The Bank of England, being the main bank of England, serves as a model for the rest of the banks within the country. It was introduced for the first time in 1694 as the English Government banker. In 1734, the bank was shifted to the famous street of London city known as the ThreadneedleThread needle Street.
It was nationalized in 1946 while it achieved independence in 1997. The financial system of England is based on the Bank of England. It has the responsibility of conducting several functions but the most important among all is to maintain financial stability in the entire country. The very first concern of this bank is to devise such an effective fiscal policy to prevent price fluctuation. The financial conditions of a country depend upon the price fluctuations.
Another important role of the Bank of England is that in critical times it lends money to other banks thus, taking them out of the difficult economic situation. If any bank of the country is on the verge of economic deterioration, the Bank of England lends money due to which the bank is prevented from undergoing bankruptcy. Hence, the economic conditions become stable due to this strategy.
The Bank of England holds gold as insurance in case of turmoil in the money markets of the world, 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 portfolio of the bank, 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 the headlines. It admitted that cracks and fissures were found in some of its gold. It was determined that the deterioration would temporarily reduce the value of the gold, making 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 the central bank, its actions affect the entire economy. The gold prices at that time were at a height since its demand was increasing day by day.
However, the selling of gold at low rates led to the sudden fall in it price due to which many investors had to lose their investments. As the gold was in its desired condition so bank had to sell it on considerably lower rates.
The Bank of England lost more than 3.8 billion pounds, due to which it was made to face considerable criticism. However, the good reputation and effective portfolio helped the bank in achieving stability in its condition quite soon. However, the economy of the world has already been disturbed for the coming several years.
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