Bank of England

The Bank of England was founded in 1694 and is headquartered in London, the United Kingdom. It is the second oldest central bank in the world. It acts as a government adviser on monetary policy matters and, as far as possible, stabilizes the currency by setting appropriate interest rates. His clients also include commercial banks and central banks of other countries. National gold reserves are kept in underground treasuries. In another safe place outside London, this bank oversees the printing of banknotes. At first, the bank was in private hands: in 1946, it was nationalized by the government of Clement Attlee.

17th century

In the 17th century in London, most banking operations were carried out by goldsmiths. The greatest financiers eventually went bankrupt, and the country desperately needed funds to wage the war with France.

Even before William III and Maria II Stuart jointly took the throne in 1689, an urgent call was made for the establishment of a national bank that would dispose of the state’s capital and accumulate its funds. Despite fierce competition, the Scottish merchant William Peterson’s proposal was adopted among the various projects submitted to parliament. Londoners were asked to borrow 1,200,000 pounds. In return, the government was to pay eight percent interest to shareholders and create a company called The Governor and Company of the Bank of England. The money arrived in two weeks and in 1694 the Bank of England opened its doors. The first governor of the bank was John Houblon, who was displayed on the 50-pound bill of 1990.

18th century

At the beginning, customers who paid pounds, shillings and pennies to the bank were issued receipts handwritten on bank paper. Each holder of such “banknotes” could later exchange them for gold or coins. Of course, if everyone required their money at the same time, the bank would collapse. For example, in 1797 the war with France led the country to the brink of a financial ruin. When investors withdrew their savings, the bank ran out of cash. Rapidly made banknotes turned out to be a big temptation for counterfeiters. In those days the law was strict. Over 300 people were hanged for counterfeiting money.

The bank was still struggling with other problems. In 1780, during street riots in London (the so-called “Riot Gordon”) attempted to storm its headquarters. From then until 1973, each night a squad of soldiers patrolled the area around the building to guarantee the security of the treasury.

The bank’s founding card was renewed in 1742, and then in 1764 and 1781.

XIX and XX century

In the nineteenth century, the British pound and banknotes circulated by the Bank of England became the strongest currency in the world. However, this situation was changed by World War I. The enormous costs it entailed have ruined the country’s economy. Many investors exchanged banknotes for gold coins, and eventually, they ran out. So low-denomination banknotes were introduced, and the gold coins that were used every day were forgotten. In 1931, the United Kingdom completely abandoned the gold standard, which means that the value of pound sterling no longer corresponded to a certain amount of gold.

During World War II, Nazis attempted to destabilise the British currency and introduced forged £5 notes into Britain. The Bank had to take with emergency measures to slow this down, including the 1940 special blue £1 note, which is the first time they used a metallic thread in a banknote. In 1943, they even temporarily stopped issuing denominations greater than £5 to tackle the threat of counterfeiting.

A bit later on, in 1946 in the aftermath of the war, the Bank was nationalised, which meant that it was now owned by the Government rather than by private stockholders. Throughout their history, they have always seen themselves as a public institution, acting in the national interest. Although the Bank was privately owned for a long time, their activities were determined by the Government and legislation.

This gave the Government the power to appoint the Bank’s governors and directors, and to issue directions to the Bank. To date, the Government’s power to issue directions has not been used.

The Bank of England has specific statutory responsibilities for setting policy – for interest rates, for financial stability, and for the regulation of banks and insurance companies. They have independence from the Government in terms of how they carry out these responsibilities. They do this within a framework set by Government but free from day-to-day political influence.

Their policymaking committees include: the Monetary Policy Committee, the Financial Policy Committee and the Prudential Regulation Committee make decisions about their responsibilities, for example on the interest rate.

They even feature an Internal Audit Division that helps the Court of Directors and executive management to protect their assets, reputation and sustainability by independently and objectively evaluating the effectiveness of internal controls, risk management and governance processes.

The Bank is overseen by a board of directors, known as the Court of Directors, who are appointed by the Queen on the recommendation of the Prime Minister and the Chancellor. The Court of Directors is responsible for setting and monitoring the Bank’s strategy and making key decisions on spending and appointments. The Government chooses one of the non-executive, or external, members to chair the Court of Directors.

Required to meet a minimum seven times per year, it has five executive members from the Bank and up to nine non-executive members. All members of Court are appointed by the Crown. One of the non-executive members is selected by the Chancellor to chair Court.

The Governor serves on Court for a period of eight years, the Deputy Governors for five years, and the non-executive members for up to four years. As of 2019, Mark Carney is the Governor of the Bank of England and Chair of the Monetary Policy Committee, Financial Policy Committee and the Prudential Regulation Committee. His appointment as Governor was approved by Her Majesty the Queen on 26 November 2012. The Governor joined the Bank on 1 July 2013.