British Monetary Policy vis--vis Euro-Zone - Essay Example

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British Monetary Policy vis--vis Euro-Zone

In the 19th century peak British currency was actually defined in terms of gold. Giving up the precious metal link after 1945 relaxed the constraint on monetary policy and the floating sterling exchange rate that followed provided even less discipline. With the discarding of any precious metal support, dependence in sterling and monetary policy after the Second World War was reflected in the foreign exchange value, which fell from $4.03 to $1.70 by 1976, while inflation climaxed at an annual rate of 26.9%.
Different tactics to create monetary stability have been tried since 1945, including shadow the Deutschmark and monetary targeting. Paradoxically one of the greater political dishonours for sterling, being forced out of the European Exchange Rate Mechanism in 1992, marked the beginning of the present union of the British economy to a stable non-inflationary growth path.
The turn around in post war British economic policy began with Margaret Thatcher's government, elected in 1979. In addition to a series of monetary policy experiments, a variety of structural reforms in the economy were begun, including privatisation and steps to increase labour market flexibility. Inflation receded along with unemployment and economic development resumed.
Election of the 'New Labour' government of 1997 saw no break in the principles of national economic management. ...Show more

Summary

A long history of a national currency, for an extensive period well managed, created a tendency to consider change as superfluous. For this reason 'Britain remained detached from the 1867 International Monetary Conference's bid for a world currency' (Cottrell, 1992)…
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