Skip to main content

Historical reasons for the focus on broad monetary aggregates in post-World War II Britain and the ‘Seven Years War’ with the IMF

  • Charles A. E. Goodhart (a1) and Duncan J. Needham (a2)

The British monetary authorities have traditionally focused on broader monetary aggregates than their counterparts elsewhere. The reasons include: the willingness of UK banks to allow customers to make payments by drawing on time deposits, the particularities of the UK approach to managing the national debt and the foreign exchange reserves, and the flow-of-funds system of national accounts developed after World War II. This article outlines these reasons, and explores the implications for the UK's often fractious relationship with the International Monetary Fund during the 1950s and 1960s. It explains why IMF conditionality on loans to the UK focused on broad aggregates.

Corresponding author
D. J. Needham (corresponding author), Darwin College, University of Cambridge, Silver Street, Cambridge cb3 9eu , UK; email:
Hide All

The authors are grateful to two anonymous referees for their comments.

Hide All
Bank of England Archive, London
International Monetary Fund Archive, Washington DC
The National Archives, London
Bank of England Statistical Summary
Bank of England Quarterly Bulletin (BEQB)
Economic Trends
The Economist
Financial Statistics
International Financial Statistics (IFS)
Midland Bank Review
Alford, R. F. G. (1986). Flow of Funds: A Conceptual Framework and Some Applications. Aldershot: Gower.
Alford, R. F. G. (2009). Life and LSE. Brighton: Book Guild Publishing.
Allen, W. A. (2012). Quantitative monetary policy and government debt management in Britain since 1919. Oxford Review of Economic Policy, 28(4), pp. 804–36.
Allen, W. A. (2014). Monetary Policy and Financial Repression in Britain, 1951–59. Basingstoke: Palgrave Macmillan.
Bain, A. D. (1973). Surveys in applied economics: flow of funds analysis. Economic Journal, 83(332), pp. 1055–93.
Balogh, T. (1950). Studies in Financial Organisation. Cambridge: Cambridge University Press.
Bank Of England (1972). An Introduction to Flow of Funds Accounting: 1952–70. London: Bank of England.
Batini, N. and Nelson, E. (2005). The UK's rocky road to stability. Federal Reserve Bank of St Louis Working Paper 2005–020A.
Bell, G. L. and Berman, L. S. (1966). Changes in the money supply in the United Kingdom, 1954 to 1964. Economica, 33(130), pp. 148–65.
Berman, L. S. and Cassel, F. (1968). Short-term forecasts of income, expenditure and saving. Economic Trends, 172, pp. ixxv.
Bjork, S. and Offer, A. (2013). Reconstructing UK Flow of Funds Accounts before 1987. Oxford: Winton Institute for Monetary History.
Board Of Governors Of The Federal Reserve System (1943). Banking and Monetary Statistics, 1914–1941. Washington, DC: Board of Governors of the Federal Reserve System.
Bordo, M. D., Humpage, O. F. and Schwarz, A. J. (2015). Strained Relations: US Foreign-Exchange Operations and Monetary Policy in the Twentieth Century. Chicago: University of Chicago Press.
Cairncross, A. K. (1996). Managing the British Economy in the 1960s: A Treasury Perspective. Basingstoke: Macmillan.
Cairncross, A. K. (1997). The Wilson Years: A Treasury Diary 1964–1969. London: Historians’ Press.
Capie, F. H. (2010) The Bank of England: 1950s to 1979. Cambridge: Cambridge University Press.
Capie, F. H. and Webber, A. (1985). A Monetary History of the United Kingdom: 1870–1982, vol. 1: Data, Sources and Methods. London: George Allen and Unwin.
Clift, B. M. and Tomlinson, J. D. (2008). Negotiating credibility: Britain and the International Monetary Fund, 1956–1976. Contemporary European History, 17(4), pp. 545–66.
De Bonis, R. and Gigliobianco, A. (2012). The origins of financial accounts in the United States and Italy: Copeland, Baffi and the institutions. In De Bonis, R. and Pozzolo, A. F. (eds.), The Financial Systems of Industrial Countries. Heidelberg: Springer.
Dorrance, G. S. (1955). Financial accounts in a system of economic accounts. IMF Staff Papers, 4(2), pp. 319–29.
Dow, J. C. R. (1970). The Management of the British Economy, 1945–60. Cambridge: Cambridge University Press.
Dudley Edwards, R. (1993). The Pursuit of Reason: The Economist 1843–1993. London: Hamish Hamilton.
Fforde, J. S. (1992). The Bank of England and Public Policy, 1941–1958. Cambridge: Cambridge University Press.
Finch, C. D. (1989). The IMF: the record and the prospect. Princeton Essays in International Finance 175.
Fletcher, G. A. (1976). The Discount Houses in London. London: Macmillan.
Goodhart, C. A. E. (2003). A central bank economist. In Mizen, P. (ed.), Central Banking, Monetary Theory and Practice. Cheltenham: Edward Elgar.
Goodhart, C. A. E. (2009). The continuing muddles of monetary theory: a steadfast refusal to face facts. Economica, 76(s1), pp. 821–30.
