Price stability supports higher living standards by helping to reduce uncertainty about general price developments and thereby improve the transparency of relative prices.

First, price stability makes it easier for people to identify changes in the prices of goods expressed in terms of other goods (i.e. “relative prices”), since such changes are not concealed by fluctuations in the overall price level. For example, let us suppose that the price of a certain product increases by 3 %. If the general price level is stable, consumers know that the relative price of this product has increased and may therefore decide to buy less of it. If there is high and unstable inflation, however, it is more difficult to find out the relative price, which may have even declined. In such a situation it may be better for the consumer to buy relatively more of the product of which the price has increased by “only” 3 %. In the case of general deflation, consumers may not be aware of the fact that a fall in the price level of a single product merely reflects general price developments and not a fall in the relative price level of this good. As a result, they may mistakenly buy too much of this product.

Consequently, if prices are stable, firms and consumers do not run the risk of misinterpreting changes in the general price level as relative price changes and can make better informed consumption and investment decisions.

Uncertainty about the rate of inflation may also lead firms to make wrong employment decisions. To illustrate this, let us suppose that in an environment of high inflation, a firm misinterprets the increase in the market price of its goods by, say, 5 %, as a relative price decrease as it is not aware that the inflation rate has recently fallen from, say, 6% to 4%. The firm might then decide to invest less and lay

off workers in order to reduce its production capacities, as it would otherwise expect to make a loss given the perceived decrease in the relative price of its goods. However, this decision would ultimately turn out to be wrong, as the nominal wages of employees due to lower inflation may increase by less than that assumed by the firm. Economists would describe this as a “misallocation” of resources. In essence, it implies that resources have been wasted, as some employees would have been made redundant because of instabilities in price developments.

Price stability reduces inflation uncertainty and therefore helps to prevent the misallocation of resources described above. By helping the market guide resources to where they can be used most productively, lasting price stability increases the efficiency of the economy and, therefore, the welfare of households.

Hyperinflation

A situation in which the rate of inflation is very high and/or rises constantly and eventually becomes out of control is called “hyperinflation”. Socially, hyperinflation is a very destructive phenomenon which has far-reaching consequences for individuals and society as a whole. Although there is no generally accepted definition of hyperinflation, most economists would agree that a situation where the monthly inflation rate exceeds 50% can be described as hyperinflation.

Hyperinflation and periods of very high inflation occurred several times during the 20th century. Below are some examples of countries that experienced such high annual rates of inflation and the respective figures for the years indicated:

1922 Germany 5,000 %

1946 Hungary 41,900,000,000,000,000%

1985 Bolivia more than 10,000 %

1989 Argentina 3,100 %

1990 Peru 7,500 %

1993 Brazil 2,100 %

1993 Ukraine 5,000 %

The post-WWII hyperinflation of Hungary holds the record for the most rapid monthly inflation increase ever. It means prices doubled every 13,5 hours.

Let us briefly illustrate the consequences of such a phenomenon. An inflation rate of 50 % per month implies an increase of more than 100-fold in the price level over a year and an increase of more than two million-fold over three years. There is no doubt that such rates of inflation place a heavy burden on society. In fact, in Germany, the hyperinflation that followed World War I and peaked in 1923 had devastating economic, social and – as is widely agreed – political consequences.

As many people lost their savings, this led to a substantial loss in wealth for broad segments of the population. The realization that price levels were constantly rising sparked a vicious circle. People naturally asked for higher wages, anticipating higher price levels in the future. These expectations became a reality, since higher wages translated into higher costs of production, which again meant higher prices. In the same vein, people started to pass on their money – which lost its value – by spending faster and faster.

The Government reacted to the decline in the value of money by adding more and more zeros to the paper currency, but over time it became impossible to keep up with the exploding price level. Eventually these hyperinflation costs became intolerable. Over time money completely lost its role as a store of value, unit of account and medium of exchange. Barter became more common and unofficial monies, such as cigarettes, which did not lose their value due to inflation, started to replace official paper money.

