ABSTRACT
Monetary policy dur ing the war had been largely passive. Apart from a brief flurry at the outbreak of war , Bank Ra te remained unchanged at 2 per cent t h roughou t the nineteen years between 1932 and 1951. Shortte rm market rates were also held steady. T h e rate on Treasury Bills, which had been as low as y per cent in the mid-1930s, was fixed at 1 per cent early in the war th rough the readiness of the Bank of England to make purchases at any higher rate. At the long end of the market , the government had set itself the target of 'a 3 per cent w a r ' and had conducted its debt management policy on that basis. 1 T h e money supply g rew at a rate consistent w i t h this target , doubling over the six years of war as the banks absorbed whatever government debt was not taken up by the public. Advances to customers in the private sector, after dropping by about onequarter in the first four years, held steady in the next t w o and by 1945 absorbed only one-sixth of total bank deposits. T h e resulting excess of bank liquidity was absorbed from the au tumn of 1940 onwards in the form of Treasury Deposit Receipts - non-negotiable inst ruments w i t h a life of six mon ths and carrying a slightly higher rate of interest than Treasury Bills.
