This final chapter discusses the role of the Bank within a selective history of central banking. “Exchange bank” institutions such as the Bank became obsolete by the end of the eighteenth century. The new model for central banks was the Bank of England, which incorporated features such as private equity capital, large holdings of sovereign debt, a discount window, and the issue of circulating banknotes. It is argued that the Bank of England nonetheless gravitated to a two-bank structure following the 1844 passage of Peel’s Act, with many similarities to the eighteenth-century Bank of Amsterdam. Peel’s Act split the Bank of England into two banks, a passive bank (“Issue Department”) that issued notes against gold deposits and paid out gold coins, and an active bank (“Banking Department”) used its ledger money to commercial paper and engage in various types of open market operations. A concluding section argues that the active—passive dichotomy bears some relevance for modern financial markets, with active liquidity arising from traditional central bank open market operations, and passive liquidity arising from arrangements such as repo transactions. It is argued that recent crisis events have revealed the interconnectedness of these two forms of liquidity.

The interwar decades saw the emergence of central banking institutions in the prosperous white settler ‘dominions’ of Australia, South Africa, New Zealand, and Canada. Local political and business interests promoted central banks with a view to fostering domestic economic and financial stability, while the Bank of England and British government imagined a chain of central banks across the empire that would support their policies. Given that financial markets in the dominions were underdeveloped, it was difficult for the new central banks control monetary conditions, mirroring problems in Central and Eastern Europe. In addition, the British discovered that they could not impose their ideas on the dominions, especially when local economic concerns conflicted with those of the imperial centre.

The Fed was keen the cooperate with the Bank from early in the 1960s. The Bank on the other hand took time to warm up and share information with colleagues at the Fed. But progressively swaps became a key feature of the United Kingdom's exchange management strategy. They offered cheap and discreet short-term dollar loans. The Bank started to use and abuse these loans to manage sterling.

Far from improving the situation of sterling, the 1967 devaluation made things worse. Currency dealers were now more nervous. There was more volatility and stress on London currency markets. The Bank was also running out of reserves and decided to creatively hide its reserves losses using window dressing.

This book looks at the people managing sterling, the Bank of England's foreign exchange dealers. They were at the forefront of all currency crises sterling went through from 1944 to 1992.

Unlike 1720 or 1793–97, the bubble of the 1820s was generated by the financial system itself: The new expansion of the banking system both domestically and internationally, the Bank of England’s monetary policies, the structure of corporate finance, and sovereign lending practices produced the bubble without any need for malfeasance or exogenous shocks. The bubble burst in late 1825, leading to the failure of more than 100 British banks and more than 1.000 businesses. At the height of the Panic of 1825, the decision about priorities and interests was taken not by a political sovereign or a regulatory legal institution, but by a private bank: Rothschilds bailed out the Bank of England, showing the power of financial markets over governance. For the first time, it was clear that financial markets could both cause and end financial crises regardless of political institutions. After 1825, financial crises became a predictable and intelligible part of life, caused by impersonal and abstract international markets, managed by central banks independent of political accountability, explained and analyzed by a self-authorized body of economic thought, with the costs borne by domestic populations and nobody in particular at fault.

Between 1797 and 1815, Britain and France each developed modern central banks, albeit in very different forms. The Bank of England’s powers expanded enormously after the suspension of gold convertibility in 1797, and it also developed a vast system of investigation and prosecution of forgery and counterfeiting, whose records form the evidentiary core of the chapter. The Bank used its powers to protect itself, but also to aid in broader English governance, helping to produce a modern money-using financial public. As with the aftermath of 1720, the Bank’s powers produced widespread political condemnation, especially accusations of illegitimate elite conspiracy. In France, the brief chaos of free banking was replaced by the centralized Bank of France, mostly under government control and with limited policy discretion. In both cases, impunity was institutionalized as a function of governance, delegated to a private bank with political obligations. These new institutions, exercising new forms of monetary policy, would reconstitute the operation of international financial system after 1815.

This chapter explores the operation of the classical gold standard from the end of the nineteenth century to the verge of the First World War. Beyond providing context, surveying the classical era sheds light on a recurrent theme throughout this book: gold is not monolithic. There is not one way to be "on" gold, and there are many ways to be "off" it. Even during the classical gold standard, when reality came as close as ever to approximating the textbook model, no two countries had precisely the same monetary setup, and this multiplicity would only intensify in the postwar era.

This chapter focuses on the reciprocal gold facilities created in the weeks after the Tripartite Agreement to enable exchange intervention, viewed as essential for the Agreement to have any chance of success. Each country agreed to convert its currency into gold for other members at a price set each day. The system squared the circle of how to enable countries to intervene in currencies that were not universally convertible into gold and played a crucial role in keeping members on the same page during a time of immense political and economic strain. It established a technical foundation for broader collaboration and was integral to the Tripartite Agreement's success in preventing policymakers from relapsing into the antagonisms of earlier years.

