Bank of

England

Blu Cristina-Carmen

Contents
Introduction
History
Functions

of the Bank
Monetary stability
Financial stability
Banknote issues
The vault
Governance of the Bank of England
Governors
Conclusion
Bibliography

Introduction
The

Bank of England is the central bank of the United Kingdom and the model
on which most modern central banks have been based. Established in 1694, it is
the second oldest central bank in the world, after the Sveriges Riksbank, and
the world's 8th oldest bank.
It

was established to act as the English Government's banker, and is still the
banker for the Government of the United Kingdom. The Bank was privately
owned by stockholders from its foundation in 1694 until nationalised in 1946.

12/15/2014

In 1998, it became an independent

public organisation, wholly owned
by the Treasury Solicitor on behalf of
the government, with
independence in setting monetary
policy.

The Bank is one of eight banks

authorised to issue banknotes in the
United Kingdom, but has a
monopoly on the issue of banknotes
in England and Wales and regulates
the issue of banknotes by
commercial banks in Scotland
and Northern Ireland.

In 1998, it became an independent

public organisation, wholly owned
by the Treasury Solicitor on behalf of
the government, with
independence in setting monetary
policy.

The

Bank's Monetary Policy Committee has devolved responsibility for

managing monetary policy. The Treasury has reserve powers to give orders to
the committee "if they are required in the public interest and by extreme
economic circumstances" but such orders must be endorsed by Parliament
within 28 days.
The

Bank's Financial Policy Committee held its first meeting in June 2011 as a
macro prudential regulator to oversee regulation of the UK's financial sector.
The

Bank's headquarters have been in London's main financial district,

the City of London, on Threadneedle Street, since 1734. It is sometimes known
by the metonym The Old Lady of Threadneedle Street or The Old Lady, a name
taken from the legend of Sarah Whitehead, whose ghost is said to haunt the
Bank's garden.The busy road junction outside is known as Bank junction.
Mark

Carney assumed the post of The Governor of the Bank of England on 1

July 2013. He succeeded Mervyn King, who took over on 30 June 2003. Carney,
a Canadian, will serve an initial five-year term rather than the typical eight, and
will seek UK citizenship.He is the first non-British citizen to hold the post. As of
January 2014, the Bank also has four Deputy Governors.

12/15/2014

History

Bank of England was founded in 1694 by decree of Parliament, as the

manager of the bank and government debt. The bank was founded on the
proposal Scotsman William Peterson, King William of Orange and Queen Mary
in search of financial resources to maintain wars with France. Originally the
Bank of England was established for 10 years.

The right operation was renewed by Parliament in 1709, when the bank and
ensure dominance in the issue of banknotes, because in 1715 the bank will
get the monopoly issue of banknotes in London.

Her first transaction was a loan provided the government, amounting to

1,200,000 pounds. In the next 40 years, the Bank of England became the
banker several government departments, keeping them money and giving
them loans. After the crisis of 1847, the bank assumes the role of lender of last
resort, making adjustments in the level of interest rates to stabilize the money
market.

The Bank's roles and functions have evolved and changed over its threehundred year history. Since its foundation, it has been the Government's
banker and, since the late 18th century, it has been banker to the banking
system more generally - the bankers' bank. As well as providing banking
services to its customers, the Bank of England manages the UK's foreign
exchange and gold reserves.

The Bank has two core purposes - monetary stability and financial stability. The
Bank is perhaps most visible to the general public through its banknotes and,
more recently, its interest rate decisions.

The Bank has had a monopoly on the issue of banknotes in England and
Wales since the early 20th century. But it is only since1997 that the Bank has
had statutory responsibility for setting the UK's official interest rate.

Interest rate decisions are taken by the Bank's Monetary Policy

Committee.TheMPC has to judge what interest rate is necessary to meet a
target for overallinflation in the economy. The inflation target is set each year
by the Chancellor of the Exchequer.

12/15/2014

Functions of the Bank

The Bank 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 Her Majesty's Government, thus
promoting economic growth.

There are two main areas which are

tackled by the Bank to ensure it carries out
these functions efficiently.
The Bank works together with other
institutions to secure both monetary and
financial stability, including:
-HM Treasury, the Government department
responsible for financial and economic
policy; and
-Other central banks and international
organisations, with the aim of improving
the international financial system.

Bank House, the Bank of England

offices on King Street
in Leeds.

12/15/2014

Financial
Monetary stability
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.

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.

12/15/2014

The Bank acts as the government's banker, and it maintains the

government's Consolidated Fund account. It also manages the country's foreign
exchange and gold reserves. The Bank also acts as the bankers' bank, especially in its
capacity as a lender of last resort.

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.

In 2011 the interim Financial Policy Committee (FPC) was created as a mirror committee
to the MPC to spearhead the Bank's new mandate on financial stability. The FPC is
responsible for macro prudential regulation of all UK banks and insurance companies.

To help maintain economic stability, the Bank attempts to broaden understanding of its
role, both through regular speeches and publications by senior Bank figures, a
semiannual Financial Stability Report,and through a wider education strategy aimed at
the general public. It maintains a free museum and runs the Target Two Point
Zero competition for A-level students.

12/15/2014

Banknote issues

The Bank has issued banknotes since 1694. Notes were originally hand-written;
although they were partially printed from 1725 onwards, cashiers still had to
sign each note and make them payable to someone. Notes were fully printed
from 1855.

Until 1928 all notes were "White Notes", printed in black and with a blank
reverse. In the 18th and 19th centuries White Notes were issued in 1 and 2
denominations. During the 20th century White Notes were issued in
denominations between 5 and 1000.

