Evening star., 1949-05-15

MANAGES the national debt. issues
money, stores the nations s thin
ming gold hoard. sells and re-
deems government securities. con-
trols foreign exchange. and does
any other needful financial chores
II did all these things before
naturalization.
This whole ARRANGEMENT grew
up informally, with the govern
ment simply using the privately
owned Bank of England ss its
banker. Its fl4.553 200 worth OF
stock paid handsome II per cent
dividends.
Bank Control Needed.
Taking it into government
hands was the first naIlonal.za-
ton project Of the Labor govern
ment.
Prof Harold Laski. a Socialist
intellectual who was head OF the
Labor Party at that time, stated
the Socialist case: We cannot
achieve a planned economy with
out control OF the central bank. "
So the government took il over
by act of Parliament, with little
political opposition. 1t paid off
the stock at 400 pounds 81 500
in government securities for each
100 pounds ts400) share, but cut
the interest rate to 3 per cent.
Quadrupling of the stock and
quartering the interest rate gave
the old shareholders the same
income on their investment.
Only one clause gave the gov
ernment more power. All the
other banks in the country are
privately owned; the nationaliza-
ton bill authorized the bank 10
make recommendations to bank
ers" and issue directions TO re-
inforce them.
Government Power Unused.
Thus the government. through
the bank. gained direction OF
banking policies. So far 1t has
not needed to use that power.
Meantime, the Old Lady OF
Threadneedle Street goes her way
as always, handling day to day
operations without government in
terference.
The bank was founded because
the government was broke. VII
liam III walls battling France in
Flanders and needed money. A
syndicate headed by Sir John
Houblon, a Huguenot merchant
refugee from France. offered the
government 100000 pounds ga
100000 in return for a bank
charter. In addition. the bank
got 8 per cent on its money plus
1000 pounds ($16,00O a year
bonus-making an income Of a
neat 10000 pounds ($400. .000) a
year for the bank on its first loan.
Eight per cent sounds like high
interest, but 1t was small COM
pared with the extortionate rates
got by the goldsmiths. who had
carried on deposit and lending
business before the Old Lady be-
came the nations first bank In
1894.
Opposed by Tories.
Chief opposition to founding the
bank came from the landholding
Tories. But the new merchant
class, needing a solid place to
store their colonial gold and the
wealth stemming from new found
ed foreign trade. carried the day.
Gold remained the currency of
the day until Napoleon landed q
small force In Wales In 1897. Pay
ment in gold was suspended un-
der the threat Of invasion.
The familiar bank notes In ctr
culation now did not gain cur
rency until World War I again
forced suspension Of gold pay
ments.
They have remained in use ever
since, and when Britain was
forced off the gold standard In
1881. payment in gold became L.
legal.
Now the bank circulates S.
zoe, 0,991 1892 In notes, almost
wholly backed by government Sc
curities.
In its commercial department,
where it acts as a bank for bank
ers, It has deposits Of nearly ST.
zoe. 100000 and total assets of
81, ,740,053,044.
The bank Is still guarded at
night by q detachment of royal
guardsmen-a practice stemming
from the Gordon riots of 1880,
when troops had to be called out
to protect the bank.