The Bank of England is the centre of the London money market, and to a very large extent, indeed, the heart of the money market of the world. Its advertised rate of discount, so well known as the " Bank Rate," is that upon which, in this country, all other discount rates, and the deposit rates allowed by banks, are more or less dependent.
The Bank keeps the national reserve of bullion, and as all other banks throughout the country keep an account with the Bank of England, either directly or indirectly (by keeping an account with a London agent, which agent keeps an account there), the Bank of England occupies the unique posi tion of being the holder of the ultimate banking reserve. In a time of panic all banks fall back upon the Bank of England for supplies of gold.
The Bank carries on the ordinary business of banking, but in addition it has charge of the Government accounts and manages the National Debt, paying the dividends thereon. From the sums which are paid to the Bank for the management of the public debt, the Bank, by the Act of 1844, allows the State D 80,000 per annum for thu privileges which it enjoys. The remuneration for the man agement of the National Debt is fixed at an annual sum of 925 per Z1,000,000 up to Z500,000,000 ; L100 per -f1,000,000 above Z500,000,000, but the amount is not to be less than ,160,000 per annum. The re muneration for the management of Ex chequer Bonds and Bills is Z100, and of Treasury Bills I200, for every of such Bonds or Bills outstanding on the last day of the previous financial year (55 & 56 Vict. c. 4S).
The Bank of England is, in the words of George Clare, " invested with a certain stateliness and dignity of standing, which place it hors de contours, and which restrain it from working, as other banks do, solely with a view to dividend-earning." The following sections in the Bank Charter Act (7 & S Vict. c. 32) deal with the issue of notes by the Bank and with the privileges which it enjoys : " 1. The issue of promissory notes of the Governor and Company of the Bank of England payable on demand shall be sepa rated and thenceforth kept wholly distinct from the general banking business of the said Governor and Company ; and the business of and relating to such issue shall be thenceforth conducted and carried on by the said Governor and Company in a separate department to be called ' The Issue Depart ment of the Bank of England,' subject to the rules and regulations hereinafter con tained ; and it shall be lawful for the court of directors of the said Governor and Com pany, if they shall think fit, to appoint a committee or committees of directors for the conduct and management of such issue department of the Bank of England, and from time to time to remove the members, and define, alter, and regulate the constitu tion and powers of such committee, as they shall think fit, subject to any bye-laws, rules or regulations which may be made for that purpose : Provided nevertheless, that the said issue department shall always be kept separate and distinct from the banking department of the said Governor and Company.
" 2. There shall be transferred, appropri ated, and set apart by the said Governor and Company to the issue department of the Bank of England securities to the value of fourteen million pounds, whereof the debt due by the public to the said Governor and Company shall be and be deemed a part ; and there shall also at the same time be transferred, appropriated, and set apart by the said Governor and Company to the said issue department so much of the gold coin and gold and silver bullion then held by the Bank of England as shall not be required by the banking department thereof ; and thereupon there shall be delivered out of the said issue department into the said banking department of the Bank of England such an amount of Bank of England notes as, together with the Bank of England notes then in circulation, shall be equal to the aggregate amount of the securities, coin, and bullion so transferred to the said issue department of the Bank of England : and the whole amount of Bank of England notes then in circulation, including those delivered to the banking department of the Bank of England as aforesaid, shall be deemed to be issued on the credit of such securities, coin, and bullion so appropriated and set apart to the said issue department ; and from thenceforth it shall not be lawful for the said Governor and Company to increase the amount of securities for the time being in the said issue department, save as hereinafter is mentioned, but it shall be lawful for the said Governor and Company to diminish the amount of such securities, and again to increase the same to any sum not exceeding in the whole the sum of fourteen million pounds. and so from time to time as they shall see occasion ; and from and after such transfer and appropriation to the said issue department as aforesaid it shall not be lawful for the said Governor and Company to issue Bank of England notes, either into the banking department of the Bank of Eng land, or to any persons or person whatsoever, save in exchange for other Bank of England notes, or for gold coin or for gold or silver bullion received or purchased for the said issue department under the provisions of this Act, or in exchange for securities acquired and taken in the said issue depart ment under the provisions herein contained : Provided always, that it shall be lawful for the said Governor and Company in their banking department to issue all such Bank of England notes as they shall at any time receive from the said issue department or otherwise, in the same manner in all respects as such issue would be lawful to any other person or persons.