Go back in time and be a chaebol

Chapter 1030: Da Ying is a big leek (rd update, please subscribe)

"We all know that the pound is very vulnerable at present. During World War II, Britain's colonies provided a large amount of exports to Britain, forming a huge reserve of pounds. In 47, Britain announced that the pound would be freely convertible, which triggered a serious pound crisis. Due to the rapid loss of foreign exchange reserves, Britain was forced to freeze its pound reserves again just one month later.

The pound crisis that broke out in 49 was particularly serious. In order to ease the financial difficulties, the British government was forced to announce a 30.5% devaluation of the pound, that is, the exchange rate of one pound to the US dollar dropped from 4.03 US dollars to 2.80 US dollars. The status of the pound plummeted.

The two consecutive pound crises have shown one problem - that is, the huge burden of pound foreign debt has been weighing on the British finances, and as long as the world economy fluctuates slightly, the pound will have a crisis of confidence.

Although Li Guoren is not a financial expert, the two pound crises are well known and fully exposed the vulnerability of the pound. This is why the United States chose to use "currency" as a weapon to suppress the United Kingdom. The essence is that the weakness of the pound itself gave the other side an opportunity.

The fragility of the pound is the root cause of Britain's recession!
Why did Britain decline after the war?

Naturally, there are many different opinions on this, such as the rise of the United States and the Soviet Union, and the independence of the colonies.

As such.

However, no matter what the specific reasons are, Britain’s decline originated from World War II!

To some extent, Britain fought World War II to defend the interests of the British Empire, but it won the war at the cost of destroying the British Empire. Britain's economy was in great danger after the war. The huge foreign debt in pound sterling owed during World War II has been weighing on Britain's finances, and the domestic economic recovery has been slow, with the growth rate lagging behind other major European economies.

As for the US strikes and the Soviet Union's finishing blows, they were essentially based on one thing: Britain's weakness after the war gave them an opportunity. If Britain itself was strong enough, it would naturally be able to survive.

But the problem is that the Britain today is no longer the Britain of yesterday. It is just a shabby ship full of holes!

we can even say

On this issue, Li Yian and his confidants had already deduced it many times over and over again. After all, for him who aspired to inherit the mantle of the British Empire, Britain's decline was an opportunity for Southeast Asia.

Britain's failure was not because its "strong ships and powerful guns" were not powerful enough, nor was it because Egypt occupied the moral high ground because it became the "just" side in the war by "opposing colonialism"; but because the United States launched a "currency war" against Britain and ultimately succeeded in squeezing British forces out of the Suez Canal.

After experiencing the backlash of the currency war, Britain immediately woke up from its centuries-long dream of becoming a great power and saw clearly its international status. From this point of view, the British are still very realistic and decisive, unlike Russia in another world, which is so weak that it is not worth mentioning, but still holds on and even claims to be the second in the world, instead of adjusting its mentality and positioning itself well.

In comparison, Britain is very decisive!

Faced with the reality of decline, they could be decisive enough to directly disintegrate the colonies and willingly become America's followers, rather than doing what the Russians did, constantly jumping around and seeking their own destruction, wasting national strength.

Li Guoren, the Nanyang's Chief of Foreign Affairs, was naturally well aware of Britain's weakness. After all, Nanyang had long put Britain under the microscope and knew it very well.

"I'm not willing to commit to that, but it's no secret that the pound is vulnerable."

McMillan reluctantly took out a cigarette from the cigarette box on the table, lit it, and took a puff silently.

"During the war, in order to keep the war going, we had to issue a large amount of pounds to purchase materials from the Commonwealth. However, after the war, we did not have enough funds to recover those pounds. This is also the source of the pound's fragility. This is already the third pound crisis. In the future..."

What will happen next?
Macmillan had no answer in his heart. In fact, long before the Suez Canal War, Britain's foreign exchange reserves had almost dropped to 20 billion US dollars, which was considered the minimum safe level. So for Britain, using force was quite dangerous economically. At that time, Britain was still burdened with huge foreign debts in sterling owed during World War II, which had been weighing on the British finances. The domestic economic recovery was slow, and the growth rate had been lagging behind other major European economies.

At the same time, the annual income of the Suez Canal is extremely important to the United Kingdom. The Suez Canal Company's annual net profit exceeds 44 million US dollars, and the British Treasury's 4400% profit share exceeds million US dollars. For the United Kingdom's tight finances, its importance is naturally self-evident.

But now the sequelae of military action are constantly emerging - the closure of the Suez Canal will increase shipping costs and the price of imported oil. The market has deepened its doubts about whether the UK can maintain the exchange rate of 1 pound to 2.8 US dollars.

