5 Pounds (Queen Mother) – United Kingdom

In 1990, the United Kingdom's currency situation was dominated by its pivotal, yet troubled, membership of the European Exchange Rate Mechanism (ERM). Having joined in October 1990 at a central rate of £1 to DM 2.95, the government, under Prime Minister Margaret Thatcher and Chancellor John Major, aimed to use the system as a "discipline" to curb high inflation by pegging sterling to the stable Deutsche Mark. This policy represented a major shift from a free-floating pound and was seen as a precursor to eventual full European Monetary Union, a prospect that caused deep political divisions within the ruling Conservative Party.

The economic context for ERM entry was highly challenging. UK inflation was soaring above 10%, partly due to the Lawson Boom of the late 1980s, and interest rates were at 15%. The ERM required the Bank of England to intervene in currency markets to maintain sterling within a permitted band (6% wide). However, the high UK interest rates needed to combat inflation attracted speculative "hot money" inflows, creating an artificially strong pound that hurt exporters. This overvaluation became increasingly unsustainable as the UK entered a severe recession, creating a fundamental conflict between the needs of the domestic economy and the requirements of the exchange rate peg.

By late 1992, these pressures would culminate in the "Black Wednesday" crisis, forcing sterling's humiliating exit from the ERM. However, in 1990, the policy was still in its early, tense phase. The government remained publicly committed to the mechanism, believing it would deliver long-term stability and low inflation, even as the high exchange rate and interest rates exacerbated the economic downturn. The stage was being set for a dramatic clash between market forces and political commitment, with the pound at the very centre of the UK's economic and European policy.