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Can Anyone Explain What The Boe Do For A Living?

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Frustrating - half understanding things.

What were the BOE auctioning? Money?

Why would any bank borrow from the BOE when they can just magic the 'money' out of thin air themselves?

Whiy would any bank borrow from the BOE when they can borrow at a lower interest rate from the ECB?

Why would any bank borrow from the ECB when they can borrow more cheaply from the Bank of Japan?

Why doesn't everyone in the world borrow from the BOJ?

What, exactly, does the BOE do for a living? Have a meeting once a month to set a base rate?

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Guest Bart of Darkness

Danny Blanchflower is a "Happiness Guru".

His wife certainly found the key to happiness.

She left him. :lol::lol::lol:

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What were the BOE auctioning? Money?

Yes. 100% correct, guaranteed.

Why would any bank borrow from the BOE when they can just magic the 'money' out of thin air themselves?
They can't. It's true that commercial banks have a fundamental role in the creation of money in the economy, but the idea that they just "magic it into existence" whenever they feel like it and with no consequences is a dangerous perception.
Why would any bank borrow from the BOE when they can borrow at a lower interest rate from the ECB?

Quite. It's almost like you've been reading the news... :lol:

Why would any bank borrow from the ECB when they can borrow more cheaply from the Bank of Japan?

They can't borrow from the BOJ unless they run commercial banking operations in Japan, and most of them don't.

Why doesn't everyone in the world borrow from the BOJ?

Well, the BOJ doesn't lend to just anyone. And nor do Japanese commercial banks. Well, actually, they pretty much do. But that's another story.

What, exactly, does the BOE do for a living? Have a meeting once a month to set a base rate?

There is plenty of information on their website about what else they do. A lot of it is research, analysis and forecasting. Their regular operations in the Sterling money markets are also pretty vital to keeping the monetary system running. It's mostly pretty boring engine-room stuff, though, which is why no-one really gets to hear about it. If it were on the news for a five-minute slot one evening, you'd have forgotten about it the next day... :)

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Thanks for your answers.

I am none the wiser.

What, exactly, do the Bank of England do? They don't clear cheques - they don't allow you to have a bank account with them (do they?) - what do they do.

When they say 'the base rate is 5.75% - what does this mean? Someone can borrow money from them at 5.75%? DWho? Where do the BOD get the money to lend if people don't deposit it with them?

If banks don't borrow from the BOJ, what is the carry trade?

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Thanks for your answers.

I am none the wiser.

What, exactly, do the Bank of England do? They don't clear cheques - they don't allow you to have a bank account with them (do they?) - what do they do.

When they say 'the base rate is 5.75% - what does this mean? Someone can borrow money from them at 5.75%? DWho? Where do the BOD get the money to lend if people don't deposit it with them?

If banks don't borrow from the BOJ, what is the carry trade?

Open you wallet and look at the notes, what does it say on them? Thats what the BoE do, they issue the currency. They are the nation's banker. The base rate is the yield on the currency. It's the interest rate on new bond issues. Please lend us money, buy our bonds, we pay 5.75%. That's one way they get money. They are lender of last resort. So if banks have been balancing the books with junk residential mortgaged backed securities which then they realize are worthless, the bank can, if it wants to, lend banks money against this junk at par value, just as the FED are doing.

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What, exactly, do the Bank of England do? They don't clear cheques - they don't allow you to have a bank account with them (do they?) - what do they do.

If you are a UK commercial bank or building society, then yes, they do effectively allow you to run a bank account with them. Indeed, in that case it is mandatory for you to do so! They oversee all the arcane workings of the money markets, they help to intermediate payments between banks, they buy and sell bonds and other instruments where necessary, they issue banknotes, that sort of thing.

When they say 'the base rate is 5.75% - what does this mean? Someone can borrow money from them at 5.75%? Who? Where do the BOE get the money to lend if people don't deposit it with them?

The BoE pays interest at the base rate on the reserve balances which banks and building societies hold with it (see above), subject to various terms and conditions, of course. Mainly, the banks have to keep their balances close to a specified target in order to get this interest paid. The BoE also provides so-called "standing facilities" which allow banks to borrow from them overnight at a penalty rate (usually +100bps, so in this case 6.75%) or add extra deposits - effectively lending to the BoE - also at a penalty rate (usually -100bps, so in this case 4.75%). This "corridor" system works to keep the market interest rate that banks offer between themselves close to the BoE's base rate.

The BoE doesn't have to "get" money from anywhere. It is the sole organ in the nation which can truly "magic" money from thin air. But unlike in the stereotype, they don't just print it and take it down to retail banks in wheelbarrows! They lend it out on a fixed-term basis against collateral supplied by banks, such as government bonds.

If banks don't borrow from the BOJ, what is the carry trade?

Investment banking is a whole other kettle of fish. I thought you were talking about retail banking and the monetary system. Investment banks and hedge funds, while often "associated" with retail banks in some nebulous way, can pretty much do as they please. Except that they probably can't borrow from the BOJ. Carry traders are borrowing from Japanese retail banks, who in turn borrow from the BOJ. The BOJ is a central bank, like the BoE.

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The best explanation I've read came in this weeks private eye. Spend the pound odd and read it yourself. Might make you cross tho!

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they don't allow you to have a bank account with them (do they?) - what do they do.

Actually, if you're an employee of the BoE you do get to have a normal bank account.

When I worked on the checkout at Sainsbury's (many moons ago) someone presented a BoE check, and I questioned it (like a good little soldier) as I'd never seen one before.

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Actually, if you're an employee of the BoE you do get to have a normal bank account.

When I worked on the checkout at Sainsbury's (many moons ago) someone presented a BoE check, and I questioned it (like a good little soldier) as I'd never seen one before.

Yes, I've got a mate works there and has one of those, pretty cool if you're into that sort of thing (beats a black amex card or whatever any day in my book).

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benj , thanks for helping at least me understand a bit more

I heard they have advisors who sit in on meetings of the BOE, do you know anything about this?. I am thinking of a representative of GB who sat in on a meeting of the BOE which was written up in a news report. Although I may be wrong.

Not thinking of anything political just do they have outside people who obey the same rules of not discussing minutes who attend meetings and don't leak that information.

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