Dirty float or clean intervention? The Bank of England in the foreign exchange market

Alain Naef

43 citations0/0 files storedEuropean Review of Economic History

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Global Financial Crisis and Policies

Abstract

Abstract The effectiveness of central bank intervention is debated and despite literature showing mixed results, central banks regularly intervene in the foreign exchange market, both in developing and developed economies. Does foreign exchange intervention work? Using over 60,000 new daily observations on intervention and exchange rates, this paper is the first to study the Bank of England's foreign exchange intervention between 1952 and 1972. The main finding is that the Bank was unsuccessful in managing a credible exchange rate over that period. Running an event study, I demonstrate that betting systematically against the Bank of England would have been a profitable trading strategy. Pressures increased in the 1960s and the Bank eventually manipulated the publication of its reserve figures to avoid a run on sterling.

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References

2021Taming Black Swans: Challenges for Sustainable Strategic Crisis Management: Plenary Session 1979A Model of Balance-of-Payments Crises 2001Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?1993Does foreign-exchange intervention matter? The portfolio effect 1993The Effectiveness of Central-Bank Intervention: A Survey of the Literature After 1982 2006Central Bank Cooperation at the Bank for International Settlements, 1930–1973 2002The market microstructure of central bank intervention 2009The rise and fall of the dollar (or when did the dollar replace sterling as the leading reserve currency?)

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2020Do old habits die hard? Central banks and the Bretton Woods gold puzzle 2019The Gold Pool (1961–1968) and the Fall of the Bretton Woods System: Lessons for Central Bank Cooperation 2017The Gold Pool (1961-1968) and the Fall of the Bretton Woods System. Lessons for Central Bank Cooperation.

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