British Monetary Policy before and after the Return to Gold : What does the Appearance of Exchange Operations suggest?

Abstract

This article reconsiders British monetary policy between the Wars, in particular before and after the Return to Gold, and attempts to criticise traditional ideas about the gold standard and to show what the appearance of exchange operations suggests. The final aim of this study is to confirm the significant position of the interwar period in the history of capitalism. The achievement of the aim would help us to understand the capitalism after the world war II. When we inspect the changes in British monetary system after the world war I, we notice that the Return was not a simple return to the gold standard. The Gold Standard Act, 1925 abolished the gold coin standard. The amount of the circulation was not relative to the gold reserve not only in the period before the Return but also in the period after the Return. And there was little change in Bank Rate operations at that time. Nevertheless the exchange rate after the Return was more stable. Here we should direct our attention to the existence of exchange operations. The Bank of England started operations in foreign exchange market after the Return and kept on during the reconstructed gold standard period. The existence of exchange operations means that the reconstructed gold standard could not support the exchange rate by itself, and that on the contrary exchange operations supported the gold standard. This inverted situation suggests that it is not the presence of the convertibility but the exchange adjustment that is a essential problem to the stabilization of the monetary system.