tended to encourage their increase. Sterling’s relative decline resulted more from sterling area countries seeking financial freedom, as the Bank of England — the Agreements’ designer and defender — lost policy influence.