Rich history of the Bank of England

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UNITED KINGDOM (VOP TODAY NEWS) — The history of the Bank of England (Bank of England, BoE), or the Central Bank of Great Britain, dates back to 1694.

However, the events that led to this happened much earlier. On the history of one of the oldest financial institutions in the world – in a material prepared in conjunction with the magazine “Budget”.

In 1126, a treasury appeared in England, and merchants began to store free balances of their money and precious metals in gold workshops. The craftsmen, in turn, paid dealers interest on such deposits, while they themselves were given the opportunity to give them an increase at a higher rate.

Receipts of masters confirming acceptance of the deposit, began to circulate as money. This process can be considered the first step in creating a bank. Over time, many small private firms appeared in the country, which had equal rights and were engaged in issuing bills of exchange in unlimited scales and outside state control.

The second stage in the history of English banking is directly related to the establishment of the Bank of England, and it began as a result of a fairly random political event. To meet his financial needs, Charles II was forced to rely heavily on loans from London bankers. His debt grew rapidly, and in 1672 he ordered the treasury to suspend the payment of money, including on account of his own loans.

Thus, the king’s trust was undermined for many decades, and it was precisely the desire to find a replacement for the ruined source of loans that forced the next monarch, William III, and his government to turn to the scheme of a financier named Patterson, who called for the creation of an institution Bank of England.”

His institution was drafted in the Tanned law, in which, among many other articles, the formation of a bank created “to improve fundraising and transfer to the treasury 1,200,000 pounds sterling” looks like a rather minor event. But it was this amount that was issued to the government, and in return, the bank was allowed to issue banknotes for that amount. The sudden release of such a large amount of paper money was accompanied, of course, by a furious jump in inflation.

The early history of the Bank of England is the history of the exchange of services between a new financial corporation and a government in need of money. As already mentioned, the bank’s capital in the formation was 1.2 million pounds. Already in 1697, the government renewed and expanded the privileges of the bank, allowing it to increase both its own capital and the issue of banknotes.

In addition, it granted the bank a monopoly on the conduct of government settlements, deciding that from now on all payments to the government should be made through the bank, which naturally led to a significant increase in the prestige of this organization.

Then a decision was made that fixed the status of this financial institution: only one bank in the country was established through the adoption of a special law by the parliament. The law also ruled that the actions of the Manager and Co. under the Bank of England cannot serve as a pretext for using the private property of any member of the corporation as compensation for the damage.

This decision, in essence, meant giving the bank the privilege of limited liability, which all other banking associations were denied over the next one and a half centuries. Simultaneously with these events, a new organizational form of business began to emerge, now known as a joint-stock company.

Since 1751, the bank was entrusted with the management of public debt. It became almost impossible for small firms to compete with it, as a result of which small banks began to keep their money in the Bank of England, gradually turning it into the central bank of the country.

Between 1694 and the beginning of the nineteenth century, as a result of successive renewals of the Bank of England license, the country’s treasury grew rich at least seven times (not counting short-term loans). Since 1800, when the pound became cheaper, and military loans grew, Bank of England banknotes practically served as legal tender, and in 1812 the government officially declared them to be.

Small banks gradually became convinced that a loan from the Central Bank of Great Britain would save them in crisis situations. And when promissory notes of ordinary bankers lost their liquidity, the population used Bank of England banknotes, and thus, these banknotes served as gold coins in a period of shortage of cash.

In essence, the bank has become a regulatory institution that occupies a particularly responsible position in the monetary and credit systems of the country. On this occasion, the board of directors of the Central Bank of Great Britain even spoke in Parliament, protesting against the system, which placed the responsibility on the Central Bank “for maintaining the entire national currency.”

During the crisis of 1825, the Bank of England first widely credited small banks, saving them from bankruptcy. But it did not help everyone. Of the several hundred banks that existed by that time, about 150 went bankrupt. At the same time in England, a movement arose in support of allowing the creation of other joint-stock banks, except the Central Bank of Great Britain.

Their occurrence can be considered the third period in the development of the banking system of the kingdom. The law of 1826 allowed the establishment of joint stock banks, but on the condition that they were located no closer than 65 miles from London, and the Bank of England received the right to open branches.

