Is the Bank of England Still Relevant?

Introduction

The Central Bank is the autonomous wheels of state, which can be responsible for carrying out the country financial policy, controlling banks and offering the commercial services including the study of economic (Mishkin & Serletis, 2011). According to the report of European Central bank (2009), the purpose of the central bank establishment is to make the state currency steady, keep the low jobless rate and avoid the inflation (Gerdesmeier, 2009). Most of them are managed by the board that is made of each bank members. The director of the board is generally appointed by the state’s president voted authorized. And then he or she must be approved by the country’s legislature. (Amadeo, 2018) There is no doubt that this supports to keep the consistence with the goal of the state’s policy in a long period (Amadeo, 2018). Meanwhile, the central bank does not have any political effect in its regular processes. This mode is set up by The Bank of England initially (Capie, et al., 2012).

The author will explain the position of the central bank, for example, the Bank of England. It is worth to be considering whether the Bank of England be needed nowadays or during a long time in future. From the functions of the central bank and the Bank of England long history, the author believe that it is necessary to respect it and its importance still should not be ignored currently. This article will give some illustrations about it.

The Position of Central Bank in Society and Economic System

The central bank is in a very important special position in the social and economic system. This is not difficult to draw conclusions from the basic economic reasons that led to the emergence and development of the central bank, the functions of the central bank itself and the social responsibility analysis undertaken. Due to the rapid development of commodity economy, the deepening of economic monetization, the role of finance in the economy and the promotion of international economic ties, the central bank’s position and role in the modern economic system is more prominent than that of the early central banks (Paiman, 2016).

1)    From the perspective of the operation of the economic system, the central bank creates currency and credit conditions for economic development and provides guarantee for stable economic operation (Morgan, 2009).

2)    From the perspective of foreign economic and financial relations, the central bank is an important link for the country’s external relations (Siqueira, 2006).

3)    From the perspective of the state’s macroeconomic management, the central bank is one of the most important macroeconomic regulation and control departments (Dow, 2017).

In short, although the central bank has played an important role in the economic system since its inception, in the modern economic system, the status of the central bank has been unprecedentedly improved. It has become the most important component of the economic system and the axis of economic operation (Ingves, et al., 2011).

The Bank of England

The Bank of England is the UK’s central bank, which is the mode for the establishment of many other central banks all over the world.  From the time when its beginning in 1694, the bank has developed from a secluded bank that borrows money from the government to the authorized central bank of the UK. After the general vote in 1997, the British Chancellor of the Exchequer proclaimed that the Bank of England will gain independence from the currency policy. The statement makes the rate of interest that can be set independently due to the financial causes. The main function of the Bank of England is to keep currency steady and monitor the monetary constancy of the UK financial structure. The bank additionally performs as the moneylender as a pis aller, and it is the guardian of the UK’s authorized gold reserves. (Warsh, 2014)

As a central bank, the Bank of England’s main functional objectives are to maintain currency stability, maintain financial stability and recommend British finance to other countries in the world in an effort to maintain its position in the world’s financial center. Elliott & White (1997) explain that on the sixth day after the British Labor Party government took office in 1997, the right to formulate monetary policy was handed over to the Bank of England by the Ministry of Finance. On the 20th day, financial supervision was transferred from the Bank of England to the Financial Services Authority. This historic change in the financial system has promoted the mutual supervision and effective restraint between the Bank of England, the UK Treasury and the Financial Services Authority in formulating, improving and implementing monetary policy and maintaining monetary and financial stability (HM Treasury, 2010). Under the new system, the Bank of England mainly focuses on the government’s inflation target, formulates the corresponding monetary policy, and maintains its goal. Once it exceeds the target range, a letter must be written to the Minister of Finance to apologize and propose appropriate countermeasures by the Bank of England Governor (Fisher, 1999). The Financial Services Bureau is responsible for monitoring and disposing of individual financial institution risks (Beale, et al., 2011). When there is a systemic financial risk, the Bank of England, the Ministry of Finance and the Financial Services Bureau jointly study whether the financial contribution will be used for assistance.

