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British involvement in the Middle East began with the Aden Settlement in 1839. The British East India Company established an anti-piracy station in Aden to protect British shipping that was sailing to and from India. The Trucial States were similarly brought into the British Empire as a base for suppressing sea piracy in the Persian Gulf. Involvement in the region expanded to Egypt because of the Suez canal, as well as to Bahrain, Qatar, and Muscat. Kuwait was added in 1899 because of fears about the proposed Berlin-Baghdad Railway. There was a growing fear in the United Kingdom that Germany was a rising power, and there was concern about the implications of access to the Persian Gulf that would arise from the Berlin-Baghdad Railway. After the First World War the British influence in the Middle East reached its maximum extent with the inclusion of Palestine, Transjordan and Iraq. At first, Indian rupees were introduced to Aden and the Gulf States, and later during the First World War to Mesopotamia. After the First World War, the Indian rupee in British East Africa was replaced by a florin and then a shilling, which eventually replaced the Indian Rupee in Aden by 1951. Meanwhile, in 1927 a new Palestine pound at par with the pound sterling was introduced in the mandated territories of Palestine and Transjordan to replace the Turkish and Egyptian currencies. The East African Shilling in Aden was replaced in 1965 with the South Arabian Dinar at par with the pound sterling.
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Introduction
For nearly four hundred years, Spanish dollars (pieces of eight) had served as the international currency, and most of these coins were minted in Mexico City, Lima, and Potosi in the New World. The policy of introducing the sterling currency into all of the British colonies began with an imperial order-in-council dated 1825. The timing of the British imperial order-in-council corresponded to the drying up of the source of the Spanish dollars following revolutions in Latin America, and also the introduction of a successful gold standard into the United Kingdom in 1821, based on the gold sovereign. In 1825, the British Empire had not as yet taken on its widest extent. Following the American revolution, Britain's attention switched to India, but British India was originally controlled by the British East India Company. The British government did not take direct control over India until after the Indian mutiny of 1857. Hence the imperial-order-of-council of 1825 did not apply to India. As such, the already circulating silver rupee continued to be the currency of India for the entire duration of the British Raj, and afterwards into independence. The Indian rupee was not only the currency of India but also the currency of an extended region beyond, which stretched across the Indian Ocean to the east coast of Africa, up through the horn of Africa, through Aden and Muscat in Southern Arabia and Eastern Arabia, and along the Arabian coast of the Persian Gulf, extending even as far inland as Mesopotamia. These middle eastern territories did not become a part of the British Empire until a period ranging from the 1840s until after the first world war. The Middle East was the last major addition to the British Empire, and therefore just like India, was unaffected by the 1825 imperial order-in-council. The 1825 order-in-council was limited largely to the remnants of the old Empire in North America and the West Indies, along with New South Wales, Gibraltar, and some spoils of the Napoleonic wars such as the Cape of Good Hope, Malta, and Mauritius. It is said that the British Empire had three currency zones, and that the three currencies were the pound sterling, the dollar, and the rupee. The situation in the British territories of the Middle East was however somewhat complicated, because it involved a situation in which Indian rupees, Turkish piastres, and Egyptian piastres gradually gave way to systems based on units of the sterling system, but without ever involving the introduction of the full sterling coinage.
Middle East
The situation as regards currency in the British territories in the Middle East was quite different from the situation as regards the currencies of the British West Indies.
East Africa and the Middle East were late additions to the British Empire, and by then, the British government had already learned from experience in Canada, India and Hong Kong that it is highly impractical to impose a new currency in the place of already existing practices. In the history of Britain's involvement in the Middle East region, the sterling coinage never formed a part of the circulating currency. The sterling unit of account, however, entered the region through Palestine in 1927, in the form of the Palestine pound. The Palestine pound was introduced into Palestine 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 Palestine pound was created at par with the pound sterling, but it was not used in conjunction with the pounds, shillings and pence coinage. It was used in conjunction with a decimal system. That was in contrast to the situation in the Eastern Caribbean, where sterling coinage was used in conjunction with a Spanish dollar unit of account. The Palestine pound was also used in Transjordan where it later became referred to as the dinar. The name dinar then became the preferred name for the pound sterling unit of account as it spread to other middle eastern territories. Iraq adopted the dinar in 1931 to replace the Indian rupee that had been introduced by the British during the first world war.