The first country to hyperinflate in the 21^st century is Zimbabwe. In 2008, a loaf of bread cost 1.6 trillion Zimbabwe dollars. Officials in Zimbabwe blamed it on rising global food prices and international sanctions. The Zimbabwean dollar bank note holds the record for the greatest number of zeros shown (100,000,000,000,000). Hungary holds the record for the largest banknote ever issued, but its bank note did not depict all the zeros – the amount was spelled out.

Vocabulary list

1. to relate to – быть связанным с, относиться к чему-либо

2. fluctuation – колебание, неустойчивость

3. to misinterpret – неправильно оценить

4. to lay off (workers) – увольнять (работников)

5. redundant – излишний, убыточный; уволенный, потерявший работу

6. to place a heavy burden (on) – возлагать тяжелое бремя (на)

7. to keep up (with) – соответствовать чему-либо

Ex 1. Suggest the Russian equivalents:

substantial disadvantages and costs related to inflation and deflation; to identify changes in the prices of goods expressed in terms of other goods; fluctuations in the overall price level; to make better informed consumption and investment decisions; to misinterpret the increase in the market price; to turn out to be wrong; ultimately; to have devastating economic, social and political consequences; a substantial loss in wealth; broad segments of the population; to keep up with the exploding price level.

Ex 2.Fill in the gaps with the words and expressions from the text.

1. Price stability prevents costs from …… and …… important benefits for all citizens.

2. If the …… is stable, consumers know that the …… price of this product has increased and may …… of it.

3. Uncertainty about the …… may also lead firms to make …….

4. The firs might then decide … and … workers in order to reduce …

5. Socially, …… is a very destructive …… which has …… for individuals and society as a whole.

Ex 3. Find in the text the English equivalents for the following:

высокий уровень занятости; увеличиться на 3%; осознавать что-либо; идти на риск; сократить производственные мощности; из-за более низкой инфляции; неустойчивость; тяжелое бремя; высокие заработки привели к увеличению производственных издержек; стать невыносимым; неофициальные деньги.

Ex 4.Match each term with the appropriate explanation.

hyperinflation, misallocation of resources, redundancy, relative prices, living standard, price stability

1. Changes in the prices of goods expressed in terms of other goods

2. The degree to which a person and their families, or a community, are able to satisfy their needs.

3. Taking wrong decisions as to application of capital, labour etc.

4. A situation where the rate of inflation is rising and becoming uncomfortable.

5. Maintaining the annual inflation rate at below but close to 2% (for the euro area) over the medium term.

6. A situation when an employee is no longer needed by his employer.

Ex 5. Answer the questions and do the assignments.

1. How can price stability help to achieve high level of economic welfare?

2. What is implied in “economic welfare”?

3. What stands for the transparency of relative prices?

4. What happens if a firm misinterprets the increase in the market price of its goods (in an environment of high inflation)?

5. Give examples of “misallocation” of resources.

6. What stands for the nation “hyperinflation”? Give examples of this phenomenon occurring in different countries.

Ex 6. Increase your vocabulary.

A. Fill in prepositions where necessary.

1. The changes in the cost of living were related …… inflationary processes in the economy.

2. The price of buckwheat has increased …… more than 50% lately.

3. An inflation rate of 250% …… month implies an increase …… of more than 50-fold …… the price level …… a year.

4. The inflation rate has recently fallen …… 8% ……6%, which has caused a substantial decrease …… some consumer prices.

5. Prices stability makes it easier …… people to identify changes …… the prices …… goods expressed …… terms of other goods. Such changes are not concealed …… fluctuations …… the overall price level.

