Lawrence Broz 209obligations and to service British overseas portfolio investments. Finally, Britain’s
pledge of convertibility at a fixed rate and on unqualified terms meant that sterling
was also a secure store of value. This led not just foreign individuals and banks to
make short-term investments in London but foreign governments and central banks
themselves to hold reserves in sterling assets and bank deposits. In short, the
English commitment to the gold standard served as the primary institutional
underpinning of sterling’s central position in the world economy....
England thus provided the world with a currency eminently suitable for
international purposes—an international public good. However, to attribute other
system-sustaining functions to Britain, as the international political economy
literature frequently does, misinterprets the facts. First, the Bank of England
definitely did not serve as the classical gold standard’s lender of last resort....
The real “hegemon” in regard to this function was the Bank of France, as discussed
below. Second, there is scant evidence confirming the view that England consciously
managed the international monetary system in non-crises times, with an eye toward
coordinating national macroeconomic policies so as to mitigate global inflation
and business cycles....
... [W]hile other aspects of British “hegemony” remain in doubt, the
international public good that English policy unambiguously provided was a
currency appropriate for international use. Sterling was acceptable as a private
and official international money because it was convertible into gold upon demand.
British authorities attached clear priority to the defense of gold convertibility
and demonstrated this commitment repeatedly in the face of adverse domestic
conditions. The London financial market, in turn, possessed the necessary
characteristics of breadth, depth, and resilience that ensured nonresidents of the
liquidity of the working balances they held there. This commitment to gold
reflected the enduring dominance of the gold standard coalition: the alliance of
the City of London, landlords, bondholders, and international-competitive industry.
When gold flowed out or in, the Bank of England took actions on interest rates
consistent with the coalition members’ interest in maintaining the gold value of
the currency, whether or not these actions accorded with the needs of the domestic
economy. Domestic economic activity—and all those interests that were tied to
it—were thus subject to frequent variations in interest rates. To internationalists
and creditors, it was simply more essential that the value of the currency remain
constant in terms of foreign currencies than that the Bank rate and general interest
rates remain stationary and/or low.
The victory of gold at home produced a monetary orientation that was beneficial
to the functioning of the international gold standard. But this public good of a
key currency was not provided by Britain out of conscious concern for sustaining
the international economic order. Instead, it was a spillover—a positive externality—
of Britain’s individual preference for monetary orthodoxy in a world in which
Britain was the most powerful financial and trading nation. The externality was
partially internalized, however. As City bankers and acceptance houses earned
rents from the increasing internationalization of sterling, the intensity of their
preference for orthodoxy increased. Nevertheless, the English preference for
monetary orthodoxy reflected the hierarchy of social interests within Britain. That