Constitutional Dimensions of Monetary Authority under the Gold Standard and Bretton Woods

Abstract

Abstract The leading monetary jurist of the 20th century, FA Mann, considered central banking to fall within ‘constitutional’ rather than ‘monetary’ law. Adopting that taxonomy, this chapter explores the constitutional dimensions of monetary authority during the first half of the 20th century: the Gold Standard and Bretton Woods. It maps the respective balance of constitutional power between parliamentary institutions and central banks under those monetary systems. Adding legal analysis to existing economic histories, it argues that, from a constitutional perspective, the salient transformation of monetary authority between the Gold Standard and Bretton Woods was the facilitation of parliamentary fiscal power to engage in new-money deficit spending despite inflationary effects. That institutional structure was achieved by legally segregating domestic and international monetary policy: requiring central banks to intervene in foreign-exchange markets to neutralize private-market movements against inflationary (and deflationary) fiscal policy. Impossible to implement under the Gold Standard, this segregation of exchange-rate stability and expansionary fiscal policy followed Keynesian constitutional recommendations and was entrenched in the specific legal norms governing UK and US foreign-exchange operations, namely the IMF Articles of Agreement and the operations of Bretton Woods central banks. It elevated parliamentary fiscal power over monetary authorities in a sharp break from prevailing constitutional practice. Those dynamics, and the institutional stressors they created, were clearly illustrated by the 1964–1967 Sterling Crises. Understanding those matters of constitutional and monetary history allows legal scholars to build a more complete understanding of Mann’s legal aspect, and state theory, of money.