Exchange Rates, Interest Rates and the Mobility of Capital: A Comment

In October 1979, the government of the United Kingdom removed many, long-standing restrictions on capital movements. In the following year, the pound appreciated against the dollar and other major currencies. At the time of the announcement, the dollar exchange rate stood below $2.20 per pound; a year later the dollar exchange was above $2.40. The appreciation of the pound against other currencies-for example the mark and the yen-is proportionally greater during this period because the dollar appreciated against the mark and the yen and the pound appreciated relative to the dollar.