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An Exchange Rate History of the United Kingdom: 1945–1992
By Alain Naef
Cambridge University Press, 2022, 266 pp.
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Naef’s financial history of the United Kingdom focuses on the management of the pound sterling exchange rate since World War II. He uses data on market operations from the Bank of England’s archives to document the bank’s efforts to defend and stabilize the rate during currency crises in 1949, 1967, and 1976. A fourth, culminating crisis took place in 1992, when the Bank of England expended three billion pounds in a futile attempt to defend the currency against speculators. Having failed, the bank was then forced to cobble together a new framework for monetary policy; it quickly settled on the policy known as inflation targeting (setting a numerical target for inflation and adjusting policy in order to hit it). For the better part of three decades, this approach proved remarkably successful at delivering price—if not also financial—stability. Since 1992, the central bank has engaged in few interventions in the foreign exchange market, instead allowing the British currency to fluctuate with market conditions. Naef concludes that this is for the best: such interventions are unlikely to work in a world of immensely large and liquid global financial markets. Only credible, substantive monetary policy measures, such as changes in interest rates, are effective in this environment.