Wednesday, February 25, 2009

Three Centuries Of Service For The Bank



Your bank is the base of a huge pyramid that stretches back in time and space to a single entity. So let's delve into the bank, but not the one you or I might walk into on a daily or weekly basis. We're going to be looking at 'the Bank'. Confused? Don't be. Within the financial world, 'the Bank' often usually means only one thing - the Bank of England.

It was started by a group of rich merchants more than three centuries ago and then granted a Royal Charter by William III. Then in 1946, following nationalisation, the relationship with the Crown was formalised. The Bank of England became the central bank for the United Kingdom.

Central bank? Yeah, for in today's complicated and quickly changing world, a central bank is the cornerstone of most modern economies. So, many countries have them. The central bank in the USA is called the Federal Reserve. In the European Union, the European Bank is called, surprisingly, the European Central Bank. So what exactly is a central bank. Why have one?

The answer to that is complexity - the modern economy is a many-tentacled monster, handled by the expertise that is the central bank. It has many jobs to do, including acting as banker to the government itself. The central bank also oversees the economy. And it regulates the supply of money.

Did you know that the UK government has an account held at 'the Bank'? Or that all of the major banks also have accounts at the Bank of England, to deposit money or borrow cash?

So the rates offered by the Bank of England to borrowers and depositors (i.e. the major banks) will have a huge effect on the interest rates charged within the money markets themselves.

That affects us all, or at least most of us, when those money market rates feed through the system. For example, they'll determine what we pay in interest payments for the mortgage. Or they will add to the overall cost of a car loan, or to the amount we pay for that computer taken out on credit. If you are a saver, not a borrower, you'll be affected, too, through the rate of return offered on the savings account.

Yes, 300 years old and still going strong, 'the Bank' is growing in reach, influence and relevance with each passing century. In today's topsy turvy world, is it not good that there are some things that never seem to change? The answer is surely a resounding 'Yes'. No one can argue with that!

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