THE BANK OP ENGLAND.

New Zealand Herald, Volume LXVII, Issue 20627, 28 July 1930, Page 13

THE BANK OP ENGLAND.

ANNIVERSARY OF CHARTER

EARLY VICISSITUDES

INTERNATIONAL LEADERSHIP.

BV ROY JIOrKIST-

Th e distinguished history of tho Bank of England, perhaps more typical of tho English raco than any other of the many world-famous British institutions, contains elements of romance to a. degree almost incongruous in such a symbol of sound, unsensational finance and conservative solidity. On July 27, 1930, tho bank celebrates its 236 th birthday, completing another momentous and meritorious year, rendered memorable by the bank's task in fighting the world-wide effects of the unparalleled collapse on Wall Street, the establishment of tho bank for international settlements, and tho setting up of a very important committee to inquire into banking and finance in Great Britain. The present national and international importance and influence of this institution have not, as might bo expected, been achieved without a long and dolorous struggle marked by countless vicissitudes. In what might be called a typically English way, even its original foundation came about more by accident than design. In fact, only a few years before its foundation in 1594. tho Government had definitely stated that iu its estimation there appeared to lie no real necessity for the formation of a national bank, despite the earnest, and well-founded agitations iif the leading merchants, who looked on such au institution as tlicy demanded as perhaps the chief means of putting 11 io trade of I he. country on a more stable basis. The chief mover in this campaign was William Paterson, a Scottish adventurer of somewhat doubtful repute who had become notorious by the failure of his Darien project.

Origin Due to War

This man, who had seen so many sides of lifo, and about whom a thick veil of romance came to be woven, was responsible for the scheme finally accepted by the Government. Tho latter were hard pressed for money to enahlo them to continue to wage war against tho French and so, as a convenient expediency, William IV. granted to tho Bank of England tho right to issue and circulate notes to the extent of £1,200,000, which sum, having been raised by public subscription, was lent to tho Government, first at eight per cent, per annum. Tho bank, therefore, secured its charter on July 27, ]694, and business started with a modest staff of about 20, which compares with about 3000 at the present time. Founded and officially recognised, the Bank of England had by no means come to an end of its troubles. For example, within an extremely short time of its establishment the Government threatened to set up a rival land bank, and, indeed, the materialisation of this proposal was only prevented by the lack of adequate public subscription. Failing in this respect, tho Government continued to hamper the Bank of England by withholding its support, both moral and otherwise. Intense competition was experienced from rival banks, who were naturally determined to crush the newupstart. Public confidence was also lacking. Extortionate rates of interest had to bo paid to attract deposits, while so low were cash resources at times that the device of cashing notes payable on demand in quarterly instalments had to be adopted and tho notes naturally changed hands at a substantial discount.

A Run on the Bank

Will) sncli a start in life as this, i( is littlo wonder tho bank's history has becomo one abounding in interest. From 1694 to the present day it, lias heen marked by many anil varied crises. About. half a century after its foundation the threatened arrival of the young Pretender, a remaining vestige of the by no means forgotten Stuart dynasty, led to a run on the bank. The complete collapse of the hitter was finally averted, but only by cashing notes in small silver and by the combined efforts of leading merchants who did much to restore public confidence by expressing their faith in the bank. With the collapse of the revolt, normal business was once again resumed, '('lie crisis hud, however, thrown Government and bank closer together. The former had coinn to placo greater faith in the latter and to accept it as an important and essential national institution. This new conception was clearly reflected in the allotting to the hank in 1751 of the administration of the National Debt. Within tho.next half century, however, the fluctuations and uncertainties attendant. on the Napoleonic wars caused the suspension of cash payments by the bank. In this instance the Government was largely to blame. The younger Pitt, desiring to finish the war quickly without high taxation, drew exorbitantly on the bank's gold reserve to lend to the allies in order to forward tlio fight against France. Without a corresponding restriction in note issue the bank's gold position became perilously weak and the climax came when the public, always slow to show confidence in such abnormal times, were thrown into a panic by rumours of an actual invasion. Cash payments were suspended and not resumed until over tweuly years later and the events of this period culminated in the Bank Act of 1844, perhaps the first high point in the bank's history. This Act gave the bank further powers of note issue and restricted those of its competitors. The Battle Over Cheques.

Although in many ways the Act was behind its time and by no means free from faults, from that date the Bank of England went, forward from one success to another, although tho 1847 crisis was by no means unimportant. Several obstacles had yet to be surmounted, and of these perhaps by far the most important was tho competition of tho cheque system. .As tho cheque became more and more widely accepted as a medium of exchange, so the great joint-stock chequepaying banks increased in size and importance. At first the. Bank of England openly fought the newcomers, who also aimed at undermining the older institution, but it failed to secure legal support. With the passage of (ho first years of misunderstanding a spirit of co-operation took (he placo of (his hostility. In the latter part of tho century tho Bank of England became tactitlv acknowledged as leader, and (lie other banks loyally followed the policies it laid down. Finally, within (he memory of most, there came the crisis of the Great War. This imposed on the Bank of England a strain never before experienced, and tested it (o the, utmost. From (his trial the central bank emerged with tho highest honour, greatly enhanced in reputation. It had become undisputcdly tho chief bank in (ho leading money centre of the world, and so in due course the greatest in the international sphere. It gavo the world the lead in tho process of recovering from (he, economic devastations and dislocations of the greatest conflict the world has ever seen. Today, under the wise direction of Mr. Montagu Norman, the last, of the, " big (liree " of post-war banking—Norman, Schacht and Strong—it has risen to a pre-eminent position in both the, national and international spheres, as the events of the past year have so emphatically illustrated.