Goodhart, C. A. E. (2016). Determining the quantity of bank deposits. The Basel Issue, Banking Perspectives available online at
Goodhart, C. A. E. (2017). The determination of the money supply: flexibility versus control. The Manchester School, 85, pp. 3356.
Goodhart, C. A. E., Bartsch, E. and Ashworth, J. (2016). Central banks and credit creation: the transmission channel via the banks matters, Sveriges Riksbank Economic Review, 3, pp. 5568.
Goschen, G. J. (1905). Essays and Addresses on Economic Questions. London: Edward Arnold.
Higgonet, R. P. (1957). Bank deposits in the United Kingdom, 1870–1914. Quarterly Journal of Economics, 71(3), pp. 329–67.
Horsefield, J. K. (1969). The International Monetary Fund, 1945–1965: Twenty Years of International Monetary Cooperation, vol. 1: Chronicle. Washington, DC: International Monetary Fund.
Hotson, A. C. (2010). British monetary targets, 1976 to 1987: a view from the fourth floor of the Bank of England. LSE Financial Markets Group Paper Series 190.
Hotson, A. C. (2017). Respectable Banking: The Search for Stability in London's Money and Credit Markets since the Great Currency Crisis of 1695. Cambridge: Cambridge University Press.
Howson, S. K. (1980). Sterling's managed float: the operations of the Exchange Equalisation Account, 1932–39. Princeton Studies in International Finance 46.
James, H. (1996). International Monetary Cooperation since Bretton Woods. Oxford: Oxford University Press.
Keynes, J. M. (1930). A Treatise on Money. London: Macmillan.
Macmillan Committee (1931). Committee on Finance and Industry: Report (‘Macmillan Report’) . London: HMSO.
Meade, J. E. (1934). The amount of money in the banking system. Economic Journal, 44, pp. 7783.
Needham, D. J. (2014). UK Monetary Policy from Devaluation to Thatcher, 1967–82. Basingstoke: Palgrave Macmillan.
Nevin, E. and Davis, E. W. (1970). The London Clearing Banks. London: Elek.
Nobay, A. R. (1973). The Bank of England, monetary policy and monetary theory in the United Kingdom, 1951–1971. The Manchester School, 41(1), pp. 4358.
Phillips, C. A. (1920). Bank Credit: A Study of the Principles and Factors Underlying Advances Made by Banks to Borrowers. New York: Macmillan.
Polak, J. J. (1957). Monetary analysis of income formation and payments problems. IMF Staff Papers, 6(1) pp. 150.
Polak, J. J. (1959). Financial statistics and financial policy. IMF Staff Papers, 7(1), pp. 18.
Polak, J. J. (1997). The IMF model at forty. IMF Working Paper no. 97/49.
Polak, J. J. (2001). The two monetary approaches to the balance of payments: Keynesian and Johnsonian. IMF Working Paper no. 01/100.
Polak, J. J. and Boissonneault, L. (1960). Monetary analysis of income and imports and its statistical analysis. IMF Staff Papers 7(3), pp. 349–69.
Radcliffe Committee (1959a). Committee on the Working of the Monetary System: Report (‘Radcliffe Report’). London: HMSO.
Radcliffe Committee (1959b). Committee on the Working of the Monetary System: Principal Memoranda of Evidence. London: HMSO.
Radcliffe Committee (1960). Committee on the Working of the Monetary System: Minutes of Evidence. London: HMSO.
Sayers, R. S. (1938). Modern Banking. Oxford: Oxford University Press.
Sayers, R. S. (1967). Modern Banking, 7th edn. Oxford: Oxford University Press.
Schenk, C. R. (2010). The Decline of Sterling: Managing the Retreat of an International Currency, 1945–1992. Cambridge: Cambridge University Press.
Shepperd, D. K. (1971). The Growth and Role of UK Financial Institutions, 1880–1962. London: Methuen.
Steele, G. R. (2014). The credit counterparts of broad money: a structural base for macroeconomic policy. Economics Working Paper Series 2014/001, Lancaster: Lancaster University Management School.
Tew, J. H. B. (1978). Monetary policy: part i . In Blackaby, F. T. (ed.), British Economic Policy, 1960–74. Cambridge: Cambridge University Press.
Turner, J. D. (2014). Banking in Crisis: The Rise and Fall of Banking Stability, 1800 to the Present. Cambridge: Cambridge University Press.
Wadsworth, J. E. (1973). The Banks and the Monetary System in the UK, 1959–1971. Abingdon: Methuen.
Withers, H. (1910). The English Banking System. Washington, DC: Government Printing Office.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Financial History Review
  • ISSN: 0968-5650
  • EISSN: 1474-0052
  • URL: /core/journals/financial-history-review
Please enter your name
Please enter a valid email address
Who would you like to send this to? *



Altmetric attention score

Full text views

Total number of HTML views: 8
Total number of PDF views: 140 *
Loading metrics...

Abstract views

Total abstract views: 346 *
Loading metrics...

* Views captured on Cambridge Core between 11th January 2018 - 24th June 2018. This data will be updated every 24 hours.