As the Bank's banknote liabilities grow, it needs to acquire assets to match this; by doing so the Bank provides the funds with which banks and others can pay for notes. Much of the growth in banknotes is expected to be permanent or long lasting, and the Bank provides long-term financing through long-term repo OMOs and through gilt purchases. To accommodate short-term fluctuations, eg around holiday periods, the Bank usually backs banknotes in part with short-term repos, which can, as necessary, be allowed to run off.

The Bank normally conducts Gilt purchase OMOs monthly, usually on a Monday following the publication of the MPC minutes. The purchases are undertaken at prices determined in variable rate auctions on a discriminatory-price basis. Counterparties participate in gilt purchase OMOs electronically via Btender, the Bank's electronic tendering system.

The Bank intends in due course to lend from its gilt portfolio backing the note issue. Click here for more information Lending of the Bank of England's gilts portfolio (11k).

The Bank may also introduce operations to inject reserves via the purchase of foreign currency bonds on a swapped basis out of sterling.

Policy since March 2009

Following the announcement of the start of Quantitative Easing in March 2009, which involved much larger and more frequent purchases of gilts in the Asset Purchase Facility , the Bank suspended these gilt OMO operations.

Market Notices

The main SMF Documentation sets out how these operations work. Its provisions may be amended by the Bank from time to time by Market Notices.

Click here to see all previous Market Notices, show

Background information

• Joint statement by the Bank of England and the UK Debt Management Office (DMO) (13k)
  15 May 2006

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