British Monetary Policy and the EU

Since the mid-nineteenth century Britain has experienced almost every type of exchange-rate arrangement. Until 1914 the United Kingdom was on the gold standard. That was suspended (that is the United Kingdom left the standard but with the declared intention of returning) at the outbreak of World War I in 1914. After the war, the United Kingdom implemented a deliberate, discussed, and announced policy of a return to the gold standard at the prewar parity. Monetary policy and foreign exchange intervention were used to this end, and the policy succeeded. The United Kingdom left the gold standard in 1931, however, and the exchange rate floated with varying degrees of intervention until the outbreak of World War II in 1939. The rate was then pegged to the dollar. After the war, the United Kingdom joined the Bretton Woods system. Several sterling devaluations occurred

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Essentially two instruments were available to the British to keep their currency within these margins: interest rate policies and direct interventions on the foreign exchange market. Under normal conditions, for example, when the pound approached the lower margin of its Deutsche mark band, the Bank of England could sell foreign currency or it might raise short-term interest rates to prevent the pound from depreciating further. To finance such an intervention it might either draw on its own reserves or borrow from other sources (international capital markets or central banks). In the ERM, access to foreign exchange reserves is facilitated by the Very Short-Term Financing Facility (VSTF). Under the VSTF, the Bank of England was allowed to borrow marks from the Bundesbank virtually without limits, with the Bundesbank being obliged to grant such credits upon request (Canto, 1991). After Britain joined the ERM, the pound moved most of the time comfortably in the 6 percent band around its central rate. After a temporary appreciation, the pound stayed for more than one year in an implicit narrower band in the neighborhood of plus 2.25 percent around central parity. Pressure on the pound was usually short-lived and quickly revers
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Some common words found in the essay are:
Bank England, ERM ERM, Pressure ERM, United Kingdom, German Deutsche, Italy Spain, John Major, ERM Britain, Kenneth Clarke, Mechanism ERM, exchange rate, monetary union, european monetary, united kingdom, foreign exchange, deutsche mark, central rate, foreign exchange market, rate mechanism, monetary system, british government, exchange rate mechanism, european monetary system, british monetary authorities, interventions foreign exchange,
Approximate Word count = 2289
Approximate Pages = 9 (250 words per page)