Meanwhile, after the first world war, the price of silver rose dramatically. In British East Africa, at the moment when the silver rupee rose to the value of two shillings sterling, the authorities opportunistically introduced a florin system to replace the rupee, with the florin being equal to the rupee at two shillings. Shortly after that in 1922, the monetary system in British East Africa was changed again, this time to a shilling system. The East African shilling was now on par with the shilling sterling, but although the earliest versions of the East African shilling and the East African florin corresponded in shape, size, and weight with the corresponding sterling coins, the full set of sterling coinage was never introduced into British East Africa, as it was in British West Africa and in the British territories in Southern Africa. The East African shilling was originally used in Kenya, Uganda and Tanganyika but it soon spread to Zanzibar and British Somaliland, eventually crossing from the horn of Africa to Aden on the Arabian coast in 1951, where it replaced the rupee in that territory. In 1961, Kuwait adopted the dinar as a new unit of account to replace the Indian rupee, and in 1965 the dinar unit replaced the shilling in Aden at twenty shillings to the dinar. In 1966 the rupee was replaced by the dinar in Bahrain, and in Abu Dhabi, while in Qatar, Dubai and the remaining Trucial States, the rupee was replaced by the Saudi Riyal which was a direct descendent of the Maria Theresa Thaler. Interestingly, the Maria Theresa Thaler was a variety of the silver Thaler coin first mined in Joachimsthal, Bohemia, and the Thaler is the German coin upon which the Spanish eight real coin was modelled. It is these Spanish dollars (or pieces of eight) that are the parent coinage of the modern US dollar. The word 'dollar' originates from the word Thaler.
In 1970, The Sultanate of Oman replaced the rupee with a rial unit that was on par with the pound sterling. Meanwhile, the dinar units in the other parts of the Persian Gulf region had already risen in value against the pound sterling as a result of sterling's devaluation in 1967, and so the new Omani rial was not equal in value to the dinars in the nearby territories.
The situation today is that the currency units that are used in Israel, Jordan, Iraq, Kuwait, Bahrain, Oman, and the Yemen are all descended from the pound sterling unit, while the currency units that are used in Saudi Arabia, Qatar, and the United Arab Emirates are all descended from the Maria Theresa Thaler. This largely explains the factor of ten difference in value on average between Bahrain, Kuwait and Oman on the one hand, and Saudi Arabia, Qatar, and the United Arab Emirates on the other hand. Bahrain, Kuwait and Oman are using units that are descended from sterling, whereas Saudi Arabia, Qatar, and the United Arab Emirates are using units that are descended from the Maria Theresa Thaler.
Cyprus
The British introduced the pound sterling unit to Cyprus in 1879, only a year after taking de facto control of the island from the Ottoman Empire. The exchange rate from the Ottoman piastre wa s set at one pound sterling to 180 Turkish piastres. The Cyprus pound remained equal in value to the pound sterling until 1972, some twelve years after Cyprus gained independence from the United Kingdom.
Initially the Cyprus pound was divided into 20 shillings (σελίνι / σελίνια, şilin), in common with its United Kingdom counterpart. However, unlike the United Kingdom shilling, the Cyprus shilling was divided into 9 piastres (γρόσι / γρόσια, kuruş), thus establishing a nomenclature link to earlier Ottoman currency. The piastre was itself divided into 40 para (like the kuruş). The para denomination did not appear on any coins or banknotes but was used on postage stamps. However, the 1⁄4-piastre coin was equal to 10 para (παράδες) and called δεκάρα in Greek and the 1⁄2-piastre coin was equal to 20 para and called εικοσάρα.
The introduction of the British currency into Cyprus was controversial from its inception in 1879 as technically the island remained a province of the Ottoman Empire and the right to issue currency within the Ottoman Empire rested solely with the Ottoman Sultan. A question on the legality of introducing the pound in Cyprus was raised by the British Member of Parliament, Mr. Thomson Hankey, in the United Kingdom parliament in 1879, but concerns were dismissed by the British government, and they ceased to be an issue on the island following the annexation of Cyprus by Britain in 1914, in response to the Ottomans siding with the Central Powers in the First World War.
The British takeover of Cyprus in 1914 was not ratified by the new Republic of Turkey until the Treaty of Lausanne in 1923, but that agreement led to the creation of a full British colonial government in Cyprus in 1926, with the establishmet of a local legislative council. The Council in turn established a Cyprus Currency Board in 1927 to oversee the issue of Cyprus pounds.
