Wednesday, 9 August 2017

Finance: The Bank of England helped cover up a huge government failure during World War I to protect national morale

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"We are now happy to make clear that none of the above was true."

LONDON — The Bank of England admitted that it helped cover up the failure of a government bond issue during the First World War to protect national morale during the conflict.

The admission prompted a correction from the Financial Times, 103 years after it published a story about the auction.

On Tuesday, the Bank Underground, a blog run by BoE staff, published an entry with the headline: "Your country needs funds: The extraordinary story of Britain’s early efforts to finance the First World War"

It told the story of how the British government attempted to raise a £350 million war bond in 1914 to help Britain's efforts fighting on the continent.

At the time, the Financial Times published a story saying that the issue was "oversubscribed," with applications "pouring in." The issue's success was also described as an "amazing result" that "proves how strong is the financial position of the British nation," an FT story on Tuesday says.

The FT then admitted that this was incorrect, saying: "We are now happy to make clear that none of the above was true."

The government's loan raised less than a third of its target and the Bank of England was asked to step in to help fund the bond, but without revealing that it was doing so, the Bank Underground post said.

This deception of the public included giving senior bank staff the money to purchase some of the debt.

"So to cover its tracks, the Bank made advances to its chief cashier, Gordon Nairn, and his deputy, Ernest Harvey, who then purchased the securities in their own names with the bonds then held by the Bank of England on its balance sheet," the authors of the Bank Underground post write.

"To hide the fact that the Bank was forced to step in, the bonds were classified as holdings of ‘Other Securities’ in the Bank of England’s balance sheet rather than as holdings of Government Securities."

You can read the full story on the Bank Underground blog here and the FT's correction here.



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