Banking and Finance

Britain is one of the world's leading financial centers. Banking, finance, insurance, and other business services accounted for about 12 percent of Britain's output in 1996 and more than a million people were employed in this sector.

The Bank of England, chartered in 1694, was nationalized in 1946 and is the only bank that issues banknotes in England and Wales. Several banks in Scotland and Northern Ireland issue currencies in limited amounts. After the Labour government was elected in 1997 the Bank of England was given operational independence in monetary policy. This means it can set interest rates independent of the government in power, much as the Federal Reserve does in the United States. There are more than a dozen major commercial banks in Britain, including Lloyds TSB, Barclays, National Westminster, and HSBC. The postal system, savings banks, and cooperative and building societies also provide some banking services.

Historically, the financial services industry has been based in the City of London in an area called the Square Mile. The City is a small part of the Greater London metropolitan area that surrounds it. Financial services are still concentrated in the City, although several provincial cities have developed their own financial centers. The greatest concentration of foreign banks in the world is found in the City, and the area accounts for 20 percent of total international bank lending. It also has one of the world's largest insurance markets and is the world's main center for trading in stock of overseas companies. One of the world's largest financial derivatives markets is in the City as well. Financial derivatives are contracts to buy or sell, at a future date, financial documents such as stocks and bonds.

The London Stock Exchange, one of the largest exchanges in the world, has always been a focus of international trade. In 1986 it was substantially deregulated, an event known as the Big Bang in financial circles. This led to the rapid expansion of products, markets, and numbers of employees, a movement that slowed in the early 1990s but has since rebounded.

Currency

The pound sterling (£1), consisting of 100 pence, is the basic unit of currency in Britain (£0.69 equal U.S.$1; 1996 average). Before Britain converted its currency to the decimal system between 1968 and 1971, the pound equaled 20 shillings and each shilling was made up of 12 pence. Bookkeeping had to be done using three columns and the decimal system could not be applied.

The currency in the United Kingdom may change in the next few years to the euro, the new unit of currency being established within the European Union. The British government elected not to participate in the first phase of the transition, in which 11 EU members started to use the euro for accounting purposes and electronic fund transfers beginning in January 1999. After 2002, all EU members who join the Economic and Monetary Union (EMU) will use the same currency and their national currencies will cease to be legal tender. For currency exchange rate visit www.xe.com/ucc