1 - Introduction and Overview

Summary

No one invented central banking. The earliest central banks emerged from commercial banks. Any central bank that was a central bank from its inception was modelled on one of these ancestors. The Bank of England, founded in 1694, evolved as a central bank in the course of the nineteenth century. By the last third of that century it was carrying out the key functions of monetary policy (exchange-rate management in those days) and financial stability (lender of last resort). Most histories of central banks, perhaps because their births were so relatively recent, begin from their date of establishment. The Bank, however, has had a long history as a central bank, a longer one still as a bank of monopoly issue, and an even longer one as a banker to the government. All that history has been covered in volumes prior to this one, which starts with the 1950s and takes the Bank's history to 1979. The period thus covered was very mixed. At the outset, financial stability was taken for granted; it was always there without anyone apparently having to do anything to maintain it. And monetary policy was downplayed in importance. But monetary policy conducted by neglect failed, and financial stability was lost. A major rethink then took place. There were many forces at work in this process. Some perspective on these and on the world more widely will help to place the Bank in the context of its time.