The Bank of England, is the central bank of the United Kingdom . Established in 1694, it is the second oldest central bank in the world, and the world’s 8th oldest bank if you include commercial banks. It was established to act as the English Government’s banker, and to this day it still acts as the banker for the U.K Government, the Bank was privately owned and operated from its foundation in 1694 but it was nationalised in 1946. The bank of England has about £156 billion pounds worth of gold ingots as a backup if people start to ask for their money back , the bank also acts a custodian for other counties gold, including Germanys and various other counties.
The establishment of the bank was devised by Charles Montagu, Earl of Halifax, in 1694.He suggested loan of £1.2m to the government; in return the subscribers would be incorporated as The Governor and Company of the Bank of England with long-term banking privileges including the issue of notes. The Royal Charter was granted on 27 July through the passage of the Tonnage Act 1694. Public finances were in poor a condition at the time that the terms of the loan were that it was to be serviced at a rate of 8% per year, and there was also a service charge of £4,000 per year for the management of the loan. The first governor was Sir John Houblon, who is depicted in the £50 note issued in 1994. The Bank’s original home was in Walbrook in the City of London, unitl it moved to its current location on Threadneedle Street, and thereafter slowly acquired neighbouring land to create the bulding seen today.
When the idea and reality of the National Debt came about during the 18th century this was also managed by the bank. By the charter renewal in 1781 it was also the bankers’ bank – keeping enough gold to pay its notes on demand until 26 February 1797 when war had so diminished gold reserves that the government prohibited the Bank from paying out in gold. This prohibition lasted until 1821. The 1844 Bank Charter Act tied the issue of notes to the gold reserves and gave the bank sole rights with regard to the issue of banknotes. Private banks which had previously had that right retained it, provided that their headquarters were outside London and that they deposited security against the notes that they issued.
A few English banks continued to issue their own notes until the last of them was taken over in the 1930s During the period which lasted from 1920 to 1944, the Bank made deliberate efforts to move away from commercial banking and become a central bank. In 1946 the bank was nationalised by the Labour government. On 6 May 1997, following the 1997 general election which brought a Labour government to power for the first time since 1979, it was announced by the Chancellor of the Exchequer, Gordon Brown, that the Bank of England would be granted operational independence over monetary policy. Under the terms of the Bank of England Act 1998 which came into force on 1 June 1998.
The Bank’s headquarters has been located in London’s main financial district, the City of London, on Threadneedle Street, since 1734. The busy road junction outside is known as Bank junction as well as the tube terminal called ‘Bank’.
The bank currently employees around 1900 people. Sir Mervyn King is the most executive figure within the bank, he then has two deputies under him who are called Charles Bean and Paul Tucker, there are then 10 directors under them responsible for the everyday decisions of the bank and its subsidiaries.
Functions of the Bank
The Bank of England performs all the functions of a central bank. The most important of these is supposed to be maintaining price stability and supporting the economic policies of the British Government, thus promoting economic growth. There are two main areas which are tackled by the Bank to ensure it carries out these functions efficiently. Monetary stability – stable prices and confidence in the currency are the two main criteria for monetary stability. Stable prices are maintained by making sure price increases meet the Government’s inflation target. The Bank aims to meet this target by adjusting the base interest rate, which is decided by the Monetary Policy Committee, and through its communications strategy, such as publishing yield curves. Financial stability -maintaining financial stability involves protecting against threats to the whole financial system. Threats are detected by the Bank’s surveillance and market intelligence functions.
The threats are then dealt with through financial and other operations, both at home and abroad. In exceptional circumstances, the Bank may act as the lender of last resort by extending credit when no other institution will. The Bank of England has a monopoly on the issue of banknotes in England and Wales. Scottish and Northern Irish banks retain the right to issue their own banknotes, but they must be backed one to one with deposits in the Bank of England, excepting a few million pounds representing the value of notes they had in circulation in 1845. Since 1998, the Monetary Policy Committee (MPC) has had the responsibility for setting the official interest rate.
However, with the decision to grant the Bank operational independence, responsibility for government debt management was transferred to the new UK Debt Management Office in 1998, which also took over government cash management in 2000. The Bank used to be responsible for the regulation and supervision of the banking and insurance industries, although this responsibility was transferred to the Financial Services Authority in June 1998. After the financial crises in 2008 new banking legislation transferred the responsibility for regulation and supervision of the banking and insurance industries back to the Bank.
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