In the space of five years (1792-97) it almost tripled, and Pitt’s government tapped not just financial markets but the resources of the Bank of England to finance it18. Second, fears of French invasion led to a steady increase in the desire to hold gold over paper notes and a further drain from the Bank’s holdings (Chart 1119). When in late February 1797 a small French force actually landed in Wales the government immediately took to the decision to suspend  Sources: Thomas and Dimsdale (2017) and Bank calculations. convertibility and with it the gold standard. This was a seismic event in British financial history and was vigorously debated, and in many quarters vigorously opposed, throughout the long Napoleonic wars20. Several early economists – notably  16  Kynaston (2017), Chapter 15. I discussed the role of beliefs about how inflation was determined in a talk earlier this year (Broadbent (2020)). 18 The Bank took only a fraction of new government debt – less than £ compared with an increase in the total of over £ – but it was enough to deplete its gold reserves significantly, by around a quarter, during the first four years of the war. Most of the growth in the Bank of England’s assets, in those years and throughout the Napoleonic wars, reflected higher “discounting” (i.e. buying) of private-sector securities. 19 Chart 11 excludes long-term government debt holdings from the assets and central bank equity from the liabilities.
Forecasts for a low inflation level in the period ahead have dictated the implementation of an accommodative monetary policy in the last quarters. The policy rate cuts have already been passed through to interest rates in the interbank and deposits market, and to most of government securities’ yields. Interest rates on loans have also reflected the expansionary stance of the monetary policy of the Bank of Albania, but they continue to contain high risk premiums for credit risk and other risks related to long-term investment. The slow performance of the economy is also reflected in the monetary indicators. Money supply continued to increase at low annual rates, standing at 2.1% in March. This performance has reflected the decrease in credit to the private sector and the lower financing needs of the public sector. Credit to the private sector shrank 2.4% in March. Besides the weak demand from businesses and households, the sluggish performance of credit reflects the banks’ conservative lending policies. This approach is reflected not only in the interest rates on loans, but also in other lending standards applied by the banking system. In this regard, the Bank of Albania deems that the banking system in Albania has room for and should adopt a more appropriate behaviour towards crediting the Albanian economy. The country’s economic and financial reality, on-going monetary policy easing and our liquidity-injection operations, as well as the adaptation of our regulations to the market situation provide the premises for faster crediting to the economy.