Bank of England, functions of

Updated: Aug 20, 2021

(1) It acts as a bank in the normal sense of the word. though its customers are for the most part the government, the commercial banks. overseas central banks and international organizations. There are some private accounts: these are kept for sentimental reasons and also to keep the Bank in touch with everyday banking problems. (2) The government keeps all its main accounts at the Bank, though subsidiary accounts are kept at commercial banks outside London. Monies paid into these accounts, however, would normally find their way to the Exchequer Account at the Bank of England. The Bank does not make short-term loans to the government on a large scale – these needs are satisfied by borrowing in the market by means of treasury bills, etc. The Bank, however, may act as the government’s agent in these matters. (3) The Bank is also known as the bankers’ bank. It is banker to the commcrcial banks and also to Discount Houses and Accepting Houses. It acts thus as lender of last resort to these institutions. The most important accounts are those of the London clearing banks, and because of this the Bank can, by market operations and calls for special deposits, control the amount of money in circulation in accordance with government policy (the ability of the clearing banks to lend being geared to their balances at the Bank of England). (4) The Bank acts as banker to other central banks and has accounts for overseas central banks and organizations such as the International Monetary Fund and the International Bank for Reconstruktion and Development. Many central banks, particularly those in the sterling area, hold the bulk of their external reserves in London – others keep large working balances in sterling. (5) The Bank is the central note-issuing authority. Bank of England notes have been legal tender since 1833. (6) The Bank acts as registrar of government stocks, stocks issued by nationalized industries, and stocks of some local authorities, public boards and Commonwealth governments. This involves over 5,000,000 dividend payments annually. (7) The Bank is the Government’s agent in administrating exchange control. It also supervises limitation of investment in developed countries of the sterling area. and manages on behalf of the Treasury the exchange equalization account.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
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