the bank of England has two core purposes. one is ensuring monetary stability, having stable prices-low inflation - and consequently confidence in the currency. The goverment sets an inflation target and the bank's monetary policy committee tries to meet it by raising or lowering the official interest rate when necessary. UK banks and building societies have to hold reserves at the bank. These are remunerated at the banks' official interest rates. If British banks need to borrow short-term funds do this in the sterling money markets. The banks can influence the amount of money and the interest rates in these markets - this is how it implements its monetary policy. The bank also deals in the foreign exchange market. It could use the UK's foreign currency and gold resevers to try to influence the exchange rate if necessary. The bank's other core purpose is to maintain the stability of the finacial system. the banks have to detect and reduce any threats to finacial stability, and make sure the overall system is safe and secure. It nonitors and analyses the behaviour of the major participants in the financial system and the wider financial and economic environment, and tries to identify potential risks. A sound and stable financial system is important, and is also necessary for carrying out monetary policy efficiently.
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