A single currency for the British Empire? A warning for the Euro

Percy Metcalfe, who designed the first Irish coins, influenced coinage throughout the British Empire.

Economic links with the ‘mother country’ were stronger in Australia, New Zealand and South Africa. These dominions had their own pound currencies, linked to the value of gold at the same level as the pound sterling. The link between these countries and the pound sterling was threatened by the outbreak of the First World War in 1914. The economic strains caused by the conflict forced the United Kingdom to break the link between the pound sterling and the value of gold. Soon the value of the British pound sterling began to fluctuate with respect to the Australian, New Zealand and South African pounds, with predicable inconvenience to imperial trade. This led to calls for a single currency in order to bring the economies of the global empire closer together.

The proposal for a single British Empire currency was made in London at the imperial conference of 1923. This was one of the first international gatherings attended by the fledging Irish Free State. The 1921 Anglo-Irish Treaty had given the Free State the same status as the self-governing dominions of Canada, Australia, New Zealand, South Africa and Newfoundland. Irish attendance at this imperial conference reflected this reality.

Single imperial currency proposed by New Zealand

He first came to prominence for his medals struck for the British Empire Exhibition of 1924 (top). One of his most famous creations was the ‘rocking horse’ crown (five shillings) to celebrate George V’s silver jubilee in 1933

The proposal for a single imperial currency was the brainchild of the British economist J.F. Darling. His proposal was brought to the table of the imperial conference by the New Zealand delegation, who were supported by their Australian neighbours. The proposed currency union expressly excluded India, the jewel in the imperial crown. The weak Indian rupee, based on the value of silver, was essential for ensuring its continued economic subservience within the empire.

Many influential parts of the British Empire were not enthusiastic about the scheme for a single currency. Boer-dominated South Africa was firmly opposed to the proposal. Canada and Newfoundland, whose dollar economies were more integrated with that of the United States than the British Empire, made it clear from the outset that they would not join. The strongest opposition, however, actually came from the mother country. The objections raised by the United Kingdom in 1923 to the creation of a single currency have a definite air of familiarity in the context of the challenges that are currently facing the Euro.

First, the British treasury raised the scenario of what would happen if one of the entities within the empire defaulted on its debts. It concluded that the result would be international contagion that would turn a local currency crisis into one of global dimensions. The British treasury also pointed out that the economic actors in the empire were not equal in size. The single currency might survive if one of the smaller dominions, such as New Zealand or Newfoundland, defaulted on its debts. On the other hand, ‘the default of the United Kingdom would involve the financial affairs of the dominions themselves in such confusion that their guarantee [of the single currency] would probably become inoperative’. In other words, a currency union could not withstand a default by one of its larger actors.

The best example of the perspicacity of the British treasury of the 1920s concerned the reality that a single currency could not work without stronger controls over the various economies of the empire: ‘We do not believe that the scheme will be effective because control of currency cannot operate satisfactorily unless, at the same time, you have control of credit’. Crucially, the British were concerned that the imposition of economic controls would cause political friction within the empire. They concluded that this would be inevitable because the necessary economic controls would ‘lead the British government to examine, and even to criticise, the finances of the dominions, and this interference would be none the less vexatious because the dominions would be equally entitled to examine and criticise British finances’.

Irish Free State indifferent

Coinage throughout the empire bore a portrait or the initials of the ruling monarch as the source of imperial unity. George V appears with a crown on this 1935 Australian penny (left) in accordance with colonial practice. He appears bareheaded on this 1935 United Kingdom five-shilling piece (right) in accordance with British practice. The 1928 Irish penny (middle) shatters this aspect of imperial unity.

Sustained criticism from the centre of the empire ensured that the new imperial currency never got off the ground. The response of one of the participants at the 1923 imperial conference has not yet been examined, however. What was the position of the infant Irish Free State with respect to the proposed imperial currency? The surprising answer is one of apparent indifference. The government did not send a representative from the Department of Finance to the relevant discussions at the imperial conference. The Irish delegate who did attend, E.J. Riordan of the Department of Industry and Commerce, admitted to not being able to ‘contribute anything of value to the discussion’.

This indifference to a scheme of such potential magnitude makes more sense when it is remembered that the Irish government was already committed to a policy of retaining parity with the pound sterling, a stance that was maintained until 1979. Irish banknotes issued in the 1920s and ’30s even declared that they were ‘payable [in ‘sterling’] to bearer on demand in London’. Successive Irish governments were committed to this currency link, notwithstanding questions of maintaining the gold standard and irrespective of membership of a wider imperial currency. The pooling of a certain amount of economic sovereignty in the interests of maintaining currency links has been an integral feature of most of the history of the Irish state.

Will a degree of political friction, as anticipated by the British treasury in 1923, prove to be an inevitable consequence of the enforcement of the EU fiscal treaty? That remains to be seen. There is always room for dispute in measuring the budget deficits and public debts that must be kept within tight limits. Greater certainty can be attached to the overall conclusion reached in the 1920s that some form of mutually enforceable economic controls are the inevitable price to be paid for the benefits and convenience of a stable currency union. This reality has already been confirmed by recent European and Irish history.  HI

Thomas Mohr lectures in the School of Law, University College Dublin.

Further reading 

M. Moynihan, Currency and central banking in Ireland 1922–1960 (Dublin, 1975).

T.K. Whitaker, ‘An ceangal le sterling: ar cheart é a bhriseadh?’, in Central Bank of Ireland Annual Report (1976).