Bank of England
2 min read
The Bank of England is the central bank of the United Kingdom of Great Britain and Northern Ireland which is responsible for managing government finances and regulating the production of banknotes.
Function of the Bank of England
England’s central bank serves commercial banks across the UK, and is one of the oldest models for central banking in existence. Like many central banks, the Bank of England arose out of the need to finance military efforts, more specifically, to build a fleet of naval ships that could compete with France in the early 1700’s.
The Bank of England has a monopoly on the production of currency in Wales and England, while Scotland and Northern Ireland must back currency one-for-one with deposit accounts. The Bank of England serves as a lender of last resort to commercial banks across Great Britain, providing high amounts of liquidity to the British banking system when needed.
Monetary Policy Committee
The Bank has a Monetary Policy Committee with members who dictate the official inflation rate for banks in the United Kingdom and determine the money supply. The Bank’s Asset Purchase Facility (APF) purchases assets directly from the United Kingdom’s Debt Management Office (DMO), which are financed by the Treasury in order to facilitate quantitative easing and improve liquidity in the credit markets.
The Bank of England also acts as a custodian for nearly 20% of the gold owned by governments worldwide. Eight gold vaults spanning 300,000 square feet sit beneath Threadneedle street in London, where the Bank of England is located.
The gold stored inside these vaults is so heavy that the vaults are slowly being engulfed by the clay upon which they were constructed, so the Bank of England has created policies to disperse the weight of the gold bars stored in its vaults.