13 Jun Bank of England should be abolished
Sir Mervyn King has retired from the Bank of England after a torrid tenure
which witnessed a financial crisis and a financial crime epidemic
Scottish News: Bank of England should be abolished
*Reader Survey Article
After the 2008 financial crisis it is perhaps not surprising Britain’s central bank has become unpopular given that one of the key roles of the Bank of England (BoE) has been to regulate the banking sector.
Asked the question: ‘Do you think the Bank of England should be abolished?’ 37 percent of Scottish Times readers agreed, closely followed by 34 percent who disagreed and 29 percent undecided.
Business and financial expert Ian Fraser told Scottish Times that he believed abolishing the Bank of England would be “very difficult” and “perhaps idealistic” and so therefore should be kept.
The fact that so many believe the BoE should be abolished raises difficult questions for the SNP which believes that after
independence the BoE should remain as Scotland’s central bank.
Mr Fraser said: “It’s an odd thing that Salmond wants to keep it [BoE] as Scotland’s central bank…We should have our own”.
Alex Salmond’s party are increasingly facing questions over what, if Scotland keeps the pound and the BoE, could stop London speculators from using freshly printed money to leverage and then buy up all of Scotland’s properties and companies.
Such a move would result in a dramatic surge in inflation inside Scotland while most industrial decision making would move south. In these circumstances Scotland would be defenceless in the face of City of London speculators in whose interests it would be to snap up valuable Scottish assets cheaply.
We also asked our readers the related question: ‘In an independent Scotland, would keeping the pound be dangerous?’. The survey found a large minority, 32 percent, of respondents thought ‘yes’ it should, while 42 percent answered that the pound should be kept after independence.
According to Ian Fraser retaining the pound would effectively leave an independent Scotland with “a monetary policy dictated by another country where we are unable to set interest rates”. Fraser added: “I can’t think of another country which has kept the currency of the nation it is separating from”
The Bank of England’s reputation subsequently took a further battering after it was implicated in the Libor (London Interbank Offered Rate) rigging scandal.
The manipulation of the Libor rate was found to be rife across the UK banking sector and impacted on every citizen with a credit card, mortgage or loan in a global market worth as much as £320tn ($500tn).
Given the Bank has a regulatory role supervising the banking sector the question which was raised was ‘if they bank did not know
what was going on with the Libor rigging fraud then why not?’. More simply: ‘was it corrupt itself or just incompetent’?
One of the Bank’s key duties is to set the price of money or interest rates. Increasingly, economists argue that interest rates were kept too low leading to steep economic decline as the UK drowns in a crippling debt trap.
Indeed many economists believe that Britain’s economic problems stem from the Bank of England’s interest rate policy.
Cost of money
Interest rates are set by a small committee called the Monetary Policy Committee (MPC) and so the price of money is not set by the market. If indeed, the MPC is behind Britain’s economic malaise then it not a crisis of capitalism but a problem whereby a central committee system, controlled by government, is in charge of the most powerful economic tool in our economy – monetary policy.
Since the beginning of the crisis the Bank of England has also increased the money supply through ‘quantitative easing’ commonly known as money printing. However this money has not been evenly distributed and instead has been trapped inside the financial sector explaining why London is undergoing a boom while the rest of the UK suffers austerity and job losses.
The line which is often punted is that giving money to banks increases lending to businesses, however it is widely believed that the money is being used to speculate on asset prices rather than on business lending which derives fewer bonuses for executives.
A common myth regarding the Bank of England is that it is independent. The Bank is politically controlled and the governor is a political appointment made by the UK government.
In order to prevent a repeat of the 2008 financial crisis, Westminster decided to extend the regulatory powers of the Bank of England despite the questions hanging over its probity in relation to recent financial scandals.
With the recent retirement of Sir Mervyn King the new governor, Canadian Mark Carney is also believed to be an advocate of money printing.
It is widely thought that a foreign governor was sought as no top-level UK banker was untainted by the Libor rate-rigging scandal.
Mr Fraser quipped that “it should be remembered that the Bank of England was founded by Scotsman William Paterson.”
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