In this video and the next two videos, I’m going to be focusing on the beginnings of the Bank of England. And I will be adding in some history here and there.
Beginnings
The Bank of England is the Central Bank of the UK and it was established in 1694.
Before I speak about how it came into being, we need to consider why it came into being.
To that end, I’m going to give you some important background information – a little bit of history.
At that time Britain, along with a number of other European powers, had been engaged in war with the French, “the Nine Years War”. The British navy was defeated by the French at the battle of Beachy Head in 1690.
The ruling monarch of Britain back then, King William III and his Government wanted to continue to wage war, but had insufficient funds to do so.
Britain’s public finances were in a dire condition.
The King and the Government needed to raise money to build itself up as a naval power and take on the French.
They approached the various Financiers who were operating in Britain.
The Financiers agreed to lend the King the money, but on several conditions – more on which shortly.
The Financiers formed a company – a limited liability Corporation - called “the Governor and Company of the Bank of England”.
The sum of £1.2 million was raised in 12 days. The funds were raised by the Financiers buying stocks in the Company. So they became shareholders.
All parties in this operation were happy. The King and the Government were happy because, having secured the funding, they were able to build up Britain’s navy to fight the French.
And the Financiers were happy because they were charging 8% interest for the loan.
This works out at £100,000 per annum.
I should also say that there was an annual service charge of £4000 in addition to the interest payments.
Needless to say, these payments represented an awful lot of money back in those days.
This is what a Londoner might colloquially call, “a nice little earner”.
So, that is a quick sketch of how and why the Bank of England came into being.
But there is a great deal more to this operation than is, at first, apparent. The situation was a whole lot more complex than this. And, in this instance, it’s true to say that the Devil really does exist in the detail.
The whole thing is rather convoluted – and I think purposely so – done in order that few people understand it, but anyway … I’ll do my best to break it down and explain the situation for you so that you can gain a good understanding of it.
So, let’s dive in a little deeper.
No actual money was handed over.
The Charter granted to the Bank of England went beyond a simple loan agreement between the two parties. Ordinarily, when a bank makes a loan to a customer, the bank would credit the customer’s account with the sum agreed upon. The customer then uses that sum of money to buy whatever the loan had been for – be it a car, or something else.
But this didn’t happen with “the loan” made to the Ki
