Foreign Currency: Claims, Judgments and Damages

Michael Howard; John Knott and John Kimbell

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CHAPTER 3 Sterling: its historical role, and the decline that led to a change in the law

Introductory comment

3.1 This book, as its title suggests, is primarily concerned with the impact of English law upon claims involving debts, losses or damage that may call to be measured in a foreign currency. As will be shown, English law underwent a radical change in the 1970s, from which time the previous regime under which claims could be brought only in sterling was overthrown in favour of a system that allows judgments to be given in a foreign currency where that is more appropriate. The change became necessary, or highly desirable, because of the volatility of currency exchange rates and the fall of sterling from the dominant position it had enjoyed until earlier in the 20th century. Perhaps the change might have occurred sooner. At any rate, now that the new regime has been introduced it has led to a reappraisal of some fundamental aspects of claims for debts and in contract and in tort, and has occurred at a time of other developments in the law, particularly regarding determination of the date as at which damages are assessed. 3.2 During the long period when courts gave judgments in sterling only, important principles were developed on a range of subjects including monetary nominalism and the effect of inflation; legal tender; the method of enforcing claims involving a foreign currency; the effect of exchange rate fluctuations; the effect of the debasement or revalorisation of a currency; the effect of exchange controls and other protectionist measures; and the significance of the date of breach or loss. As will

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be shown, not all matters that may arise under the new regime have so far received attention by the courts, and there are still areas of uncertainty. 3.3 In this context it was thought desirable to include a brief review of the history and performance of sterling, and to chart its rise and relative fall among the world’s currencies. This will provide not only the background to the need for changes already made and possible further developments, but also a framework for the introduction of many of the principles that in original or modified form are highly relevant to an understanding of the issues affecting the assessment of modern-day claims involving a foreign currency.

Sterling before the 20th century

Origin of the pound sterling

3.4 When the Bank of England was founded in 1694, the term ‘sterling’ had been used in connection with English money for over 700 years, with variants even longer. One theory is that the term had its origins in the Germanic and Old English word for ‘strong’, in recognition of what at times was the high quality of English silver coins; another was that it came from the Old English word ‘steorra’ and Middle English ‘sterre’, meaning star, a symbol with which some early coins were marked - a related feature being that Norman French for little star was ‘esterlin’; and yet another belief was that the name was derived from the fact that some of the coins of Edward III (‘the Confessor’) bore the likenesses of four starlings. 3.5 These and other theories were reviewed in the early 17th century in Gilbert v Brett (the Case de Mixt Moneys)2 where ‘the name and nature of Sterling Money were enquired and discovered’ by the Privy Council.3 The theory favoured by the Privy Council, which nowadays is not generally accepted, was that

as Nummus is called from Numa, who was the first king who made money in Rome, so Sterling is called from the Esterlings who first made the money of this standard in England, by a metonymia, substituting the name of the inventor for the thing invented.4

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