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What is the Bank of England, why isn’t it called the Bank of the UK, and how much is in its vaults?
Basically, the Bank of England is the UK’s central bank.
It is different from a bank you would come across along the high street and does not hold accounts or make loans to the public.
The Bank issues bank notes that you spend and it also sets the official interest rates of the UK (otherwise known as the Bank/base rate), which directly influences savings and mortgages.
It earned the nickname “the old lady of Threadneedle Street” back in the 1700s after a cartoon depicted then-prime minister William Pitt trying to “woo” the Bank – depicted as an old lady – for her gold reserves.
When did the Bank become independent?
The Bank was founded in 1694 and was owned by various shareholders until it was nationalised in 1946.
It remains owned by the UK government today – but its decision-making was made independent by then-chancellor Gordon Brown in 1997 to increase confidence in the UK economy and stop politicians from influencing monetary policy for political or electoral reasons.
What is the Bank’s Monetary Policy Committee and who sits on it?
The Monetary Policy Committee (MPC) decides the Bank rate.
This generally happens every six weeks, so eight times a year, and the next meeting is on Thursday – hence which we’ve made it this week’s Basically.
The committee is made up of nine independent members who all have expertise in economics and monetary policy.
There are also external members that ensure the MPC benefits from thinking and expertise from outside of the Bank of England.
A representative from HM Treasury also sits with the MPC at its meetings. The Treasury member makes sure the MPC is briefed on government policies, but they are not allowed to vote.
Does the Bank have any other responsibilities?
- The Bank produces £5, £10, £20 and £50 banknotes;
- It guards the value of money by keeping prices stable;
- It keeps the financial system stable by maintaining a close watch on any risks and taking action;
- The Bank also regulates and supervises all the major banks, building societies, credit unions, insurers and investment firms.
Why is it called the Bank of England when it covers the whole UK?
Quite simply, it has never changed its name since it was founded.
It was created in 1694 after a Scotsman named William Paterson realised the nation’s finances had no real system of money or credit.
Under his direction, a successful scheme was launched in which £1.2m was loaned to the government from funds raised by subscribers who were then incorporated into the governor and company of the Bank of England.
The money was used to support the English government in its war against France.
It wasn’t until the 19th century that the Bank took on the role of central bank.
What is in the Bank of England’s vaults?
About 400,000 bars of gold.
These are worth more than £200bn, making the Bank of England the second-largest keeper of gold in the world – behind the New York Federal Reserve.
The gold is kept in nine carefully guarded underground vaults.
Each bar costs hundreds of thousands of pounds, although the value can go up and down.
The Bank of England’s customers – who include the UK government, banks and other governments around the world – can trade their gold bars with other customers.
When a customer trades gold it doesn’t usually move – instead the name of the owner will change on the Bank’s system.
Not many people are allowed to visit the vaults, but the King and the late Queen Elizabeth II have seen them.
Has anyone ever stolen any gold from the Bank?
The Bank says no gold has been stolen from its vaults, but there was a lucky escape in 1836 after a sewer worker doing repair work accidentally discovered an old drain that ran directly below the gold vault.
He sent anonymous letters to the directors of the Bank, saying he had access to their gold and offering to meet them in the vault at an hour of their choosing.
When the directors gathered one night in the vault, a noise was heard from beneath the floor and the man popped up through some of the floorboards.
A stocktake was taken afterwards, and it became clear he had not taken any gold.
The Bank then decided to reward the sewer worker for his honesty by giving him £800 – the equivalent of about £76,000 today.
Read other entries in our Basically… series:
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