(a) Before the First World War (1914–18) Britain’s wealth was based on the strength of her basic industries — iron and steel, textiles, shipbuilding and coal-mining. Her people had become used to being regarded as the world’s premier industrial country, although this position had been under challenge from America and Germany since the 1880s (see chapter 22). Britain was also the financial centre of the world, providing banking facilities and loaning capital to the developing nations (in 1914 Britain had £4000 million invested overseas). These ‘invisible exports’ were of vital importance to the British economy, enabling her to have a favourable balance of payments. The basis of international finance prior to the war was the Gold Standard which was designed to keep exchange rates between currencies stable and where money was linked to gold reserves. Sterling was the international currency with London holding gold for the entire world.
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