British currency in the Middle East

Britishinvolvement in theMiddle Eastbegan with theGeneral Maritime Treaty of 1820.This established theTrucial Statesand the nearby island ofBahrainas a base for suppressing sea piracy in thePersian Gulf.Meanwhile, in 1839 theBritish East India Companyestablished an anti-piracy station inAdento protect British shipping that was sailing to and from India. Involvement in the region expanded toEgyptin 1875 because of British interests in theSuez Canal,with a full scale British invasion of Egypt taking place in 1882.Muscat and Omanbecame aBritish Protectoratein 1891,and meanwhileKuwaitwas added to theBritish Empirein 1899 because of fears surrounding the proposedBerlin-Baghdad Railway.There was a growing concern in theUnited Kingdomthat Germany was a rising power, and about the implications that the proposed railway would have as regards access to thePersian Gulf.Qatarbecame a British Protectorate in 1916, and after theFirst World War,the British influence in the Middle East reached its fullest extent with the inclusion ofPalestine,TransjordanandIraq.

Background

For nearly four hundred years, silverSpanish dollars(pieces of eight) had served as the international currency, and most of these coins were minted inMexico City,Lima,andPotosíin theNew World.Following the successful introduction in 1821 of a gold standard in the UK based on thegold sovereign,the policy of introducing thesterlingcurrency into all of the British colonies began with an imperialOrder in Councildated 1825,when the source of the Spanish dollars was drying up following revolutions inLatin America.

In 1825, theBritish Empirehad not as yet reached its widest extent. Following theAmerican Revolution,Britain's attention switched toIndia,which was originally controlled by theBritish East India Company.The British government did not take direct control over India until after theIndian mutinyof 1857. Hence the imperial Order in Council of 1825 did not apply to India. As such, the already circulating silverrupeecontinued to be the currency of India for the entire duration of theBritish Raj,and afterwards into independence. The Indian rupee was not only the currency of India but also the currency of an extended region to its west, which stretched across theIndian Oceanto the east coast ofAfrica,up through thehorn of Africa,throughAdenandMuscatin Southern Arabia and Eastern Arabia, and along the Arabian coast of thePersian Gulf,extending even as far inland asMesopotamia.

Since the Middle East was a late addition to the British Empire, the British government had by then already learned from their experiences in places such asCanada,Ceylon,Mauritius,andHong Kongthat it is highly impractical to impose a new currency in the place of already existing ones. So, even though the pound unit of account eventually spread into the Middle East, the associated shillings and pence coinage never circulated there. This was the opposite of the situation in theEastern Caribbean,where sterling shillings and pence coinage was used in conjunction with aSpanish dollarunit of account.

Cyprus

£1 Cyprus pound note issued in 1955

The first territory in the Middle East to adopt thepound sterlingunit of account wasCyprus.At the time of the occupation in 1878, for the purpose of paying the troops the British government instructed that aTurkish lirawas to be rated at9⁄10of a pound sterling.There was a complication, however, in that although onelirawas equal to 100Turkish piastres,this rate differed in practice between different locations. Furthermore, the copper piastre itself had depreciated relative to the silver piastre, such that in the bazaars one needed 175 copper piastres to buy a Britishgold sovereign.An additional problem was that gold coins were exported from Cyprus to Constantinople, where they could obtain an even greater amount of piastres than what was paid for them in Cyprus. Meanwhile, the Treasury pointed out that it would be unwise to introduce British shillings and pence, at once, as this would be seen as a foreign currency system. In order to solve these problems, the British government demonetised the debased Turkish piastres and introduced a new legal tender bronze British piastre at 180 to the gold sovereign. With this altered rating, the people made a profit when paying sovereigns into the treasury in settlement of their debts, and this reduced the incentive to ship the sovereigns to Constantinople. So, in 1879, after takingde factocontrol of Cyprus from theOttoman Empire,The British introduced the pound sterling unit there at the rate of 180 bronze British piastres. Having deliberately avoided introducing shillings and pence, the new 9 piastre and 18 piastre coins did however correspond respectively in size and value to the shilling and florin coins in the UK. The pre-1879 para, at 40 para to the kuruş/piastre, continued as a unit of account appearing on postage stamps, but it was never seen on any coins or banknotes.

TheCyprus Currency Boardwas established in 1927 and held the responsibility of administering theCypriot pound.

