The Old Lady

Chris Steele-Perkins/Magnum Photos
Margaret Thatcher at the Conservative Party Conference, Winter Gardens, Blackpool, 1985

The Bank of England is one of Britain’s distinct contributions to history. It was chartered in 1694 to lend money to King William for war on France, when a company of London merchants received from Parliament the right to take deposits in coin from the public and to issue receipts or “Bank notes.” The bank financed a summer’s fighting in the Low Countries, gave the business district of London, known as the City, a currency for trade, and lowered the rate of interest for private citizens.

In the next century, the Bank of England developed for Crown and Parliament sources of credit that permitted Britain, during 115 years of intermittent warfare, to contain and then defeat France and to amass, in Bengal and Canada, the makings of an overseas empire. Through “discounts,” or unsecured lending to merchants and bankers, the bank provided the City with cash and influenced rates of lending and profit, and thus the course of trade. In the war that followed the French Revolution of 1789, it was forced to stop paying its banknotes in gold and silver; it had issued more notes than it had gold with which to back them. Across the Channel, for want of a public bank of his own, King Louis XVI of France lost his kingdom and his head.

In the nineteenth century the Bank of England became the fulcrum of a worldwide system based on gold and known as “the bill on London.” Over a succession of City crises at approximately ten-year intervals, it took on the character and functions of a modern central bank. By World War I, it was propping up an empire living beyond its means. In conjunction with the Federal Reserve Bank of New York and the German Reichsbank, the Bank of England’s longest-serving governor, Montagu Norman, sought to develop a club of central banks that would impose on the chaos of international commerce and the caprices of government a pecuniary common law. In reality, the Bank of England had to fight ever-greater runs on sterling until, in 1992, it was routed and sterling was taken out of the European Exchange Rate Mechanism, the forerunner of the euro.

Even in the postwar period, the bank had successes. In 1986 it directed a dismantling of anticompetitive practices in London’s stock and bond markets that heralded a quarter-century of British prosperity. It also invented the phrase (“Big Bang”) by which the reforms came to be known. Nationalized in 1946, the bank recovered some of its independence in 1997. After the collapse of Lehman Brothers in New York in 2008, it flooded London with money. Shorn of many of its ancient functions and traditions, its armies of scriveners long gone to their graves, the bank is now headed by a Canadian, Mark…

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