UK - Reform plan raises fears of Bank secrecy - The Government is set to throw out the 165-year old Law
FROM:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4214232/Reform-plan-raises-fears-of-Bank-secrecy.html
Telegraph - United kingdom
Reform plan raises fears of Bank secrecy
The Bank of England will be able to print extra
money without having legally to declare it under
new plans which will heighten fears that the
Government will secretly pump extra cash into
the economy.
By Edmund Conway, Economics Editor
Last Updated: 7:01AM GMT 12 Jan 2009
The Government is set to throw out the 165-year old
law that obliges the Bank to publish a weekly
account of its balance sheet - a move that will
allow it theoretically to embark covertly on
so-called quantitative easing. The Banking Bill,
which is currently passing through Parliament,
abolishes a key section of the law laid down by
Robert Peel's Government in 1844 which originally
granted the Bank the sole right to print UK money.
The ostensible reason for the reform, which means
the Bank will not have to print details of its own
accounts and the amount of notes and coins flowing
through the UK economy, is to allow the Bank more
power to overhaul troubled financial institutions
in the future, under its Special Resolution Authority.
However, some have warned that it means: "there is
nothing to stop an unreported and unmonitored
flooding of the money market by the undisciplined
use of the printing presses."
It comes after the Bank's Monetary Policy Committee
cut interest rates by half a percentage point,
leaving them at the lowest level since the bank's
foundation in 1694.
With the Bank rate now at 1.5pc, most economists
suspect the Government and Bank will soon be
forced to start quantitative easing - directly
increasing the quantity of money in the economy -
in a drastic attempt to prevent a recession of
unprecedented depth.
Although the amount of easing is likely to be
limited, news of this increased secrecy will spark
comparisons with Weimar Germany and Zimbabwe,
where uncontrolled use of the central banks'
printing presses ultimately caused hyperinflation.
The Bank said it will still publish details of its
balance sheet, but, significantly, the data - the
main indicator of the extent of quantitative
easing - will not be presented until more than a
month has elapsed. For instance, under the new
terms of the law, if the Bank were to have
embarked on a policy of quantitative easing last
month, the figures on this would not be published
until the end of this month.
The reforms, which are likely to be implemented later
this year, will make the Bank of England by far the
most secretive major central in the world, experts
said.
In the US, where the Federal Reserve has already cut
rates to close to zero and started quantitative
easing, the main way to track its purchases of
securities and the expansion of its balance sheet is
through precisely these same weekly accounts.
"Quite why the Bank has to keep its operations so
shrouded in secrecy is a mystery to me," said Simon
Ward, economist at New Star. "This [reform] will
make it much more difficult to track what the Bank
is doing."
Among the details which will no longer be published
are those revealing the extent to which London's
banks are using the Bank's deposit facilities - a
yardstick of pressure in the financial system.
Debating the issue in the House of Lords recently,
Lord James of Blackheath, a Conservative peer,
said: "Remove [this] control and there is nothing
to stop an unreported and unmonitored flooding of
the money market by the undisciplined use of the
printing presses.
"If we went down that path we would be following
a road which starts in Weimar, goes on through
Harare and must not end in Westminster and London.
That is the great fear that the abolition of that
section will bring about - but the Bill
abolishes it."
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date: Wed, 14 Jan 2009 12:43:05 -0700
author: Arizona Coin Collector
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