Barclays bank has been fined a record £290 million (R3.7 billion) by UK and US government agencies for attempting to fix interbank interest rates (LIBOR) from 2005-2009. A further 20 financial institutions are now also under investigation for attempting to fix LIBOR.

These governments are so hypocritical it will make an honest person sick.

The chief interest rate fixing body in the United Kingdom is the Bank of England (the central bank). The BOE website states that:

The Bank supplies the cash which the banking system as a whole needs to achieve balance by the end of each settlement day. Because the Bank is the final provider of cash to the system it can choose the interest rate at which it will provide these funds each day. The interest rate at which the Bank supplies these funds is quickly passed throughout the financial system, influencing interest rates for the whole economy. When the Bank changes its dealing rate, the commercial banks change their own base rates from which deposit and lending rates are calculated.

In simple terms: the Bank of England sets interest rates to the entire economy because it controls pound sterling money supply.

Barclays’ attempt to fix a certain interest rate would have impacted an isolated part of the economy, in a chain originating with their immediate clients and business partners. Some clients, like depositors, would have gained. But no-one forces these people to do business with Barclays, and the freedom of these clients to switch banks or the person who it lends from in the interbank market would have eliminated any long-term damaging consequences to the broader economy.

This is in contrast with a legal monopoly institution – the central bank – that actually fixes interest rates charged by itself to the commercial banks, by printing money out of thin air, that impacts the entire economy in disproportionate fashion. Because individuals do not have a choice to use a competing currency such as Euro or US dollar in the UK, there is no market check to mistakes made by the Bank of England, and as a result, mistakes can be made for much longer periods of time, ultimately bringing with it devastating consequences.