The Work of the UK Decimal Currency Board (1967-71) and Possible Lessons for the Changeover to a Common European Currency

 

Noel E A Moore

 

 

1. Introduction

On 15 February 1971 - D Day (for Decimal Day) - the United Kingdom at last adopted a decimal currency system with 100 pence to the unchanged pound sterling ( a £.p. system). This replaced the £.s.d. - pound shilling and pence system - in which there were 20 shillings in each Pound and 12 pence in each shilling. The existence of 240 pence in each Pound was a legacy from Anglo-Saxon times when a Roman pound in weight of silver was divided into 240 silver pennies. This article describes the changeover and the part played by the Decimal Currency Board in the UK. It suggests lessons for the move to a common European currency.

 

I. The Changeover

2. The Background

For some years there had been no serious objection in Britain to decimal currency, certainly not from the business community. The delay in introducing one was because of the inability to agree on an appropriate decimal system. In the decade before the final decision there was a fierce controversy between those who wished to keep the Pound as the major unit and those who wanted to replace it by a new major unit half the value of the £ - a system which was adopted by three £.s.d countries which "went decimal" before the UK: South Africa, Australia and New Zealand. The arguments were examined in detail by a Committee of Inquiry on Decimal Currency (1961-63) chaired by Lord Halsbury which, by a majority of four to two, recommended a Pound-based system. That Committee also explored changeover problems, patterns and costs, thus laying a firm foundation for implementation once decisions were taken.

 
3. The Main Decision

The Government's decision was announced on 1 March 1966. The system recommended by the Halsbury Committee would be introduced in February 1971 - almost 5 years ahead. Australian experience had suggested that three years was not long enough and five years matched more closely the needs of the business community. As recommended by the Halsbury Committee and as happened in the other countries which had decimalised, a Decimal Currency Board would be set up. In December further details were given in a 'White Paper': the Halsbury recommendations for five decimal coins would be accepted but a sixth coin would replace the ten shilling (50p) banknote. The Board would recommend the specification. The minor unit would be named a "new penny" (although 2.4 times the value of the £.s.d. penny). There would be a transitional period after the immediate change because an overnight switch was not practicable and the Decimal Currency Board would be required to keep this period short and to explore ways of meeting its problems. The long preparatory period was needed because of the two big physical tasks of producing the coins and converting all the machines - mainly cash registers and coin-operated machines - which operated in £.s.d. The Government stated that "if this preparatory period is used to full advantage the transition can be kept short".

 
4. The Changeover Period

Experience justified this statement. The Board became increasingly convinced that the changeover period - once forecast as one-and-a-half to two years - would be much shorter. The banks would change to decimal working on D Day so all cheques would have to be in £.p. Government departments and big businesses would change immediately. There was a powerful spur to others to do the same. Indeed, retailers saw competitive advantage in an immediate changeover. Perhaps 90% of organisations worked in decimal money during the first week. The changeover was not formally ended until the end of August 1971, but for all practical purposes it was over well within a month. It was much closer to a "Big Bang" changeover than to a gradual one.
 

5. The Success of the Changeover

It was generally acknowledged that the changeover had been smooth and successful, far more so than some newspapers and other commentators had forecast. The long preparatory period was the main reason for this but such a period would not have served its purpose had organisations not made full use of it. They were able to do so partly because of the work of the Decimal Currency Board - which I shall describe later - but also because firm decisions on the details of the system were made early and, once made, were adhered to. Businesses will not plan in detail and commit resources until they know exactly what is to happen and when. Governments, indeed, will not commit substantial funds to producing coins or banknotes until they know that what is proposed has, where appropriate, been agreed by their Parliaments. The first UK Decimal Currency Act was passed by Parliament in July 1967. A second Changeover Act (as in other £.s.d. countries) was needed later; this became law in May 1969. There will be the same need for a firm basis of planning for what is undeniably a change involving organisations in considerable expenditure and skilled management effort before a common European currency can be introduced. And there will be the same need for a long preparatory period not merely for the design, production and distribution of coins and banknotes (which may well constitute the 'critical path') but also for the cost-effective solution of other problems. A major currency change begins as a matter of broad policy decisions but quickly develops into hard, grinding, often co-operative discussion and resolution of detail.

