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Comment by rwmj | Hacker News Reader

I wonder why they bothered going through with the fake bond purchase, rather than simply manipulate the published numbers of bonds sold? Unless the Bank was also keeping it a secret from central government?

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It was a real bond purchase. The money just came from the Bank of England reserves, and the BoE was private at the time (although had very strong links to the Government).

Eg: The episode marked an important step on the Bank’s transformation from private institution to a central bank.. A decade after the Armistice, the altered role of the Bank prompted creation of a Parliamentary commission to examine its functions, ultimately setting it on a path to nationalisation

See https://bankunderground.co.uk/2017/08/08/your-country-needs-...

>> So instead of allowing the disappointing truth to come out, the Bank of England secretly funneled money to hide the gap.

I believe that's what was meant by "fake". In other words, inauthentic.

As far as the transformation from "private institution" to central bank, are you suggesting that this was a form of Open Market Operations?

I took fake to mean that they made up a sale and created money out of nothing (or something).

This isn't what happened. They took money from their reserves and spent it.

> As far as the transformation from "private institution" to central bank, are you suggesting that this was a form of Open Market Operations?

Hu? No, the Bank was nationalised. I don't really understand what you mean or are trying to say.

According to one bitcoin maximalist[0] this was the real origin of fiat currency.

I’m not sure I understand everything that is said nor fully believe, given that it’s a bitcoin maximalist dumping on fiat currency, but what I took away was that the english pound was redeemable for gold. When they did this fake bond purchase, they just minted new pounds (that didn’t have gold backing it) and used that to buy back these bonds in secret.

This is significant because there was a fear of a bank run in England at the start of the war where everyone was afraid that this would happen. The Bank of England had to assure everyone that they wouldn’t do this to stop the bank run - and so, when they actually went ahead and did it, they kind of had to keep it secret

[0]. https://youtu.be/gp4U5aH_T6A

As best historians can determine, fiat currency originated in 11th Century China; with absolute confidence we can say it didn’t originate in 20th Century Britain.

> As best historians can determine, fiat currency originated in 11th Century China

This is untrue; for example, fiat currency was already in use in Seleucid Persia (which began in the 4th century BC).

It wouldn't be even minorly difficult to turn up other examples; any time there's a fixed exchange rate between coins of different metals, one of those coins is fiat.

> When they did this fake bond purchase, they just minted new pounds

I didn't watch the video but if this is what they said it's wrong. The Bank of England had the money in their reserves and they used that.

Which is wrong - the Romans realised that money should carry the face value of the coin over its commodity value, enforced by the power of the state (and taxation). It was kind of forgotten in the middle ages, when coin was a weird hybrid of its face value and its commodity value (much of the monetary shenanigans for hundreds of years was concerned with maintaining face value in light of fluctuating commodity prices).

Were there maybe too many people who might find out that the bonds weren’t bought?

Having a couple straw buyers and actual money to use for the war would seem to be easier to hide and utilize.

The government did actually need the money, it's just that saying "bond sales fell short so we got it from this bank" would look worse.

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