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1984: The Boe Vs The 'market'

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Archives 1984: Redwood’s tale of the Big Bang


John Redwood and markets.

Ends with the following tale:

'Mr Redwood warned that by unofficially trying to get the value of the pound to match that of the Deutschmark, the Bank of England was “unravelling” months’ worth of government monetary policy. The revelation shows monetary policy chiefs were targeting exchange rates much earlier than previously believed – it was previously thought the UK did not begin shadowing the Deutschmark until 1987.

In a separate note to Thatcher, Mr Redwood warned: “The Bank of England is busily unravelling many months of patient work putting clarity into our economic policy . . . We do not have an exchange rate target . . . Only the market can fix a true rate for the pound.”

His warning proved accurate. Two years after Britain formally joined the exchange rate mechanism in 1990, the pound slumped and the government was forced to exit after a failed and costly attempt to prop up the currency. The incident, known as “Black Wednesday”, did long-term damage to the Conservative party’s reputation for sound economic management, helping to pave the way for Labour’s first landslide victory of 1997.'

Worth a read.

Just as well the BoE and government has learned its lesson ehh?

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