A letter to the Editor of the Times which was published on 7th October 1991.

It is a pity that Sir Peter Hordern (October 1st) should subscribe to the view that central banks control inflation through their supply of the currency.

The massive inflation which we are only just recovering from was not due to the Bank of England’s printing a large over-supply of bank notes, but to the vast expansion of credit by the commercial banks.  This expansion of credit in 1987-9 expressed as a proportion of GDP, more or less accounts for the inflation rates of 8 to 11 per cent during those years.

A central bank per se, whether independent or not, is an almost total irrelevance so far as inflation is concerned in a world dominated by thousands of different monetary agencies able to switch assets and liabilities across the world at the touch of a button.

For continentals the drive for a European central bank is seen as a vital step on the way to a European state and government.  Monetary and political union are inseparable as everyone, except the British political centre, with its overwhelming wish to avoid hard choices, recognises.