The Bank of England remembers its wartime roots — Claire Jones

Hidden in last Thursday’s announcement from the Bank of England that it intends to buy another £200bn-worth of mostly government bonds was this line:

The MPC will keep under review the case for participating in the primary market.
It might sound like dull techno-speak, but the mere possibility of the Old Lady of Threadneedle Street buying bonds directly from the government (i.e., in the primary market) is a big deal.

Since gaining independence, central banks have liked to see themselves as unsullied by politicians’ whims. While the clear distinction between monetary policy and government spending blurred in the aftermath of the financial crisis, until now central banks tried to keep their distance by only buying government bonds in secondary markets – that is, from other investors – as opposed to directly from the state.

However, direct financing is far from novel....

This makes no difference in reality but the shift in perception is huge. The veil is being drawn back on the  ability of the central bank to provide funding for government directly. The government as big household or firm analogy is exploding. It is now becoming clear that there is a vast difference between a currency issuer and currency users, and that the government is the monopoly provider of the currency, with all that implies.

FT Alphaville
The Bank of England remembers its wartime roots

Claire Jones