THE BANK OF ENGLAND

King William III needed money with which to finance the fighting of what was to prove to be the Nine Years War.¹ In In 1692 he raised 1m through a life annuity scheme that had been devised by Lorenzo Tonti, an Italian banker. The subscribers bought the right to receive interest payments from the original sum. This entitlement was non-transferable and it expired with the death of the original subscriber. The money that was thereby freed raised the level of the payments that the other, living subscribers received. The money to finance the repayments was secured against Parliamentary-sanctioned duties that were placed upon beer and spirits. The last subscriber did not die until 1769. At the time he was being paid 70,000 p.a..

The following year the still combatant monarch raised 1m at 10% interest over sixteen years. This was secured by a salt duty that the legislature had passed. This loan incorporated a lottery element that added a further 4% interest to the cost of servicing it.

Because neither the 1692 and 1693 arrangement had proven to be financially satisfactory, William and Parliament were open to experiment. The king and his government needed money and the legislature wanted this to be obtained with a minimum expense being incurred. Thus, in 1694 1.2m was raised at a rate of 8%. In return, the lenders formed a corporate body that was named the Bank of England. This entity received a monopoly of joint stock banking in England and Wales and the right to issue such bank notes as could be secured against the deposits that it held.

The idea for the Bank had been mooted by William Paterson, who was a Scot. The inaugural Governor was Sir John Houblon.² Initially, the body's place of business was Mercers Hall in Ironmonger Lane. The same year it moved to Grocers Hall, where it stayed until 1734.

The Bank started to act as a central bank during the mid-18thC.

In 1797 Britain was yet again at war with France. Therefore, the national economy was under considerable strain. The government suspended the convertibility of banknotes into gold and the shortage of silver and gold coins was compensated for by the issuing of small denomination banknotes. This prompted James Gilray to draw a cartoon in which the Bank was represented as an old lady, whose dress was made of banknotes. She was being accosted by the then Prime Minister, William Pitt the Younger. This gave the company its nickname - the Little Old Lady of Threadneadle Street.

In 1821 the country returned to the gold standard. Five years later the Bank's charter was renewed by an Act of Parliament. The legislation allowed the business to engage in banking outside of London. A dozen years later the Bank's notes were made legal tender. In 1844 an Act of Parliament restricted other banks issue of notes. This improved the soundness of the currency.

The Bank was nationalised in 1945. Few Britons are aware that up until then the company had been a private business. It has remained in state ownership.

Location: Threadneedle Street, EC2R 8AR (orange, turquoise)

Website: www.bankofengland.co.uk

¹. The conflict had another five to run.

². Part of the Bank of England site incorporates the land on which Sir John Houblon's own home stood.

The Bank of England Building

The Bank of England Building covers approximately three acres between Princes Street, Threadneedle Street, Lothbury, and Bartholomew Lane.

There is a story that in 1836 a sewerman called Randolph Gentry was instructed to repair a particular sewer. While doing so he discovered an ancillary drain that led to one of the Bank of England s vaults. By letter he informed the institution's directors that its security had a flaw, stating that he would meet in the vault at a given. When the men had gathered in the space, he moved some floorboards from below and joined them.

The Soane-designed edifice (1788) was admired. However, it committed one major sin - it was only a single storey in height. As a result, it was not viewed as being impressive enough for the keystone of international finance. During the 1920s and 1930s the Sir Herbert Baker-designed building superseded the bank's original home. The old structure's windowless, outer wall was left intact.

A Mulberry Grove

The Mongol invasion of China had a traumatic impact upon the country. The Ming dynasty succeeded to the imperial throne in 1368. They and their advisers appreciated that both the Chinese state and Chinese society needed to be reformed. The changes that they made included issuing the world's first paper currency. The banknotes were printed on paper that had been made from mulberry pulp.

The Ming proved to be greedy. They allowed their officials to print too many banknotes. Within fifteen years the bills were worth only a quarter of their original value. Therefore, in 1425, it was resolved that in future silver bullion would act as the basis for the nation's economy. The use of the notes was ended.

Within the Bank of England building there are light wells that are open to the air. At the bottom of these are courtyards. In the 1920s a small grove of mulberry trees was planted in one of them. This was done to acknowledge the Mings experiment with paper money.

The Bank of England Picket

In 1780 the Gordon Riots occurred. The London mob controlled the city for several days. The Bank was one of the rioters principal targets. Following the restoration of law and order, the practice was instituted that each night a detachment from the Brigade of Guards was deployed to protect the building. The arrangement was ended in 1973.

Gold

Most of the gold in the Bank's vault belong tos foreign governments. The ingots that the institution owns includes two that were cast during the Roman era.

Baltic Currencies

The Soviet Union annexed Estonia, Latvia, and Lithuania in 1940. However, the three governments succeeded in sending their gold reserves to London, where they were placed in the Bank of England. In 1967 the metal was sold as part of a deal with Moscow whereby mutual claims were settled. In 1991 the three Baltic states reclaimed their independence. They asked for their gold back. The Conservative Prime Minister John Major authorised the purchase of the metal, which was then transferred to the trio's central banks. In turn, they then launched new currencies.

David Backhouse 2024