If the pound sterling falls again, it will have far-reaching consequences. Will the Commonwealth countries and other countries that are used to pegging their currencies to the pound continue to do so? They may choose to peg to the dollar because the United States is more powerful, both economically and militarily.

If this were to happen, it would have disastrous consequences both for the cohesion of the sterling area and for the banking operations of sterling area members in London.

Therefore, although Britain was very angry about Egypt's behavior, it initially hoped to solve the problem through diplomatic means. In essence, the reason why Britain was afraid was that the pound was too fragile, even fragile to the point of being vulnerable. Now, after Li Guoren pointed out this reality, Macmillan was also helpless!
"In fact, we all know that the core reason is that a large amount of excess pounds overseas are hurting Britain. This problem not only exists now, but will also exist in the future, especially with the independence of the colonies. After they become independent, they will definitely issue new currencies. If their currencies are decoupled from the pound, such as Pakistan is threatening to do so, and India is also reducing its holdings of pounds after independence, these pounds will inevitably impact the pound exchange rate after entering the market. In order to stabilize the exchange rate, Britain can only rescue the market. In the next few decades, such things will continue to happen again and again. What can Britain do? It is to constantly rescue the market and constantly spend a lot of wealth to stabilize the financial market. In other words, even if there is no country abandoning it, the pound will become the leek of international financial predators!"

Britain is a big leek!

The shiny green one!
How could Macmillan, as the Secretary of the Treasury, not understand that this was indeed the case? Three consecutive pound crises had already made speculators focus on the pound. As long as there was any sign of trouble, they would pounce on it like crocodiles smelling blood.

"so what?"

McMillan turned his gaze to Li Guoren. He knew that since the other party mentioned this problem, there must be a way to solve the problem. The only problem was what they wanted while solving the problem.

As for the checks for $10 billion or $20 billion... they are definitely tied to this condition.

"So, we need to solve this problem fundamentally, that is, to fix these pounds to a certain extent, at least fix a part of the pounds in a special way, so as to stabilize the international market's confidence in the pound. Confidence is more important than anything else."

While Li Guoren was speaking, Zhao Shijie, who had been silent, felt a wave of emotion in his heart. It was coming, it was finally coming!

"Fixed?"

With a frown on his face, Macmillan seemed not to understand what the other party meant, but he had a vague idea in his heart because there was a country that did just that.

"what do you mean?"

Although McMillan was asking, Li Guoren understood that the other party should understand his thoughts, so he said:

"For now, although all British colonies use the currencies issued by the colonies, these currencies are all pegged to the British pound. This is natural, but with future development, if the colonies become independent one day, if they change the type of foreign exchange reserves, such as threatening Pakistan, then there will be a large number of excess pounds in the market, which is bound to backfire on Britain. Wouldn't that be a mess?"

"so what?"

McMillan asked rhetorically.

"So, Britain should follow France's example and issue colonial francs, right?"

As early as when France ratified the Bretton Woods Agreement and announced parity to the International Monetary Fund for the first time, the French government announced the use of colonial francs in all colonies, with the common currency in African colonies being the "French African Colonies Franc".

As veteran financial players, the British are naturally well aware of the French approach.

"Shouldn't it be?"

After asking the question, Li Guoren continued:

"France's promotion of the CFA franc in Africa not only turned the franc into a local reserve currency, but also avoided the replacement of foreign exchange reserves after the independence of the colonies. After all, the CFA franc has been tied to the franc, and by controlling the tying of the two, France has mastered the currency issuance rights of African colonies. As long as the currency issuance rights are controlled, the franc will be the local currency anchor. Even after independence, this cannot be changed. Countries dare not easily sell the franc, which will affect their own economies."

In fact, Li Guoren didn't need to explain all this. As a long-established financial power, the British certainly knew the benefits of the "CFA franc" and its benefits to the British economy. It could fix the pound as the foreign exchange reserves of these countries, so there would be no need to worry about the impact of massive pound reflux. The originally fragile pound was no longer fragile.

McMillan was well aware of the benefits, but also the difficulty.

“It would take a lot of money to build an African sterling zone.”

Macmillan said helplessly:
"At the end of World War II, Britain also had a similar plan, but for well-known reasons, the Labour Party believed that this plan was a plunder of colonies, which was unfair and would take up a lot of funds, which would inevitably affect Britain's post-war reconstruction... So this plan was aborted."

When it comes to the reason for miscarriage, there are only two words - no money!
(End of this chapter)