In short, the peripatetic pound has caused, and continues to cause, severe headaches for economic policymakers. But was currency instability really the cause of those headaches in the past, or was it simply the effect of bad policies? Some of both is the answer. Large movements in sterling can create problems for monetary policy, as we have seen very recently. Equally, the absence of a credible monetary framework means that the currency is likely to be volatile. Sterling crises of the past reflected an absence of monetary stability. Inflation has eroded the value of money to the point where the purchasing power of £ in 1950 has been reduced to less than a shilling, or 5p, today. The failure to control inflation led to excessive expansions of the economy, and the subsequent struggle to bring inflation back down resulted in severe recessions. This country experienced the sharpest decline in output of any G7 economy in the early 1980s. And in the early 1990s only Canada had a more severe recession. Eventually, the realisation that inflation did not generate sustainably higher output and employment produced a determination to restore stability to the UK economy. Since our departure from the ERM, in September 1992, successive governments have put in place institutional changes that would deliver stability. First the inflation target and then independence of the Bank of England, with the new Monetary Policy Committee (MPC), have put us firmly on course to achieve monetary stability.
Preemptive action to slow domestic demand growth to a more sustainable level is the key to avoiding a larger and more painful adjustment at a later date. That is why the MPC has raised interest rates by 100 basis points since September. I hope you now understand why our ambition is to be so boring. Our aim is to maintain economic stability. A reputation for being boring is an advantage - credibility of the policy framework helps to dampen the movement of the see-saw. If love is never having to say sorry, then stability is never having to be exciting. Miss Prism should not have to tell future Cecilies to omit the chapter on the activities of the Monetary Policy Committee. 3  BIS Review 34/2000