The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, the Bank of Englands responsibilities, roles and functions have evolved over time in response to changes in the economic environment, in financial markets and the structure of the financial system.
The first two centuries of the Banks history were marked by its dominant role in managing and maintaining the gold standard and ensuring financial stability. As the main fiscal instrument of the government, it became the centre of controversy in the 19th century when its tight money policy contributed to the banking crises of 1825 and 1837. Regulation of the financial system, development of the currency and the fight against inflation were the Banks main tasks from the mid-19th century and continue to be major elements today in the economy of the United Kingdom.
Today, the Bank of England is at the heart of monetary policy in the UK, controlling inflation, managing the exchange rate and providing support to the overall economy. The Bank fulfils its functions through setting interest rates, controlling the quantity of money in circulation and providing liquidity to the banking system. The Bank of England, in setting monetary policy, is accountable to the government, Parliament and the public.
One of the key points in the Banks history was in 1997 when the Bank was granted operational independence by the Labour government under Chancellor Gordon Brown. The Bank set a two per cent inflation target and has achieved its target of two per cent inflation since 1997. The Banks targets have been met without any great disruption to economic output.
The Bank also has responsibility for a number of public financial services. The Bank issues banknotes for the UK and supervises the banking and building society system. It is also a clearing bank for the government. In addition, the Bank of England is responsible for the oversight of payment systems and payment institutions, and ensures the enforcement of the Dietary Anti-Money Laundering Regulations (2007) for entities in the UK.
Since 1694, the Bank of England has been at the heart of the UK economy and is a strong symbol of the country. It is vital to the operations of the government, the financial institutions and the citizens of the UK and it is an institution that is respected around the world. The Banks role in providing economic and financial stability, ensuring the security of the banking system and managing monetary policy has helped to make the UK a stable, prosperous and safe haven for investment and is an example to how modern economies should be managed.
