Bank of England tackles forex scandal

Bank of England boss Mark Carney is to revamp the organisation’s structure amid fears that it could be implicated in a foreign-exchange-rate rigging scandal. Regulators worldwide are investigating whether investment banks profited by manipulating the $5.3 trillion global currency market.

Last week, the central bank announced that it had suspended a staff member and had launched an investigation into whether internal controls were broken, or manipulation had been overlooked. Now it will appoint a fourth deputy governor to head up its markets and banks operations and review its approach to “market intelligence”.

Carney also said he had no plans to unwind the bank’s quantitative easing programme until after interest rates have risen. “Any unwinding of QE should come after several adjustments to rates,” he said. The bank bought £375bn of gilts with printed money, starting five years ago this month.

What the commentators said

“Just how many deputy governors does the Bank of England need?” asked Ian King in The Times. For its first 314 years it managed with just one; the second only appeared in 1998. “This is one form of inflation the bank has manifestly failed to tame.” Nor does this sound like a vote of confidence in its present executive director for markets. As the bank has gained “formidable new powers” over the many markets it regulates, said the Financial Times, it has become all the more important “to ensure that its own conduct is whiter than white”.

Rebuilding the stability of the banking system and the City’s reputation is starting to look overwhelmingly complicated, said Alex Brummer in the Daily Mail. How Carney must wish for a return to the “status quo ante”: before the crisis, the job of market supervision was removed from the Bank, allowing it to focus on inflation and interest rates.

What is becoming clear is that the bank will never unwind QE, said Ambrose Evans-Pritchard in The Daily Telegraph. The word ‘any’ tells us “all we need to know… quite right too”. There was a “mantra that helicopter money requires a hoover afterwards to vacuum it up. But in a deflationary world there is no clear imperative to do so.” The gilts can be left to gradually expire rather than be sold back: 20%-25% of the national debt has been “eliminated in all but name”. Evans-Pritchard concedes, however, that although it currently seems unlikely, the expanded money supply could “come back to haunt us”.

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