B. Match the words that are similar in meaning.

fluctuation expect welfare lay off misinterpretation related decrease consequence devastating increase

reduce prosperity misunderstanding connected instability destructive dismiss effect anticipate rise

C. Study the word combinations with the word “price”. Use them in the sentences of your own.

- acceptable price – приемлемая цена

- attractive price – привлекательная цена

- fixed price – фиксированная цена

- average price – средняя цена

- competitive price – конкурентная цена

- consumer price – цены на потребительские товары

- cost price - себестоимость

- fair price – справедливая цена

- falling/rising price – снижающаяся/растущая цена

- at a (high, low) price – по цене

- price per unit - цена за единицу

- to fix (establish) a price – устанавливать цену

- to price – назначать цену

- a price of, for – цена чего-либо

Other adjectives: cut, current, discount, inflated, high (heavy), low (keen), just, stable (steady), fluctuating, retail, wholesale.

Verbs: to bargain over, to cut, to increase/decrease, to raise, to reduce, to buy/sell at a price, to pay/meet the price, to go down/up in price.

D. Translate into English.

1. Растущие цены на продукцию, даже на потребительские товары - отличительная черта инфляции.

2. Мы не можем покупать ваши товары по таким высоким ценам.

3. Себестоимость этого товара достаточно низка. Это позволит нам продать его на рынке по привлекательной цене.

4. В условиях плановой экономики правительство устанавливает фиксированные цены на все товары.

5. Если вы поторгуетесь, вам, может быть, удастся купить эту вещь по более приемлемой цене.

6. Во время кризиса цены на многие товары и услуги значительно снижаются.

7. Наша компания установила конкурентные оптовые цены на это оборудование.

8. Текущие цены на топливо достаточно высоки.

9. Если урожай в этом году будет ниже ожидаемого, цены на сельскохозяйственную продукцию возрастут.

10. Средняя цена за единицу продукции ниже рыночной.

Writing

Task I. Write a Summary and a Gist of Texts A, B and C.

Task II. Write down a numerical example of the calculation of the total cost of the basket and the computation of the price index, similar to that given below. Make all the necessary calculations and comment on them.

Let us illustrate the considerations above by means of a simple numerical example.

Suppose that a representative market basket of the yearly expenditure of teenagers is 100 sandwiches, 50 soft drinks, ten energy drinks and one mountain bike.

	Quantity	Price (year 1)	Price (year 2)	Price (year 3)
Sandwiches		EUR 1.00	EUR 1.20	EUR 0.90
Soft drinks		EUR 0.50	EUR 0.40	EUR 0.70
Energy drinks		EUR 1.50	EUR 1.70	EUR 1.20
Mountain bike		EUR 160.00	EUR 173.00	EUR 223.00
Cost of the market basket		EUR 300.00	EUR 330.00	EUR 360.00
Price index		100.00	110.00	120.00

The total cost of the basket can then be calculated by multiplying the quantities by the respective prices and adding everything up. It is easy to see that between the first and second year, the cost of this basket of goods has risen from EUR 300 to EUR 330, or by 10 %. From the first to the third year, the cost has risen from EUR 300 to EUR 360, or by the equivalent of 20 %.

Another way to express this is by means of a price index. In order to compute the price index, the cost of the market basket in any period is divided by the cost of the market basket in the base period, and the result is multiplied by 100. In the table above, year 1 is the base period. The price index for year 3 is therefore:

Price Index = (P3 / P1) × 100 = (360/300) × 100 = 120.00

The price index tries to give a general picture of what is happening to a great many prices. As the example shows, the price index may rise despite some prices actually declining.

Speaking

Task I. Present the information on Inflation, Deflation and Price Stability in the form of a report. Use examples of your own to illustrate it.

Task II. Find some examples of hyperinflations occurring in different countries, What effects did it have on the economy of these countries? Prepare reports on the issue and present them in class.

Task III. Act as an interpreter for Parts A and B.

