In 1992, the United Kingdom had reluctantly joined the ERM, mainly to help with inflation management at home. But in the wake of the Maastricht referendum in France, pressure mounted on sterling and other European currencies. The Government did not want to ease the pressure by increasing interest rates. This would have displeased mortgage owners that voted it in. The small tension turned into a full currency crisis. Following remarks by the Bundesbank president, the Bank had to spend $22 billion yet failed to save the pound. Britain left the ERM and stopped managing the pound altogether. The focus was now no longer on exchange rates but on inflation targeting.

In 1992, the UK had reluctantly joined the ERM, mainly to help with inflation management at home. But in the wake of the Maastricht referendum in France, pressure mounted on sterling and other European currencies. The Government did not want to ease the pressure by increasing interest rates. This would have displeased mortgage owners that voted it in. The small tension turned into a full currency crisis. Following remarks by the Bundesbank president, the Bank had to spend $22bn yet failed to save the pound. Britain left the ERM and stopped managing the pound altogether. The focus was now on inflation targeting, no longer exchange rates.

After officially floating sterling, the Bank was still managing the pound behind the scenes. The Chancellor wanted sterling lower. The Bank therefore nudged the pound downwards with a surprise dollar purchase on 4 March 1976. This intervention was orders of magnitude from usual Bank operations. Private currency dealers got scared and started to follow the Bank and sell sterling. While the Government welcomed the fall at first, it quickly turned into a full-blown currency crisis. And just a few months later, the Government had to beg the IMF for money to prevent the pound collapsing.

This chapter summarizes the main episodes of output contraction and crises across subsequent decades and relevant sub-periods in the long twentieth century. It interprets the main findings of the book and draws lessons for the design and implementation of policies that can be effective to anticipate and cope with macrocrises and main recessions.