The answer is that our balance sheet is what makes us special and gives us the economic policy tools we need to be able to do that. Our liabilities serve unique functions at the heart of the financial system: central bank money, whether in the form of bank notes or central bank “reserves” – the deposits held with us by financial institutions – provide the ultimate means of settlement for all sterling payments in the economy. And we are the sole institution with the power to create sterling central bank money. That power provides us with a wide range of tools that we can deploy in pursuit of our monetary and financial stability objectives (as summarised in Figure 1).   The importance of reserves to the financial system means that Bank Rate, the interest rate that we pay on firms’ reserve accounts, is the single most important interest rate in the UK. Changes in Bank Rate influence interest rates across the economy including those charged by commercial banks and those in financial markets. That in turn affects aggregate economic demand and ultimately inflation. So having reserves on our balance sheet gives us a powerful tool that we can use in support of monetary stability. Indeed in the years running up to the Great Financial crisis in 2007-08 this was the main monetary policy tool used by central banks – in Peter’s terminology, the “old normal” for policy.
QE and climate considerations  A second aspect of QE that has received close external scrutiny is its relationship to climate change. Responding to climate change is a strategic priority for the Bank; we continue to work towards promoting safety and soundness by enhancing the Prudential Regulation Authority (PRA)’s approach to supervising the financial risks from climate change, and towards enhancing the resilience of the UK financial system by supporting an orderly market transition to a low-carbon economy. In particular we have supported the Financial Stability Board’s work on climate disclosure through the Task Force on Climate-related Financial Disclosures (TCFD). To show its commitment last June the Bank published a report disclosing for the first time its own approach to climate risk management for all its operations.26  Attention, however, has understandably focused on the £ corporate bond purchases that form part (around 2%) of our QE programme, and whether more should be done to account for climate considerations in these holdings. Our approach to date has been to invest in sectors in proportion to the total outstanding eligible issuance accounted for by each sector in the UK economy.27 An important part of the design of the CBPS back in 2016 was to achieve the MPC’s aim of imparting monetary stimulus in a way that was sector-neutral, consistent with the remit given to the Committee by the Chancellor. As a result, the carbon footprint of the APF Corporate Bond Purchase Scheme (CBPS) portfolio is broadly representative of the sterling investment grade corporate bond market (Figure 7).