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Postwar

During the Second World War, the British Empire played a major role in supporting British finances. Foreign exchange reserves were pooled in London, to be used to fight the war. In effect the United Kingdom procured £2.3 billion, of which £1.3 billion was from British India. The debt was held in the form of British government securities and became known as "sterling balances". By 1950, India, Pakistan and Ceylon had spent much of their sterling, whilst other countries accumulated more. The sterling area included all of the Commonwealth except for Canada, together with some smaller countries especially in the Persian Gulf. They held their foreign-exchange in sterling, protecting that currency from runs and facilitating trade and investment inside the Commonwealth. It was a formal relationship with fixed exchange rates, periodic meetings at Commonwealth summits to coordinate trade policy, and domestic economic policies. The United Kingdom ran a trade surplus, and the other countries were mostly producers of raw materials sold to the United Kingdom. The commercial rationale was gradually less attractive to the Commonwealth; however, access to the growing London capital market remained an important advantage to the newly independent nations. As the United Kingdom moved increasingly close to Europe, however, the long-term ties began to be in doubt.