BANK OF ENGLAND

In 1694, the Bank of England was formed; its founders sub­scribed the money the King needed. In return, they were given the right to make loans to others with newly issued notes backed by the King's promise to pay. The Bank became an accomplished instru­ment for regulating the creation of money by lesser banks — in placing limits on lending and consequent deposit expansion and note issue. In London in the eighteenth century the goldsmiths made loans in notes against the holdings of gold and silver coin. The Bank of England, when it received these notes, returned them for collec­tion in gold or silver. This required the banks to maintain reasonable reserves of cash against their note issues. They could not be reck­less in the issue of notes as was Law. Later the Bank acquired for itself a monopoly of note issue, first in London, then throughout the country.

The subordinate or commercial banks could still lend the funds of the depositors. This would mean deposits — money — for those who borrowed. And this money creation could be carried to excess. The Bank of England developed a method of preventing this. When the ordinary or common banks seemed too generous with their loans, the Bank allowed some of their loans to run out or it sold some of the securities it held. This is the procedure now celebrated as open market operations. The commercial banks could replace their depleted reserves by borrowing from the Bank of England. But that could be restrained by raising the rate of interest. This charge by the Bank of England came to be called the Bank Rate, in the last century a mysterious and wonderful thing. In the United States the Bank Rate is the rediscount rate or, latterly, the discount rate.

Such were the regulatory functions as developed by the Bank of England.

The Bank of England disciplined its subordinate banks by present­ing their notes systematically for collection in silver or gold. Thus it required them to keep their loans and resulting deposits in some reasonably safe relationship to their hard cash. This would be the basic function of an American central bank.

to subscribe money жертвовать деньги, субсидировать; an accomplished instrument сформировавшийся аппарат; goldsmith ювелир, ростовщик; holding вклад; to make loans in notes against holdings of gold coin давать займы в банк­нотах, обеспеченных золотыми монетами (под золото); to return banknotes for collection in gold разменивать (гасить) банкноты на золото; generous щедрый; to run out (about loans) сокращать (займы); to deplete истощать(ся); rate of interest ставка процента; charge начисление (денежное); the Bank Rate учетная ставка банка; discount rate учетная ставка, учетный процент, ставка дисконта; rediscount rate переучетная ставка.

Questions. I. What was the principal difference between the Bank of England and those of Amsterdam and Paris (the Banque Royale)? How did it regulate the creation of money by lesser banks? 2. What mechanism of regulating money circulation did the Bank of England develop in the 18th century? 3. What changes in monetary regulation were introduced by the Bank later?

COINAGE

Coinage was the invention of the Greeks. The Italians, Dutch, French and English were the developers of banks and central bank­ing. Paper money was the gift of Americans and Canadians to the Western world.

The prime exponent of paper money in these years was Ben­jamin Franklin. He thought it a good and useful thing. He printed money for the colonial governments on his own printing press.

The Quebec model was the playing card. The French, as all know, were casual about their North American colonies. Ships and money often failed to arrive. The most available and durable paper stock was playing cards. These became the promises by virtue of having the official government signature attached. When the ships came, the cards were redeemed in gold and silver. The innovation shocked Versailles but, eventually, there being no better alternative, it was accepted. In a 1711 issue, spades and clubs were the currency of highest denomination; hearts and diamonds had only half their value. Had they survived, at Las Vegas men and women would now play for and with the same currency.

(Galbright J.K. «The Age of Uncertainty». Boston, 1977)

exponent зд. изготовитель; printing press печатный станок; Quebec [kwi'bek] Квебек; by virtue of благодаря чему-либо; to redeem a loan выплачивать долг; spades карт, пики; clubs трефы; hearts червы; diamonds бубны; Las Vegas [la:s 'veigas] Лас-Вегас; Versailles [vea'sai] Версаль.

Questions. 1. What is the origin of paper money? 2. Who was the first printer of paper money? 3. What is the advantage of paper money over other currencies? Could you explain why coins still survive?

Ex. 6. Study the following text and explain the basic functions of money and its nature. Give the classification of money according to its inherent value.

MONEY

Most of us use money every day. We see it, touch it, and spend it. But how many of us can define it adequately? Usually money is defined too narrowly. Some define it as the currency of a nation; others think of it in terms of legal tender; still others often refer to it as the medium of exchange. Such definitions, however, automat­ically exclude large portions of our money. To include all segments of our money supply, we must use a broad definition. Thus, we can say that money is anything that is commonly accepted in exchange for other goods and services.

Commodity money refers to the use of some commodity as money. Many commodities — such as stones, shells, various crops, metal, and paper — have served as money in various countries of the world. American history reveals that tobacco, corn, beads, warehouse receipts, and bank notes, in addition to metal coin and paper currency, have served as money. In fact, many of these monies were given the status of legal tender, which means that they were acceptable for the payment of debts, both public and private. There are two basic types of modern money, each of consider­able importance: token money and paper money. Token or metallic money consists of coins — a special type of commodity money in which a metal such as gold, silver, or copper is used. Paper money takes the form of bills and notes. It may or may not be backed by gold or silver. Although the United States has had various types of commodity money in its history, all American currency today is in the form of paper money and coins.

inherent value of money внутренняя стоимость денег; commodity money товарные деньги; beads бисер, бусинки; warehouse receipt товарная квитанция на груз, принятый на хранение; token money разменная монета.

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