National Bank

July 27th, 2016 Sections: Economy

It was on 27th July, 1694, that the Bank of England was granted its Royal Charter.

According to some sources, it’s the oldest National Bank in the world although there is a question about the Sveriges Riksbank, (in Sweden) which was founded in 1668 – which is the also the third oldest bank in the world which is still operating..

The Bank of England actually owes its existence to a Scotsman, a merchant called William Paterson, who put together a company to provide a massive loan of 1.2 million pounds to the King, (William III), who was in dire need of funds at the time in order to pursue a war with France.  The necessary funds were raised in 12 days … now that seems to be pretty impressive.  They charged their sovereign a right royal rate of interest on the loan … 8%.

In addition, the King gave them the right to operate as a Limited Liability Company – which was unique at the time, and it wouldn’t be until 1826 before another Bank would be so treated.  This gave the bank a tremendous commercial advantage … as did the fact that it had become the government’s de facto financial agency, although it was, in fact, a private commercial bank.

Paterson’s company originally had almost 1300 shareholders … and it was controlled by leading figures of the ruling Whig Party.  Their rivals in the Tory party tried to establish a rival National Bank ,,, but the attempt failed … however it spurred the Bank of England to lobby for a law precenting the creation of new large banks, and introduced the death penalty for confeitinG Bank of England issued banknotes.  Later innovations in the law introduced further restrictions which only served to strengthen he commercial advantages enjoyed by Old Lady of Threadneedle Street.

It was to remain a private bank until 1946, whenit was finally nationalized and taken into State control … technically, owned by the Treasury Solicitor on behalf of the government.

Today, it serves as the central bank of the United Kingdom, and among its responsibilities are the monitoring and implemention the country’s monetary policy and regulating the financial sector (although some of these tsks were delegated for a time to other regulatory bodies); issues banknotes, (it’s one of eught banks authorized to issue their own banknotes in the country (but has a monopoly on this in England and Wales); serves as the bankers’ banker – the lender of last resort;

 

The equivalent role here in Kyrgyzstan is filled by the National Bank of the Kyrgyz Republic.

Although the concept of a National Bank is a fairly recent one … although some of the individual functions date back centuries.

The issuance of currency in the territory of what is now Kyrgyzstan, dates back to the eighth century …  and there were as many as five centers where coinage was minted … mostly in the Northern part of the country.

The arrival of the Russians and incoration of the territory into the Russian Empire brought the country out of the age old system into a wider established system of Russian Banks.    In 1867, local branch offices of Russian banks opened in Tokmok, Issyk Kul and Osh.  In 1907 a mutual credit society was established in Pishpek … and in 1910 the larger Central Bank Mutual Credit Society and by 1914 the credit unions around Pishpek and Przevalsk (in Issyk Kul) had almost 4000 members.

Of particular interest were a number of specialized institutions, established to give small loans (of just 10 to 50 rubles each … attracting an interest rate of 6% per annum) to people working in agrriculture and crafts … a precursor of the modern system of microcredits.

The shortage of cotton in wartime led to an expansion of the State Bank networks in and around Osh … which was a center for the production of cotton.

In July 1918 a Pishpek branch of People’s Bank, was established … which in October 1924 was transformed as the Pishpek Central Asian branch office of the State Bank of the USSR … and two years later as the Kyrgyz Republic’s branch of the State Bank of the USSR Central Asian office, in Tashkent.

The State Bank and its local offices were converted into a single center for both short-term and long-term loans om all sectors of the economy.  As a result other bank branches and Mutual Credit Societies ceased working – but branches of the State bank were opened ar centers around the republic: in Frunze, Osh, Jalal-Abad, Karakol, Talas, and Naryn.

Until 1937, all banking services were provided by the State Bank.  In 1932, however, it established a  local filial of the USSR Construction Bank … and thisd was followed by the creation of other specialist banks.

In the late 1980’s these specialist banks were joined by the first commercial banks – the first of which became JSCB Kurulushbank –  Construction Bank.

 

Following Independence, the local office of the State Bank was converted into the National Bank, and took on the roles usually associated with such an institution: control of monetary policy; protecting the purchasing power of the national currency – the som, including maintaining stable exchange rates and setting base interest rates; issuing banknotes; overseeing the transformation and reconstruction of the banking system – payments systems, credit sysems and so on; regulation of the activities of commercial banks and other financial institutions; introducing standards of international banking practice and supporting training initiatives both, for exmployees working in the banking sector – and also projects which are aimed at improving financial literacy among the population.

 

 

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