S'pore and the 'Sterling Raj'

The following is an excerpt from a chapter of GIC's e-book titled "Safeguarding the Future - The Story of How Singapore Has Managed Its Reserves and The Founding of GIC". The e-book chronicles the seminal events of Singapore's early years which crystalised the nation's need to be master of its own financial destiny. It was launched on May 13.

CURRENCY markets had long been uneasy about sterling. Britain, unlike its ally the United States, had emerged from World War II exhausted - its resources depleted, its people deprived, its prestige battered. The British economy did recover in the 1950s - they "have never had it so good", then Prime Minister Harold Macmillan told British voters in 1957. But by the time "the swinging 60s" arrived, there was a palpable sense that Britain was living beyond its means and that it would soon be forced to devalue sterling from its fixed rate of US$2.80.

Singapore had a lot riding on sterling's fate. It was part of the Sterling Area, and so was obliged to hold its reserves in sterling. A devaluation of the pound would mean substantial foreign exchange losses for the country.