Entrepreneurship, knowledge and employment

The BoE and the circulation of the public debt securities: the early debate

Bentemessek Nesrine Bentemessek, IRG

By the beginning of the nineteenth century, British public debt, accumulated over the eighteenth century and during the Napoleonic Wars (1793–1815), had attained extremely high levels, at times even reaching 200% of gross national product. The Bank of England had played a crucial role in managing this debt. In this respect, following the suspension in 1797 of cash payments for pounds sterling, the Bank of England, in addition to its role of financing the State, followed an active policy of sovereign debt management, promoting both bank liquidity and market liquidity. Also, as soon as the fiat currency had been imposed, the Bank of England made sure to retain outstanding public securities among its assets so that it could ensure bank liquidity. This was indispensable for carrying out its original function of transforming short-term liabilities into long-term assets, but this liquidity also ensured that the Bank was able to withstand potential liquidity shocks. At the same time, and with a view to perpetuating its bank liquidity, the Bank put in place active measures to improve the function of primary and secondary public debt markets and thus improve market liquidity. In this paper, after studying the financial techniques used by the BoE, by the beginning of the nineteenth century, in order to circulate the public debt securities, I shed light on the contemporary debates on the usefulness of such financial operations.


Keywords: Bank of England, public debt, liquidity, public finance

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