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Sovereign debt sustainability, financial repression, and monetary innovation: Britain and currency black markets in the mid-20th century

Hileman, Garrick (2015) Sovereign debt sustainability, financial repression, and monetary innovation: Britain and currency black markets in the mid-20th century. PhD thesis, London School of Economics and Political Science.

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The 1940s were the last time sovereign debt levels for many advanced economies were comparable to recent times. Following the Second World War the United Kingdom is viewed as having achieved the highest public debt to income ratio while still avoiding default of any country in last three centuries. However, previous research on the UK during this period has largely overlooked British post-war debt sustainability and the role played by financial repression. This thesis presents a conceptual framework of the mechanisms for achieving sovereign debt sustainability, along with their resultant political economy trade-offs. The conventional historical view that the UK avoided default on its sovereign financial agreements following the Second World War is re-examined and Britain is found to have ‘partially defaulted’ in the years following the Second World War. This thesis provides a historical narrative of the intellectual origins and policies of modern financial repression in Britain and presents alternative qualitative and quantitative measurements of financial repression. Monetary innovation accompanied 1930s-40s financial regulation, particularly the development of sophisticated currency black markets in New York and Switzerland. Statistical analysis of new daily time series data from these markets provides a quantitative market perspective on historical turning points during the 1940s. A currency taxonomy and discussion of the causes behind the rise and decline of alternative currencies is presented. While alternative currencies also featured during the 1940s they were arguably less numerous and less innovative than during the Great Depression period. The British case ultimately illustrates the complex dynamics and trade-offs of sovereign debt sustainability vis-à-vis other competing policy objectives, such as a desire for open markets and economic growth, financial stability, and geopolitical priorities.

Item Type: Thesis (PhD)
Additional Information: © 2015 Garrick Hileman
Uncontrolled Keywords: sovereign debt, debt sustainability, economic growth, fiscal consolidation, inflation, asset sales, financial aid, financial repression, debt forgiveness, default, repudiation, British economic history, Anglo-American Financial Agreement, geopolitics, currency black markets, British pound sterling, free sterling, U.S. dollar, Swiss franc, Second World War, exchange rates, New York, Zurich, money, currency, national currencies, parallel currencies, alternative currencies, community currencies, crypto-currencies, digital currencies, virtual currencies, bitcoin
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
Sets: Departments > Economic History
Supervisor: Ritschl, Albrecht and Ferguson, Niall

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