The Bank of England: Money Creation in Their Own Words
In March 2014 the world’s oldest central bank, the Bank of England (BoE), did every advocate of sound money a big but unintentional favor by publishing an official introduction to and an official detailed account of unsound money.
Given both the importance of and the lack of publicity regarding these two seminal papers over the past nine years, even here at mises.org, the focus in this piece will be on quoting some of the BoE’s “greatest hits.” (This approach was also taken by this author in 2020 when quoting from the Black Lives Matter website prior to its being scrubbed.)
Modern Money Introduction
The BoE sets the stage in the paper “Money in the Modern Economy: An Introduction” by defining money in terms of the following three important roles:
The first role of money is to be a store of value—something that is expected to retain its value in a reasonably predictable way over time. . . . Money’s second role is to be a unit of account—the thing that goods and services are priced in. . . . Third, money must be a medium of exchange—something that people hold because they plan to swap it for something else, rather than because they want the good itself.
This multidimensional definition (and other similar ones) is largely accepted by both free-market and government-centric economists alike. To its credit, the BoE expands upon the first role:
These functions are all closely linked to each other. For example, an asset is less useful as the medium of exchange if it will not be worth as much tomorrow—that is, if it is not a good store of value. Indeed, in several countries . . . the traditional currency has become a poor store of value due to very high rates of price inflation. . . . Gold or silver that was mined hundreds of years ago would still be valuable today.
Also to its credit (pun intended), the BoE accurately and honestly describes fiat money:
Since 1931, [BoE] money has been fiat money. Fiat or “paper” money is money that is not convertible to any other asset (such as gold or oth
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