Introduction

Abstract

A major development in the international monetary system over the 1970s was the substantial rise in the volume of international capital flows. The high degree of capital mobility, and the volume of funds involved, is a major feature of the international monetary system and the world economy. The degree of financial integration between countries that has now been reached, in large part associated with international capital flows and the expansion of euro-currency markets, has important implications for the conduct of monetary policy. This has become particularly important in the United Kingdom since the abolition of exchange control in October 1979. The extent of financial integration has a major bearing upon both the effectiveness of monetary policy in any one country and the extent to which individual countries are able to pursue a monetary policy strategy independently of that of other countries. Increasingly, monetary policy has had to be framed within the constraints imposed by a high degree of financial integration in the world economy.