Origins
Montagu Norman was appointed Governor of the Bank of England in 1920, during an era of significant global economic dislocation following World War I. The Bank of England, founded in 1694, had already served as the original model for central banking, but under Norman, it faced the unprecedented challenge of restoring the pre-war financial order. Norman emerged as the primary defender of the gold standard, viewing it as the only viable mechanism for global price stability.
The problem Norman sought to solve was the chaotic state of international currencies and the loss of London’s status as the world’s leading financial hub. His governorship was born out of a desire to re-establish the “standard” that had governed the quiet and stable banking era of the 19th century.
Structure & Function
Norman utilized the Bank of England as a template for other central banks, advising newly created institutions across Europe and the British Empire. His approach was characterized by secrecy and personal diplomacy; he famously traveled under pseudonyms and conducted much of his business through private conversations rather than public statements.
His primary mechanism for influence was the close working relationship he cultivated with Benjamin Strong of the New York Fed. Together, they attempted to coordinate interest rate policies across the Atlantic to manage the gold standard and prevent destabilizing currency fluctuations. Norman’s methods relied heavily on the prestige of the Bank and his own mystique as a central banking figure.
Historical Significance
Norman’s twenty-four year tenure (1920–1944) made him the longest-serving Governor in the Bank’s history. His achievements included helping to stabilize European currencies in the 1920s and advising new central banks. However, his legacy is deeply controversial. His insistence on returning Britain to the gold standard at the pre-war parity in 1925 is widely criticized for causing deflation and unemployment.
The ultimate failure of the gold standard in 1931, when Britain was forced to abandon it, represented the collapse of the system Norman had spent a decade defending. His reliance on personal relationships and informal coordination, while effective in calmer times, proved inadequate to the systemic pressures of the Great Depression. By the 1940s, the Bank of England was effectively brought under Treasury control, ending the era of independent central bank governance that Norman had embodied.
Key Developments
- 1871: Birth of Montagu Norman.
- 1920: Appointed Governor of the Bank of England.
- c. 1920: Establishes close working relationship with Benjamin Strong of the New York Fed.
- 1925: Britain returns to the gold standard at pre-war parity, a decision Norman championed.
- 1926: Advises on the creation of central banks in various countries.
- 1928: Death of Benjamin Strong removes Norman’s key American ally.
- 1929: Stock market crash begins the unraveling of the interwar financial order.
- 1931: The United Kingdom is forced to abandon the gold standard despite Norman’s commitment.
- c. 1931: Norman experiences a significant loss of personal influence over policy following the gold exit.
- c. 1940: The Bank of England is effectively brought under the control of the Treasury during World War II.
- 1944: Retirement of Montagu Norman as Governor.
- 1950: Death of Montagu Norman.