The UK changeover was undoubtedly facilitated by general acceptance that our £.s.d. system was out-dated and that a decimal one would make money calculations easier in schools, offices and shops with no continuing need for special cash registers and other machines. It may be that an early need in the European Union will be to give more publicity to the advantages of a common currency and how these in the long run will help everyone.
 

6. Changeover Costs and Compensation

One special task given to the Decimal Currency Board was "to examine any claims for compensation (within the Government's broad policy on the subject), and to make recommendations thereon". The broad policy was that as a general principle compensation was not acceptable. The background was that the three Commonwealth countries which changed from £.s.d. had compensation schemes for, essentially, the costs of converting or replacing such machines as cash registers. The justification for these compensation schemes was that the costs of the changeover would fall unevenly on the business community yet that changeover was intended to benefit all and so all should contribute. The UK Government on the other hand argued that "organisations which will have to incur substantial costs are those which stand to benefit most from the change" and that tax relief was already available for business expenditure. The Board devoted a great deal of time to considering 'special cases' but, although members did not accept that changeover benefits matched costs for many organisations (an assertion not easy to prove since neither benefits nor costs were readily measurable), they concluded that there was no equitable and defensible way of running a selective scheme. "In our view the inequities and anomalies of attempting to run a selective compensation scheme would outweigh those of allowing the costs to lie where they fall." The Board recommended that they be relieved of the task of examining special cases. The Government agreed and in May 1969 so did Parliament.

Whatever the strength of the arguments of principle for compensation (and Governments everywhere take decisions which directly or indirectly impose unevenly distributed costs on the business community and citizens generally) the absence of a compensation scheme for the costs of the UK changeover was an important contributory factor in the smoothness and speed of the changeover. There were no constraints on the free exercise of initiative, resource and enterprise in tackling machine conversions or replacements in cost-effective ways. The compensation schemes in other Commonwealth countries put the machine changeover into something of a strait-jacket and necessitated administrative work in the Decimal Currency Boards, and a concentration on machine problems, which prevented those bodies from giving the attention we in Britain could give to other matters. The decision against compensation beyond normal business tax relief was accepted without controversy and, again, the more readily accepted because of the long preparatory period. As a result the cost of the change to decimal currency is not known; no one needed to know it.
 

 

II. The decimal currency board

7. The Functions of the Decimal Currency Board

The Decimal Currency legislation listed the Board's functions as "to facilitate the transition from the existing currency and coinage to the new currency and coinage provided for by the Act, and in particular :

(a) to examine in consultation with such organisations and persons as the Board consider appropriate, problems involved in the transition;

(b) to furnish information and advice about the new currency and coinage, and to publish, whether by advertisement or otherwise, such information as the Board think useful for familiarising the public with it and its relation to the existing currency and coinage;

(c) to promote arrangements for the adaptation or replacement of commercial and other equipment designed to record or calculate in the existing currency or to be operated by the existing coinage;

[(d) the deleted duty to look at special cases for compensation];

(e) to make investigations and surveys for obtaining information relevant to the exercise of the functions of the Board".

The ability to make in depth surveys (point (e)) was widely used by the Board. Advertising agents were selected in 1967 and arranged periodic market research studies into the awareness and preparation of both the business community and the public. These studies helped to direct publicity efforts. Operational research experts were commissioned to study patterns of coin circulation and to estimate the number of coins needed by D Day. Applied psychologists were commissioned to advise on the ease with which people might accustom themselves to different coin shapes for the 50p coin and on the appropriate layout and design for conversion tables. There is no doubt that these studies not only helped to smooth the changeover but also had financial benefits.

Item (c) in the Board's functions gives prominence to machine changeover problems. There was a Technical Member of the Board (a professional engineer and experienced senior businessman) and a small engineering support group. The competitive resource-fullness of the machine companies and their joint action with the Board in urging businesses to plan ahead meant that machine conversions or replacements did not prove to be a brake on the speed of the transition. Cash registers and other machines now operate decimally everywhere. The 'machine' problems of a currency changeover in Europe a quarter of a century later are different. There are devices of many kinds for valuing and storing coins but the main problem may well be that of reprogramming huge numbers of computer and other electronic devices many of which are interrelated. And in 1971 there were few if any machines such as those outside banks which operate from plastic cards. There are still many coin-operated machines and the trend towards ticket issuing machines on transport systems continues. I know little of 'machine' developments since 1971 but they obviously remain considerable.
 

