Key terms

From a National to a Central bank

Text A

THE BANK OF ENGLAND

UNIT I

From the middle of the 17^th century, England and London, in particular, buzzed with ideas – and one, which was coming to the fore, was the notion of a national bank.

In England the argument for some kind of bank began to gather momentum after the Glorious Revolution of 1688 when William of Orange and Queen Mary jointly ascended the throne of England. The political economist Sir William Petty had recognized from the example of the Dutch that successful credit-based trading could benefit a nation in many ways and help to enlarge its sphere of influence. He wrote in 1682 “What remedy is there if we have too little money? We must erect a Bank, which well computed doth almost double the effect of our coined money; and we have in England materials for a Bank which shall furnish stock enough to drive the trade of the commercial world”.

William Peter (1658-1710), the Scots entrepreneur proposed the successful scheme by which the Bank of England was founded. So, Paterson’s plan was accepted and the necessary Act passed. The public were invited to invest in the new project and it was these subscriptions totaling £ 1.2 million that were to be on-lent to Government in return for a Royal Charter.

The Government’s immediate motive for creating the Bank was its pressing need for money. Peterson himself said that the government accepted his proposal only “as a lame expedient for £ 1.2 million”. And for some time afterwards the Government saw the Bank in that light – renewals of its charter had to be paid for with loans, often painfully negotiated from the Bank to the Exchequer. There was little in the Act creating the Bank to hint at what it would become – certainly no suggestion of a central bank, scarcely a hint of banking at all. But the charter was enough. The Bank was big, it was incorporated with limited liability (extremely rare then) and it set out to take full advantage of this position.

Credit-based trading	- торгівля на кредитній основі
Doth	- 3 ос. однини, від дієслова to do
On-lent	- позичені
Exchequer	- Казначейство
Last resort financial support	- єдина можлива фінансова допомога
Deficient	- недостатні

II. Answer the following questions in your own words:

1. Why did England and London in particular buzz with the idea of a national bank?

2. When did this idea first appear?

3. What could benefit a nation?

4. How do you understand the words by William Petty?

5. Who first proposed the idea of founding the Bank of England?

6. What was the Government’s motive for creating the Bank of England?

7. In what light did the Government see the Bank of England?

8. Was the Bank of England thought of as a national bank?

III. Fill in the blanks in this passage, using words from the list given below:

Privilege; establish; safeguarded; bullion; foundation; banking; sound note issue; satisfied; crucial, price stability; partners; crises; note issue; notes.

The Country Bankers Act, a milestone in the development of _____ in England, was passed by Parliament in 1826. It breached some of the Bank’s former _____ by permitting the establishment of joint-stock banks with more than six _____ but not within 65 miles of London. The Act allowed the Bank _____ branches in the major provincial cities from which it was able increase its sphere of influence by _____. In 1833, the Bank’s notes were made legal tender for all amounts above 25 ensuring that in the event of a _____, as long as the credit of the Bank remained good, the public would be _____ with its notes and its reserves would consequently be _____.

The 1844 Bank Charter Act was the key step towards the Bank achieving the monopoly of the _____. There were to be no new issuers of _____. But the _____ clause of the Act was a monetary one: it provided that beyond the Bank’s capital of £ 14 million, its notes were to be backed by gold coin or _____. This, together with a fixed price for standard gold, laid the _____ for the gold standard, which during the 19^th century spread worldwide and created a long period of _____ with monetary policy, in effect, on auto-pilot.

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