BUS614: International Finance

The Bank is responsible for ensuring our money holds its value and works tirelessly to protect the economy from the threat of high inflation. With the UK due to leave the European Union, the Government is yet to agree a draft withdrawal treaty with Brussels. The possibility of a No Deal Brexit is increasing, and Parliament has tasked the Bank with producing a special Brexit Report, including a detailed analysis of the economic impact that leaving the EU without a deal could have. 

Discover the range of qualifications and modules from the OU related to this programme:

• BA (Honours) Business Management
• BA (Honours) Economics
• BSc (Honours) Economics and Mathematical Sciences
• BA (Honours) Politics, Philosophy and Economics
• MSc in Finance
• MBA (Master of Business Administration)

Five things you might like to know about the Bank of England

The Bank of England is the central bank of the UK, but do you know anything about it? Take a look at these 5 facts…

It was created to act as the Government’s banker and debt manager

Established on 27 July 1694 as a private bank, The Bank of England was to act as the English Government's banker. It was primarily founded to rebuild the navy in the war effort against France. William III and Queen Mary were two of the original stockholders. It's Royal Charter said that the bank was founded to 'promote the public Good and Benefit of our People'. The Bank of England officially opened its doors for business on 1 August 1694 in Mercers' Hall in Cheapside; it employed seventeen clerks and two gatekeepers. In 1734, the Bank of England moved to the site on Threadneedle Street where it still lies today. Nowadays, it still is one of the bankers for the UK's government (nationalised in 1946), is the UK's central bank and has the aim of promoting' the good of the people of the United Kingdom by maintaining monetary and financial stability'.

Sealing of the Bank of England Charter (1964) by Lady Jane Lindsay, 1905

Its responsibility is shared between three main bodies

Monetary Policy Comittee (MPC)

Low and stable inflation and confidence in the currency are the two main aims for monetary stability. These are maintained by ensuring that price increases meet the Government's inflation target. This happens by adjusting the base interest rate, which is decided by the Monetary Policy Committee. The MPC meets regularly to monitor developments in the economy so it can set the interest rate and adjust the amount of money in the economy to meet the Government's target. You can find out more in the video.

Financial Policy Committee (FPC)

The Financial Policy Committee identifies, monitors, and take actions to remove or reduce financial or macro-economic risks that threaten the resilience of the UK's long term growth prospects. The FPC was established in 2013 as part of the new regulations brought in to improve financial stability in the UK after the financial crisis.

Prudential Regulation Authority (PRA)

The PRA supervises banks, building societies and credit unions, insurers and major investment firms and focuses on the danger that financial firms can pose to the stability of the UK financial system. The PRA has two primary objectives – to promote the safety and soundness of these firms and, for insurers, to secure protection for policyholders. It also facilitates effective competition.

It is known as the 'Old Lady of Threadneedle Street'

For over 200 years, the Bank of England has had the nickname 'The Old Lady of Threadneedle Street' – sometimes shortened to 'The Old Lady'. This dates back to a cartoon published in 1797 by James Gillray depicting the Prime Minister at the time, William Pitt, trying to seduce an old lady dressed in bank notes (representing the Bank of England). Pitt's true intention is to actually get hold of Bank of England's reserves: namely, the gold coins in the old lady's pocket and the gold money-chest she is illustrated sitting on protectively. The cartoon also includes the drawing of a 'loans' document, conveying how Pitt's government where continually demanding money from the bank. The caption underneath reads 'POLITICAL RAVISHMENT, or The Old Lady of Threadneedle Street in danger!'

Old lady of Threadneedle street.

It sometimes creates extra money to help the economy

This is known as quantitative easing. Quantitative easing is created using digital money buying predetermined amounts of government bonds in order to inject money directly into the economy. This makes it cheaper for people and businesses to borrow money; thus, encouraging spending. This unconventional means it is only really used when inflation is very low or negative, and standard monetary policy has become ineffective. You can find out more in the explainer video below.

Their vaults hold over 400,000 bars of gold

The Bank of England has one of the largest gold vaults in the world. They they keep hold of the most amount of gold in the world after the New York Federal Reserve. These are worth over £100 billion which is equivalent to 5,134 tonnes of gold. It's estimated that the vault could hold around 3% of the gold mined throughout the history of humankind. While you can no longer buy any of the gold bars, you can hold a real one in the Bank of England Museum.

Timeline: Financial Services

Insurance, ATMs on every corner and PayPal might be products and services we take for granted nowadays but when were these all introduced? Find out in our timeline...

1650

Use of banknotes

Receipts began to be issued but goldsmiths for valuables deposited. Later these receipts became known as bank notes. Merchants found that they could exchange these notes to settle their financial obligations – in effect, starting the use of paper currency in the economy. With the issuance of bank notes to support money lending, the goldsmiths became the country's first banks.

1666

Fire Insurance

Fire insurance was the first to achieve corporate status, with the creation of the Insurance Office. Some of the first fire insurance policies were issued on properties rebuilt after the Great Fire of London in 1666.

1693

The Bank of England founded

The Bank of England was founded following war with France, initially to raise loans for wars. It was formed by a group of goldsmiths via a charter, 'The Governor and Company of the Bank of England'.

1695

The Bank of Scotland formed

The Governor and Company of the Bank of Scotland was established by an Act of the Parliament of Scotland on 17 July 1695. It is the fifth-oldest surviving bank in the United Kingdom and is the only commercial institution created by the Parliament of Scotland to remain in existence.

1749

The impact of the industrial revolution

The industrial revolution caused an expansion of commercial banks outside London to provide funding.

Source: The Open University, https://connect.open.ac.uk/money-business-and-law/inside-the-bank-of-england
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 License.