1. Тема нашей сегодняшней дискуссии – инфляция. Мы рады приветствовать ведущего экономиста Института экономических исследований Принстонского университета (США), профессора Адамса, который согласился ответить на наши вопросы, касающиеся этого понятия. Итак, первый вопрос: что такое инфляция и каково ее влияние на экономику? 2. Можем ли мы сделать вывод, что дефляция, как явление, противоположное инфляции, наоборот оказывается благоприятной для экономического развития? 3. А каковы методы измерения уровня инфляции? Какие данные необходимы для этого? 4.Как известно, индекс потребительских цен может расти, в то время как наблюдается падение цен на некоторые продукты либо услуги. Как вы можете объяснить это явление? 5. Вы согласны с тем, что население, потребители должны иметь некоторую уверенность в завтрашнем дне, - я имею в виду, в том, что инфляция не поднимется выше определенного уровня? 6. И в заключение, последний вопрос. Что такое гиперинфляция? 7. Спасибо за разъяснение, уважаемый профессор. Будем рады видеть вас снова.

First of all, I’d like to thank you for … The subject is of great interest to…     On the contrary… In this respect…   There are several points to be made…   Let me point out that …     Oh. Of course… I can’t but agree with…     This issue is widely discussed…

Part 2

From College to Career

Read the passage below and match the numbered paragraphs with the appropriate headings.

Navigate Change: 3 Tips to Manage the Transition from College to Career

How do you navigate change from college to career? After all, school is vastly different from work.

The way people talk and their interests are vastly different. Even if you end up in the field you went to college to major in, there will still be a lot of things you need to manage.

There are a few things you can do to navigate this change.

Small Steps

Most fresh graduates want to conquer the world. And truth be told, it is really not a wrong attitude. While it is good to have a huge ambition, you need to moderate it. You need to know that your career path can easily be a 30 year journey or more. There will be lots of changes to navigate.

So, how do you navigate change from a ambitious fresh grad into a working world adult ready to take on the world? Well, in small steps. Take it a day at a time. The cumulation of your efforts is what will show results later. It’s not a game where you score the winning goal every day, in every game. This is a marathon where you put one foot in front of the other and soon you race to the finish line.

Small Dreams

Of course, there is no need to give up on your big dreams. But Big dreams are an accumulation of small dreams come through. Dream about getting that small project completed the best possible way. Dream about impressing your immediate boss before you fantasize about impressing the CEO.

It’s OK to have small dreams. Small dreams give you confidence. Small dreams give you the fertilizer to grow big dreams. That’s how you navigate change from college to career.

BIG Belief

Small steps and small dreams must be balanced with big belief. Don’t start out your career with no belief. You must at least believe in yourself. Have a set of principles that will guide you. These are your light houses. They guide you home. They help you make decisions when changes in life make it difficult to see.

Believe that you can achieve big dreams with small steps. Believe that there are no short cuts and every experience adds to your piggy bank of life. And these are for your withdrawal later. They are currencies you can use to leapfrog others who do not know how to navigate change.

Contrary to popular belief, it’s not a cold cruel world out there. By and large, you will meet people who are willing to help and guide you. To navigate change, learn to be nice and polite. Stuff your parents and teachers taught you and you will be fine.

(http://www.career-success-for-newbies.com/navigate-change.html)

Ex 1. Answer the following questions:

1. Do you think it difficult for a person to experience the transition from college to career? Why?

2. What does the author of the article imply in the phrase “navigate change”?

3. Do you agree that the 3 things mentioned in the article are necessary for this change?

4. What could you add to the author’s advice?

5. Ask your parents or older relatives to share their impressions about their transition from college to career. Tell about them in class.

Ex 2. Before you read the text in Ex 3, answer the questions and explain your answer.

1. Do you prefer to study…

a. at school or college b. in a library c. at home?

2. Do you study best…

a. early in the morning b. during the day c. at night?

3. Do you prefer to work…

a. with friends b. with background music c. in silence?

