Understanding The Bank Of England - A Brief Intro
Founded in 1694 the Bank of England is the central bank of the United Kingdom. Throughout its 300 year history the Bank's roles and functions have gradually evolved from the Government's banker, as it was known from the point of its establishment, to a more general banker and the banking system since the late 18th century.
The Bank of England also referred to as the 'Old Lady of Threadneedle Street' (City of London) was nationalised 1st march 1946 and went on to gain independence in 1997. The Bank has 2 core purposes: promoting and maintaining monetary and financial stability as its contribution to a healthy economy. In addition it also manages the UK's foreign exchange and gold reserves.
The Bank of England is commonly seen throughout the UK in the form of its banknotes; however a considerable increase in its recognition has now come about from the general public as a result of the recent interest rate decisions (5 increases since the summer of 2006). Since the early 20th century the Bank has held a monopoly on the issuing of banknotes in both England and Wales but it is only since 1997 that it has gained statutory responsibility for setting the UK's official interest rate.
Any and all interest rate decisions are made by the Bank's Monetary Policy Committee (MPC), whose role it is to decide what interest rate is necessary in order to meet a target for overall inflation in the economy. Each year the Chancellor of the Exchequer therefore sets the inflation rate and the interest rate decisions are then implemented by the Bank through its financial market operations. The interest rate is set at that which the Bank of England lends to banks and other financial institutions.
The 2 core purposes of the Bank of England are determined by Court, whose responsibilities include setting the Bank's objectives and strategy in addition to ensuring the effective conduct of the Bank's functions and the most efficient use of the Bank's resources.
Monetary Stability - This means stable prices and confidence in the currency, which is defined by the inflation target set by the Government. The Bank of England then sets out to parallel this target through the decisions made by the Monetary Policy Committee regarding interest rates.
Financial Stability - Financial stability is the detection and reduction of threats to the financial system. The Bank's surveillance and market intelligence functions seek out any potential threats and reduce them by strengthening infrastructure and by financial and other operations, by acting as the lender of last resort.
The Bank of England also works closely with other central banks and international organisations by sharing its views and analysis as a measure to improve the international economy.
Published on October 18, 2007
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