It came care of fixing the exchange rate – first to gold under the Gold Standard and latterly in the post war period to the dollar. With the demise of the dollar standard in the early 1970s, however, the exchange rate anchor had been tossed overboard. At the Bank of England, as elsewhere, the search was on for a new nominal anchor. Into this vacuum stepped Andrew Duncan Crockett. Crockett joined the Bank in 1966 as a graduate entrant, just before the break-up of the Bretton Woods dollar standard. He set to work on the biggest problem of the day, locating a new nominal anchor. In so doing, he began working alongside another young(ish) new Bank entrant, Charles Goodhart. The result was a joint paper published in the Bank’s Quarterly Bulletin in June 1970. It was titled “The Importance of Money”.11 Re-reading it now, it was a prophetic piece of work. In the UK, it laid some of the analytical foundations for what, during the late 1970s and 1980s, became monetarism. More than that, the paper placed commercial bank money and credit at the centre of the macro-economy. It could as well have been titled “The Importance of Credit” or indeed “The Importance of Banks”. After a successful spell at the IMF, Crockett returned to the Bank of England in 1989. In 1994, he then became General Manager of the Bank for International Settlements, the central banks’ central bank. In central bank circles, change was in the air.
This came not a moment too soon. In the immediate post-war period, the UK faced pressing financial infrastructure problems – the so-called “Macmillan gaps”. These gaps referred the inability of small firms to finance themselves with long-term loans. If these gaps sound strangely familiar, then they should. The post-war Bank set about closing these Macmillan gaps with gusto. In 1945 it set up two new financing entities – the Finance Corporation for Industry (FCI) and the Industrial and Commercial Finance Corporation (ICFC). These were financially supported by banks and institutional investors, providing a platform for the supply of longer term funding and venture capital finance to small firms. In 1973, the two corporations combined to form Finance for Industry (FFI). During the early 1980s, the company was rebranded as Investors in Industry, commonly known as 3i. In 1987, the entity went public as 3i Group. This was not a flop. Arguably, 3i and its predecessors were one of the largest feathers in the Bank’s post-war cap, helping support generations of new businesses and start-ups. And those MacMillan gaps? Regrettably, the crisis has re-opened them. Today, small firms are once more starved of finance, including many here in Northern Ireland. Once again, the quest is on for a new financial infrastructure to help close these gaps. Through the 1980s and 1990s, there were further examples of the Bank stepping in to close structural financial gaps. When the UK’s high-value payment system started creaking in the early 1980s, the Bank designed and built a new, bullet-proof system.