ROMANCE OF PAPER MONEY

Greymouth Evening Star, 3 May 1917, Page 8

ROMANCE OF PAPER MONEY

WHEN ENGLAND HAD SIXPENNY NOTES. CURIOS OF FINANCE. In England paper money was instituted in the year 1694, when the Bank of England was founded, writes B. Burnett in tin; “Daily Express.” The paper then used, however, applied mostly to bills of exchange and large payments, .there having been no small notes in those days. “If,’’ a writer at the time said, “the bank can circulate its foundation of £1.200.000 without having more than £300.000 lying dead at one time with another, the said bank will bo in effect as £900.000 fresh money brought into the nation.” The Bank of Scotland, established the. following year with a capital of £IOO.OOO sterling, was really the first to issue bank notes in the ordinary sense. An old chronicler asserts that “its notes went for foiij or five times the value of the cash in hank, and that so much as the amount of those notes exceeded the cash in bank was a clear addition to the money of that nation." But the Bank of. Scotland was more national or general than the Bank of England, as its notes, many of_ which were as low as 20« sterling, passed in payments throughout the whole country, whereas the Bank of England was of little use outside London. PAPER CREDIT. Although Mr William Paterson, a'Scotsman, founded boll) those banks. Mr .Montague was the first to organise the new circulating paper credit in England by issuing bills from the Exchequer and contracting for their being circulated for ready money on demand. Many of those first Exchequer bills were for sums as low as £5 and £lO, and “were of very good use at that time, when there was so great scarcity of silver money during tlie recoinage.” Like the recent Exchequer bonds, advertised as "£6 5* for £5." these notes, being allowed 7 : s per cent, interest, soon rose to be better than par. They di much to support the general trade of the nation till the new money was issued from tiro mint. During the hard times of 1097 bank notes were quoted as low as 13 and 14 per cent, discount. New capital was thereupon required, and the bank was allowed to issue an additional number of notes, not exceeding the total increased capital. Paper credit thus supplied the place of running cash, and greatly multiplied the kingdom’s stock: This artificial wealth, which necessity had introduced, made us less feel the want of that real treausro which the war and our losses at sea had drawn out of the nation. But perhaps that wonderful year of war success 1759 did more to lower the credit of the country than any previous periodThe unusual scarcity of gold and silver lc*. the Bank of England to issue cash notes for £lO, which proved very convenient for payments. Useful as the bank notes were as a substitute for current money, they wore not without their abuses. Notes called _ hank notes for 10s, 5s and such like were issued by obscure persons in many villages in Scotland, and notes of 5s down to 6d were in circulation in Yorkshire, “to the great injure of the industrious manufacturers,

thereby almost entirely banishing silver out of*the circulation.” To put a stop to this evil all notes under 20a wore prohibited to be current after, June 1. 1165, and all notes were made payable on demand in 1766. Never in history, until 1914, did paper inouev play such an important part in the creoTt of the country as in the year 1797, when Pitt’s Suspension of Cash Payments Kill, suspending all cash payments, for 25 years, was introduced. For some years before this, “owing to the enormously expensive operations of the war, subsidies to foreign princes, and the large sums payable in bullion for cargoes and freights of

neutral ships taken, causing gold to he carried abroad to a very alarming amount,” the Bank of England had limited their advances upon I reasurv bills, and bad requested Mr Pitt to make Ins arrangements accordingly. ’1 be total sum owing’ bv the Government to the Bank then was under £10.000.000. only about sufficient to carry on the war for two days just now. NO CASH PAYMENTS. Nevertheless, at a Privy Council on February 26th, 1917, it was considered “indispensably necessary tor the public service that the Bank of England should forbear using any cash in payment until the sense of Parliament can be taken on the subject.” Both discounts and dividend warrants, however, wore to be paid in bank notes, Merchants and bankers were not less patriotic then than they aie now. Next day, at the Mansion House a meeting of merchants and bankers did most readily declare that we will not refuse to receive bank notes, and we will do our utmost to endeavour to make all our payments In the same manner. In a few days all transactions of every kind went on as if nothing had happened, and people did not perceive any difference in bank notes not convertible into money and solid gold and silver,‘and that money itself.” , 0 The immediate consequence of the buspension of Cash Payments Act and of the sudden withdrawing of gold money from circulation was the issue of £1 and £2 notes, and within a week of the meeting of the Privy Council Parliament had sanctioned what the Bank had done. Within a month the previous Acts prohibiting the circulation of notes under 20s in Scotland were also repealed. A moratorium for any debt or demands whatsoever, excepting sums under 20s, was also issued, and this sheltered the banks for withholding payment of any of their notes. A few large firms were also allowed to issue notes payable on demand under 20s value, notably the Carron Iron Company in Scotland.