British Techniques of Monetary Policy: A Critical Review

Abstract

THE TECHNIQUES OF MONETARY CONTROL currently employed by the Bank of England are basically those of direct administrative intervention into financial markets. These direct controls and regulations constitute a systematic but incomplete alternative to the market-oriented and indirect techniques of intervention traditionally employed by the Bank of England in implementing monetary policy. The new system of direct controls has evolved over the past three decades to fill the gap created when the Bank of England abandoned control of the money supply by its traditional instruments of Bank Rate and open market policy. Paradoxically, it is virtually impossible to find an account of the new set of administrative controls viewed as an integrated system. Authoritative accounts of the techniques of British monetary policy continue to stress the traditional policy instruments as central while treating new techniques as temporary anomalies adopted under the stress of emergency situations which have been all too frequent in recent years. Thus, the supposed ineffectiveness of traditional monetary policy under British conditions has served as justification for the steadily expanding network of controls on which the Bank of England has come to rely. The central thesis of this article is that the need for these controls has arisen from a serious misdiagnosis by the British authorities of the applicability of