Lund Papers in Economic History,
Lund University, Department of Economic History

Abstract: The effectiveness of central bank intervention is debated and despite literature showing mixed results, central banks regularly intervene in the foreign exchange market, both in developing and developed economies. Does foreign exchange intervention work? Using over 60,000 new daily observations on intervention and exchange rates, this paper is the first study of the Bank of England’s foreign exchange intervention between 1952 and 1972. The main finding is that the Bank of England was unsuccessful in managing a credible exchange rate over that period. Running an event study, I demonstrate that betting systematically against the Bank of England would have been a profitable trading strategy. The Bank of England failed to maintain credibility in offshore markets and eventually manipulated the publication of its reserve figures to avoid a run on sterling.

Keywords: intervention; foreign exchange; central bank; Bank of England; Bretton Woods

JEL-codes: E50; F31; N14; N24

26 pages, March 20, 2019

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