In 1947, the wordshillingappeared for the first time on the 9 piastre and 18 piastre coins, but then in 1955, Cyprus adopted a decimal system, with 1,000 Mils in a pound. When the UK floated the pound sterling on 23 June 1972, some twelve years after Cyprus had obtained independence, theCypriot poundbegan to diverge from the 1:1 parity it had maintained with the UK unit since its foundation in 1879.

In 2008, Cyprus adopted theeuroand theCypriot poundceased to exist.

Palestine

A £1 Palestine pound note from 1939

Following the institution of theBritish Mandate for Palestinein 1918, theEgyptian poundwas introduced and it circulated alongside theOttoman lira.Then in 1927, to end the confusion that had arisen as a result of the twin circulation of Turkish and Egyptian money in the territory, the British authorities established the Currency Board for Palestine, which introduced thePalestine pound,equal in value to thepound sterling,which was legal tender in Mandatory Palestine and inTransjordan.The Palestine pound was not, however, used in conjunction with the normal sterling shillings and pence coinage. It was used with a decimal system in which it was divided into 1,000 mils.

The Currency Board was dissolved in May 1948, with the end of the British Mandate, but the Palestinian pound continued in circulation for a transitional period:

• Israeladopted theIsraeli poundon 16 August 1948 at par with thePalestine pound,and meanwhile the 1:1 parity with thepound sterlingcontinued until 1952, after which the external value of theIsraeli poundbegan to drop rapidly.
• Jordanadopted theJordanian dinarin 1949. The name dinar then became the preferred name for the pound sterling unit of account as it spread to other Middle East territories. TheJordanian dinarmaintained its 1:1 parity with the pound sterling until 18 November 1967 when Harold Wilson devalued the pound. TheJordanian dinardid not devalue in parallel, hence breaking the sterling parity.
• In theWest Bank,the Palestine pound continued to circulate until 1950, when the West Bank was annexed by Jordan, and the Jordanian dinar became legal tender there.
• In theGaza Strip,the Palestine pound continued to circulate until April 1951, when it was replaced by theEgyptian pound,three years after the Egyptian army took control of the territory.

Arabia and Mesopotamia

Prior to British involvement in Arabia,Ottoman piastresandMaria Theresa thalerscirculated in the region, with thethalertypically valued at 20piastres.

Silver coin:1 thalerMaria Theresia

(The Maria Theresa thaler was a variety of the silverthalercoin first minted inJoachimsthal,Bohemia,in 1519, and known as theJoachimsthaler.The word "dollar"originates from the word Thaler, and due to the similarity between the German thalers and the slightly earlier Spanish eightrealcoin, the latter eventually became known in the English speaking world asSpanish dollars(orpieces of eight), these being the parent coins the modernUS dollar.)

Then, with the arrival of the British inAdenin 1839,Indian rupeeswere introduced to the Arabian coast. British influence soon spread to theGulf States,and the Indian rupee spread into those territories too. Later, during theFirst World Warthe Indian rupee also spread intoMesopotamia.

On 22 January 1928, theKingdom of Hejaz and Nejdintroduced a new silverriyalloosely based on the Maria Theresa thaler but adjusted in weight slightly, so as to correspond in value exactly to a tenth of a Britishgold sovereign.In 1932, the Kingdom of Hejaz and Nejd becameSaudi Arabia,and in 1936 the riyal was debased so as to correspond in weight and fineness to the Indian rupee.

Meanwhile, on 19 April 1931,Iraq,which had emerged as a BritishMandateon the territory ofMesopotamia,adopted theIraqi dinarat a 1:1 parity with the pound sterling, to replace the Indian rupee. This 1:1 parity with sterling continued until 18 November 1967 when Harold Wilson devalued the pound. Iraq did not follow suit and hence the parity was broken.

On 1 October 1951, the Indian rupee was replaced in Aden by theEast African shilling,with twenty shillings being equal in value to one pound sterling. The East African shilling had itself been created in 1922 as a monetary unit out of the Indian rupee when the rising price of silver in the wake of the First World War caused the Indian rupees that circulated inBritish East Africato rise in value to two shillings sterling. The East African shilling was launched at par with the shilling sterling at the value of half an Indian rupee.

In 1959, as a measure to prevent gold smuggling, theReserve Bank of Indiaand the Indian government, in conjunction with the British authorities, replaced the Indian rupee in the Gulf States with theGulf rupeeat a 1:1 parity.

1960s onwards

On 1 April 1961,Kuwaitadopted adinarunit at a 1:1 par with thepound sterlingto replace theGulf rupee,and it remained at this parity until 18 November 1967, when Harold Wilson devalued thepound sterling.As with the cases of theJordanian dinarand theIraqi dinar,Kuwait did not devalue in tandem, hence the 1:1 parity with the pound was broken that year.

