Saturday, August 22, 2009

Bank of England as Mother of all Central Banks

After the abandonment of barter system the development in the monetary system started taking place. According to G. Growther the present day banker has three ancestors (1) the merchants (2) the gold smiths (3) the money lenders. When every money lender of gold smith issued receipts and most of them allowed the overdraft, there was then too much confusion in the banking system. The money lenders and gold smiths in order to earn profits could not keep adequate reserves for meeting the demands of the customers for cash. The failure on the part of the money lenders and gold smiths to return money caused wide spread distress among the people.
In order to create confidence among the people, steps were taken to regulate the banking organization. A conference was held in Nuremburg in 1548. It was decided that a bank should be setup by the state which should streamline the banking organization. Accordingly central bank came into being. The central banks were of two types in the beginning (1) They were joint stock banks and later on they were aimed economic stability (2) They were setup for the implementation of the monetary policy so that purpose of economic stability could be attained. Accordingly the oldest central bank of the world the Risks Bank of Sweden was setup in 1668. The central bank of Britain the Bank of England was established in 1694 on modern lines, so that it could provide loans to govt. Hence it is called the mother of all enteral banks. It is called sp because all the central banks of the world followed the same basic principles on which the Bank of England was established. In 1844 the notes issued by the Bank of England got the legal status. In this way it really became a central bank, because it got the power to issue notes (2) It assumed the role of government’s bank (3) It obtained the power to control foreign trade and foreign transactions. Then later on it was accorded as last resort for the banks and banker’s bank. These are the main functions which the central banks of the world performing at present. By assuming these powers and functions the Bank of England became the authority in money transactions and regularization of monetary policy. It became chief of money and banking system in England. The main objective before it was to attain economic stability of Great Britain. Therefore it was entrusted with complete monopoly powers regarding monetary control. After the establishment of the Bank of England the people of Great Britain started trusting the banking system. The confidence in banking system came into them. These are the reasons for which the Bank of England is being called the mother of all central banks of the world.

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