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Abstract

Is it the calm after the storm; or the calm before the storm for the UK's central bank, the Bank of England (BoE)? The BoE has weathered the aftermath of abandoning the Exchange Rate Mechanism (ERM) in 1992 and the subsequent free float of sterling. But it is not yet due for smooth sailing, for another currency crisis seems to be around the corner with the sterling rising steeply against the dollar. Already the manufacturing sector has taken the brunt and a few other pieces of the UK economy are preparing to follow. But the BoE believes that the UK economy, which had withstood many trials and tribulations of the world economy through mid the 1990s and early 2000s, is flexible enough to counter all variations of the sterling against all major world currencies. This case study debates whether a currency appreciation arises out of extraneous factors (assuming a stable domestic economy) and not always from a country's economic fundamentals.
Location:
Other setting(s):
2007

About

Abstract

Is it the calm after the storm; or the calm before the storm for the UK's central bank, the Bank of England (BoE)? The BoE has weathered the aftermath of abandoning the Exchange Rate Mechanism (ERM) in 1992 and the subsequent free float of sterling. But it is not yet due for smooth sailing, for another currency crisis seems to be around the corner with the sterling rising steeply against the dollar. Already the manufacturing sector has taken the brunt and a few other pieces of the UK economy are preparing to follow. But the BoE believes that the UK economy, which had withstood many trials and tribulations of the world economy through mid the 1990s and early 2000s, is flexible enough to counter all variations of the sterling against all major world currencies. This case study debates whether a currency appreciation arises out of extraneous factors (assuming a stable domestic economy) and not always from a country's economic fundamentals.

Settings

Location:
Other setting(s):
2007

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