On 1 April 1965, theSouth Arabian dinarreplaced theshillingin Aden at twenty shillings to the dinar, and in this case, Aden did devalue in parallel with sterling on 18 November 1967, hence maintaining its 1:1 parity with sterling beyond the date of the British withdrawal fromAden,less than a fortnight later. The South Arabian dinar was then renamed theSouth Yemeni dinar,and meanwhile it continued the 1:1 parity with sterling, at least into 1971, after which information about its value becomes hard to find, but by 1983, it had already diverged considerably from the sterling parity. The divergence probably began in June 1972 when the UK floated the pound sterling, because figures in the 1983Financial Times"World Value of the Pound"suggest that the South Yemeni dinar had probably followed a similar course to that of theOmani riyalnearby. The South Yemeni unit eventually ceased to exist whenSouth Yemenunited withNorth Yemenin 1990.

Dinar notes under theFederation of South Arabia

On 1 October 1965,Bahrainreplaced the Gulf rupee with aBahraini dinarunit at fifteen shillingssterling.This rose to seventeen shillings and sixpence against the pound on 18 November 1967 whenBahraindid not devalue with thepound sterling.

In 1966, India devalued the rupee, promptingQatar,Dubai,and all theTrucial Stateswith the exception ofAbu Dhabi,to introduce a newriyalunit at par with the pre-devaluation rupee.Abu Dhabiinstead chose to adopt the Bahraini dinar, and in 1973 it changed to theUnited Arab Emirates dirhamin line with the rest of the sheikdoms in theUAE.

On 7 May 1970, theSultanate of Omanreplaced the Gulf rupee with theOmani rialunit that was created at par with the pound sterling, so ending the existence of the Gulf rupee. Two years later, after the pound sterling was allowed to float on 23 June 1972, the Omani rial began to diverge from its sterling parity.

Summary

In summary, the currency units used inIsrael,Jordan,Iraq,Kuwait,Oman,and theYemenare all descended from the pound sterling unit, and theBahraini dinarpartially so, whereas the currency unit that was first used inQatarandDubaiin 1966 replaced the Indian rupee at its pre-devaluation exchange rate. Meanwhile, during this same period, the pre-devaluation rupee just happened to be very close to par with the riyal ofSaudi Arabia,which was even used in Qatar and Dubai on a temporary basis, prior to their new currency being ready. And although a near parity has carried on to the present day with respect to theSaudi riyal,theQatari riyal,and theUnited Arab Emiratesdirham, it is actually only theSaudi riyalthat is descended from theMaria Theresa Thaler.

Egypt

The first £E1 banknote issued in 1899

At the beginning of the 19th century, Egypt and Turkey shared a common currency, the Ottomanpiastre,divided into 40 paras. However, underMuhammad Ali,Egypt started to issue its own coinage, and in 1834, by when Egypt was nominally independent from Ottoman rule, akhedivaldecree was issued, adopting an exclusively Egyptian monetary system whereby Egypt went into asilverandgoldbimetallic standardbased on theMaria Theresa thalerrated at 20 piastres. The Maria Theresa thaler was a popular silvertrade coinin the region around that time.In the wake of this currency reform, Egypt minted a gold coin known as the bedidlik, equal to 100 piastres, and a silver rial coin of 20 piastres corresponding to the Maria Theresa Thaler. In 1839, a piastre contained 1.146 grams of silver, and meanwhile the British gold sovereign was rated at 97.5 piastres. While 100 Egyptian piastres and the bedidlik coin were referred to as a "pound" in the English-speaking world, this was not the principal unit in the new Egyptian monetary system of 1834. Reference to anEgyptian poundunit of account appeared in 1884 on a £E50 promissory note signed byGeneral Gordonat theSiege of Khartoum,but it was not until the next year, 1885, that this unit of account would become the official unit.

£E50promissory noteissued and hand-signed by Gen.Gordonduring theSiege of Khartoum(26 April 1884)

Meanwhile, back in 1840, despite Egypt's separate coinage, it was agreed under the Turkish-Egyptian treaty dated that same year, that coins struck in Turkey and Egypt should nevertheless maintain equal value. However, in 1844, the Ottoman piastre was devalued in conjunction with the creation of a newOttoman liraunit, but Egypt did not follow suit. Hence the Egyptian and Turkish units split from each other in value, with the Egyptian unit continuing its exchange value of 97.5 piastres to the pound sterling.

