15 - The Bank's Freedom to Operate

Summary

From the 1950s to 1979, across a broad range of its activities, the Bank operated with considerable freedom. It had, of course, been independent since its foundation, and even though, in the late nineteenth century, its public responsibilities took precedence over its obligations to shareholders, it still operated independently. A major test of that independence came with the outbreak of war in 1914, but a face-saving arrangement was devised. It is true that Norman complained in the 1930s that he was no more than an instrument of the Treasury, but in fact, the Bank continued to operate with a great degree of autonomy. Nationalisation did not make much difference to its operations, and neither did Radcliffe. After the Second World War, the Bank continued to regard itself as in many ways independent, and frequent appeals to its independence were made. Throughout the 1950s and 1960s, it was left pretty much alone to manage the exchange rate, manage the government debt, administer exchange controls, take the initiative in monetary policy, look after the City, and so on. As Cobbold put it in 1962, central bankers could not carry out their responsibilities unless they had a large measure of independence from government ‘both in operations and in policy’.

In the 1960s, in effect, there was a target (the exchange rate), and it is clear from the evidence that the Bank was free to pursue the target in its own way, which meant, among other things, organising swaps and credits and engaging in forward intervention on a massive scale in order to protect the rate.