Currency & Banking System (A case study: United Kingdom)

History

Goldsmiths including jeweller acted as the guidance of money or bankers. However, jeweller involved specifically in buys and sells of golds, not to be confused with a goldsmith. Goldsmiths normally in charge to keep valuable items safe in their storage. The goldsmith’s job involves the making of mountings for gemstones, in which case they often are referred to as jewelers. In the Middle Ages, goldsmiths are very important and considered as the wealthiest of the guards in the city. The guards kept records of members belongings.

Gold and silver smith in Lucknow, India 1890


A goldsmith workshop during the mid-seventeenth century

17th century

The system of banking in the United Kingdom started in the 17th century. Its established after the dissolutions of English monasteries by Henry VIII. The way of life during monasteries was misery as people were governed by community rules that stipulate the gender of the inhabitants and require them to remain little or no personal property. However, the traditional banking emerged functions of accepting deposits, loans and transferring funds were combined with the issuance of bank that served as a substitute for gold and silver coins

The emergence of modern banking 18-19 centuries

Good banking & financial system is one of the key economic requirements of a country. In addition, the system is needed to ensure an adequate currency circulation, able to provide efficient service and great cost-effective relationship with investors and debtors.
Bank regulations are designed as a guideline and to create transparency to individual clients and corporation with whom banks conduct businesses. The main policy is monetary whereby associated with interest rates and availability of credit in order to give an opportunity to an individual or company to take cash for personal or as capital for business.

Bank of England was established in 1694 which acquired responsibility to print notes. It was established as a corporation with private shareholders to raise money for war with the King of France Louis XIV.  In 1720, the bank became the main financial institution and acted as a banker to the government and private bank. Thus, the idea of monetary policy as independent of executive action began . The UK currency is the pound sterling (£/GBP). There are 100 pence (p) to the pound (£). Notes come in denominations of £5, £10, £20 and £50. Coins come in 1p, 2p, 5p, 10p, 20p, 50p, £1 and £2.

Image result for notes in pound sterling




Image result for notes in pound sterling




Image result for pence in pound sterling

Speak like Londoner

You will usually hear British people say “pee” rather than pence, as in 50p (50 pee). More colloquially, a pound is known as a “quid”, a five pound note is a “fiver” and a ten pound note a “tenner”.

Banking in UK has two main parts whereby the Bank of England administers monetory policy, interest rates and it regulates the banking market. Second, there are private banks, and some non-shareholder banks which providing credit to consumer and business clients. Borrowing money on credit and pay back with interest is important for a business person to expand a business, invest in a new enterprise, or purchase valuable assets more quickly than by saving.

The goal of monetary policy was to maintain the value of the coinage, and prevent coins from leaving circulation. The establishment of central banks by industrializing nations was associated then with the desire to maintain gold standard whereby the standard economic unit of account based on fixed quantity gold.

To accomplish this end, central banks as part of the gold standard began setting the interest rates that they charged, both their own borrowers, and other banks who required liquidity. The maintenance of a gold standard required almost monthly adjustments of interest rates.

The gold standard is a system under which the price of the national currency is measured in units of gold bars and is kept constant by the government’s promise to buy or sell gold at a fixed price in terms of the base currency. The gold standard might be regarded as a special case of “fixed exchange rate” policy, or as a special type of commodity price level targeting. Nowadays this type of monetary policy is no longer used.

The objectives of banking and financial regulators are usually for :

  • market confidence – to maintain confidence in the financial system
  • financial stability – contributing to the protection and enhancement of stability of the financial system
  • consumer protection – securing the appropriate degree of protection for consumers.

Important of ISO in banking and finance quality standards

  • ISO 9362 defines a standard format of Business Identifier Codes (also known as SWIFT-BIC, BIC, SWIFT ID or SWIFT code) approved by (ISO). It is a unique identification code for both financial and non-financial institutions. The acronym SWIFT stands for the Society for Worldwide Financial Telecommunication. The SWIFT code is used when transferring money between banks, particularly for international transfer, and to exchange messages between banks.
  • ISO 10962 defines the structure and format for classification of financial instrument which is  approved by the ISO. There are many types of Financial Instruments used for saving, investing, trading, hedging and speculating. These instruments are generally organized in groups called “asset classifications.” The most common asset classifications are generally described using terms like “Equities (Stocks),” “Debt (Bonds),” “Derivatives (Contracts),” “Currencies,” and a few other generalized terms. Its provides a global standard for these classifications in the form of specific codes. 
  • CFI codes also aim to simplify electronic communication between participants, improve understanding of the characteristics of financial instruments for the investors, and allow securities grouping in a consistent manner for reporting and categorization purposes

Credit and Debit Cards

Credit and debit bank cards especially Visa and Mastercard – are widely accepted in the UK either want to use it in restaurants, bars, cafes, and shops. American Express and Diners Club cards are becoming more commonly accepted, although it is still advised to carry an alternative instead of holding cash. Debit card consists of 2 types, saving for personal account and current for business account meanwhile credit card is kind of loan of credit with interest which needs to pay monthly before due date to avoid extra charge.