In 1885, Egypt went into a purelygold standard,and theEgyptian poundunit, known as thejuneih,was introduced at £E1 = 7.4375 grammes of fine gold. This unit was chosen on the basis of the gold content in the British gold sovereign and maintaining the exchange value of 97.5 piastres to the pound sterling, and it replaced theEgyptian piastre(qersh) as the chief unit of currency. This reform resulted in the Maria Theresa Thaler being adjusted to 21 piastres, with 20 piastres now being rated at 5 French francs, and the foreign exchange rates were fixed by force of law for the important currencies which had become acceptable in the settlement of internal transactions. But it was not until 1899 that banknotes started to appear with the word "pounds" on them, written in English. Meanwhile, the piastre continued to circulate as1⁄100of a pound, the para was discontinued in 1909, and the piastre was divided into tenths (عشر القرش'oshr el-qirsh). These tenths were renamed milliemes (malleem) in 1916.

Then, at the outbreak ofWorld War I,with the gold specie standard being suspended in the UK, the Egyptian pound used asterlingpeg of one pound and sixpence sterling to one Egyptian pound. Inverted, this gives approximately £E0.975 for one pound sterling.

This exchange value of 97.5 piastres to the pound sterling continued until the early 1960s when Egypt devalued slightly and switched to a peg to theUnited States dollar,at a rate of E£1 = US$2.3.

The Egyptian pound continued with its exchange rate of £E = £1 0s 6d sterling until the beginning of the 1960s.

Use of Egyptian pound outside of Egypt

As well as in theAnglo-Egyptian Sudan,theEgyptian poundspread into two other neighbouring territories. From 1918 to 1927, it was legal tender inMandatory Palestinewhere it circulated alongside Turkish coins.This practice, however, ended in 1927 when thePalestine poundwas established. Then later, between 1942 and 1951, whenCyrenaicawas underBritish occupation,theEgyptian poundcirculated alongside theTripolitanian lira.

Libya

Libyan half pound, with the portrait of KingIdris of Libya

When Libya was a part of theOttoman Empire,the country used the Ottomanpiastre,withTripoliissuing some coins locally between 1808 and 1839.Then in 1911, whenItalytook over the country, theItalian lirawas introduced. Thirty-two years later in 1943, as a result ofItalybeing driven out ofLibyaby theAllies of World War Two,the region was split intoFree FrenchandBritishmandateterritories.Algerian francswere used in theFree Frenchmandate. Meanwhile, in the British mandate, the military authorities issued theTripolitanian lirawhich circulated alongside theEgyptian pound.

In 1951, theLibyan poundwas introduced, replacing the franc and lira at rates of £L1 = 480 lire = 980 francs, and was equal in value to onepound sterling.When sterling was devalued in 1967, the Libyan pound did not follow suit, so one Libyan pound became worth £1 3s. 4d. sterling. TheLibyan poundwas replaced by thedinarat par in 1971 following the Libyan Revolution of 1969.

Sudan

TheEgyptian poundalso circulated in theAnglo-Egyptian Sudan.However, in 1956 theSudanbecame independent, and on 8 April 1957, theEgyptian poundwas replaced at par with theSudanese pound.During the 1960s, theSudanese pounddiverged in value from the Egyptian pound, and from 30 December 1969 through until 21 September 1971, the Sudanese pound was pegged at 1:1 parity with thepound sterling.This parity withsterlingwas not however reflected on the black market.

Sterling area

At the outbreak of theSecond World War,thesterling areawas formed as an emergency measure to protect the external value of thepound sterling,mainly against theUS dollar.All the territories mentioned above joined the sterling area since their respectivepounds,dinars,shillings,orrupeeswere pegged at a fixed value to the pound sterling. The Indian rupee at that time was pegged to the pound sterling at a fixed value of oneshillingand six pence sterling. In the years after the war,EgyptandSudan,(1947),Israel,(1948), andIraq,(1959), left the sterling area. Meanwhile,Libyawas expelled in 1971.

As a result of the sterling devaluation of November 1967, the floating of the pound sterling in June 1972, and the ending of theBretton Woods systemof fixed exchange rates that was introduced in 1944, none of the currencies mentioned above retain any fixed parity to any of the sterling units of account. Today there is no visible relationship between these currencies and the currency of the United Kingdom.

See also

• British currency in Oceania
• British currency in the South Atlantic and the Antarctic
• British currency in West Africa
• East African shilling
• Old Israeli shekel
• Palestine pound
• South Yemeni dinar