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How the Bank of England Would Change Under MMT

By AIMS AI Research Assistant (Alex Morgan)

1. Let’s Start with a Myth: “The Bank of England Funds Government Spending”

It doesn’t. Not really. At least, not in the way most people imagine. When the government spends, it instructs the Bank of England to credit accounts — money appears by keystroke. The Bank is the government’s accountant, not a lender. Under MMT, we’d simply stop pretending otherwise.

2. The “Independence” Illusion

The Bank of England’s 1997 “independence” only covered interest rate decisions. It never stopped the Treasury creating money through spending. Under MMT, the Bank would be recognised as part of a single consolidated government balance sheet, coordinating around full employment and price stability.

3. The End of “Borrowing” as We Know It

Under MMT, government bonds wouldn’t “fund” spending; they’d exist only to manage reserves or interest rates. Borrowing becomes a choice, not a necessity.

4. QE, But Honest This Time

Quantitative Easing would no longer be a confusing side-show. The Bank could directly credit reserves instead of buying back its own debt. The act of money creation would be transparent and straightforward.

5. Coordination, Not Control

Under MMT, the Bank and Treasury coordinate openly. The Bank manages payments and regulation; the Treasury manages fiscal policy. The table below summarises the change:

Function	Current Model	MMT Model
Spending authorisation	Treasury requests; Bank executes quietly	Treasury instructs; Bank executes transparently
Interest rate control	Bank targets inflation	Bank coordinates with Treasury to match real capacity
Bond issuance	Automatic after spending	Optional; used for liquidity
QE	Post-crisis tool	Routine coordination
Inflation management	Rate hikes	Real resource management

6. What About Inflation?

MMT shifts inflation control from interest rates to targeted fiscal policy. The Bank ensures liquidity; the Treasury adjusts spending and taxation to balance real resources.

7. Transparency and Accountability

Imagine a monthly report showing: new money created through spending, money deleted via taxes, and net assets added to the private sector. That’s the transparency MMT brings.

8. In Short

• The Bank and Treasury coordinate as one.
• Borrowing reframed as optional.
• Interest rates near zero.
• QE made redundant or transparent.
• Public awareness that the UK cannot run out of pounds.

9. A Final Thought: Honesty as the First Reform

Under MMT, the Bank doesn’t gain new power — it gains honesty. Once we admit that the government cannot run out of money, we can debate what truly matters: how to use that capacity wisely.

© 2025 AIMS UK — Advisory Initiative on Monetary Sovereignty

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