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. About the history of one of the oldest financial institutions in the world - in the material prepared jointly with the magazine "Budget".
In 1126, a treasury appeared in England, and merchants began to store the free remains of their money and precious metals in gold workshops. The craftsmen, in turn, paid the merchants interest on such deposits, and they themselves got the opportunity to give them up at a higher rate. The masters' receipts confirming the acceptance of the deposit for storage 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 the issue of bills on an unlimited scale 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 political event of a rather random nature. To meet his financial needs, Charles II was forced to rely heavily on loans from London bankers. His debt grew at a rapid pace, and in 1672 he ordered the Treasury to suspend payments of money, including through his own loans. Thus, trust in the king was undermined for many decades, and it was the desire to find a replacement for the thus destroyed source of loans that forced the next monarch, William III, and his government to turn to the scheme of a financier named Patterson, which involved the creation of an institution called the Governor and Co. Bank of England.
Its establishment was formalized in the Tannedge Act, in which, among many other articles, the formation of a bank created “to improve fundraising and transfer to the Treasury £ 1.2 million” appears to be a rather minor event. But it was precisely this amount that was lent to the government, and in return, the bank was allowed to issue banknotes for this amount. The sudden release of such a large volume of paper money was accompanied, of course, by a frenzied spike in inflation.
Edward Ward, South Seas Campaign.
The early history of the Bank of England is the history of the exchange of services between a new financial corporation and a cash-strapped government. As already mentioned, the bank's capital at the time of its formation was £ 1.2 million. Already in 1697, the government renewed and expanded the bank's privileges, allowing it to increase both its own capital and the issue of banknotes. In addition, it granted the bank a monopoly on government settlements, decreeing that from now on all payments to the government were to be made through the bank, which naturally led to a significant increase in the prestige of this organization.
Then a decision was made that consolidated the status of this financial institution: only one bank in the country was established through the adoption of a special law by parliament. The law, however, ruled that the actions of the "Manager and Co. at the Bank of England" can not serve as an excuse to use the private property of any member of the corporation as compensation for the damage caused. This decision, in essence, meant granting the bank a privilege of limited liability, which was denied to all other banking associations over the next century and a half. Simultaneously with these events, a new organizational form of business began to emerge, which is now known as a joint stock company.
William Bartlett, London's premier panorama.
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Since 1751, the bank was entrusted with the management of the public debt. It became almost impossible for small firms to compete with him, as a result of which small banks began to keep their money in the Bank of England, gradually turning it into the country's central bank. Between 1694 and the beginning of the 19th 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). Beginning in 1800, when the pound was depreciating and war credits grew, banknotes of the Bank of England practically served as legal tender, and in 1812 the government officially declared them as such.
Small banks gradually became convinced that a loan from the Central Bank of Great Britain would save them in crisis situations. And when the bills of ordinary bankers lost their liquidity, the population used the banknotes of the Bank of England, and, thus, these notes served as gold coins during the period of lack of cash. In fact, the bank has become a regulatory institution that occupies a particularly responsible position in the country's monetary and credit systems. On this occasion, the Board of Directors of the Central Bank of Great Britain even spoke in parliament, protesting against the system that made the Central Bank responsible for "maintaining the entire national currency."
During the crisis of 1825, the Bank of England initially lent extensively to small banks, saving them from bankruptcy. But it didn't help everyone. Of the several hundred banks that existed by that time, about 150 went bankrupt. At the same time, a movement arose in England to support the creation of other joint-stock banks, besides the Central Bank of Great Britain. Their emergence can be considered the third period in the development of the kingdom's banking system. A law of 1826 allowed the establishment of joint-stock banks, but on 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 was not only about issuing banknotes. The deposit business with check settlements has become a prominent element of the business world. It was decided that the Bank of England has a monopoly on deposit activities. Since 1833, he received the right to set the percentage of loans issued to him at his discretion. By this time, the bank held not only the entire gold reserve of the country, but also the bank reserve (cash reserve). During World War II, the bank's main function was to finance public debt, which grew from £ 1 billion to £ 7 billion. At the same time, control of foreign exchange transactions was introduced, which remained until 1979.
The bank was nationalized in 1946, ownership of the share capital passed to the UK Treasury, and the former shareholders received generous compensation in the form of 3% government bonds. Since 1997, the bank has had the operational right to regulate interest rates. He became officially the banker of the government. According to English law, the Treasury can, after prior consultation with the bank manager, give the bank recommendations that he is obliged to fulfill.
Formally, responsibility for the decision in the field of monetary policy is assigned to the head of the treasury, who is 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 legislated. Among the central banks of industrialized countries, the Bank of England is one of the most legally dependent on the government. In practice, the Bank of England works in close contact with the Treasury and it is difficult to overestimate its role in regulating the monetary and foreign exchange sphere, in managing the public debt.
Bank ghosts
Initially, the Central Bank of Great Britain was located on one of the oldest streets in London - Threadneedle (literally - "a needle for a thread") in a house where in the 17th century there was a tailor's workshop, which is why it got the playful name "Old Woman from Threadneedle Street". Later, at the end of the 18th century, the bank received a plot of land 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 the architect John Soane, who made it completely deaf and, in addition, surrounded it with a lattice. It turned out to be a kind of "prison for money." The meaning of the plan is clear: impressive sums were kept behind this wall. Created by John Soane, 1925–1939 was completely rebuilt by the architect Sir Herbert Baker, but the blank wall remains. It is worth noting that Russian craftsmen also had a hand in the design of the Bank of England. At the entrance of the main entrance, the floor is decorated with mosaics by the Russian artist Boris Anrep.
The bank was always heavily guarded. For many years this was the prerogative of special guards, only recently it was replaced by an electronic security system. No one, except employees, has the right to access the bank, there are no photographs on which the building would be captured from the inside. Although the City of London is now lined with high-rise buildings and continues to rise in the sky, the monolith of the Central Bank of Great Britain is quite impressive. Perhaps the fact is that new banks, trying to appear accessible to customers, are being built transparent, of glass and concrete, but the "Old Woman" remains gloomy and unapproachable.
Somehow it so happened that ghosts have become the hallmarks of English castles, and this has long been no surprise. But there are also banking ghosts. Over the centuries, there have been stories of ghosts living within the impregnable walls of the Central Bank of Great Britain. 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, due to his height, 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 bank walls, in a small courtyard. Nevertheless, his grave was nevertheless opened and an unusually large coffin was indeed discovered. After that, a huge employee 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 involved in a card game, lost and made two false checks to cover the loan. His partners in the game handed him over to the bank bosses, the embezzler was arrested, tried and executed. However, his sister was not told for a long time what happened to his brother and why he did not return home from work. When she found out the truth, she lost her mind and began to wander near the bank, whose employees procured her a tiny pension. For forty years this woman, dressed in black (hence the "nun"), wandered around a huge gloomy building. They say that her shadow flickers in the corridors of the bank to this day.
Larisa Borisovna Zimina