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 banker. The bank was moved to Thread needle Street in 1734, which is situated in the city of London.
On 1st March, 1946, this bank was nationalized, which got liberated in 1997. As it is the main bank of England, it forms the basis for the financial systems of the UK. Although the bank serves several purposes of the country, but the main responsibility of this bank is to maintain the economic stability in the country. As the economic conditions of a country are dependent on the ups and downs of the currency value so it is very important to formulate a proper and effective economic policy. Thus, a proper check should be ensured on the fluctuation of the currency.
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 a 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 has gold reserves as insurance for overcoming the obstacles emerging in the worlds economic market. The value of the gold reserves held by the Bank of England is four billion pounds. These reserves were held for more than 300 years but in 1999 the bank took a major step by auctioning the gold reserves. This step was taken in order to improve the standing of the bank in the world and thus increasing its currency holdings. The entire course of action led to the sale of 400 tonnes of gold.
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.
Due to such a difficult condition, it became nearly impossible to sell gold in the market. The Bank of England, being the main bank, affects the whole economic condition of the country to a greater extent. The gold rates were on the peak due to the increase in its demand.
Nevertheless, this action lead to a drop in the price, and caused many investors to lose money. Since the gold was not in mint condition, the bank had to dispose it off at a lower price.
The Bank of England has been heavily criticised for this action, as it would affect the economy of the world for many years to come. Gordon Brown, the Chancellor of the Exchequer, was able to sell a large proportion of the Britain gold reserves at the lowest price for a quarter of the 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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