Bank Act of 1844
Until the mid-nineteenth century, commercial banks in Britain and Ireland were able to issue their own banknotes, and notes issued by provincial banking companies were commonly in circulation.
Under the 1844 Act, bullionism
was institutionalized in Britain,
creating a ratio between the gold reserves held by the Bank of England
and the notes that the Bank could issue,
and limited the issuance by English and Welsh banks of non-gold-backed Bank of England notes to up to £14 million.
The Act also placed strict curbs on the issuance of notes by the country banks,
barring any new "banks of issue" in any part of the United Kingdom
and thus beginning the process of centralizing banknote issuance.
Although the Act required new notes to be backed fully by gold or government debt
, the government retained the power to suspend the Act in case of financial crisis, and this in fact happened several times: in 1847 and 1857, and during the 1866 Overend Gurney crisis
Also, while the act restricted the supply of new notes, it did not restrict the creation of new bank deposits
, and these would continue to increase in size over the course of the 19th century.
Bank deposits are sums of money that a bank, backed by considerable collateral, may choose to deposit in the holder’s account as a loan which requires repayment with interest. The money comes into existence when the bank creates the deposit,
and when the loan is paid off, the money disappears from the bank’s balance sheet. While a loan is effectively a cash advance provided by the bank to the customer, in the long term the effect of unrestricted creation of bank deposits (money) can lead to inflation in the markets into which that money is channelled, such as the property market through banks' mortgage lending.
As a result of the Act, as provincial banking companies merged to form larger banks, they lost their right to issue notes. The English private banknote eventually disappeared, leaving the Bank of England with a monopoly of note issue in England and Wales. The last private bank to issue its own banknotes in England and Wales was Fox, Fowler and Company
The Bank Notes (Scotland) Act 1845
adopted a year later was more lenient, allowing banks in Scotland to issue more than their 1845 circulation amount, as long as the additional circulation was backed pound-for-pound with gold reserves at head office. Merging banks were also allowed to combine their issues.
Today three commercial banks in Scotland and four in Northern Ireland continue to issue their own sterling banknotes
, regulated by the Bank of England.
Banking Act 2009
The Banking Act 2009
abolished the "weekly return" of the number of banknotes issued by the Bank of England: "Section 6 of the Bank Charter Act 1844 (Bank to produce weekly account) shall cease to have effect".
- ^ "Bank Charter Act 1844" (PDF). Bank of England. Archived (PDF) from the original on 3 December 2010. Retrieved 27 October 2010.
- ^ The Short Titles Act 1896, section 2(1) and Schedule 2
- ^ "£2 note issued by Evans, Jones, Davies & Co". British Museum. Archived from the original on 18 January 2012. Retrieved 31 October 2011.
- ^ Anna Gambles, Protection and Politics: Conservative Economic Discourse, 1815-1852 (Royal Historical Society/Boydell Press, 1999), pp. 117-18.
- ^ a b Poovey, Mary (2008). Genres of the Credit Economy: Mediating Value in Eighteenth- and Nineteenth-Century Britain. University of Chicago Press. p. 49.
- ^ Dewey, Peter (2014) . War and Progress: Britain 1914-1945. Routledge. p. 74.
- ^ "Bank Charter Act 1844: No banker not issuing notes on 6th May 1844, to issue notes hereafter". legislation.gov.uk. The National Archives. 19 July 1844. (7 and 8 Vict) c.32 (s. 10). No person other than a banker who on the sixth day of May one thousand eight hundred and forty-four was lawfully issuing his own bank notes shall make or issue bank notes in any part of the United Kingdom.
- ^ Tonilo, Gianni; White, Eugene N. (2016). "The Evolution of the Financial Stability Mandate: From Its Origin to the Present Day". Central Banks at a Crossroads. Cambridge University Press. p. 431.
- ^ "Money creation in the modern economy". Bank of England. Retrieved 6 February 2014.
- ^ "A brief history of banknotes". Bank of England. Retrieved 31 October 2011.
- ^ "Fox, Fowler & Co. £5 note". British Museum. Archived from the original on 2 October 2011. Retrieved 31 October 2011.
- ^ "RBS History in 100 objects: Banknotes bill, 1844". RBS Heritage Hub. Royal Bank of Scotland. Retrieved 26 March 2018.
- ^ "The Bank of England's Role in Regulating the Issue of Scottish and Northern Ireland Banknotes". Bank of England. Retrieved 31 October 2011.
- ^ "Banking Act 2009" (PDF). legislation.gov.uk. p. 135. Retrieved 6 January 2017.
Last edited on 27 July 2020, at 14:01
Content is available under CC BY-SA 3.0
unless otherwise noted.