8. The Membership of the Decimal Currency Board

There were ten Board members, none of them civil servants, and all part-time. They were selected for their individual abilities including that of being able to take an objective but informed view from varied evidence. They were not representatives or 'lobbyists' of groups affected by the changeover but nevertheless collectively included experience in politics both national and local, senior business management, wholesaling, retailing, trade unionism, consumerism, teaching, journalism and banking. Several were professional engineers and accountants. Lord Fiske, the chairman, had a distinguished career in public service and was Labour Party Leader of the then Greater London Council until 1967. Lord Erroll, the Deputy Chairman, had held senior Cabinet posts in Conservative administrations and was chairman or director of several companies. Lord Halsbury, former chairman of the Committee of Inquiry on Decimal currency, also served. Board staff were civil servants and numbered 50 during the final year.

 
9. The Board's Basic Approach and Contacts

In the six months between the Board's appointment as an advisory body and the passing of the 1967 legislation which gave it statutory authority and an executive role, time was devoted to formulating the Board's general approach and building up a network of contacts with representative organisations in all sectors of the economy so that issues calling for a central lead or co-ordination could be identified. It seemed particularly important to resolve, with the Government, any doubts which might remain about the details of the chosen system - for example, the exact date and name of D Day, the expression of amounts in the new money in writing, in abbreviations and orally. All contacts made by the Board proved useful but four were essential: with the Treasury (on legislation needs and the co-ordination of Government department change-over work); with the Royal Mint (on all matters concerning coinage); with the machine industry (on conversion and replacement of machines); and, above all, with the banks. Banks were central to the success of the operation: they had changeover problems of their own which called for special legislative provisions; they were responsible for circulating the new coins; because all businesses and most members of the public had bank accounts they could - and did - play a big role in giving advice and guidance, circulating some Board material and making coins available both in souvenir sets and then later for staff training. Close collaboration between the Board and the British Bankers Association's special working party was indispensable. The Board worked on the basis of complete openness with all these bodies.

Any organisation set up to advise on a common European currency and to supervise its implementation will need exactly the same wide range of contacts amongst representative bodies and will need to cultivate the same close and open relationship with those responsible for legislation and for production of banknotes and coins and with the banks. It may be that, as technology has moved on, the 'machine' contacts, still important, will be primarily with users rather than manufacturers. And much of the consultation and co-operation will have to be carried out at national level rather than centrally. The legislative needs, the monetary traditions, the relationships between present and new systems and the major problems of particular groups are likely to vary significantly. The Decimal Currency Board co-operated closely with the Irish Board and with changeover groups in the Channel Islands and the Isle of Man. We also had to be aware of regional issues and, for example, to produce some publications in the Welsh language. This work pales into insignificance compared with the comparable efforts needed in the European Union.
 

10. The Publicity Strategy and Implementation

The Board's main task was to facilitate the changeover by giving information and advice. Anyone who wanted information was given it from the start but the broad strategy of the Board was to concentrate at first on big business and management in both public and private sectors, urging them to identify their needs and to set about meeting these - in the case of large organisations by appointing Decimalisation Officers. Once large organisations had devoted management talent to the operation they could be relied on to ensure that all went well. But the Board were convinced that the success of the exercise depended in large measure on the smoothness with which the change took place in shops, on the transport system and in other situations where everyday cash transactions took place with the public. The year 1969/70 was designated as "The Year of the Retailer" and special attention was given to helping medium-sized and small businesses on the basis of research that the Board staff had carried out mainly with the bigger retailers. Only in the final year - indeed largely in the final three months before D Day - was the publicity directed at the general public, although there had been careful reassuring campaigns to prepare the way for coinage changes made before D Day (the introduction in 1968 of 5p and 10p coins of identical value and general specification to circulate alongside one shilling and two shilling coins; the introduction in 1969 of the 50p coin for use until D Day as a 10 shilling coin; the demonetisation of two £.s.d. coins no longer needed).

