2 - CENTRAL BANKS

Abstract

This chapter discusses about central banks. Every sophisticated economy needs a developed money system and a variety of banking institutions to meet the requirements of industrial and commercial firms, local and central Government and private citizens. The Bank Charter Act of 1844 reorganised the Bank of England, splitting it into two parts: the Banking Department and the Issue Department. The Banking Department dealt with banking operations, as they affected the Government, the commercial banks, the money market, and the few private firms. The Issue Department was charged with seeing that bank notes were issued as required by the public within the limits set by the gold reserves and a small fiduciary issue of £14 million. The Bank of England, as the central bank of the UK, fulfilled a very wide range of functions. MLR is the minimum rate at which a central bank will lend to banking institutions should they get into an illiquid position. Special deposits are called for from the banks to reduce the cash available to them. Bill-brokers are people who take money from those who have a surplus temporarily available, and lend it to others who are in need of finance.