Three Facts You Didn’t Know About Central Banks

Despite being so influential there are many things that most people simply don’t know about these institutions.
Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn
three-central-bank-facts

Central banks dictate monetary policy and the direction of the economy.

Despite being so influential there are many things that most people simply don’t know about these institutions.

We will take a brief look at some of the most interesting central banks facts that you might not have heard of.

Before we get to the facts it is important to understand what a central bank is and why it is important.

Each bank is structured in a slightly different way. The common goal of all banks is to keep the economy stable for all citizens of their country.

They do this through a series of meetings and votes throughout the year. The policy decisions they make are a result of the economic data they gather.

Central banks utilise a series of tools to control the economy. Most of these aim to influence the price of the local currency.

The most common tool a central banks uses is that of its main interest rate. The rate is adjusted higher or lower depending on what the bank is trying to achieve.

Paying attention to how central banks act is one of the best ways to make money from trading the Forex markets.

1 – You Can Buy Shares In Some Central Banks

You might be surprised to learn that it is possible to own shares in some central banks. The SNB in Switzerland and the BOJ of Japan are the two main examples of this.

The Bank of Japan shares are traded openly on the Tokyo stock exchange and it is possible to invest in them.

Shareholders indirectly own a significant portion of the Japanese stock market.

In 2016, Bloomberg reported that the BOJ is a top 10 shareholder in 90% of the stocks listed on the Nikkei 225.

The same authors also revealed that the bank owns 55% of all Japanese exchange traded funds. This is more than every other investor in the world, combined.

This is because the bank gained independence from the Japanese government in 1988. Although ownership is possible there is generally no dividend paid to shareholders.

The Swiss central bank is structured in a similar manner. The SNB does pay a dividend to shareholders although it was only at 0.2% in 2018.

The Swiss public sector own 76% of the banks shares with private shareholders owning the rest.

Theo Siegert is the largest individual private shareholder with a stake of just over 6%.

In 2018, the financial times reported that shares in the bank rallied 90%. This made his stake worth almost SFr45 million.

2 – The Bank of England Holds 20% Of The World’s Gold

The United Kingdom sold almost 50% of its gold reserves in between 1999 and 2002. This sale raised around £3 billion in cash for the UK government.

Despite this, the vaults beneath the bank of England hold around 20% of the worlds gold. Many foreign central banks trust the BoE to store their gold.

In 2018 the bank held over £100 billion worth of gold in total.

The BoE is the second largest keeper of gold in the world behind the New York Federal Reserve.

In over 300 years of the banks existence no gold has ever been stolen or lost. In 1936 the bank started using keys that were 3ft long to access the vault.

These keys are still used today. They combine with electronic access measures to ensure complete security.

There is a famous story from 1836 told by the Bank of England on its website. The story is the closest anyone ever came to stealing gold from the bank.

The directors of the bank received an anonymous letter. The writer claimed to have access to the vault.

To prove this he would meet the directors in the vault at an hour of their choosing.

While in the vault the directors heard a noise and saw a sewerman pop up from beneath the floorboards.

He had discovered an old drain during repair work. The drain gave direct access to the vault and the gold within it.

After checking that no gold was missing the directors rewarded the man’s honesty with a gift of £80,000 (in today’s money).

Since that time many extra measures have been added. These ensure that this type of situation could never happen again.

3 – Private US Banks Made $650 Million From QE

In early 2009 the US Federal Reserve bank initiated a quantitative easing programme. The goal was to stimulate the economy and exit the US from recession.

Their main tactic was to buy up treasury bonds from the open market. This would inject more cash into the economy.

This extra cash passed through the economic system to spur inflation. In between 2009 and 2015 the Fed spent more than $3.7 trillion on bonds.

In 2014, a study was conducted by Fed economists Zhaogang Song and Haoziang Zhu. They discovered that the Fed paid fees to Wall Street.

These fees amounted to over $650 million USD with 70% of that money being paid to just five different banks.

Goldman Sachs received the most fees. The most profitable trading was conducted by JP Morgan.

They made approximately $0.04 on every $100 in bonds that they sold to the Fed.

This equates to a commission rate of 0.02%. It was paid to the banks in exchange for them selling bonds to the Federal Reserve.

There were three other banks to have received significant commissions. They were Morgan Stanley, Barclays and BNP Paribas.

If you have any questions or comments about this article please leave them below. We read each one and reply to as many as we can.

If you have any suggestions for future articles then please also share those below. Our goal is to help you understand the Forex markets.

Comments

comments