ABSTRACT
The importance of the interplay of interest rates and exchange rates is that on this interplay depended the whole regulating machinery of British exchange rates. Bank rate operates to regulate the exchange rates between London and other free gold markets through the interplay which exists between exchange rates and the interest rates ruling in London. Having investigated the effect on exchange rates of variations on the market rate of discount, the authors are in a position to examine the manner in which another one of the interest rates, namely, Bank Rate is used as the regulator of the exchanges. The Bank of England keeps the only material gold reserve in the country, so that the sending of any quantity of gold out of the country means the diminution, sooner or later, of the reserve in the Bank of England's vaults.