By that time, it had already become obvious that the banking business is not only the issue of bank notes. Deposit business with check calculations has become a noticeable element of the business world. It was decided that the Bank of England has a monopoly on deposit activities. From 1833 he received the right to set the interest on the loans issued by him at his discretion.

By this time, the bank kept not only the entire gold reserve of the country, but also the bank reserve (cash reserve). During World War II, the main function of the bank was to finance public debt, which grew from 1 billion to 7 billion pounds. At the same time, control of currency exchange operations was introduced, which lasted until 1979.

The bank was nationalized in 1946, ownership of the share capital was transferred to the UK Treasury, and former shareholders received generous compensation in the form of 3% government bonds.

Since 1997, the bank has an operational right to regulate interest rates. He became the official banker of the government. According to English laws, the treasury may, after prior consultation with the bank’s manager, make recommendations to the bank, which it must comply with.

Formally, the responsibility for the decision taken in the field of monetary policy is assigned to the head of the treasury, accountable to parliament. The bank advises the government on monetary policy issues, coordinates these issues with the treasury.

Thus, very broad rights of the treasury in relation to the Central Bank of Great Britain are enshrined in law. Among the central banks of industrialized countries, the Bank of England is one of the most dependent on the law from the government.

In practice, the Bank of England works closely with the treasury and it is difficult to overestimate its role in the regulation of the monetary and foreign exchange sphere and in the management of public debt.

Banking Ghosts

Initially, the Central Bank of Great Britain was located on one of the oldest streets in London – Treadmill (literally “needle for thread”) in the house where the tailor’s workshop was in the 17th century, which is why he got the playful name “Old Woman from Trednidl Street”. Later, at the end of the 18th century, the bank received a land plot of almost two hectares, and a monumental building in the form of a single stone block was erected on it for the growing apparatus.

The building was designed by architect John Soane, who made him completely deaf and on top of everything surrounded by a lattice. It turned out a kind of “prison for money.”

The meaning of the plan is clear: impressive sums were kept behind this wall. The creation of John Soane in 1925-1939. It was completely rebuilt by architect Sir Herbert Baker, but the blank wall was preserved. It is worth noting that Russian masters had a hand in the design of the Bank of England. At the entrance of the main entrance, the floor is decorated with mosaic made by Russian artist Boris Anrep.

The bank was always very seriously guarded. For many years, it was the prerogative of the special guard, only recently it was replaced by an electronic security system. No one except the employees has the right to access the bank, there are no photographs in which the building would be sealed from the inside.

Although today the London district of the City is built up with high-rise buildings and continues to grow high, the monolith of the Central Bank of Great Britain makes a rather strong impression. Perhaps the fact is that new banks, trying to appear accessible to customers, are built transparent, of glass and concrete, but the “Old Woman” remains grim and unapproachable.

Somehow it happened that ghosts have become the hallmarks of English castles, and this has not surprised anyone for a long time. But there are ghosts and banking. Over the centuries, ghosts living in the impregnable walls of the Central Bank of Great Britain have developed entire stories.

The hero of the first is a man who worked in a bank in the 18th century and was more than two meters tall. Fearing that because of his tall stature, after his death, his grave would be dug up and the corpse removed for vivisection, he enlisted the assurances of his colleagues that he would be buried inside the walls of the bank, in a small courtyard.

Nevertheless, his grave was nevertheless opened and really discovered an unusually large coffin. After that, a huge servant and turned into a ghost.

The next heroine of heartbreaking stories is the Black Nun. Its history is as follows. In 1811, one of the bank employees, Peter Whitehead, got carried away with the card game, lost and made two false checks to cover the loan.

Partners in the game gave it to the bank superiors, the embezzler was arrested, tried and executed. However, his sister was not told for a long time what had happened to his brother and why he was not returning home from work. When she found out the truth, she clouded her mind and began to wander near the bank, whose employees secured her tiny pension. For forty years this woman, dressed in black (hence the “nun”), wandered around the huge gloomy building.

They say that her shadow flashes in the corridors of the bank to this day.


Material written by Larisa Borisovna Zimin

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