• Roy A. Batchelor
  • Geoffrey E. Wood


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.


Exchange Rate Monetary Policy Real Exchange Rate Exchange Market Purchasing Power Parity 
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  1. Bhagwati, J. and V. K. S. Ramaswami (1963), ‘Domestic Distortions, Tariffs, and the Theory of the Optimum Subsidy’, Journal of Political Economy (February).Google Scholar
  2. Corden, W. M. (1981). ‘The Exchange Rate, Monetary Policy and North Sea Oil: The Economic Theory of the Squeeze on Tradeables’, Centre for Banking and International Finance Discussion Paper, The City University and Oxford Economic Papers.Google Scholar
  3. Levich, R. (1979). ‘The Efficiency of Markets for Foreign Exchange’ in R. Dornbusch and J. A. Frenkel, International Economic Policy: Theory and Evidence (Johns Hopkins, Baltimore).Google Scholar
  4. Wood, G. E. (1975). ‘Senile Industry Protection’, Southern Economic Journal (January).Google Scholar

Copyright information

© Roy A. Batchelor and Geoffrey E. Wood 1982

Authors and Affiliations

  • Roy A. Batchelor
  • Geoffrey E. Wood

There are no affiliations available

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