The Bank of England is the central bank of the United Kingdom. Historically, it has been a model for banks all over the world. It was first established in 1694 to act as the English Government's banker. The bank was moved to Threadneedle Street in 1734, which is situated in the city of London.
The Bank of England was nationalised on 1 March 1946, and gained independence in 1997. Being the central bank, it forms a base for the financial systems in England. The bank is responsible for many functions, mainly ensuring economic stability throughout the country. Its first function is to draft the monetary policy and ensure price stability as economic conditions are very dependent on the currency fluctuations. It is important to keep inflation in check and ensure suitable interest rates in the economy.
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Another major function of the bank is to act as a lender of last resort to other banks operating within the country. If any bank is facing finance trouble and is about to default, the bank of England can prevent the bank from being bankrupt and thus promote stable financial conditions in the country.
The Bank of England holds gold as insurance in case of turmoil in the world's money markets and its reserves are worth around £4 billion. It has held gold reserves for over 300 years. In 1999, the bank undertook a major restructuring of its gold reserves and auctioned off a large portion of its holdings. This step was undertaken in order to improve the bank's portfolio and increase its holding in currency. Almost 400 tonnes of gold were sold off in this manner.
In 2007, the bank ran into trouble regarding its gold reserves and this news made headlines. It admitted that cracks and fissures had appeared in some of its gold. It was determined that the deterioration would temporarily reduce the gold's) value and make it more difficult to sell. Gold was held by the bank in the shape of bars as well as coins.
Such a condition made it difficult for the gold to be traded in the market. Since the bank of England is a central bank, its actions affect the entire economy. The gold prices at that time had been at a high since its demand was increasing day by day.
Nevertheless, this action lead to a drop in the price and caused many investors to loose money. Since the gold was not in mint condition, the bank had to dispose of it at a lower price.
The Bank of England has been heavily criticised for this action, as it will affect the world's economy for many years to come. Gordon Brown, the Chancellor of the Exchequer, was able to sell a large proportion of Britain's gold reserves at the lowest price for a quarter of a century, despite being advised against it. It was estimated that these sales caused the bank to lose 3.8 billion pounds. However, the Bank was able to overcome the loss with efficient portfolio management and is now in a stable financial position.
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