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The Bank of England, the cornerstone of Britain\u2019s financial sector, is \u201cnot necessary\u201d and should be abolished, a radical new report has argued. The Experience of Free Banking was published by the Institute for Economic Affairs (IEA) on the day the BoE announced its decision to freeze interest rates at 5.25 percent as part of a strategy to control price rises.<\/p>\n
The analysis outlines a monetary system where private banks issue competing banknotes, usually anchored to a commodity like gold or silver, replacing the central bank’s role. Kevin Dowd, Professor of Finance and Economics at Durham University Business School, told Express.co.uk: \u201cThe book shows that a central bank is not necessary.<\/p>\n
\u201cCommercial banks can issue their own currency, their own banknotes and deposits. These could be linked to a proper monetary standard like gold or silver, and were for very long periods under historical free banking.\u201d<\/p>\n
The first task, Mr Dowd said, was to set the exchange rate. He explained: \u201cIn Argentina, they are announcing a one-off devaluation (to cushion the macroeconomic shock) and then they will replace the peso with US dollars.<\/p>\n
\u201cHere, we might devalue against the dollar and thereafter permanently fix the pound-dollar exchange rate. Or we might adopt a gold standard where the pound price of gold is fixed.<\/p>\n
Click here to join our Whatsapp community to be the first to receive politics news from The Express <\/b><\/p>\n<\/div>\n \u201cEither way, we would get rid of monetary policy forever. The monetary policy side of the BoE \u2013 the MPC, setting interest rates, etc – would then be redundant, and could be wound down and then scrapped.\u201d<\/p>\n Nevertheless, it would still be necessary to address the BoE\u2019s role as \u201cprudential regulator of banks, insurance companies etc\u201d, Mr Dowd stressed. He continued: \u201cI would phase this out by first announcing that the UK will withdraw from the big international agreements such as Basel by some future date, eg in two or three years\u2019 time.<\/p>\n \u201cIt would then announce that UK financial institutions have to get their capital standards up to required levels by that date or they will lose their operating licenses. This would ensure that banks would be capital-adequate when that date arrives, and thereafter bank prudential regulation and what is left of the BoE could all be abolished.\u201d<\/p>\n Mr Dowd said: \u201cAll of this would be seriously disruptive, of course, because we would be moving from a system that is managed (or rather, mismanaged) by armies of useless regulators to a system that is much more automatic and self-regulating. Getting rid of these roles is to me a further benefit of moving to free banking. The City would have to reorientate itself but the potential longer-term opportunities would be enormous.\u201d<\/p>\n<\/div>\n The Bank today held interest rates at their current level – which is a 15-year-high – for the third time in a row and indicated that cuts are unlikely in the coming months.<\/p>\n Governor Andrew Bailey emphasised that there is “still some way to go” in policymakers’ efforts to get inflation down.<\/p>\n The Bank’s Monetary Policy Committee (MPC) voted in favour of keeping the rate steady, with six members of the nine-strong committee were in favour of maintaining, and three calling for a further increase of 0.25 percent.<\/p>\n The interest rate – which helps dictate mortgage rates from banks – had been set at 5.25 percent in previous meetings in September and November, following 14 consecutive increases.<\/p>\n<\/div>\n The cost of borrowing was increased in a bid to grapple with soaring inflation, which peaked at 11.1 percent last year, in order to bring it closer to the Bank’s two percent target rate.<\/p>\n Speaking today, Nicholas Hyett, Investment Manager at high-net investment service Wealth Club, commented:<\/p>\n \u201cThe markets had hoped that Bank Governor Andrew Bailey would put a festive twist on his \u2018sexy turtle\u2019 nickname with a dovish set of minutes accompanying the decision to hold rates flat in December. But there\u2019s no \u201csexy turtle dove\u201d in the pear tree this Christmas.\u201d<\/p>\n He added: \u201cA minority of MPC members voted to raise rates again, despite a slowdown in economic growth and weakening labour markets, with the minutes flagging geopolitical risks and potential for further wage growth. Government bond yields have ticked up and the UK stock market has slipped as a result.<\/p>\n \u201cThere\u2019s logic to holding rates steady at the moment – central banks have a history of folding under the economic pressure and declaring victory on inflation too early. But, as we have said before, leave rate cuts too long and there\u2019s a risk the interest rate cure becomes worse than the inflationary disease.\u201d<\/p>\n<\/div>\n[ad_2]\n","protected":false},"excerpt":{"rendered":" [ad_1] The Bank of England, the cornerstone of Britain\u2019s financial sector, is \u201cnot necessary\u201d and should be abolished, a radical new report has argued. The Experience of Free Banking was published by the Institute for Economic Affairs (IEA) on the day the BoE announced its decision to freeze interest rates at 5.25 percent as part …<\/p>\n","protected":false},"author":1,"featured_media":15634,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/posts\/15633"}],"collection":[{"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/comments?post=15633"}],"version-history":[{"count":0,"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/posts\/15633\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/media\/15634"}],"wp:attachment":[{"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/media?parent=15633"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/categories?post=15633"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/farratanews.online\/wp-json\/wp\/v2\/tags?post=15633"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}