Bank of England to get money-printing secrecy

[Richard Goodgroome]

Bank of England to get money-printing secrecy


Reform Plan Raises Fears of Bank secrecy

By Edmund Conway The Telegraph, London Saturday, January 10, 2009

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4214232/...

The Bank of England will be able to print extra money without having 
legally to declare it under new plans which will heighten fears that the 
Government will secretly pump extra cash into the economy.

The Government is set to throw out the 165-year-old law that obliges the 
Bank to publish a weekly account of its balance sheet -- a move that 
will allow it theoretically to embark covertly on so-called quantitative 
easing. The Banking Bill, which is currently passing through Parliament, 
abolishes a key section of the law laid down by Robert Peel's Government 
in 1844 that originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have 
to print details of its own accounts and the amount of notes and coins 
flowing through the UK economy, is to allow the Bank more power to 
overhaul troubled financial institutions in the future, under its 
Special Resolution Authority.

However, some have warned that it means "there is nothing to stop an 
unreported and unmonitored flooding of the money market by the 
undisciplined use of the printing presses."

It comes after the Bank's Monetary Policy Committee cut interest rates 
by half a percentage point, leaving them at the lowest level since the 
bank's foundation in 1694.

With the Bank rate now at 1.5 percent, most economists suspect that the 
Government and Bank will soon be forced to start quantitative easing -- 
directly increasing the quantity of money in the economy -- in a drastic 
attempt to prevent a recession of unprecedented depth.

Although the amount of easing is likely to be limited, news of this 
increased secrecy will spark comparisons with Weimar Germany and 
Zimbabwe, where uncontrolled use of the central banks' printing presses 
ultimately caused hyperinflation.

The Bank said it will still publish details of its balance sheet, but, 
significantly, the data -- the main indicator of the extent of 
quantitative easing -- will not be presented until more than a month has 
elapsed. For instance, under the new terms of the law, if the Bank were 
to have embarked on a policy of quantitative easing last month, the 
figures on this would not be published until the end of this month.

The reforms, which are likely to be implemented later this year, will 
make the Bank of England by far the most secretive major central in the 
world, experts said.

In the US, where the Federal Reserve has already cut rates to close to 
zero and started quantitative easing, the main way to track its 
purchases of securities and the expansion of its balance sheet is 
through precisely these same weekly accounts.

"Quite why the Bank has to keep its operations so shrouded in secrecy is 
a mystery to me," said Simon Ward, economist at New Star. "This will 
make it much more difficult to track what the Bank is doing."

Among the details which will no longer be published are those revealing 
the extent to which London's banks are using the Bank's deposit 
facilities -- a yardstick of pressure in the financial system.

Debating the issue in the House of Lords recently, Lord James of 
Blackheath, a Conservative peer, said: "Remove [this] control and there 
is nothing to stop an unreported and unmonitored flooding of the money 
market by the undisciplined use of the printing presses.

"If we went down that path we would be following a road which starts in 
Weimar, goes on through Harare, and must not end in Westminster and 
London. That is the great fear that the abolition of that section will 
bring about -- but the Bill abolishes it."