Ex 3. Now complete the text with the correct form of the verbs in the box. There may be more than one possible answer so try to use each verb only once.

concentrate, do, learn, overcome, organize, study, take, teach, review, revise

Even the most studious among you will probably have difficulty studying at some stage in your academic career. If or when this happens, the only way to (1)......................... this problem is to go back to basics. First, make sure you have a comfortable environment to (2)......................... in. Some students need to have a quiet space to themselves and can’t (3)......................... if there are too many distractions. Others need some sort of background noise, such as music or the company of friends. Whatever your personal preference is, you need to (4)......................... this first of all. Next, make sure you have all of the equipment or tools that you need. For example, if you are (5)......................... a geography course and you have to (6)......................... about countries and their capital cities then you will need to have your atlas to hand. If you’re (7)......................... your math homework then be sure to find your calculator, ruler, protractor and compass before you start. Perhaps you’re not preparing a homework assignment or project, but are trying to (8)......................... for an exam. If so, you need to know exactly what is on your curriculum. You should also (9)......................... your notes and make sure that you have a clear understanding of what your lecturers have (10)......................... you. Of course, people with a learning disorder such as dyslexia may need to work harder than others at their studies as they often struggle to read even relatively simple texts.

Ex 4 Now read the text again and find a word or phrase to match these definitions.

1 describes someone who studies a lot ……

2 things that stop you from working ……

3 a sound you can hear, but do not actively listen to ……

4 two different types of homework or school task …… and ……

5 to study for an exam ……

6 another word for syllabus ……

7 to check your work ……

8 to do something with great difficulty ……

Ex 5. Work in pairs. Make up dialogues comparing your ways of studying to your friend’s. Do you think your ways will help your future career?

Unit 8

Part 1

A History of English Clearing Bank

lending, debtor, creditor, interest, safe custody, facilities, goldsmith bankers, receipts, cheque, promissory note, demand and time deposits, cash reserves, Bills of Exchange, joint stock banking, branch banking, the Clearing House, diversification

Text A

Introduction

Although banking as we know it has its roots in the seventeenth century, many of its features can be traced back to ancient times.

Before the introduction of a monetary system there were many instances of transactions involving credit in primitive communities. Early Pacific civilizations used strings of beads as a means of recording debts, even before they were a means of exchange. The Chinese dynasties are full of instances of note issues recorded back as far as 14BC under the Emperor Wu-Ti, who used a form of paper money made from stag skin.

In Greece, Babylon and the Roman Empire an extensive international trade demanded banking facilities, such as the lending of money, its exchange in foreign trade and travel, and the safe keeping of deposits. The Greek system was adopted by Egypt and also influenced Rome. The breakup of the Roman Empire led to a decline in banking, and, at the same time, usury laws imposed by the Church put restraints on lending.

However, banking did not cease completely as the Lombard merchants developed banking in Venice and Genoa in the 12th century.

Lombard Street, which is still today the heart of London's financial quarter, takes its name from Lombardy in Italy. Their vocabulary has left us with the words cash, debtor, and creditor. Perhaps the most significant is the fact that these merchants conducted their business on benches or 'bancos' and it is from that work that our 'bank' is said to be derived.

The Italian merchants arrived at a time when England was changing from a feudal community, with virtually all its wealth in land, to a commercial society in which surplus money needed to be stored and used for profit. This happened in the sixteenth century after a long and stable government under the Tudors, which saw an age of discovery and the beginnings of colonization; a time of expansion of trade at home and abroad. Moreover, as the Reformation spread throughout Europe, King Henry VIII, at the end of his reign in 1546, repealed the usury laws. Before this the Church disallowed the lending of money with interest; now money could be lent "upon interest according to the King's Majesty's Statute at 10 per cent".

This Act was carried further by his daughter, Queen Elizabeth I, and so the foundation of the modern banking system was laid.

