Bretton-Woods: UK's IMF Crisis

The current stability in the monetary systems of most of the advanced economies belies the very turbulent recent past that saw the Bretton-Woods system of internationally fixed exchange rates abandoned after only 15 years, and at a great cost to many nations. The cost to the U.K. was a $3.9bn emergency loan obtained from the International Monetary Fund (IMF) in September 1976, which at that time was the largest amount ever secured from the IMF. Although the loan was never fully drawn, it shows the scale of the crisis the U.K. was grappling with at the time. The Bank of England raised its policy rate to 17% in 1979 in order to combat inflation which had earlier peaked at 26.7% during a period when unemployment was hovering around 12%. This marked the beginning of the deployment of interest rate as a tool for inflation targeting, and effectively ended the regime of economic growth and full employment as anchor for policymaking in the U.K.