British bond yields fell because it retains its own currency.
Evidence
The United Kingdom was supposedly spared this drama by “preemptive tightening,” that is, by adopting austerity first and then reaping the benefits of growth once confidence returns. Again, this approach hasn’t turned out quite as planned. Despite the fact that the United Kingdom’s bond yields are lower than many of its peers’, this has less to do with pursuing austerity and more to do with the fact that it has its own central bank and currency. It can therefore credibly commit to backing its banking sector with unlimited cash in a way that countries inside the Euro Area cannot, while allowing the exchange rate to depreciate since it still has one. — Mark Blyth, Austerity, 32
Categorization
- XREF: The independent-currency channel prefigures Mattei’s critique of how monetary capacity shapes austerity’s feasibility and pain. — connects to: A sovereign currency makes a state incapable of defaulting on its own obligations