Legal framework for the Bank of England's monetary policy and effectiveness of central bank independence

Legal framework for the Bank of England's monetary policy and effectiveness of central bank independence

Introduction

The history of the bank of England is of keen interest. The responsibilities and criteria of the bank have reshaped a lot due to happenings and events over the past three hundred years. These events and circumstances have affected the policies of the bank to an appreciable extent considering the reputation of the bank. The history of the bank of England involved with the history of politics, economics and finance in United Kingdom. The bank has contributed a lot in economic history, and it has two principal purposes. The first principal is to achieve the economic goal, and the second is to achieve stability in economics and finance for a long time. When we go through the history of the bank of England it reflects that at start Bank of England has to look after the accounts of government as well as to help the government in funding. When there was a great rise in the prices of gold, then there had a serious debate over the bank's purpose. The responsibilities of the bank are to assist the government in paying assets and bills. The bank should ensure the financial stability.

Discussion

Constant prices without fluctuations are the part of monetary stability, and decisions should make by Monetary Policy Committee, and the bank should follow all the decisions. The bank should work with other central banks and organizations in order to improve the financial system. The bank of England would also play a crucial role in establishing the financial system in United Kingdom and all the interest should be in favor of public. The bank should not interfere in other policies of external agencies.

There are three types of committees formed which include a Court of Directors, non-Executive directors, and a Monetary Policy Committee. The court of Directors should manage the internal affairs of the bank and should not interfere with the Monetary Policy Committee. Considering the act, the policies of the bank relation with monetary policy is to maintain the price stability, and also help the government in economic policies.

It also includes the growth and employment. The government should check the growth, price stability and the employment issues once a year. The meeting of the members of MPC (Monetary Policy Committee) should be held on a monthly basis of with Governors, and the Executive Directors of Bank and four members appointed by the Chancellor.

The role of Central bank should like a commercial bank and it can interfere with its macro goals. Until 1920s, there were limited functions of the bank. There were two departments of the bank and they had to limit their commercial functions. During 1920s, bank was achieving all its macro goals. The currency should be stable all the time, and it can be affected when government ran large deficits. England lost its standard in gold prices and according to the Bank ...