The Bank of England as the World Gold Market-Maker During the Classical Gold Standard Era, 1889-1910

Abstract

This paper studies the microfoundations of the so-called device policy by analysing a new dataset on the Bank of England's operations in the gold market at the heyday of the classical gold standard. It explains that devices must be understood in connection to the Bank's role as gold market-maker in London and to the position of London as world gold market. Contrary to the literature, the paper shows that devices were sophisticated monetary policy tools intended to complement – not to substitute – interest rate policy and aimed at smoothing – not at hampering – international adjustment. These findings demonstrate the potential of adopting a microstructural approach to the study of monetary policy, and call for a reassessment of efficiency measurement for the gold standard.