Abstract:

Bank of England, one of the leading examples of modern banking, has been established at the end of the 17th century. Economic and social turmoils and wars that broke up in the first half of the 19th century have led to a serious debate between the Currency School and Banking School regarding the primary function of BoE. The Bank Charter Act dated 1844 has been enacted to eliminate the ongoing instabilities in the British economy. The act was suspended in 1847, 1857, and 1866 because of the developments. In this study, the effects of economic and non-economic developments on the Bank’s reserves are investigated using the structural breakpoint tests for the period between 1844 and 1866. To detect the presence of any regime shifts in both series mean and variance, the Bai and Perron and ICSS algorithm procedures were employed. The findings of the study reveal the effects of domestic and foreign military, political and economic developments directly affecting the UK, on the reserves of the Bank. Key Words: Bank of England, The Bank Charter Act of 1844, Structural breaks. JEL Classification: N23, E58, E52