Question

1. What is money according the Central Bank of England? (10 points).What are its functions and what role does it play in the economy? (10 points).

Answer 1

Bank of England

Central bank of the UK

The Bank of England (BoE)

Bank of England

Central bank of the UK

is the central bank of the United Kingdom and a model on which most central banks around the world are built. Since its inception in 1694, the bank has changed from being a private bank that loaned money to the government, to being the official central bank of the United Kingdom. The bank started during a period of economic turbulence when the national debt was growing at a steady rate. The Bank of England became the official central bank of the UK in 1946. It is owned by the Treasury Solicitor, on behalf of the government. Previously, it was a property of stockholders from its foundation.

The bank’s central offices are in London’s financial district, along Threadneedle Street. It is from this street that the bank got the name “Old Lady of the Threadneedle Street,” a name derived from the legendary Sarah Whitehead, who previously lived at the current location of the bank’s headquarter

Functions of the BoE....

The Bank of England’s primary functions are to maintain monetary stability and oversee financial stability of the UK financial system. The bank also acts as the lender of last resort and as the custodian of the official gold reserves in the United Kingdom.

Monetary Stability

Monetary stability relates to maintaining stable prices and confidence in the currency. The BoE has been tasked with the responsibility to issue bank notes in the United Kingdom for over 300 years now. Also, as the central bank of the UK, the Bank of England is responsible for maintaining confidence that the currency in circulation is genuine.

The bank has delegated the role of formulating monetary policy to the Monetary Policy Committee (MPC), a nine-member committee led by the Governor. Other members include three deputy governors, the BoE’s chief economist, and four members appointed by the Chancellor of the Exchequer. The MPC meets regularly to discuss the need to alter the interest rate policy to achieve the inflation target. It also monitors developments in the economy.

Financial Stability

Financial stability involves monitoring the financial system so that there is confidence in the financial institutions, markets, and the overall financial system. It also entails protecting the financial system against threats by detecting them through surveillance and market intelligence functions, as well as finding solutions when problems arise. Threats to the financial system include bribery, corruption, counterfeiting, and money laundering.

The Financial Services Act of 2012 established two institutions to deal with financial stability, i.e., the Financial Policy Committee (FPC) and the Prudent Regulation Authority (PRA). The role of the FPC is to identify, monitor, and take action against risks that threaten the resilience of the UK financial system. The PRA regulates commercial banks, building societies, credit unions, insurers, and investment firms in the UK.

Official Gold Reserves Custodian

The Bank of England acts as the official gold reserves custodian for the UK and other countries. It is estimated that the bank holds approximately 3% of all the gold mined in the history of the world. As of April 2014, the bank had nearly 400,000 gold bullion bars, valued at £142 billion.

Lender of Last Resort

As the central bank of the UK, the Bank of England acts as a lender of last resort for commercial banks that suffer a cash shortfall. This role helps maintain liquidity and confidence in the financial system. In a famous example, when Northern Rock Bank in the UK suffered severe financial hardships, it had to borrow funds from the BoE.

Role Central banks England

a crucial role in ensuring economic and financial stability. They conduct monetary policy to achieve low and stable inflation. In the wake of the global financial crisis, central banks have expanded their toolkits to deal with risks to financial stability and to manage volatile excha