As was emphasized by Dr Mann on a number of occasions, this is a book about money.1 It may, of course, be debated whether a chapter on monetary institutions is therefore appropriate in the present context. But it has been shown that the existence of a monetary system relies upon the State, which must authorize its issue and define its unit of account and other characteristics. It therefore seemed that the institutions responsible for the issue of physical money and the conduct of monetary policy on behalf of the State were worthy of at least some examination in the present context; in part, this view was taken because recent developments have emphasized that (a) such institutions enjoy a particular role within a national economic system, and (b) that role may affect the attitude of foreign courts in their approach to cases involving such monetary institutions.2
Every modern State has some form of monetary institution which is responsible for the issue of its currency. They will frequently include the term ‘central bank’ or ‘monetary authority’ in their corporate titles, and their essential functions will be broadly similar.3
There exists no satisfactory legal definition of a central bank.4 Certainly, so far as the United Kingdom is concerned, the legislation establishing the Bank of England defines its functions, but does not attempt a broader philosophical definition of the role or purpose of a central bank.5 The State Immunity Act 1978 confers immunity on foreign central banks in defined circumstances, and yet does not attempt a formal definition of ‘central bank’.6 We must therefore be content with a definition which focuses on certain features and functions of a central bank:7
(a) a central bank will usually be wholly owned by the State concerned or will form a part of the machinery of government;8
(b) a central bank will usually be a legal entity in its own right;9
(c) the central bank will usually be recognized as the institution which stands at the apex of the monetary and banking system of its home country, and will be required to perform, as best it can in the national economic interest, the functions described in points (d) to (i);
(d) the central bank will usually enjoy a monopoly in relation to the issue of banknotes and coin;10
(f) the central bank will hold and manage the State’s foreign reserves and will perform general banking and paying agency functions for the government;
(g) a central bank will frequently be entrusted with the administration of the national system of exchange control;12
(h) it may act as custodian of the cash reserves of commercial banks, and will enter into rediscounting or other arrangements with them; and
(i) it will usually perform the role of lender of last resort.13
It may be added that a central bank may have other functions. In some jurisdictions the central bank is responsible for the prudential supervision of the banking sector, whilst in other countries a separate agency is established for this purpose.14 But these additional features do not add to (or detract from) an entity’s legal status as the central bank of a given country. The present chapter will therefore work on the basis that an institution which broadly displays the characteristics described in points (a) to (i) in paragraph 21.03 and forms part of the machinery of the State15 should be treated as a ‘central bank’ for the purposes of the present discussion. It should be added that most central banks are incorporated under the domestic laws of the countries which they serve; for legal purposes, this may be regarded as the typical model. However, it should not be overlooked that a central bank which operates within a monetary union (ie, such that two or more States are involved) will usually be established as an international organization. The main example is the European Central Bank which was established following the Treaty on European Union. Other examples include the Eastern Caribbean Central Bank and the central banks established for the purposes of the African monetary unions. Likewise, the conduct of central banking functions may be entrusted to a group of institutions, such as the Federal Reserve System of the United States. The nature of such institutions will be discussed elsewhere,16 but they are mentioned here because the mode of their establishment gives rise to certain issues in the context of their entitlement to immunities. This point will be discussed in the next section.
The foregoing section has provided a broad description of a central bank and its activities. It is now proposed to consider (a) the procedural immunities of such institutions; (b) the procedural immunities of central banks established by treaty; and (c) the position of exchange control authorities.
It is necessary to establish a functional definition of a ‘central bank’ as a necessary precursor to any discussion on the immunities of such institutions. But what are these ‘immunities’ and why are they conferred? Historically, it may be said that all States were to be treated as equal, and thus no State could claim jurisdiction over another—in other words, each sovereign enjoys immunity from proceedings before the courts of each other’s sovereignty. In modern times, it may be said that a State should not use its immunity as a means of avoiding liability in the context of commercial transactions, but it is still appropriate that a court should not seek to sit in judgment on the public or sovereign activities of a foreign State.17 This distinction between sovereign acts (acta jure imperii) and actions of a commercial character (acta jure gestionis) lies at the heart of the law of State immunity.18 In essence, a foreign State is immune from the adjudicative jurisdiction of courts in the United Kingdom, unless an exception to that immunity applies in the particular circumstances of the case; exceptions generally apply in cases of a commercial character.19 In the present context, it is important to appreciate that the immunity also extends to the government and the departments of that State.20 The immunity also extends to entities which are separate from the State itself, provided that the court proceedings relate to actions taken in the exercise of sovereign authority and the State itself would have been immune in corresponding circumstances.21 It has already been noted that a central bank is established as a separate body corporate under its local law; it will therefore only qualify for immunity from adjudicative jurisdiction in the United Kingdom if it can satisfy the tests just described.22
A central bank is an institution of a State.23 In the issue of money,24 the conduct of national monetary policy, the administration of a system of exchange control, and the management of a country’s foreign reserves,25 it plainly discharges functions of a peculiarly sovereign nature. It is thus unsurprising to find that they are generally entitled to immunity from proceedings before the English courts, in any event so far as the conduct of their sovereign functions is concerned.26 The constitutional structure of the central bank—including the extent of its independence (or otherwise) from the government itself—is not relevant to its entitlement to State immunity.27 Of course, it is relatively easy to state that a central bank enjoys immunity in respect of its sovereign acts; it is much harder to determine whether a particular act should be classified as sovereign or commercial. In this context it is the nature of the particular activity, rather than the underlying purpose which will be relevant. The issue of a letter of credit is thus a commercial activity, even though this is done at the request of the government in support of a public works project.28 Likewise, the issue of a promissory note is a commercial activity; this is so even though the note was issued by a central bank in the context of an inter-governmental agreement to foster trade and friendly relations between the Socialist States and thus reflected underlying obligations of an essentially sovereign or political character.29 Perhaps the clearest illustration of this point in the monetary field is provided by the decision of the US Supreme Court in Republic of Argentina v Weltover.30