The central bank of the United Kingdom. The structure is similar to other central banks such as the the Federal Reserve and Bank of Japan.
It was established in 1694 to serve as the banker for the English government. This was set up as a private institution and owned by the stockholders under 1946. The Bank of England is the world's 8th oldest bank.
In 1998, the bank became a public independent organization owned by the Treasury Solicitor which operates on behalf on behalf of the government. The bank is responsible for supporting the economic policies of the government while also maintaining its independent regarding price stability.
This bank differs a bit from the The Fed in the services it provides. Until 2016, personal banking services were offered to employees. It will also managed superseded banknotes.
With the currency, it handles all banknotes issued in Wales and Britain. It is also the regulator for all banknotes issued in Scotland and Northern Ireland.
Monetary Policy Committee
The committee that is responsible for determining and implementing the monetary policy of the bank. It meets 8 times a year, for 3.5 days. At this meeting, it decides the interest rate for the United Kingdom, called the Bank of England Base Rate. This is the rate the bank charges the commercial banks for loans that mature in one day. It is similar to the Fed's discount rate.
Like the United States counterpart, this lending is through repurchase agreements. It is a collateralized loans with the security typically being gilts, bonds issued by the UK Government.
This committee is also responsible for any quantitative easing (or tightening) that is to take place. The members also provide the forward guidance.
Again like its counterpart across the ocean, the committee targets the CPI of 2%. It is also responsible for fostering growth along with employment.
There are 9 member, one of whom is the Governor for the Bank of England.
In 1997, Gordon Brown game the Monetary Policy Committee independence regarding the setting of interest rates. Before that, it was either under the Treasury or done by the committee yet not free from government. This was done to give more confidence to the rates that were set, removing the accusation of politics playing into monetary policy. This is a concern across all of the major central banks.
Guidelines for the committee were spelled out in the Bank of England Act 1998. It set forth:
- it would meet monthly
- the membership comprise the Governor, two Deputy Governors, two of the Bank's Executive Directors and four members appointed by the Chancellor (9 members)
- minutes of all meetings were to be published within six weeks
- the government has responsibility for specifying its price stability target and growth and employment objectives at least annually.
History
After the defeat by France in the late 1600s, there was a need to raise £1,200,000. This was to be used for the construction of a naval fleet. In this situation, a lack of funds along with poor public credit made it tenuous.
To induce people to invest, the Governor and Company of the Bank of England was formed. This was a way to take the subscriptions and incorporate them.
Under this arrangement, the bank was given possession of the government balances. The investors contributed cash in the form of bullion which was and issued out notes against the government bonds. This was a limited liability company that was allowed to issue out banknotes. The bonds produced were lent again.
This achieved the goal as the money was raised in under 2 weeks. Half of this went to building the navy.
The establishment of the bank is credited to Charles Montagu, 1st Earl of Halifax, in 1694.
Functions
Price Stability
Maintaining stable prices is one of the top priorities to the bank. The role here is to construct monetary policy that targets the government's inflation rate. It seeks to achieve this end by the moving of interest rates. The bank also engages in communication policy by doing things such as publishing yield curves.
The BOE is to monitor threats to the overall economy. It operates as the lender of last resort, extending credit in situations when nobody else will.
Banknote Issuance
Since 1684, the bank has issued banknotes into the general economy. At first, these were handwritten notes but started to be printed in 1725.
There was a time when commercial banks were allowed to issue their own notes. This was stopped with the Bank Charter Act of 1844. It said that no new banks could issue notes and existing banks were prohibited from creating new ones. As the banks merged over the years, the ability to create banknotes died off. This left the BOE with a monopoly on the issuance of banknotes in Wales and England.
The Currency and Banknotes Act of 1914 established the HM Treasury and moved the control of banknotes to the Treasury, on a temporary basis. This was returned to the banks in 1928.
Asset Purchase
Through quantitative easing, the bank purchases bonds as part of the monetary policy. This is part of open market operations many central banks are engaging upon. The belief it so further enhance the effects of interest rates by purchasing (or selling) bonds as a way to influence the market.
Gold Vault
The bank physically stores all the gold for the United Kingdom.
Governors (Since the start of the 20th century)
| Governor | Term |
|---|---|
| Samuel Gladstone | 1899–1901 |
| Augustus Prevost | 1901–1903 |
| Samuel Morley | 1903–1905 |
| Alexander Wallace | 1905–1907 |
| William Campbell | 1907–1909 |
| Reginald Eden Johnston | 1909–1911 |
| Alfred Cole | 1911–1913 |
| Walter Cunliffe | 1913–1918 |
| Brien Cokayne | 1918–1920 |
| Montagu Norman | 1920–1944 |
| Thomas Catto | 1944–1949 |
| Cameron Cobbold | 1949–1961 |
| Rowland Baring (3rd Earl of Cromer) | 1961–1966 |
| Leslie O'Brien | 1966–1973 |
| Gordon Richardson | 1973–1983 |
| Robert Leigh-Pemberton | 1983–1993 |
| Edward George | 1993–2003 |
| Mervyn King | 2003–2013 |
| Mark Carney | 2013–2020 |
| Andrew Bailey | 2020–present |