(26.) The sharp appreciation of sterling against all EMS currencies during 1979-81 brought the Irish pound
to as low as 74 U.K.
Statistical tests of PPP based on the behaviour of the Irish pound
since 1979 have been generally unfavourable to the hypothesis.
Fending off all the explanations resting on real factors, the Irish Report found that the depreciation of the Irish pound
`arises almost entirely, if not exclusively, from an excess of Paper'.
Under the broad-band exchange rate system in operation since the summer of 1993, the Irish pound
had followed a path co-determined by the movements of sterling and the Deutsch mark.
* A constant effective exchange rate, based on parity between the Irish pound
This incidentally coincides with the speculation on the Irish Pound
leading up to the eventual devaluation in January 1993.
For a short period, until the Irish pound
ceases to be legal tender on February 10, the two currencies will run concurrently as the nation-alongside the majority of Europe, excluding Britain-gets used to the new set of notes and coins.
Following a three-and-a-half year period when the Irish pound
traded at close to its central rate within the ERM (Diagram 8), it fell to its floor on different occasions between September 1992 and January 1993.
With sterling already 20pc stronger than the Irish pound
, British visitors will also find cheaper petrol in Ireland.
Talking of money, it has recently come to our notice that the good old Irish pound
is taking rather a hammering to a strong sterling.
Inflation, as measured by the consumer price index (CPI) excluding mortgage interest rates, fell to under 2 per cent for the whole of 1993 but, reflecting lagged effects of the devaluation of the Irish pound
, it rose in the second half of the year, reaching a temporary peak of 3.5 per cent in the first quarter of 1994.
The turbulence within the European Exchange Rate Mechanism (ERM), which led to the withdrawal of sterling and the devaluation of several other European currencies, subsequently induced pressures on the Irish pound
, provoking steeply higher interest rates.