Bid for Independence for Bank of England
STANDING at the epicenter of London's financial district, the Bank of England looks like the embodiment of British self-assurance. But within its windowless granite walls high officials of the United Kingdom's central bank are beginning to think thoughts that would have been unthinkable a few years ago.They are wondering whether, in 1992, when the European Community removes its internal frontiers, the "Old Lady of Threadneedle Street" ought to be made free of the government. And they are looking to Germany's Bundesbank as their model. When it was nationalized in 1946, the Bank of England (established in 1694) came under heavy government influence. The idea that its autonomy should be restored has surfaced amid the moves toward greater European unity. When inflation began to rise again two years ago, Nigel Lawson, Margaret Thatcher's Chancellor of the Exchequer, advocated independence for the Bank, pointing to Germany's booming low-inflation economy. He noted the autonomous roles of the Bundesbank and of the United States Federal Reserve Board. But Mr. Lawson's ideas about the Old Lady were squashed by the Iron Lady. At the time, Cabinet sources said Mrs. Thatcher feared Robin Leigh-Pemberton, governor of the Bank of England, would grow too big for hi s boots. No longer chancellor but still a member of Parliament, Lawson remains a strong advocate of the Bank's independence. Others with their eyes on Britain's European future are coming around to the same view. Tim Congdon, an influential monetarist economist, has urged Mr. Leigh-Pemberton and Prime Minister John Major to look to the Bundesbank for inspiration. "If Britain wants an inflation rate as low as Germany's, it should put its own central bank on the same footing as the Bundesbank and make it independent," he says. "The government would then no longer play a dominant part in monetary policy, and we would all benefit." Environment Minister Michael Heseltine strongly favors central bank autonomy, saying that if Mr. Major announced the Bank of England was going to be made independent, he would be "cheered to the echo." The case for setting the Old Lady free has been strengthened by the Bank of Credit and Commerce International scandal. The Bank of England moved very slowly in deciding to shut it down, and the opposition Labour Party says this was because the government leaned on Leigh-Pemberton to be cautious, out of deference to the Sheikh of Abu Dhabi, BCCI's principal shareholder. The governor and the government deny this, but if the Bank of England had been independent, tongues would not have had the excuse to wag. Leigh-Pemberton has never said openly that he favors independence, but in March he did suggest that public opinion was moving in that direction. It seems unlikely the government will move on independence for the Bank before a general election, but afterward there may be more cause for doing so. EC integration plans include creation of a European federal bank in which the sovereignty of national central banks would be pooled. The Bundesbank has rejected sharing sovereignty with a Bank of England still under government influence. A decision to make the Old Lady independent would remove that problem and help to pave the way to a fully developed Euro pean monetary system.