Timeline

1

The beginnings
The revolution of 1688, which brought William and Mary to the throne, gave England a measure of political stability unknown for nearly a century. Commerce flourished, but the public finances were weak and the system of money and credit was in disarray. The goldsmith bankers had been damaged by the lax financial management of the Stuart kings. There were calls for a national or public bank to mobilise the nation's resources. Many schemes were proposed. The successful one, from William Paterson, envisaged a loan of £1,200,000 to the Government, in return for which the subscribers would be incorporated as the "Governor and Company of the Bank of England". Although the new bank would have risked its entire capital by lending it to the Government, the subscription proved popular and the money was raised in a few weeks. The Royal Charter was sealed on 27 July 1694, and the Bank started its role as the Government's banker and debt-manager, which it continues today.

Open for business
The Bank opened for business a few days later in temporary accommodation in the Mercers' Hall in Cheapside; it had a staff of seventeen clerks and two gatekeepers. Later in the same year it moved to the Grocers' Hall in Princes Street, which became its home until 1734 when it acquired premises in Threadneedle Street. Over the next hundred years it gradually acquired adjacent premises until the present three-acre island site was secured, and Sir John Soane's massive curtain wall was erected round it. This still forms the outer wall of the Bank.

2

Early business - the Bank moves
The Court of Directors responsible for the management of the Bank had as its first Governor Sir John Houblon, grandson of a French Huguenot refugee and a prominent city merchant. (His portrait appears on the reverse of the series E £50 note issued in 1994.) The Bank's early years were dominated by the Government's pressing demands for finance and the issue of a new coinage. The Bank also embarked upon a conventional banking business, accepting deposits and discounting bills. As evidence of deposits placed with it the Bank issued banknotes, initially in odd sums, with pounds, shilling and pence, but later in round amounts.

The Bank's notes became a widely accepted currency; people seldom doubted that the "promise to pay" (which then referred to gold coin of the realm) would be honoured. The Bank's connection with Government, the scale of its private banking business, and its position at the heart of the growing financial system of the City of London, made the Bank the national treasure house and the leading commercial bank of the day.

In 1780 the Bank was threatened by a mob during the Gordon Riots, and the Government agreed to provide an overnight military guard or "picquet" for the Bank. This was not discontinued until 1973.

3

Debt and inflation
The national debt increased steadily during the eighteenth century, from £12mn in 1700 to £850mn by the end of the Napoleonic wars. Those wars put great strain on the nation's finances and in 1797 the drain on the Bank's gold reserves made it necessary to stop paying out gold in exchange for the Bank's notes. This "Restriction Period" lasted until 1821, and during it the Bank issued £1 and £2 notes for the first time to compensate for the shortage of coin. This contributed to a general increase in prices, and there was a severe slump after the wars when financial discipline was restored. The low denomination notes also proved extremely tempting to counterfeiters, and over 300 people were hanged during the Restriction Period for counterfeiting Bank of England notes.

The Bank was not the only issuer of notes at the time. Many "country" banks, as well as banks in Scotland and Ireland, issued their own banknotes. But these country banks were prone to failure, especially in the difficult trading conditions in the 1820s and 1830s, and to meet the demand for a sound currency the Bank began, from 1828 onwards, to open branches of its own in provincial towns.

The 1844 Charter - sound money
In 1844 - 150 years after the Bank's foundation - a major step was taken to put the currency on a sound footing. The Bank Charter Act of that year gave the Bank a formal monopoly of the note issue in England and Wales, and a related measure required the Scottish banks, which continued to issue their own notes, to back these with holdings of Bank of England notes. As this measure took effect, the Bank became the sole monetary authority for the United Kingdom. But there was an important proviso. Mindful of the inflation that could result from the unrestrained issue of banknotes - the Restriction Period was still fresh in people's minds - the Act prevented the Bank from issuing new notes that were not matched by an increase in its gold reserve. The "fiduciary" issue - that is, the part of the note issue not backed by gold - was frozen at its 1844 level. And to make the status of the currency more visible, the Bank was required to publish a separate balance sheet for its note issuing activities; this separation of "issue" from "banking" continues in the Bank's accounts to the present day. The profits of the note issue were to be paid direct to the Treasury.

4

The nineteenth century - banker to the banks
The 1844 Act gave the Bank the note issue, and the nation a sound currency. But it placed, in effect, a limitation on the Bank's ability to develop its commercial business, and during the nineteenth century it was overtaken in size by the great joint-stock deposit banks which emerged from a series of amalgamations. The Bank chose not to compete directly with these joint-stock, or clearing banks, but to develop its role as the central bank: the guardian of the gold reserve, the supplier of liquidity of last resort. In a succession of banking crises - notably those involving Overend and Gurney in 1866 and Barings in 1890 - the Bank established the concept of lender of last resort - the ultimate reserve of the banking system. When the need arose, it would mobilise its own resources - and those of the City - when a financial crisis at a single bank threatened to spill over into the financial system as a whole. And it would routinely use this leverage over the banking system's liquidity - the ability to supply money to the banks when no-one else could - to set interest rates in London at what it judged to be the right level. While the gold standard was in place the choice of interest rate was constrained - the Bank had to set rates high enough to maintain its gold holdings. Later the choice of rate would become more a matter of discretion. Thus the two main elements of modern central banking were in place.

The twentieth century - the gold standard abandoned
The First World War saw the link with gold broken again, and other increase in the issue of unbacked or fiduciary currency. (On this occasion the low denomination notes were issued by the Treasury rather than by the Bank.) After the war, in 1925, an attempt was made to return to the discipline of the gold standard, but this proved unsustainable and the gold standard was finally abandoned in 1931. The gold and foreign exchange reserves were transferred to the Treasury (although they are still managed by the Bank) and the note issue became entirely fiduciary. Now the only official constraint on the issue of notes is the need to obtain a Parliamentary resolution approving an increase in the fiduciary issue.

5

The Bank rebuilt
During the 1920s and 1930s the Bank underwent a massive rebuilding. Sir John Soane's buildings, within the curtain wall, were replaced by a single structure designed by Sir Herbert Baker, extending to seven stories above ground and three stories below. The buildings were completed just before the Second World War and survived several bombs during the blitz.

The Bank acquired new functions during the war, notably exchange controls which required a large staff to administer and which continued until 1979. The enlarged Threadneedle Street building could not contain them all, and a new purpose-built block was constructed at New Change, near St Paul's. Since the ending of exchange controls, and the relocation of the Registrar's Department to Gloucester, most of New Change has been let to other firms.

Nationalisation
Throughout its history the Bank has always seen itself as a public institution, acting in the national interest. Although privately owned, for much of its life, the activities which it undertook were determined by it governing legislation and by the relationship with government. Nationalisation in 1946 did not greatly affect that; but it meant that the Bank was owned by the Government, rather than by private stockholders, and gave the power to appoint the Governors and Directors to the Crown. The nationalisation Act also gave the Government the power to issue "directions" to the Bank: thus far, the power has not been used.