This chapter studies developments in Britain’s monetary system and relations during the harrowing run-up to war. The pound depreciated substantially beginning in the summer of 1938 as war scares caused capital to flee. While the depreciation could have led to the reemergence of a crippling animus among club members, a middle ground developed whereby Britain made good faith efforts to support the pound and other members acquiesced to its decline. The Tripartite Agreement continued to embody democratic solidarity and survived all the way up to the eruption of hostilities in fact and for some time thereafter in name, falling into abeyance due to the necessities of war finance rather than any disagreement between the parties. To defend the pound, Britain transferred the gold in the Bank of England to the Exchange Equalisation Account, thereby severing the remaining threads that had tied sterling to the metal and readying monetary policy for battle in what would become a total war.

This chapter provides an historical analysis of the UK judiciary's limited role in central government public finance throughout the eighteenth and nineteenth centuries. Tax litigation represented the high point of judicial involvement in public finance, but judges' hostility to fiscal legislation did little to bolster Parliament's revenue-raising interests. Mid-nineteenth century explorations with judicial review of appropriation legislation never became a settled practice and the judiciary imposed no discernible constraints on the legal limits of public borrowing (by the Treasury) or lending (by the Bank of England). By the conclusion of the nineteenth century, it was clear that the common law judiciary would not have a prominent role in the model of parliamentary public finance which was exported throughout the common law world. Various celebrated and important cases are critiqued, including: Auckland Harbour Board v The King; Bowles v Bank of England; the Bankers' Case; and The Queen v The Lords Commissioners of the Treasury.

This chapter provides a case study analysis of the operation of public finance law concerning sovereign debt and monetary finance in the UK and Australia between 2005 and 2016. The legal and financial mechanics of sovereign borrowing and monetary finance are closely examined by reference to the authority of central banks and treasuries to finance the state beyond the point of fiscal deficit. The very broad powers delegated to treasuries over sovereign debt are scrutinised in the context of vastly different economic conditions, and their capacity to shrink the financial authority held by parliaments is observed. Special attention is then given to the monetary financing powers of central banks, particularly the Bank of England. The emergency monetary finance provided by the Bank of England during the financial crisis is surveyed, and the public financing aspect of 'unconventional' monetary policy, particularly quantitative easing, is examined. The chapter closes by observing the absence of meaningful legislative governance of debt and monetary finance in the context of financial or economic emergencies.

This chapter explains how a distinct constitutional model of public finance developed in the UK between 1700 and 1900, focusing on the legal and institutional relationship between Parliament and the Treasury. After providing critical economic context regarding the financial activities of British governments, the chapter explains how the complex inter-play of taxation and appropriation legislation distributed financial authority between parliament and executive government. It then moves to survey the growth of statutory public borrowing, the law underpinning the Bank of England's public financing functions, the appointment of the Treasury at the financial apex of Westminster government and the growth of a settled system of public audit. Special attention is paid to a number of topics: appropriation legislation (annual and standing); time-limited taxation statutes; the Treasury's power to adjust parliament's approved expenditure (virement); the connection between annual appropriation legislation and the UK's 'National Debt'; the Bank of England's powers to finance government; and the complicated relationship between Treasury and Comptroller and Auditor-General.

This introductory chapter outlines the transformation or modernization of the Bank of England in the twenty years after 1979: how governance and accountability were transformed, and communication was accorded a greater role, as the Bank moved to policy autonomy or operational independence from the UK government. The process amounted to what might be described as an informational revolution. The transformation of macro-economic management may also be considered as part of a broader process of globalization. Central banks everywhere became much more aware of international activities and developments, and policy-makers reflected more on how the UK was affected by what went on beyond its frontiers. There was also a greater legalization: a need for legislation to define what was involved in banking, and how to regulate banking. Finally, the nature and definition of money and of monetary stability became the subject of a political debate.

Chapter 3 examines the bubble that occurred in the UK in 1824 and 1825. This bubble concerned the promotion of Latin American mining companies and various new companies on the London stock market. The price of mining shares quintupled and those of other new companies more than doubled between August 1824 and February 1825. Over the next year, the prices of these stocks plummeted. This was then followed by one of the most serious banking crises ever to hit the UK. The chapter then moves on to discuss how all three sides of the bubble triangle were in play. Marketability had been revived by the liberalising attitudes of MPs in the UK Parliament. Part-paid shares leveraged the buying of shares and, allied to low denominations and low returns on other assets, stimulated speculation. The spark which set the bubble fire alight was a change in government policy towards Latin America and the corporation. The chapter concludes by examining the consequences of the bubble. The post-bubble banking crisis which started in December 1825 resulted in the collapse of many banks and was followed by a very deep recession.

The three Vaglianos reached their apogee as an international trading company during the 1860s-1880s. It is during this time that they opened the path of the Greeks to global shipping, and made maritime and commercial transactions on an equal basis with the world’s best; in 1881, in London they had a turnover of about £8 million sterling when Schröders had a turnover of £4 million and Rothschild’s £12 million. This chapter analyzes the functioning of their international trading house in trade, finance, and shipping. During the 1850s-1880s, the Vaglianos became the leading international trading house of the Greek entrepreneurial network. In 1858, following the tremendous profits the House enjoyed after the Crimean War, Panagi Vagliano went to the City of London, a move that proved to be decisive. Their activities in banking and particularly the legal confrontation Vagliano vs. the Bank of England illustrates the importance of the Vagliano Brothers in the City of London and its institutions, and investigates the dynamic interrelationship between the foreign City merchant bankers and the development of financial institutions like the bill of exchange.