Image result for master card in uk

Contactless cards are widely used in the UK and many businesses accept them as payment, up to a limit of £30 per transaction. Travellers can use a contactless card instead of an Oyster card when using public transport in London. The Oyster card is one of the cheapest ways to pay for single journeys on the bus, tram, tube underground and rail  services in London:

Uk retail banking brands owned by foreign banks

UK banks, except the Bank of England, are shareholder or mutually owned, many countries operate public retail banks for consumers and public investment banks for businesses.  The list of the banks as below

Future plans

The UK government’s proposals for the future relationship of the UK with the European Union (EU), stated the UK will not seek mutual recognition of financial services but instead become a “third country”, with a looser arrangement between the economic bloc and the UK also would have “equivalent” rules on financial services to those of the EU, the paper stated.

Kathleen Brooks, research director at Capital Index, said: “The resilience of the UK’s biggest banks is unsurprising since they can well afford to set up multiple offices across Europe, however, the relative disadvantage for the UK’s smallest banks is one reason why Standard Chartered, a smaller investment bank, is a relative under-performer because of its links to emerging markets that are currently at risk from US President Trump’s trade wars.

Meanwhile, HSBC is planing to complete the establishment of UK ring-fenced bank, increase mortgage market share, grow our commercial customer base, and improve customer service

Sources

  1. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money- creation-in-the-modern-economy
  2. Banks in UK Banks Around the World. Retrieved 20 November 2009.
  3. Lloyds Banking G4 October 2013. Retrieved 4 October 2013
  4. Barclays plc. Bloomberg
  5. https://www.bankofengland.co.uk
  6. https://en.wikipedia.org/wiki/Goldsmith
  7. Abdel-Monem, Tarik. “What is The Gold Standard?”. University of Iowa Center for The Center for International Finance and Development. Archived from the original on 2009-11-21
  8. Jahan, Sarwat. “Inflation Targeting: Holding the Line”. International Monetary Funds, Finance & Development. Retrieved 28 December 2014.
  9. “Monetary Policy”. Federal Reserve Board. January 3, 2006.
  10. “Monetary and Exchange Rate Policies”. Handbook of Development Economics, Elsevier. 2010.
  11. Cf. Clarida, R., Galí, J., Gertler, M. (2002). A simple framework for international policy analysis. Journal of Monetary Economics, 49(4), pp. 879–90
  12.  Corsetti, G., Pesenti, P. (2005). International dimensions of optimal monetary policy. Journal of Monetary Economics, 52(2), pp. 281–305
  13. Cf. Persson, T., Tabellini, G. (1995). Double-edged incentives: Institutions and policy coordination. In G. Grossman and K. Rogoff. Handbook of International Economics, vol. III. Amsterdam: Elsevier
  14. “Monetary Policy Framework”. Bank of England. Retrieved 19 January 2016.
  15. “Targeting Inflation: The United Kingdom in Retrospect” (PDF). IMF. Retrieved 31 October 2016.
  16. Inflation Targeting Has Been A Successful Monetary Policy Strategy”. National Bureau of Economic Research. Retrieved 31 October 2016.
  17. Favaretto, F. and Masciandaro, D. (2016). Doves, hawks and pigeons: Behavioral monetary policy and interest rate inertia. Journal of Financial Stability, 27, pp. 50-58.
  18. Yellen, J.L. (2007). Implications of Behavioral Economics for Monetary Policy. Federal Reserve Bank of Boston Conference: “Implications of Behavioral Economics for Economic Policy”.
  19. Simpson, D., Meeks, G., Klumpes, P., & Andrews, P. (2000). Some cost-benefit issues in financial regulation. London: Financial Services Authority.
  20. UK FSA statutory objectives
  21. Joanna Benjamin ‘Financial Law’ Oxford University Press