"Like most central banks, the Bank of England is a creation of the government"

The ups and downs of history and its relationship with power have dictated the conduct of the Bank of England through the centuries, details Helen Macroeconomics Specialist, in a forum at the "World".

Time to Reading 4 min.

Subscribers article

Headquarters of the Bank of England, London, September 23, 2018. Henry Nicholls / REUTERS

Tribune. The Bank of England, born at the end of the XVIIe century, participated in the great days of the British Empire; she went through the world wars. Having become independent in 1997, she is now struggling with Brexit. Like most central banks, the Bank of England is a creation of the government. It was founded in 1694 on the basis of a quid pro quo. In exchange for financing, in the form of bond purchases, to lead a war against France, the Bank of England has benefited from special advantages: only bank authorized in England, it became the favorite bank of the government. It was established by a parliamentary charter, reviewed periodically. During renegotiations of the Bank's privileges, the government was trying to obtain more favorable financing terms.

Read also The Bank of England did not see the coming of the 2007-2008 crisis

The importance of the Bank of England relative to other commercial banks has grown steadily. In 1816, the famous economist David Ricardo argues that it is preferable that the seignorage (income obtained by the issue of money) is in the hands of a public institution rather than private. However, wary of the government's inclination to issue too much money to finance its spending, Ricardo advocates, in his Plan for the Establishment of a National Bank (1824), to give the power to issue money to commissioners independent of political power.

New regime

Inspired by Ricardo's recommendations, Prime Minister Robert Peel divided the Bank into an Emissions and Money Control Department in 1844 and a Banking Department. During the First World War, the government's control over the Bank of England increased significantly. The conduct of monetary and exchange rate policy remains the prerogative of the Government, the Bank is its agent. This is not without problems: Governor Walter Cunliffe is trying to block some orders from the UK Treasury regarding the use of gold reserves, leading to a confrontation with Prime Minister Lloyd George. It becomes very clear that, in the event of war or crisis, the Bank is subordinate to the government. From the crisis of 1931, when the pound came out of the gold standard, at the end of the second world war, the strategic decisions in monetary policy and capital flow are the responsibility of the Treasury and not the Bank . Endorsing this situation of dependence, the Labor government nationalized the Bank of England in 1946.


Please enter your comment!
Please enter your name here