1931: Britain off the Gold Standard
As with the French wars a century before, the First World War saw the link with gold broken and the issue of low denomination notes once more. A vain attempt was made in 1925 to return to the discipline of the gold standard but it failed and in 1931 the United Kingdom left the standard for good. The country's gold and foreign exchange reserves were transferred to the Treasury although their day-to-day management was and still is handled by the Bank. The note issue became entirely fiduciary, that is to say not backed by gold.

During and after the war internal changes began to take place at the Bank, presaging the modern Bank. The Governorship, which had until then generally been held for two years only, and then sometimes on a part-time basis, became a full-time professional post. Lord Cunliffe served for five years; Montagu Norman for twenty-four. Specialists were recruited to the staff. Relations with overseas central banks were built up. During Montagu Norman's governorship (1920-44) the Bank deliberately moved away from commercial business and increasingly assumed the role of a central bank. Assistance was given in the rationalisation and redeployment of a war-based economy to one which might help to rebuild war-ravaged Europe, and Norman was one of the leading players in the establishment in 1931 of the Bank for International Settlements - a forum for central bankers - in Switzerland.

And the relationship with the Treasury changed. The funds which the Bank was deploying in its operations in the market were increasingly public funds. As noted earlier, the gold and foreign exchange reserves passed to the Treasury in 1931. Norman once famously remarked that he was "the instrument of the Treasury".

1946: Bank of England nationalised
Nationalisation, after the Second World War, therefore made little immediate practical difference to the Bank. It shifted final authority over monetary policy to "the other end of town", but that tendency had been established years earlier. The Bank remained the Treasury's adviser, agent and debt manager.

During and for years after the war it administered exchange control and various borrowing restrictions on the Treasury's behalf.

The cheap money policies in the 1930s persisted for some years after the war, but during the 1950s and 1960s (partly under the influence of the Radcliffe Report, but more importantly as a result of US academic work) there was a revival of interest in monetary policy. As the apparatus of post-war controls was gradually lifted, the need for an active monetary policy became more evident, and the serious inflation of the 1970s and early 1980s proved the catalyst for change. Monetary targets were introduced in 1976, and reinforced in the early 1980s. These proved unreliable as a sole guide to policy, but the consensus was clearly established: price stability is desirable in its own right and a necessary condition of sustainable growth; inflation reduces growth and has other social costs; inflation is a monetary phenomenon; and without appropriate monetary measures inflation cannot be properly brought under control.

1997: Bank now responsible for monetary policy
In 1997 the Government announced its intention to transfer full operational responsibility for monetary policy to the Bank of England. The Bank thus rejoined the ranks of the world's "independent" central banks. However, debt management on behalf of the Government was transferred to HM Treasury, and the Bank's regulatory functions passes to the new Financial Services Authority.