THE FACT that a Newsnight poll of new Tory candidates this month showed overwhelming opposition to European Monetary Union should delight the Bank of England. The Old Lady who once enjoyed the most enviable reputation in the world is set to become the arbiter of monetary policy for the new euro. This will come as a shock to bankers in Frankfurt and Paris, but they will be even more pained that the only way to prevent London's de facto domination of their new currency would be to persuade Britain to surrender her pound to the euro's melting pot.
France and Germany ignore at their peril London's huge capacity for attracting the potent cocktail of speculative money and new financial instruments. A respected German banker warned this month that "if extra liquidity in euros was provided for non-EMU banks, European monetary policy would suffer".
His solution was to impose restrictions on the access of non-EMU member banks to its payment system. But in today's world of free capital flows, the greater the burdens imposed inside the euro system, the greater the incentive for international banks and companies to develop a rival Euro monetary centre in London.
London could create its own liquid pool of euro money almost overnight. All it requires is the creation of a new currency contract on the Liffe futures market. This would enable banks to lend in euros, funds deposited in other currencies, without exchange risk. As the demand to roll contracts forward on the futures market - to avoid expensive physical payment - would be highly sensitive to interest rates, a parallel futures market would rapidly develop on Liffe for short-term euro interest rates.
As the London market grew in size, Frankfurt would lose control over the level of interest rates required to sustain a credible monetary policy.
If the designers of the new currency avoid restrictions on access to their domestic euro markets, there might be less urgency to develop an "offshore" trading centre. But London's pre-eminent position would still act as a magnet for activity. Instead of the London tail wagging the dog of domestic euro interest rates, the dog would become permanently kennelled in London - and Frankfurt and Paris would find that visiting rights were subject to the official purview of the Old Lady.
In either case, the respect and importance which the Bank stands to gain from these developments is enormous. It is also deserved. After all, throughout the Bank's stewardship since 1695 - except in the two decades to 1979 - its track record was unsurpassed.
Even in that period, Britain never approached the hyper-inflation of the Weimar Republic. Britain's post-war inflation may have whittled down the crippling burden of winning in 1945; but, unlike France and Germany, Britain has never actually defaulted on her debts.
Today, the true measure of national debt, taking account (unlike Maastricht) of unfunded debts to pensioners and guarantees to domestic banks, demonstrates our financial superiority. Our true national debt, even when measured per household, is one-half the size of France's true debt and one-third that of Germany.
The irony is that the one action that would sink the Old Lady's revival as Europe's leading central bank is if we chose, perversely, to join the monetary union. In this case, the Bank governor in London would be appointed and take his orders from Frankfurt in the same way as the governor of the Bank of New York is controlled by the Federal Reserve in Washington.
The irrevocable transfer of our foreign reserves to Frankfurt, currently valued at more than £25 billion, would symbolise the fact that our national debt was now ineluctably joined to the monumental obligations owed by Germany and France to their pensioners and banks.
At a stroke, we would have destroyed an historic opportunity to restore the reputation of this country's currency for strength and probity.
British enthusiasts for joining monetary union argue that we must participate in order to avoid the rules being rigged against us. They point to the disaster of the Common Agricultural Policy and wistfully suggest that we could have steered Europe clear of the policy errors if we had been Community members from the start.
This comparison is grotesque. The agricultural policy deals in a collection of local markets where cross-border activity is severely hampered.
The currency markets come the closest of any in the world to the classic model of a free market. Transaction costs are minimal. Access is almost universal. New information is disseminated without delay.
The Common Agricultural Policy, with its periodic mountains and lakes, excessive subsidies and wanton corruption, has lasted for 40 years. Until its recent collapse, Sumitomo's manipulation of the obscure copper market lasted 10 years. Britain's attempt to remain in the exchange rate mechanism in September 1992 did not last 10 hours.
It is time to admit the irresistible power of the market forces which will shape the development of France and Germany's new currency. This whole project has been characterised by the kind of blind political determination which in previous generations led them to defeat in war.
Proponents of the euro, who think London's role as the centre of trading in the new currency can be prevented through banking restrictions, should put Mickey Mouse on the banknotes. A sense of humour is their best chance of alleviating the abject humiliation that awaits their misguided plans.
John Major's refusal to rule out participation in monetary union is diplomatic. It also has the potential to keep the currency speculators guessing - a strategic weapon to protect the pound.
But a British government which actually joined this enterprise would be guilty of an impeachable offence.
Rather our inspiration should be Pitt the Younger. After 1979 - as after Trafalgar - the United Kingdom "has saved herself by her exertions, and will, as I trust, save Europe by her example".
Nick St Aubyn, prospective Conservative candidate for Guildford, Surrey, was JP Morgan's founding member of the Liffe futures exchange, 1982-84.
