The Bank of England, 1891-1944 - Vol. 2

By R. S. Sayers | Go to book overview
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CHAPTER 21 1938-40
THE SHADOW AND THE ONSET OF WAR:

A. THE PRE-WAR DEFENCE OF STERLING

The international crisis of August-September 1938, though relieved by the Munich agreement, brought to an end the peacetime policy of the Bank. Its Governor personally persisted in a faint optimism right down to the outbreak of war, but as a responsible institution the Bank had to assume almost if not quite the worst, and Norman, with vigorous support from the more pessimistic Catterns, was not satisfied merely to co-operate in. Treasury steps but was pressing urgent measures on the government. Financial markets at home and abroad were dominated by the belief that war was certain within a few years and that there was substantial risk of its outbreak within months. On this basis it was urgent to learn from the experience of the weeks of crisis, to prepare for a period of months or years possibly punctuated by recurring crises, and to decide what measures would be needed on or immediately before the outbreak of war. On the last, the new urgency dictated the need to set all in readiness, but important points of policy had still to be settled with the Treasury. On action through the rumbling months or years before the actual outbreak, decisions could not be delayed at all, for the Bank as the operator of the Exchange Equalisation Account had to take action every day. International politics had destroyed all semblance of normality in international financial business and the Account, ideally intervening minimally to prevent undue fluctuations in an active market, found itself frequently having to make the market.a

In the weeks culminating in the Daladier devaluation of the franc, to 179 in May 1938, the Bank had been in the front line not only as the hourly manager of the Exchange Account but also in the making of the policy with which that hourly management had to be consistent. At no time had Bank and Treasury worked more closely together; in Paris, though things had improved when Fournier succeeded Labeyrie, there

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