A Study Of The Gold Standard Policy Of The Bank Of England (1918-1939)

The period of 1918 to 1931 is very crucial to the Great Britain, as the powerful leader of the world; it has incomparable superiority to other nations. But in the meantime, it has potential crisis, it has some achievements in the financial reformation, but the return to the gold standard system is a serious blunder, it limits policy choices of the Bank of England, it leads to serious plight in economics. The Great Britain loses the best periods for economic development; it is the only standstill country in the main capitalist countries in 1920s. As the core of the whole financial system of the empire, the conservative policies of the Bank of England is the important factor that leads to the empire go downhill.The Great Britain had to abandon the gold standard in 1931 because of the economic crisis. The main leaders of the Bank of England rethink the situation completely, and then adjust their policies in the mid-1930s. The Great Britain gets rid of the economic crisis very quickly, its unemployment rate decreased, foreign trade developed, economy recovered. The Great Britain is not in great depression in 1930s, it is stable compared to the USA, Japan and most other countries in Europe. This paper introduces some major measures of the central bank during this period, analyses the effects to the economy and society, illustrates the subject of this paper, as the core of the whole financial system, the policies of the Bank of England are very important for the country. Appropriate policies benefit the nation, or else, harm the country. The central bank should be very cautious when make policies, it should listen to all positive views, make full study on Strategic issues, it should adjust policies timely if the outcome is not optimistic. Tactical success is not enough if the strategy is not proper. Besides, the main leaders of the central bank should be far-sighted, adjust ideas and policies according to the development of the society, lead the Great Britain develop positively.The thesis consists of 3 parts:The introduction reviews domestic and foreign scholars’research on the bank of England, points out the focus and special of this thesis.Chapter one has 2 parts, part 1 introduces the reasons of the establishment of the Bank of England briefly; part 2 mainly introduces the transformation of functions of the Bank of England;Chapter two is the most important part of the paper, illustrates the measures and influence of the bank of England, mainly the period when Montagu Norman in the post of the president of the central bank. This chapter has 3 parts, part 1 mainly introduces the great changes of the Bank of England after The First World War; part 2 illustrates, in order to recover gold standard, the bank of England makes full efforts, especially its president Montagu Norman. Lord Norman invents gold exchange standard, he persuades many leader of other countries to add pound sterling in reserve assets, accompanies Prime Minister Baldwin to USA settle the war debts; makes close cooperation with the Federal Reserve; persuades chancellor Winston Churchill to join his part; lets the Bank of England raise interest rates, reduce the amount of currency in circulation; Improves the sterling exchange rate through tight monetary policy, and so on. Part 3 illustrates, after the return to gold, the Great Britain is stuck in trouble, with economic depression and high unemployment rate for a long period.Chapter three introduces the measures and influence of the bank of England and the British government after the end of the gold standard system, summarizes the malpractice of the gold standard system after the First World War. This chapter has 3 parts, part 1 summaries the gold standard system after The First World War, points out the necessity of its collapse; part 2 illustrates, the great Britain adopts many new measures after the end of the gold standard system, for example, set the Exchange Equalization Account, Lower interest rates, Let the devaluation of the pound, Limit the amount of foreign loans, cooperate with other central banks an government actively, and so on. These measures are very effective, on the one hand, reduce the financial burden of the government greatly, the government can put more resources into production, culture, military and other fields; On the other hand, promote the economic development of the Great Britain. Part 3 illustrates, the Great Britain has big changes after the end of gold standard system, the unemployment rate decreased, economy recovered, foreign trade and other fields have great improvements.The epilogue part summarizes the main argument of this thesis. As the core of the whole financial system, the Bank of England should keep pace with times, adjust policies timely, lead the Great Britain develop positively.