Central banks, big and small

Benjamin Kingsmore

Central banks do a lot of things: they implement monetary policy, regulate financial institutions, manage payment systems and analyse economic developments. Many of their tasks are crucial to the functioning of a modern economy. And to make all this happen in practice, armies of unseen officials do the necessary implementing, regulating, managing and analysing. In this post I try to answer some questions about these officials: how many are there? Where are they? And if you wanted to host a party for central bankers, what would be the most convenient location?

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The Bank of England’s statutory monetary policy objectives: a historical and legal account

Michael Salib and Mesha Ghazaleh

The Bank’s monetary policy objectives are some of the most significant objectives bestowed by Parliament on any UK public authority. They are to maintain price stability and, subject to that, support the Government’s economic policy, including its objectives for growth and employment. In our paper we offer a historical and legal account of the Bank’s monetary policy objectives by looking at their origins, the parliamentary debates around their wording and their interpretation in practice. Since being introduced in 1998, our paper finds that they have proved remarkably resilient in directing the Bank’s monetary response over the past 25 years, partly due to the in-built flexibility in their wording.

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Bitesize: Riding the waves: the breadth of global monetary policy changes

Shaheen Bhikhu and Thomas Viegas

Central banks respond to inflation by setting interest rates in order to achieve domestic price stability. Occasionally, economic shocks are global in nature and so monetary policy can move in tandem across the world. But how common have directional changes in monetary policy been across the world over recent decades?

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Challenges to monetary policy: lessons from Medieval Europe

Nathan Sussman

The Bank of England co-organised a ‘History and Policy Making Conference‘ in late 2020. This guest post by Nathan Sussman, Professor of International Economics at the Graduate Institute of Geneva, is based on material included in his conference presentation.

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Battle of the exchange funds

Max Harris

This post contributes to our occasional series of guest posts by external researchers who have used the Bank of England’s archives for their work on subjects outside traditional central banking topics.

When Britain created the Exchange Equalisation Account (EEA) in 1932, its designers had little sense of the controversy that would ensue. The previous year, Britain had suspended gold convertibility, and the volatile capital flows that followed convinced officials that they needed a tool for managing the exchange rate. The EEA – originally a fund solely for foreign exchange interventions (its remit is broader now) – seemed not only necessary but eminently reasonable. To a world in the throes of depression, however, it looked like a means to weaken sterling and reap a competitive advantage. America responded by establishing the Exchange Stabilization Fund (ESF) in what many viewed as another escalation in the conflict that was tearing the international monetary system apart.

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Central banks and history: a troubled relationship

Barry Eichengreen

The Bank of England co-organised a ‘History and Policy Making Conference‘ in late 2020. This guest post by Barry Eichengreen, Professor of Economics and Political Science at the University of California Berkley, is based on material included in his keynote address at the conference.

Learning from history is hard. At central banks, it can be hard to draw policymakers’ attention to historical evidence. Even when historical analogies are at the forefront of their minds, the right analogies are not always applied in the right way. In fact, over-reliance on a small number of compelling historical case studies can lead to suboptimal decisions. Policymakers therefore need access to a wide portfolio of analogies. They must also cultivate an historical sensibility that is suspicious of simplification and alert to the differences – as well as the similarities – between ‘now’ and ‘then’.

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When should policymakers reach for the history books? Some examples from the 20th century

Catherine R. Schenk

The Bank of England co-organised a ‘History and Policy Making Conference‘ in late 2020. This guest post by Catherine Schenk, Professor of Economic and Social History at the University of Oxford, is based on material included in her conference presentation.

Since the Great Financial Crisis started in 2007 there has been renewed interest in using the past as a basis for policy responses in the present, but how useful is history and how is it best used? Certainly, the old chestnut that ‘those who neglect the past are sure to repeat it’ is a valid warning, but how to select the appropriate historical examples and draw the right lessons is a more nuanced exercise that is explored in this post.

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Negotiating nationalisation

Austen Saunders

1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. During these negotiations Catto lobbied for the Bank not to be given more powers to regulate banks. Why? The answer hinges on how the Bank understood its role. And it helps explain why, as David Kynaston sees it, the Bank and the government ‘missed a historic opportunity’ to comprehensively redefine the Bank’s responsibilities.

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How Britain paid for war: bond holders in the Great War 1914-32

Norma Cohen

In August 1914, Britain was the world’s wealthiest country. Yet there was no guarantee that government would be able to harness that wealth for World War I. Effectively, Britain was forced into a ‘Battle for Capital’ simultaneous with its military efforts — with the efficacy of the latter dependent on the success of the former. Over 80% of the £7,280 million Britain borrowed from 1914 to 1919, was raised at home. New research shows that Britain’s desperate efforts to marshal its citizens’ capital for the purpose of war, while also struggling to direct wartime production, profits and labour, led to a sharp shift in the sources of its borrowings during the war and in the years after.

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Montagu Norman and the transformation of the Bank

Chris Swinson

In 1944, the Bank of England’s historian, John Clapham, looked back at the ways in which the Bank had changed since 1914 and remarked:

‘ . . . it would not be fantastic to argue that the Bank in 1944 was further . . . from 1914 than 1914 was from 1714.’

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