The Bank of England’s monetary policy formulation and implementation process

Monetary policy is set by the Monetary Policy Committee on the first or the second Thursday of each month to study the interest rate level (but not necessarily to adjust the interest rate) (Rey & Gerko, 2017). In order to ensure the scientific of the interest rate policy, in the past two weeks, the economists provided a large amount of economic data analysis information to the Monetary Policy Committee, and answered various questions raised by members of the Monetary Policy Committee. (El-Shagi & Jung, 2015) On the basis of full discussion, the Monetary Policy Committee towel. Members voted to make a decision to announce to the world at 12 noon on Thursday that the Monetary Policy Committee announced the contents mainly including the judgment of economic and financial operations and the central bank’s two-week repo rate (base rate) (Rey & Gerko, 2017). The implementation of monetary policy is mainly through open market operations. The UK’s financial open market system is divided into three levels, which are operated once a day, that is, the central bank provides transactions to some intermediaries (liquidation banks, investment banks and some small and medium-sized financial institutions) to provide some of the funds needed by the market, and then by intermediaries and finance. The institution conducts the transaction (if the normal trading rate is executed during the normal trading hours; if the normal trading time is exceeded, the higher interest rate is executed), if the amount of funds provided by the central bank still cannot meet the market demand, then the financial institution is trading in the private market. In this way, the central bank influences the private market by providing a certain amount of funds to the intermediary and setting a benchmark interest rate, so that the private market interest rate runs around the central bank’s benchmark interest rate. (Bindseil , 2004)

Reasonsfor the Necessity of Bank of England Existence

From the continuous improvement of the Bank of England’s responsibilities and efficient operation of monetary policy, there are some points that can be drawn.

1. The monetary policy formulation and implementation functions are separated from the financial supervision duties. Although financial supervision has not been long-term from the Bank of England, its effects have not been fully reflected so far. However, in the formulation of the British monetary policy and the implementation of financial supervision, it is actually the responsibility of different departments for a long time. The separation of the two functions has caused the UK to never have a major financial crisis and promoted the long-term stability of the UK financial industry. (Hodson & Mabbett, 2009)
2. The committee’s member structure becomes an important basis for the objective science of monetary policy decision-making. The monetary policy committee’s operational procedures are standardized. Moreover, the monetary policy is highly transparent, and timely issuing policy signals to the public, so that all economic entities have sufficient time to adjust their business behavior in advance, which is conducive to economic and financial stability (Hambur & Simon, 2017).
3. The Bank of England’s scientific and efficient open market system. This not only guarantees the full operation of the open market, but also allows commercial banks to maintain a very low reserve in the central bank (commercial banks only deposit 0.15% of the total deposits with the central bank) (The Economist, 2015).
4. The interest rate marketization of the Bank of England is maturing. Since the basic interest rate determined by monetary policy has become the basis for the operation of financial markets, the interest rates of all financial products in the financial market are closely fluctuating around the central bank’s benchmark interest rate, thus promoting the continuous improvement of financial efficiency (Oyedele, 2018).
5. Forward-looking is a typical feature of British monetary policy nowadays. Because the government’s price target is aimed at solving future inflation, rather than solving immediate inflation. (King, 1994) Monetary policy is also closely related to the realization of this-future goal. Their economic analysis and forecasting system are very sound and institutionalized, and the focus is on the analysis and prediction of future trends, thus increasing the predictability of monetary policy.
6. The degree of internationalization of finance is very high. In addition to the domestic economic and financial changes, the Bank of England’s monetary policy is based on the trend of international economic and financial. (Bank of England, 2018) Since the UK financial market maintains a large number of trading activities in the financial markets of the world in 24 hours a day, the UK financial and world finances maintain a high degree of close ties, which makes the country’s monetary policy have a greater impact on the economies of various countries (Anon., 2005). This action causes great concern around the world.

Thus, the author considers that the Bank of England fully played its own role in the operation of the entire monetary policy. It can be seen that the Bank of England has affected the stability of the UK financial sector and other countries associated with it to a certain extent.

Conclusion

The history of the Bank of England still affects financial development to date, and as a central bank, its own functions enable itself to contribute to currency stability, financial stability, and some financial services in society. In general, the author considers that the existence of the Bank of England or the Central Bank is very necessary and cannot be ignored.

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