Bank of England should be abolished

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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.

More Scottish news:

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 

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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 

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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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commented 2013-06-16 13:43:22 +0100 · Flag
Hi Andrew,

Ian Fraser is a widely respected financial expert who happens to be sympathetic to independence.

Ireland is a case in point. Their economy was held back for decades and people suffered abject poverty because it remained tied to sterling.

In terms of ownership of the BofE – I am very aware of the SNP line on this. Scotland is also part owner of the British parliament and it has virtually zero influence over that institution. With the BofE it would be even less.

So, if ownership of the BofE is the case for keeping it, then so is ownership of the British parliament, no? The soundbite appeals to fans and may work well on tv but to anyone else who are dispassionate and have some understanding of the subject, it doesn’t stack up. These people are key influencers who the SNP need to convince because voters will look to them for confirmation of the SNP line and they won’t get it.

The SNP has many sound arguments. I fear the soundbites in relation to the BofE are to hoodwink their own brand followers because unaligned experts and business people don’t swallow a word of it and that is a shame as most say they appear amateurish on the subject.

This subject is already killing the ‘yes’ campaign and so ‘yes’ are increasingly likely to lose but the failure will be one of self-defeat.

The best thing SNP fans can do is do their democratic duty and ask difficult questions of their party – otherwise, defeat is increasingly inevitable.
commented 2013-06-16 13:12:06 +0100 · Flag
“I can’t think of another country which has kept the currency of the nation it is separating from”
Ireland, Australian New Zealand…..pretty much all newly independent do this, at least in the short to medium term.
By the way Scotland is part owner of the BoE.
published this page in News 2013-06-13 17:18:28 +0100