Financial Markets and Government
The founding of the Bank of England during the reign of William of Orange was probably the second most momentous event in history, the first being the invention of banking. It was not the monopoly of banknotes nor being the custodian of the nation’s gold reserve that was important, but the fact that the government itself had a bank of its own from which it could borrow. Government borrowing from its own bank did not mean that government was borrowing from the nation itself — its population, the nation’s business enterprise or its wealth; it was, rather, borrowing from an extraneous source. The debt so incurred by the government to its central bank represented no more than a debt; hence it consisted of the money supply.
KeywordsExchange Rate Interest Rate Central Bank Foreign Exchange Banking System
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