If you ever wanted to know what the Bank of England is, then allow me to enlighten you. The Bank of England is the central bank of the United Kingdom. Founded in 1694, the Bank of England is responsible for ensuring monetary stability primarily by encouraging the price stability of goods and services. The Bank of England is able to promote a price stable environment by targeting an inflation rate of two percent year over year through various monetary policies, like the setting of interest rates.
The Bank of England is commonly abbreviated BOE and is currently located on Threadneedle Street in London. As a result, the Bank of England has been nicknamed the Old Lady of Threadneedle Street. If you’re planning to visit the Bank of England, here is its physical address:
Bank of England
London EC2R 8AH, United Kingdom
Bank of England’s Website: source
Governing Bodies and their Responsibilities
The big boys who set monetary policy at the Bank of England would be those who sit on the Monetary Policy Committee. The Monetary Policy Committee, often abbreviated as ‘MPC’, have been tasked with setting monetary policy since 1998. The Monetary Policy Committee must meet on a monthly basis to discuss and contemplate whether current monetary policy actions are appropriate and consistent with the Bank of England’s primary mandate, price stability.
Since price stability is the Bank of England’s most important objective, the Monetary Policy Committee always monitors the United Kingdom’s inflation levels. The MPC releases estimates and projections on the United Kingdom’s rate of inflation in a quarterly report called the Inflation Report. The MPC consists of nine members: the Governor, the Deputy Governor of Monetary Policy, the Deputy Governor of Financial Stability, two Bank of England Executives Directors and four members selected by the Chancellor of the Exchequer.
The Monetary Policy Committee is only responsible for formulating monetary policy for the Bank of England. The body that is responsible for handling much of everything else if the Court of Directors, commonly known simply as The Court. The Court of Directors’ responsibilities include deriving the goals and strategies for the BOE, determining the most effective ways to delegate the BOE’s resources in order to accomplish its objectives, and more. The Court meet seven times a year to help fulfill their responsibilities.
The Court of Directors consists of twelve members: the Governor, the Governor of Monetary Policy, the Deputy Governor of Financial Stability and nine non-executive members. There is also a sub committee called NedCO that is comprised of just the nine non-executive members. Its responsibilities entail reviewing bank performance and its ability to accomplish its goals, determining how the pensions should be distributed for the executive members of the Court of Directors and other things.
Next on the list is the Remuneration Committee. This committee is responsible for helping the sub-committee NedCo on the remuneration for the Governor, Deputy Governors, members of the Monetary Policy Committee and other high ranking officials. Just to put it simply, the Remuneration Committee helps NedCo determine the amount of money the top officials at the Bank of England get paid.
The last committee I will cover in this article is the Audit and Risk Committee. This particular committee is responsible for helping the Court of Directors fulfill its responsibilities primarily by acting as an independent entity that ensures that the Bank of England is taking proper steps to manage its risks…among other things.
As I stated earlier, the main objective for the Bank of England is to ensure that the United Kingdom experiences inflation at a rate of two percent annually. That is its primary purpose…to encourage price stability. But the Bank of England has other objectives as well. Here are some of its secondary objectives.
Providing ample liquidity in the United Kingdom’s banking system
The Bank of England is solely responsible for creating and issuing the United Kingdom’s currency, the British pound. Through its monetary policies, the Bank of England can make it very difficult for the banking system to get a hold of liquid assets like cash and other assets that can be easily converted to cash, like gold, stocks, bonds. Because the actions taken by the BOE can influence the availability of liquid assets in the banking system, the Bank of England has also been tasked the responsibility of providing enough liquidity in the UK’s banking system to ensure proper function.
Manage the assets on its balance sheet effectively
The Bank of England, just like other central banks, has assets on its balance sheets. The amount of assets on its balance can and does have an affect on the United Kingdom’s economy. If the Bank of England has a large amount of assets on its balance sheet, a sign that the bank is implementing expansionary monetary policies, then the United Kingdom’s economy would be prime for economic growth due to the easy availability of cash. However, if the Bank of England kept a large amount of assets on its balance sheet for too long, inflationary pressures may start to rise, putting the BOE at risk of failing to fulfill its primary responsibility.
If the Bank of England has too little assets on its balance sheet, a sign that the bank is implementing contractionary monetary policies, then the United Kingdom’s economy may start to slow. It would also mean that inflation would be kept under control. If the BOE kept to few assets on its balance sheet, then the UK’s economy may suffer from a lack of economic growth. The UK economy will also have an increased probability of experiencing deflation. You see, what the Bank of England does to its balance sheet will have an affect on the UK’s economy. As a result, the BOE has been given the responsibility to manage its balance sheet effectively.
Promote public confidence through communication
The Bank of England is an independent central bank, capable of taking any action it deems necessary to fulfill its objectives. It may even take actions that the public may feel unwise or unwarranted and thus may lose public support and confidence. In order to keep public support and confidence high, one of the responsibilities the Bank of England has, is to keep a clear line of communication open for the public.
The BOE needs to be able to communicate its ideas and actions with the general populace in order for the public to understand the Bank of England’s the actions and the motivates. This open line of communication also serves to pacify the public to some degree whenever an action is taken that the public may not be supportive of.
The Bank of England has many other responsibilities not listed here, but the topics I’ve listed are some of the more important ones in my view.