The Effects Of Gold Reserves Of The Bank Of England
The Bank of England is the central bank of the United Kingdom. Historically, it has been a model for banks all over the world. It was first established in 1694 to act as the English Government banker. The bank was moved to Thread needle Street in 1734, which is situated in the city of London.
It was nationalized in 1946 while it achieved independence in 1997. The financial system of England is based on the Bank of England. It has the responsibility of conducting several functions but the most important amongst all is to maintain financial stability in the entire country. The very first concern of this bank is to devise such an effective fiscal policy to prevent price fluctuation. The financial conditions of a country depend upon the price fluctuations.
The most important attribute of the Bank of England is to lend money to the other banks of the country in times of trouble. When any of the banks within the country is going through financial turmoil, the Bank of England lends loan in order to prevent the bank from going bankrupt. In this way, it plays its role of maintaining economic stability in the country.
The Bank of England has gold reserves as insurance for overcoming the obstacles emerging in the worlds economic market. The value of the gold reserves held by the Bank of England is four billion pounds. These reserves were held for more than 300 years but in 1999 the bank took a major step by auctioning the gold reserves. This step was taken in order to improve the standing of the bank in the world and thus increasing its currency holdings. The entire course of action led to the sale of 400 tonnes of gold.
The year 2007 turned out to be the worst period in the bankk’s history and the news staggered the whole world as the appearance of cracks in gold was reported. Thus, it was believed to make the god sale a bit difficult with decrease in its sale price as well. The bank had gold reserves in the form of gold bars and coins.
This entire situation made it nearly impossible to trade the gold in the world market. The economy of the country is entirely dependant on the actions of the Bank of England. At that time the demand for gold was on its rise that is why the price of gold was also high.
Due to the deterioration of gold, the price was greatly reduced. As a result, many investors suffered loss of money. The gold was sold at relatively lower rates because of the poor quality of gold.
The Bank of England has been heavily criticised for this action, as it would affect the economy of the world for many years to come. Gordon Brown, the Chancellor of the Exchequer, was able to sell a large proportion of the Britain gold reserves at the lowest price for a quarter of the century, despite being advised against it. It was estimated that these sales caused the bank to lose 3.8 billion pounds. However, the Bank was able to overcome the loss with efficient portfolio management and is now in a stable financial position.
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