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And there was more bitter medicine to swallow than devaluation. In order to back up devaluation with financial muscle, Britain not only had to go hat in hand to the International Monetary Fund (to which it already owes $1.4 billion) to ask for a fresh drawing of $1.4 billion, but also had to arrange a multinational loan of $1.6 billion from its partners, thus creating a new $3 billion support package in order to prevent the total collapse of the pound. To back up its action, the government raised the interest rate from 61% to 8% in order to attract foreign deposits, ordered British banks to limit their loans to priority borrowers, issued restrictions on installment buying and credit and announced plans to cut $240 million from Britain's $5.3 billion defense budget. It ordered all banks and money markets in the country to keep their doors closed on Monday of this week to reduce speculation before final I.M.F. approval of the new support funds for the pound.
Cheaper Exports. When Clement Attlee's Labor government last devalued the pound in 1949 (from $4.03 to $2.80), 23 nations followed by devaluing their own currencies. This time, several countries—Ireland, Denmark, and Israel—almost immediately followed Britain's move by devaluing, and others are sure to follow this week, particularly within the British Commonwealth. The Common Market countries immediately decided not to follow Britain's lead, and the U.S. lost no time in announcing that it has no intention of devaluing the dollar. In a White House statement, President Johnson said that he could "reaffirm unequivocally the commitment of the U.S. to buy and sell gold at the existing price of $35 an ounce."
Devaluation will make Britain's exports cheaper and more attractive abroad, thus helping to lessen its huge balance-of-payments deficit, one of the chief causes of the pound's trouble. In the arcane, gentlemanly confines of the world's money managers, Britain has long been considered a naughty boy. In such circles, a nation's currency is its honor, and Britain's has been constantly imperiled by the country's inability to earn its own way in the world. The decision of the major powers not to devalue works to make the British move more effective, since a me-too devaluation by everybody would largely cancel out whatever benefits Britain hopes to reap from its drastic move.
Angry Sheiks. Last week's turmoil began with the disclosure of Britain's trade figures for October, which showed a gross deficit of nearly $300 million, the worst such monthly gap in the country's history. That in itself was certainly ominous enough, but the context in which the deficit emerged made the figures far worse.
Britain's endemic deficits are usually largest in times of expansion, when Britons, fully employed and flush with cash, step up their purchases of goods from abroad. This time, however, Britain is in the trough of a government-imposed slowdown now 18 months old, a belt-tightening period of austerity imposed by Wilson's government after another sterling crisis in 1966.