Tuesday, February 2, 2010

The function of the Bank of England

1. The banknotes and coins. The Bank of England is the sole issuer of banknotes and coins in the United Kingdom. Theoretically, you could have a € 10 note to the Bank of England and ask is the sum of gold. I do not know if they take too kindly to such requests, but that's the theory, as it would keep the trust in banknotes and coins as a medium of exchange

2. Managing the public debt. Public debt in the UK late 2005 / 6 general government debt was £ 529.1Billion, representing 42.1 percent of GDP. [1]
In order to sell the debt management of the Bank of England to bonds and gilts to the private sector. Bonds typically have a lifetime of about 30 years. To encourage people to government debt they need to buy to offer an attractive interest rate. UK interest payments on debts amounting to nearly 30 billion pounds per year

3. Managing Monetary Policy. In particular, the MPC Monetary Policy Committee is responsible for the change in interest rates in the responsibleTo keep inflation within the governments target of CPI 2% + / -1. To achieve this inflation target the MPC will meet every month and the testing of future inflation. If inflation seems to increase then they will vote to raise interest rates to dampen demand. You do not set directly but indirectly they affect mortgage interest mortgage through the setting of interest rates.

4. The Bank of England rate actually set the base rate of "repo" to. This is a ratethat lend them to commercial banks. Keep the banks short of liquidity, so they often borrow at this repo rate. If they repo rate then changes to the commercial banks in general, the changes are to their customers by their own interest rates.

5 .. As a lender of last resort. If the commercial banks' cash then they go to the Bank of England, which is able and willing to lend them short of money. This is important for banks because theyensure the banks are never short of money and so people have confidence in the banking system.

6. The Bank of England supervision of the banking and financial system of the United Kingdom

[1] http://www.statistics.gov.uk/cci/nugget.asp?id=277

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