Englishmen of business followed the example of the Italian merchants. In particular, Sir Thomas Gresham, who as a pioneer of lending and borrowing money in the country, became the greatest of the London merchants and is now looked upon as the "Father of English Banking". He founded the Royal Exchange in Cornhill, London, as a meeting place for merchants to conduct their business.

Goldsmith to Banker

In the early days the goldsmith had exchanged foreign currency, keeping some in hand to supply travelers abroad and melting down the rest in the course of their basic trade. They had also become recognizable and reliable keepers of money and values for people without their own safe custody facilities.
The new men were bankers but they were still goldsmiths.

Goldsmith bankers, as they were known, had developed into an efficient system of private banking in London and were to develop into the famous banking firms, of which some still exist today. Coutts & Company, now affiliated to the National Westminster Bank, dates from 1692.

The receipts given by goldsmiths for deposits have been compared to modern day cheques. However, it would seem that their similarities, as with Bills of Exchange, were their negotiable nature. Drawn notes only became known as cheques a century later.

The cheque could be compared with a drawn note, by which a depositor addressed a letter to his goldsmith authorizing the payment to his creditor of the sum owed. The creditor would then take this 'note' to the depositor's goldsmith and there receive the sum in cash.

The earliest known cheque dates 1659

Mr Morris and Mr Clayton

Pray pay the bearer hereof MrDelboe or order four hundred pounds I say £400 - for yours NicoVanacher.

London the 16th February 1659.

Mr Morris pray pay until Mr Oliver Cromwell (a goldsmith in Townstreet) the sum of sixtie [sic] value received of Mr Thomas Colebrook and place to the account of - Yrs Nicholas Vanacher

Amberley December
the 13ths - 1665 -
At Flying Horse in Cornehill, London

In the history of British banking the goldsmiths development of the promissory note and cheque, demand and time deposits, balance sheets and cash reserves provided the primitive but nevertheless essential elements of a modern banking system.

Vocabulary list

1. lending – выдача денег в долг, кредитование
v. to lend
n. lender
syn. creditor

2. to put restraints on – налагать ограничение (на что-либо)

3. wealth – состояние, благосостояние

4. surplus money – избыточные деньги, излишки
syn. excessive

5. interest – процент, процентный доход
to lend at (with) interest

interest rate – процентная ставка

6. borrowing - заимствование
v. to borrow
n. borrower
syn. debtor

7. safe custody – безопасное хранение
syn. safekeeping

8. facility – услуга, возможность
banking facilities – банковские услуги

9. goldsmith bankers – ювелиры, занимающиеся хранением и обменом денежных средств

10. receipt - расписка

11. cheque (check) – чек, платежное поручение

12. bill of Exchange – переводной вексель

13. negotiable – обратимый (покупаемый и продающийся)

14. to owe somebody/something – быть должным (кому-либо что-либо)
n. debt, debtor

15. to authorize – разрешать, уполномочить
n. authorization

16. promissory note – долговое обязательство
syn. debt obligation

17. deposit – депозит; банковский депозит
v. to deposit
n. depositor
demand deposit – депозит до востребования
time deposit – срочный депозит

18. cash reserve – резерв наличности

Notes

1. usury - ростовщичество

2. to be derived (from) – происходить от
n. derivative

3. in the course of basic trade – зд. занимаясь обычным ремеслом

4. a drawn note – выписанное платежное поручение

Ex 1. Suggest the Russian equivalents:

transactions involving credit; a means of recording debts; banking facilities; safe keeping of deposits; merchants developed banking; a feudal community; a time of expansion of trade at home and abroad; the usury laws; the foundation was laid; to follow the example; exchanged foreign currency keeping some in hand; to supply travelers abroad; people without their own safe custody facilities; Englishmen of business; to date from 1692; to be compared to modern day cheques; essential elements.

Ex. 2. Fill in the gaps with the words and expressions from the text.

