Finance and Empire: A Note in Reply to Catherine R. Schenk

Abstract

commenting on my article on the relationship between finance and empire, Catherine R. Schenk suggests that 'technical errors' invalidate my argument (in essence) that contradictions emerged during the 1950s between Britain's established imperial financial policy and international economic liberalization which, in turn, complicated British policy towards the imperial sterling area and were also related to Britain's retreat from its empire.1 Schenk argues that no such difficulties and contradictions existed, because the convertibility of sterling was limited to the current account, and she alleges that I am mistaken in trying to establish a link between financial liberalization and the possibility and likelihood of withdrawals and conversions of (ex-)colonial balances. Moreover, Schenk maintains that my views are irreconcilable with her conclusions, namely, that sterling-area relationships did not hamper Britain's economic performance in the 1950s. It is appropriate to clarify the technical issues first. 'Full convertibility' is often used as a conveniently short synonym for de jure current-account convertibility. It is common knowledge that, under the Bretton Woods arrangements, restrictions on capital account were possible and desirable, and I refer in my article to 'external economic policy as defined in the 1950s' (Krozewski, p. 58). The textbook distinctions between de facto convertibility in 1955, dejure in 1958, and 'resident' convertibility in 1961 are well known to specialists. However, my argument does not assume that conversions automatically and inevitably followed from the convertibility operation in 1958. Rather, withdrawals were expected in relation to convertibility as a cornerstone of multilateralism, which also heightened demands for conversions. Both put additional pressures on resources that Britain could ill afford, given its cosmopolitan ambitions for sterling.