The Bank of England (‘the Bank’) is a key player in the design and execution of UK economic and regulatory policy. It was founded in 1694 as a private bank. Over time, the Bank’s public role became more prominent. It was nationalised in 1946 and in 1997 the Bank was granted operational independence.
The Bank has four main roles. First, it regulates other banks. This function moved away from the Bank in 1997 but returned in 2012. Second, it issues banknotes; it is the only institution in England and Wales that can do so, although certain banks in Scotland and Northern Ireland may also. Third, it sets monetary policy with the aim of meeting the Government’s target for the rate of inflation. And fourth, it is responsible for maintaining financial stability. In addition, the Bank acts as banker to the Government, collects certain economic statistics and carries out and publishes research.
The activities of the Bank are the subject of public debate in a range of areas, from the appropriate aims of monetary policy and its links with fiscal policy to the design of banknotes. Some commentators have questioned the political consensus that the Bank should remain independent, while others have accused the Bank of acting too politically, particularly in its communications on Brexit and environmental policy. Discussions also continue about the effectiveness of the Bank’s policy of ‘quantitative easing’ since the financial crisis. Some commentators have also argued that the Bank’s appointments process for senior posts should be more transparent and promote diversity to a greater degree.
For much of the Bank’s existence, the British currency was convertible into gold on demand at the Bank. The gold standard limited the government and Bank’s discretion over monetary policy. The UK left the gold standard in 1931. In the period since, governments have voluntarily placed other constraints on monetary policy, such as exchange rate targeting and attempts to control the quantity of money in the economy. The Bank has been at the forefront of implementing these policies.
On 20 December 2019, the Government announced that Andrew Bailey, currently chief executive of the Financial Conduct Authority (FCA), would succeed Mark Carney as governor of the Bank of England. Mr Bailey is due to take office on 16 March 2020.