The role of the Chairman of the Cyprus Currency Board was held by the Accountant General, also known as the Auditor General, of the British colonial Government of Cyprus. The Board could issue notes and coins, initially denominated in the Cypriot pound, shillings and piastres, and later, following decimalization in 1955, in Cyprus pounds and mils. However, the local currency remained pegged at one Cyprus pound to one pound sterling meaning ultimate fiscal control still rested with the Bank of England in London and the Government of the United Kingdom. This link was maintained by the requirement that for every Cyprus pound issued by the Currency Board in Cyprus, one pound sterling issued by the Bank of England had to be deposited by the Government of Cyprus with the Crown Agents in London.
In 1955, a decision was made by the British colonial authorities to decimalise the Cyprus pound, and in this they used the system proposed by William Brown, a member of the United Kingdom parliament, who suggested in 1855 that the pound sterling in the United Kingdom should be divided into one-thousand parts, each called a mil. Although this system was never adopted in the United Kingdom, it was used in several British colonies, including Hong Kong from 1863 to 1866; and the British Palestine Mandate from 1926 until 1948. The Palestinian example may in fact have been the impetus to use a pound-mil system in Cyprus as the Palestinian pound was for a brief period accepted as legal tender in Cyprus.
Although Cyprus gained independence from Britain in 1960, the Cyprus pound remained pegged to the pound sterling until 1972.
Egypt
The origins of the Egyptian pound date from 1834, when a Khedival Decree was issued providing for the issuing of an Egyptian currency based on a bimetallic base, i.e.: based on gold and silver. With this the Egyptian pound, known as the geneih, was introduced, replacing the Egyptian piastre (ersh) as the chief unit of currency. The piastre continued to circulate as 1⁄100 of a pound, with the piastre subdivided into 40 para. In 1885, the para ceased to be issued, and the piastre was divided into tenths (عشر القرش 'oshr el-ersh). These tenths were renamed milliemes (malleem) in 1916.
The Egyptian pound was also used in Anglo-Egyptian Sudan between 1899 and 1956, and Cyrenaica when it was under British occupation and later an independent emirate between 1942 and 1951.
The National Bank of Egypt issued banknotes for the first time on 3 April 1899. The Central Bank of Egypt and the National Bank of Egypt were unified into the Central Bank of Egypt in 1961. A year later, in 1962, the Egyptian pound ceased to be pegged to the British pound and was tied to the United States dollar instead.
Palestine
Following the institution of the British Mandate for Palestine in 1918, the Egyptian pound was introduced into the area that became known as Palestine, and circulated alongside the Ottoman lira until 1927. With the establishment of the Currency Board for Palestine by the British authorities in 1927, the Palestine pound was introduced, equal in value to the Pound sterling.
The Palestine pound was also declared a legal tender in the Transjordan Emirate, which was technically a part of the British Mandate, though having an autonomous local administration. The body which governed the issue of the currency was the Palestine Currency Board, which was subject to the British Colonial Office. The Currency Board was dissolved in May 1948, as the British Mandate ended. The area in which the Palestine pound circulated was divided into several political entities: the State of Israel, the Hashemite Kingdom of Transjordan, the Jordanian-occupied West Bank and the Egyptian-occupied Gaza Strip.
With the creation of the State of Israel, there was a transitional period of four years between the end of the British Mandate and the adoption of a fully independent currency system. Between 1948 and 1952, the Palestine pound continued to be a legal tender. In August 1948, new banknotes were issued by the Anglo Palestine Company, owned by the Jewish Agency and based in London.
In Jordan, the Palestine pound was replaced by the Jordanian dinar in 1949. In 1950, Jordan annexed the West Bank, and the Palestine pound continued to circulate there until 1950.
In the Gaza Strip, the Palestine pound circulated until April 1951, when it was replaced by the Egyptian pound, three years after the Egyptian army took control of the territory.
Sterling area
At the outbreak of the Second World War, the sterling area was formed as an emergency measure in order to protect the external value of the pound sterling, mainly against the US dollar. All the territories mentioned above joined the sterling area since their respective pounds, dinars, shillings, or rupees were 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 one shilling and six pence sterling. In the years after the war, Egypt, Palestine, the Sudan and Iraq left the sterling area.
As a result of the sterling devaluation of November 1967, the floating of the pound sterling in June 1972, and the ending of the Bretton Woods system of 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. There is no visible relationship between these currencies today and the currency that is used in the United Kingdom.