How fixed are global exchange rates?

Roger Vicquéry and Kevin Hjortshøj O’Rourke

While the collapse of the Bretton Woods system in 1973 has traditionally been seen as heralding a major shift towards floating exchange rates, the extent of this transition away from fixed arrangements has been called into question by a ‘New Consensus’ view. We provide a new index to measure exchange rate fixity at the global level, which restores the conventional account of international monetary history over the last 70 years: according to our measurement global exchange rate fixity is now only about a third of its Bretton Woods level. We highlight how this transition to floating arrangements was largely driven by anchor currencies ceasing to be pegged to one another.

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More mortgage lending might push home ownership further out of reach

Jamie Waddell and Danny Walker

Would expanding mortgage supply lead to increased home ownership? Given that 90% of young home owners have a mortgage, it’s tempting to assume the answer is yes. But our analysis suggests that assumption is not necessarily true. We show that increases in mortgage supply have historically had no discernible effect on the home ownership rate and instead tend to push up on house prices, which makes it harder for first-time buyers (FTBs) to afford their first home. They also tend to divert lending towards home-movers and there is some evidence that they increase rents too.

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Collateral re-use: unveiling the risk of delivery failures and higher volatility in the repo market

Miruna-Daniela Ivan

The widespread practice of financial institution to re-use securities received as collateral plays a key role in the repurchase agreement (repo) market functioning. By increasing the availability of securities which can be used as collateral, collateral re-use lowers funding costs under normal market conditions, allowing collateral to flow to where it is most needed. But this activity may amplify the risk of delivery failures and increase volatility in repo rates during periods of market stress. This article explores the level of collateral re-use in the gilt repo market, applying algorithms from academic literature to the Bank’s Sterling Money Market Data, and provides supporting evidence of collateral re-use procyclicality, and its positive relation to repo rates volatility.

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Could digitalisation of finance lead to more disruptive international capital flows?

Simon Whitaker

Digital currencies and the tokenisation of financial assets could speed up the movement of money and assets between institutions and across borders. Historically, the liberalisation of capital flows led to debates about the impact on macroeconomic and financial stability. Bouts of instability – for example the 2008 global financial crisis – provoked calls to put ‘sand in the wheels’ of financial markets. In this blog I argue there is no reason why lubricating capital flows through digitalisation should herald a new era of financial instability. But the architecture of the global financial safety net may need to evolve to contain risks to the international monetary and financial system.

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Boosted inflation – using machine learning to make sense of non-linear determinants of inflation

Marcus Buckmann, Galina Potjagailo and Philip Schnattinger

Disentangling the sources of high inflation, exceeding inflation targets in the post- pandemic period, has been a priority for monetary policy makers. We use machine learning for this task – a boosted decision tree model that fits non-linear associations between many indicators and inflation. We add economic interpretability by categorising the data into intuitive blocks representing components of the Phillips curve. To further disentangle inflation drivers, we separate the signals that reflect demand and supply by imposing sign-restrictions on the decision trees. Our model tells us that both global supply and domestic demand spurred UK CPI inflation post-pandemic. We detect important non-linearities: in the Phillips curve relationship with labour market tightness and unemployment and via additional effects from short-term inflation expectations.

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Balancing complexity and performance in forecasting models: insights from CHAPS volume predictions

Tom Davies

CHAPS is a critical element of the UK’s payments landscape, handling 92% of UK payment values despite comprising 0.5% of volumes. CHAPS is used for high-value and time-critical payments, including money market and foreign exchange transactions, supplier payments, and house purchases. We forecast CHAPS volumes to help CHAPS participants in making staffing decisions and support our long-term planning including system capacity and tariff setting. While advanced forecasting methods can capture subtle, non-linear patterns, a tension arises: should we use complex models for the most accurate prediction, or use simpler, transparent approaches that stakeholders can quickly grasp? In practice, forecasting isn’t as straightforward as picking whichever model maximises performance; it is the combination of computation and domain expertise that shapes success.

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(Updated) A benchmark global carbon price to support climate risk metrics

This post was updated on 19 September 2025

Mike Knight

Since the original post, published 17 April 2025, I’ve received feedback from carbon industry participants on the possibility of a global-level benchmark price. Put simply, this feedback endorsed key points in the original post – that, for the reasons set out in the post, there does not exist a credible global-level benchmark carbon price. Moreover, to remedy this situation, industry participants raised the concept of co-creation – that the stronger the signal from the public sector on the benefits and use cases of such a benchmark, the greater the likelihood that the private sector could provide and administer it. Go to the end to continue reading.

In this post, I argue that, to strengthen climate risk metrics, the pricing of carbon should be transparent and consistent. I suggest that lessons can be learned from existing commodities and interest rate markets in the role a benchmark price (for carbon) could play to provide that transparency and consistency. Further, I propose that a benchmark incorporating existing explicit and implicit carbon prices could be sufficiently credible to allow widespread adoption. I then propose a high-level methodology for such a benchmark.

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Parental guidance: the influence of parents on young people and their attitudes towards cash

Lily Smith

Like mother, like daughter? Like father, like son? Despite the increasing prevalence of digital payments in today’s world, young people continue to use cash. The persistence of cash use, even among youngsters who have grown up with debit cards and smartphones, raises interesting questions about the factors that influence young people’s payment choices. Are they really rebelling against their parents or are they more like them than they care to admit? It seems that young people are following in their parent’s footsteps and choosing to use cash because their parents do so. And instead of rolling their eyes at their advice, young people are in fact turning to them for hints and tips on money management.

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Forbearance lending as a crisis management tool

Isabelle Roland, Yukiko Saito and Philip Schnattinger

The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Prudential Architecture Theme which focuses on the evolving regulatory structures and fresh strategic issues for regulators and supervisors.

Interventions in corporate credit markets have featured prominently in the policy response to crisis episodes over the last two decades. Loan forbearance features prominently among those interventions by lenders and/or regulators. It is a practice whereby banks grant temporary relief to struggling borrowers, to avoid default. On balance, the literature is critical of loan forbearance in the corporate sector because of its potential to contribute to zombification – a situation where bank lending keeps unproductive firms alive, resulting in lower aggregate total factor productivity. Results from our new paper show that forbearance lending in combination with business restructuring plans can provide temporary relief for struggling firms, safeguarding output and employment, without contributing to the zombification of the corporate sector. Note that our research is focused on the impact of forbearance on the corporate sector; the impact of forbearance on lenders is a separate question outside the scope of our paper.

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Tracking the price of carbon: price substitution effects across energy markets

Dooho Shin and Rebecca Mari

The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Financial System Theme which focuses on the shifting landscape and new risks confronting financial policymakers.

Carbon pricing has emerged as one of the main mitigation measures adopted around the world to fight climate change. In the UK and EU, increases in carbon prices in the Emissions Trading Schemes (ETS) work as an incentive to substitute away from emissions-intensive activities and sources of power. Such increases can be a result of direct government policies, but as we explain in this post, changes in carbon prices appear to be also endogenously linked to developments in energy markets. An understanding of the possible transmission channels underlying the relationship between the two is important to assess how climate-related risks are linked to broader macroeconomic developments and thus monetary and financial stability.

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