ROMANCE OF PAPER MONEY.

Otago Witness, Issue 3293, 25 April 1917, Page 59

ROMANCE OF PAPER MONEY.

CUEIOS OF FINANCE. In England paper money was instituted in' the year 1694, when the Bank of England was founded, writes R. Burnett, in the 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 tho time said, "the hank can circulate its foundation of £1,200,000 without having than £300,000 lying dead at one time with another, the said bank will be in effect as £900,000 fresh money brought into the nation."

Tho 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 four or five times the value of the .cash in bank, 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 20s sterling, passed in payments throughout the whole country, whereas the Bank of England was of little U3e outside London, / —Paper Credit. — Although Mr William Paterson, a Scotsman, founded both these 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 ©i very good use at that time, when there was so great scarcity of silver money during the recoinage." Like tho recent Exchequer bonds, advertised as "£6 5s for £5," these notes, being allowed 7£ per cent, interest, soon rose to be better than par. They did much to support the general trade of the nation till the new money was issued from the mint. During the hard times of 1697 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 hajl introduced, "made us less feel the want of that real treasure 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 period. The unusual scarcity of gold and silver led the Bank of England to issue cash notes for £lO, which proved very convenient for payments. —Notes Abused.— Useful as bank notes were as a substitute for current money, they were not ' without their abuses. Notes called bank notes for 10s, ss, an&_ such «like were issued by obscure persons in' many villages in Scotland, and notes of 5s down to6d were in circulation in Yorkshire, "to the great injury of the industrious manufacturers, thereby almost entirely banishing silver out. of the circulation." To put a stop to this evil, all notes under 20s were prohibited to be current after June 1, 1765 and all notes were made payable on demand in 1766. Never in history, until 1914, did paper money play such an important part in the credit of the country as in the year 1797, when Pitt's Suspension of Cash Payments Bill, suspending cash payments for 25 years, was introduced. For some years before this, "owing to the enormously ex-

pensive 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 be carried abroad to a very alarming amount," the Bank of England had'v limited their advances upon Treasury bills, and had requested Mr Pitt to make his arrangements accordingly. The total sum owing by 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 t Privy Council on February 26, 1797, it was considered "indispensably necessary for the public service that the Bank of England should forbear issuing any cash in payment until the sense of Parliament can be taken on the subject." Both discounts and dividend warrants, however, were to be paid in bank notes. Merchants and bankers were not less patriotic then than now. Next day, at the Mansion House, a meeting of merchants and bankers "did most readily declare that wo will not refuse to receive bank notes, and we will do our utmost endeavours to make all our payments in the same manner.!' In a few days all transactions of <>< ? rv kind went on* as if nothing hi happened, and people "did not perceive any difference in bank notes not convertible into money and solid gold and silver, and that money itself." The immediate consequence of the Sus-

pension 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 note 3 under 20s in Scotland were also repeabd. A moratorium for any debt or d \haw3s whatsoever, excepting sums undo.' £Gs, was also issued, and this sheltered the banks for withholding payment of any of then notes. A few large firms were also allowed to issue notes payable on demand

under 20s value, notably the Carron Iron Company in Scotland.