The soaring value of the British pound in foreign exchange markets today forced the Republic of Ireland to break its traditional currency link with Britain, in which the currencies of the two nations had always been interchangeable and traded as equals in value.
The two currencies will no fluctuate in relative value just as the currencies of other separate nation's do. Immediately after Ireland made the historic change today, the Irish pound begna falling in value against British pound sterling.
Ireland was froced to act because the recent increase inthe value of the pound sterling had threatened to push the value of the Irish pound above the allowable limit of a new relationship between the Irish pound and the currencies of seven other nations int he European Economic Community.
On March 13, the currencies of the eight nations-all of the present Common Market members except Britain-became flexibly linked in the new European Monetary System. Each nation in the arrangement has agreed that the value of its currency would be allowed to fluctuate in the value only slightly in relation to other members' currencies.
Until its link with the British pound was broken, the Irish pound had threatened to rise too high in value relative to rise too high a vlue relative to the weakest currency in the eight-nation arrangement, the Belgian Franc.
This is just the reverse of what was expected to happen when the European Monetary System was being formed and Britain refused to join.
Tbe British pound was weaker then and there were fears it would pull the Irish pound's value too far below that of the other seven nations, led by France and West Germany.
Instead, the British pound's value has soared in relation to other currencies, particularly the U.S. dollar, for several reasons.
Increasing world oil prices, which will hurt large oil importers like the United States, France, West Germany and Japan, pose less problem for Britain, which now produces much of its oil in the North Sea. In fact, the recently announced OPEC oil price increases are expected to boost the selling price of Britain's North Sea oil by about 16 percent and increase the oil revenue flowing into the British treasury by about 200 million this year alone.
Britain's high interest rates, which had been pushed to record highs only recently by a peak Bank of England minimum lending rate of 14 per cent, also have attracted increased investment here from foreign investors.
Then this week, the fall of the Labor Party government and widespread expectation whethe justified or not, that the Conservative Party will win the May 3 election and improve economic prospects here, increase both the value of the pound and shares on the stock market here.
But the bright sterling cloud may have a dark lining.
The British treasury and the Bank of England are concerned that if the value of the pound is too high, it will combine with the increased labor costs here to make British exports too expensive in the world market.
This would do further harm to Britain's already sagging manufacturing sector and cancel out the value and balance of payments benefits of North Sea oil exports.
As a reult, whichever party wins the May 3 election will face some immediate tough decisions on monetary policy, including whether the rise of the pound should somehow be stopped and whether interest rates should be gradually reduced.