Membership in the sterling area or sterling bloc, as it is sometimes called, means that the greater part of the overseas trade of member countries is financed in sterling. The members maintain their foreign reserves largely in the form of sterling and maintain a fixed relationship between their own currencies and sterling. For the most part, they sell their earnings in foreign currency to the United Kingdom Exchange Equalization Account for sterling, and they can purchase for sterling such foreign currency as they need. The members also sell gold in the London market for sterling, and the United Kingdom's purchases of gold are held in the Exchange Equalization Account. The gold and dollars in this account constitute the central gold and dollar reserves of the sterling area.
The sterling area thus is an important means of maintaining Britain's position as the banker of the Commonwealth and as the center of financial transactions. It is also one of the chief markets for British exports, taking roughly half of Britain's export total. Of the Commonwealth countries, Australia is by far the biggest buyer. In 1955 Australia bought from Britain goods valued at £286,400,000, or about $801,920,000—just under 10 per cent of Britain's total export trade. Four of the five next biggest buyers of British goods were also Commonwealth nations: South Africa, third; Canada, fourth; New Zealand, fifth; India, sixth. The United States was the second-largest purchaser, taking 6.6 per cent of Britain's total exports.
Britain, of course, buys extensively within the Commonwealth. In the same year she imported goods valued at £1,888,200,000, or about $5,286,960,000, from the Commonwealth and the Irish Republic. This amounted to over half of Britain's total imports.
There are numerous irritations and imperfections in the conduct of this great world trading concern. The Australians and New Zealanders, for instance, complain often that British capital shies from investment in their countries.
The huge British investments for the development of countries overseas were among the most damaging losses in two world wars. As the nation slowly recovered its economic health in the post-war years, overseas investment was encouraged by successive governments. Many Commonwealth officials say that, although private borrowing for development has been encouraged, much more could be done.
The Capital Issues Committee, an independent group of seven men experienced in finance, commerce, and industry, approved in 1953 to applications for the investment of £40,000,000, or about $112,000,000, for Commonwealth development. The next year the figure rose to £48,000,000, or about $134,000,000. Compare this with the annual net investment overseas of about $504,000,000 in the years 1951-3. Evidently the Australians and New Zealanders have cause for complaint.
In contrast to commercial ties that transform credit in London into new factories in western Australia, there is the emotional tie mentioned earlier. The Crown's mysterious power to draw peoples as dissimilar as the Australian cattleman and the Brighton clerk into a community of patriotic loyalty cannot be denied. Whether in the next decade or so the same sort of connection can be established between the Crown and such sensitive newer members of the Commonwealth as India and Ceylon is one of the most delicate questions facing British statecraft.
A host of other institutions—some official, others the work of private individuals captured by the Commonwealth conception—strive to keep the relations between Britain and the Commonwealth countries happy and firm. In such dissimilar fields as the theater, literature, and sport there is much more contact among the countries of the Commonwealth and Empire than Americans realize. A British rugby football team tours Australia or South Africa, a West Indian cricket team visits Britain. British theatrical companies still make the long but financially rewarding trip to play in Australia and New Zealand. British authors tirelessly roam the provinces of Canada or India, discoursing at length upon the merits of the mother tongue and its literature.
Many young Conservative Members of Parliament are convinced that the Commonwealth is the great twentieth-century instrument for maintaining and extending British prestige. They see it expanded from its present form to include the Scandinavian countries and others in a world confederation that will be not a third force in the world but the third force. They do not, however, discount the problems that plague the Commonwealth now.
An economic problem is the filtration of American capital into the Commonwealth. The British recognize the enormous potential of American overseas investment, and they wonder what would happen to their position in a Commonwealth country where the United States invested heavily and purchased products with a free hand. The knowledge that the United States could, if it wished, literally buy out the Commonwealth is a patriotic incentive for greater British investment.