Over the past fifty years the United Kingdom government and the Bank of England have regularly been obliged to confront the question of what constitutes an appropriate exchange rate for sterling. In the aftermath of the First World War sterling was pegged to gold, at a rate which was arguably too high1 and was abandoned in the 1930s. Immediately after the Second World War sterling was again pegged, directly to the dollar and indirectly to gold, at a rate which was clearly above market sentiment,2 and soon abandoned for a more realistic rate. By the later 1960s, even this rate was proving untenable and, after two major devaluations, sterling embarked in 1973 on a loosely managed float. The initial tendency was for sterling to float downwards, but since 1976–7 it has strengthened markedly. Once again the monetary authorities are under pressure, not for choosing too high a target rate but for not acting so as to bring the rate down.
KeywordsAssimilation Volatility Alan
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