1. Before the introduction of a …… there were many instances of ….. in primitive communities.

2. Usury laws ….. by the Church ….. on lending.

3. The Italian merchants arrived at a time when England was changing from a ….., with virtually all its ….. in land, to a commercial society in which ….. needed to be …...

4. The Church disallowed …...

5. The goldsmiths had also become ….. and ….. keepers of money and values for people without …...

6. Englishmen of business ….. of the Italian merchants.

7. The ….. given by goldsmiths for ….. have been compared to …...

8. In the history of British banking the goldsmiths development of ….. and ….., ….. deposits and ….. provided the primitive but nevertheless ….. of a modern banking system.

Ex. 3. Find in the text the English equivalents for the following:

сделки с элементами кредита; средство для записи долгов; банковские услуги; широкая международная торговля; упадок банковского дела; законы о ростовщичестве; использоваться для получения прибыли; эра открытий; расширение торговли; дача взаймы под процент; надёжные хранители; эффективная система частных банков; выплата кредитору суммы задолженности; долговые обязательства и чеки; срочные депозиты; депозиты до востребования; основные элементы.

Ex. 4. Match each term with the appropriate explanation.

deposit, interest, lending, debt, depositor, promissory note, debtor

1. A person who places money with a bank or who has a bank account.

2. Money placed in a bank account.

3. A sum paid or taken for use of money or for borrowing money.

4. A person who has borrowed funds with the promise to return them or an equivalent (usually plus interest).

5. A sum of money borrowed on condition of being returned.

6. An activity of giving money on condition that it is returned and that interest is paid for its temporary use.

7. A formal document, in writing, containing a promise to pay a certain sum of money to, or to the order of, a named person, or to the leader of the document.

Ex 5. Answer the questions and the assignments.

1. How did the need for banking facilities show itself even before the introduction of a monetary system? Give examples.

2. What is usury? Why do you think the Church put restraints on lending?

3. How did banking start in Great Britain? Expand on the role of goldsmiths.

4. What valuable documents were in circulation among merchants and goldsmiths? What functions did they perform?

5. Speak of the initial banking services developed in Great Britain/

Ex 6. Find in the text the words and phrases that refer to the following notions and comment on them:

1) transactions involving credit

2) restraints on lending

3) receipts given by goldsmiths

4) the lending of money with interest

Ex 7. Comment on the statements.

1. “In Greece, Babylon and the Roman Empire an extensive international trade demanded banking facilities.”

2. “…England was changing from a feudal community … to a commercial society.”

3. “the new men were bankers but they were still goldsmiths.”

Text B

The Bank of England

The Bank of England was established privately in 1694 and chartered by the government in return for a loan. The bank was also allowed to issue its own notes. Although started as a private bank, it gradually evolved into a Central Bank.

The Bank of England was the first central bank. It serves as the banker to the government to the United Kingdom, with sole authority to issue notes in England and Wales, and also as the banker to the country’s commercial banks. Until 1946 the bank was privately owned, but it had long governed its operations in the national interest.

From its founding in 1694 it acted as the government's banker, lending it money to fund the national debt. It soon acquired a practical monopoly of the note issue; eventually other banks began keeping deposits with the Bank of England and using it as a clearinghouse for their transactions with one another. By the 19th century, the Bank of England had become a "banker's bank." It had also acquired another function associated with central banking—that of being the "lender of last resort," to which other banks could turn for aid when they were hard pressed.

During the 19th century the Bank of England developed techniques for regulating interest rates and the amount of credit issued by itself and by the banking system generally. As the leading bank in the world's leading financial center, its actions were considered critical in maintaining the international gold standard. By adjusting its discount rate—that is, the interest it charged on loans to commercial borrowers—it was able to affect the international flow of short-term capital. The Bank of England was nationalized in 1946.

Today the bank conducts monetary policy by affecting the country’s supply of money through the purchase and sale of securities (open market securities). It also controls interest rates and sets limits on the amount of bank credit (reserve requirements).

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