Comeback of the Pound

For the first time in eight months Britain's pound was able to look the U.S. dollar in the eye last week. In London, Zurich, New York, Tokyo, wherever money is exchanged, the pound fetched its full par value of $2.80, halting the heavy drain on Britain's gold and dollar reserves and all talk of imminent devaluation. The renewed confidence in the pound was the result of a tough new policy of boosting Britain's bank rate from 5% to 7%, thus tightening up the money supply to curb runaway home-front inflation.

Within days, traders on world money markets, who had been selling pounds hoping to buy back at lower rates later on, reversed their course. Instead of being forced to step in with precious dollars to support the pound, the Bank of England, whose reserves were cut by some $500 million in August and September, was able to sell pounds for dollars and recoup some of its losses. Yet no one knew better than Chancellor of the Exchequer Peter Thorneycroft that the fight to maintain Britain's currency will not be won overnight. Said he: "We recognize that this is a long, stiff haul. Our policy is to halt the increase in the supply of money. In years ahead, it will be harder to earn profits under this policy. It will be harder to get wage increases--they will need to be earned. But the profits and wages will be paid in honest pounds."

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