The development of the Bank of England’s objectives: evolution, instruction or reaction?

In this chapter we examine how the Bank of England’s objectives emerged through a mix of evolution, instruction, and reaction. All three were involved. The monetary objective evolved from the Bank’s initial obligation to be able to convert its notes into gold on demand. This was formalised in 1844, and thereafter the numerous changes did no more than change the form of the monetary objective. The financial stability objective was adopted by the Bank in response to outside argument and the pressure of events; but it had from time to time stabilised the system before that, on an ad hoc basis and without formal explanation or justification. It then drifted into being involved in the workings of the banks that comprised the British banking system, and then through legislation acquired increasingly formal and detailed responsibilities for the conduct of these banks. A further complication must be added. The ideas that guided the Bank’s actions may appear to have come from the private sector or government, but there was often discussion and a flow of ideas between Bank, government, and private sector, before a mutually satisfactory conclusion and policy was reached.