From 1968, reference booklets were issued on subjects such as the new coins, expression of amounts in new money, points for businesses to consider, banking, payrolling, conversion of accounting records, legislation, cash transactions during the changeover period. The booklet on coins and expression of amounts also went to schools. A Newsletter was introduced to give latest developments and disseminate ideas. Syndicated articles were given to the trade press and professional associations. Exhibition stands were sup-plied for trade shows. Later, conversion tables were sold. A special booklet, "New money in Your Shop" was prepared for smaller retailers and distributed through banks and retail associations. Many talks were given to business audiences by Board and bank staff and the Board provided wallcharts and other material. Several Government departments and the Post Office distributed leaflets about the changes affecting them and their customers. A film about cash transactions was available for loan and the Board co-operated with the BBC on radio and TV programmes with the same subject. As D Day drew nearer, organisations which ran training courses or other training packages were stimulated into meeting the challenge.

The final publicity campaign for the public was one of the largest ever mounted by the Government: there were widespread TV and press advertisements, posters and the mailing to every household of a booklet "Your Guide to Decimal Money" with detachable conversion tables. Editorial work and production planning for this had to start one and a half years before D Day. A film "Granny Gets the Point" was in heavy demand after a preview for the press and social welfare organisations. Many other organisations produced information and advice and even gimmicky conversion devices for their customers. There was competitive pressure to be helpful and to demonstrate an easy "customer friendly" approach. One encouraging feature of the whole preparatory period was the unstinting co-operation between the Board, Government departments and the private sector.

 

III. The Relevance of UK Experience: Conclusions

It might be argued that the Board spent an unnecessarily large amount of time, effort, and money preparing for the 1971 decimalisation. I do not think so. Work was heavy but we did only what it was essential for the centre to do. The smooth and quick changeover does not indicate that we overstated the problems, rather that we facilitated their solution. We do not know what would have happened had we done less and in an operation which affects all citizens and all businesses the penalties for mistakes can be heavy. If a changeover to a common European Currency did not go well in banks, offices and shops then serious damage would be done to the European cause.

It has also been asserted that the UK operation was so much smaller an operation - only three new low-value coins were issued on D Day and the Pound was unchanged - that there are no lessons for the bigger operation now under consideration. This too is mistaken. Of course the introduction of a common currency would be a much bigger exercise (though at least all member states count money decimally!). All banknotes and coins will change with a longer preparatory period needed on that account alone, and the exact relationships in any one country between old and new systems, banknotes and coinages are unlikely to be readily grasped. But the main issues will be the same as those we in Britain had to consider: there will be legislative aspects; there will be pressure for early decisions on important aspects; machine problems, though very different, will be formidable; all organisations will have to change their accounting systems, their payroll and invoicing systems, their pricing of goods and services; the banks face the same - and additional - problems; the conduct of cash transactions in shops will need careful attention; conversion tables will be needed and their use and status both in law and in practice will have to be settled; there will be the same public concern about the likely and actual effect on prices, particularly amongst the elderly and those of limited means. The key relationships of any "changeover board" with banks, Ministries of Finance, banknote and coin producers and trade and professional associations generally will remain the same. The information and guidance from the centre will still have to start with senior management and Government departments, move on to cash handling organisations and finally the general public. These issues will be complicated by the need to determine the respective roles of the centre and member states.

One lesson of the UK experience is especially relevant. In the decade before D Day a great deal of emphasis was placed on the ease with which people might translate prices and coin values from £.s.d. to £.p. This "associability" was made full use of by the Decimal Currency Board. My view now is that we exaggerated its importance but that it probably had greater value in the change from a non-decimal to a decimal system than it might have in a switch from one decimal system to another. Many people in practice handle unfamiliar currencies fairly easily when they travel or work in other countries and in the bulk of everyday cash transactions, either when judging prices or when making payment and checking change, "associability" is of limited use. At best it is only a transitional benefit. Lack of "associability" need not be a serious objection to the adoption of a common European currency even though it would present presentational and other difficulties.

 

12-05-1994

 

References

The following were all published by HMSO, London:

- Report of the Committee of Inquiry on Decimal Currency (the Halsbury Report)
Cmnd 2145 September 1963

- Decimal Currency in the United Kingdom }
Cmnd 3164 December 1966 } the two Government

- Decimal Currency: the Changeover } 'White Papers'
Cmnd 3889 January 1969

- Decimal Currency Board Annual Reports } the reports which the Board by law was for the 4 years 1967/68 to 1970/71 } required to make each year to the Treasury and the Final Report 1971. } and that department to Parliament

- 'The Decimalisation of Britain's Currency, a general survey by N.E.A. Moore 1973.