The pound’s slow demise

Once upon a time the pound sterling ruled the world of finance. Today it has been relegated to a less regal status, displaced by the U.S. dollar over the course of the twentieth century. Not only is very little international trade performed in sterling these days, but there are new doubts that it will remain the exclusive currency on the British mainland.

With the looming vote on Scottish independence comes the threat that an independent Scotland will introduce its own currency. 

Once upon a time, English as a language was a little known form of communication, largely isolated to the British Isles. Starting at about the same time as the spread of sterling as the universal money throughout the world, English set off on the route to global dominance. Today there are about 350 million native English speakers, but this number is dwarfed by the masses that use it as a lingua franca – their second or even third language.

Considering their common pedigree, one may ask why the currency is now a second-rate citizen in the world of international finance while the language is going stronger than ever.

Historians commonly attribute the rise of the English language to the rise of Pax Britannica throughout the 19^th century. This period did see the English economy rise to great stature and expand its scope to the point where the sun never set on the British Empire. However, other great European economies also flourished and encompassed many foreign lands. The Spanish Empire at its pinnacle included more square miles than the British (though never as many people). Both France and Germany had sizable colonies. Even the Russians, it can be argued, held huge “colonies” in the form of the Soviet Bloc. 

Alternatively one could say that the rise of the United States (complete with its dominant media industry) assured the rise of the English language. Yet this too seems to put the cart before the horse. Much of America was settled by non-English speakers (Spaniards in the south-west, French in the South-east and Northern European Germans, Scandinavians and Dutch in the upper mid-west). English was emerging as the linguistic force to be reckoned with before the ascendance of the U.S. as a world super power, which really only happened after World War I. 

Instead, the rise of the English language can be largely explained by its decentralized nature. It is true that English grammar is quite simple relative to other languages, especially its Romance and Germanic brethren. Yet if anything this would normally incentivize Romance and German speakers to streamline their own grammatical rules to make adoption easier. In most languages this is not possible due to their extreme form of centralization. French and Spanish, as examples, require linguistic changes to be approved by the centralized governing body (L’Académie Française in France, and the Real Academia Española in Spain). Changes are almost impossible as they must go through the usual bureaucratic approval process as other changes to legislature.

It is no surprise that French and Spanish as languages are slow to adopt to changes, in much the same way as their legal systems are outdated and move only at a snail’s pace. Lacking any centralised authority, anyone was able to use English, but more importantly, they could change it as they saw fit. Changes and new words occurred spontaneously as a response to market demands, not to the pen of a bureaucrat. This form of crowd sourcing allowed the English language to be modified as it spread around the globe and incorporate the intricacies of daily life and the existing languages of its newfound locals.

By contrast, the British pound sterling has suffered from centuries of centralised mismanagement. Since the creation of the Bank of England in 1694, the venerable old lady has done what she can to diminish the pound sterling on an ongoing basis. While the First World War was devastating in many respects for Britain, one of the longest lasting effects was the decoupling of the pound from gold. This shift left the once proud currency open to continual and unabated inflation at the hands of the Bank of England, with the result that it is now worth a fraction of what it was just a century prior. 

In international finance people use the language that makes trade easiest, as well as the money that best facilitates its dealings. A decentralized language system has proven an overwhelming success as it is now the standard around the globe. The centralized monetary system has been mismanaged to the point where few outside of the country elect for sterling in their affairs. With the Scottish independence vote approaching it is questionable how many people within the United Kingdom want to continue using it.

If George Osborne stays up at night wondering what the future will be for the pounds his Treasury manages perhaps he would do best to take a lesson from British history. The English language became a world standard without the oversight of Parliament – perhaps it is time to recognise the same can be true for the pound sterling as well.