Until the mid-nineteenth century, commercial banks were able to issue their
own banknotes, and notes issued by provincial banking companies were
commonly in circulation.

The Bank Charter Act 1844 began the process of restricting note issue to the
Bank; new banks were prohibited from issuing their own banknotes and
existing note-issuing banks were not permitted to expand their issue.

As provincial banking companies merged to form larger banks, they lost their
right to issue notes, and the English private banknote eventually disappeared,
leaving the Bank with a monopoly of note issue in England and Wales.

12/15/2014

The last private bank to issue its own banknotes in England

and Wales was Fox, Fowler and Company in 1921.However,
the limitations of the 1844 Act only affected banks in
England and Wales, and today three commercial banks in
Scotland and four in Northern Ireland continue to issue their
own banknotes, regulated by the Bank.

At the start of the First World War, the Currency and Bank
Notes Act 1914 was passed, which granted temporary
powers to HM Treasury for issuing banknotes to the value of
1 and 10/- (ten shillings)

12/15/2014

Treasury notes had full legal tender status and were not convertible for
gold through the Bank, replacing the gold coin in circulation to prevent
a run on sterling and to enable raw material purchases for armament
production.

These notes featured an image of King George V (Bank of England

notes did not begin to display an image of the monarch until 1960).
The wording on each note was:

UNITED KINGDOM OF GREAT BRITAIN AND IRELAND Currency

notes are Legal Tender for the payment of any amount Issued by
the Lords Commissioners of His Majesty's Treasury under the
Authority of Act of Parliament (4 & 5 Geo. V c.14)

12/15/2014

Treasury notes were issued until 1928, when the Currency and Bank Notes Act
1928 returned note-issuing powers to the banks.The Bank of England issued
notes for ten shillings and one pound for the first time on 22 November 1928.

During the Second World War the German Operation Bernhard attempted to
counterfeit denominations between 5 and 50 producing 500,000 notes
each month in 1943.

The original plan was to parachute the money on the UK in an attempt to

destabilise the British economy, but it was found more useful to use the notes
to pay German agents operating throughout Europe although most fell into
Allied hands at the end of the war, forgeries frequently appeared for years
afterwards, which led banknote denominations above 5 to be removed
from circulation.

In 2006, over 53 million in banknotes belonging to the bank was stolen from a
depot in Tonbridge, Kent.
Modern banknotes are printed by contract with De La Rue Currency in
Loughton, Essex.

The vault

12/15/2014

The Bank is custodian to the official gold reserves of the United Kingdom and many
other countries. The vault, beneath the City of London, covers a floor space greater
than that of the second-tallest building in the City, Tower 42, and needs keys that are
three feet long to open.The Bank is the 15th-largest custodian of gold reserves, holding
around 4600 tonnes.
These gold deposits were estimated in February 2012 to have a current market value
of 156,000,000,000.

12/15/2014

Markets

The Markets area of the Bank is responsible

for managing the Bank's balance sheet.
This includes implementing the monetary
policy decisions of the Monetary Policy
Committee through its operations in the
sterling markets and supplying liquidity
insurance to the banking system.

The Bank deals in the foreign exchange

market as part of its day-to-day
management of the "Exchange
Equalisation Account" - which holds the
UK's foreign currency and gold reserves.
These reserves are owned by HM
Government for whom the Bank acts as
Agent. The Bank also operates in the
foreign exchange market on its own behalf,
and on behalf of customers.

12/15/2014

Governance

The framework for governance and accountability is set by

the 1998 Bank of England Act, as amended by the 2009
Banking Act and the 2012 Financial Services Act.

The Court of Directors is responsible for managing the

affairs of the Bank, other than the formulation of monetary
policy. Court's responsibilities under the Bank of England
Act 1998 ('the 1998 Act') include determining the Bank's
objectives and strategy, and ensuring the effective
discharge of the Bank's functions and the most efficient
use of its resources.

Since the 2009 Banking Act ('the 2009 Act'), the Bank has
had a statutory objective to protect and enhance the
stability of the financial systems of the United Kingdom'
and the Court, consulting HM Treasury and on advice from
the Financial Policy Committee (FPC), determines the
Bank's strategy in relation to that objective.

Oversight Committe is a statutory sub-committee of Court

and has the principal functions of keeping under review
the performance of the Bank in relation to its objectives
and strategy. The Banks objectives for this purpose are the
monetary policy objective, the financial stability objective
(including the objectives set for the FPC), and any
objectives set by Court.

 Conclusion

12/15/2014

Takeing into account the organizational form, the Bank of

England is considered the most representative in the business
bank currency issue.
Referring to monetary activity,founder of the Bank of England
in 1694, then a privately owned bank states thatThe bank
hath benefit of interest on all moneys which it creates out of
nothing.
Also John Kenneth Galbraith,Canadian-American
economist said that "The pioneering instrument of reform
was the Bank of England. Of all institutions concerned with
economics none has for so long enjoyed such prestige. It is, in
all respects, to money as St. Peter's is to Faith."
I think every economist should know something about the
banks that played a significant role over time. The British
economy has had an important position in the world arena,
not only in industrial and commercial development, but also
in the organization of the banking system.

 Bibliography

12/15/2014

http://www.bankofengland.co.uk/Pages/home.aspx
http://en.wikipedia.org/wiki/Bank_of_England
https://www.scribd.com/doc/165661569/Bank-of-England
http://www.moneyreformparty.org.uk/money/about_money/quotes.php