Banknotes bill, 1844

NatWest Group History 100 object 35: parliamentary bill laying out the provisions of what became the Bank Charter Act 1844, regulating banknote issues in England and Wales.

This parliamentary bill sets out the provisions that later became the Bank Charter Act 1844. It aimed to eliminate in England and Wales the issuing of banknotes by anyone except the Bank of England. A parallel Act passed in Scotland the following year had rather different provisions, and set Scottish and English banking on divergent paths which are still evident today, not least in the Scottish banks’ continuing practice of issuing their own banknotes.

The government wanted to get rid of the inflationary effect of over-issuing banknotes. The English economy, compared to that in Scotland, did not have a particularly long or entrenched history of widespread banknote use, but they had been popular in the past 30-40 years, with many provincial banks issuing their own. The same period had seen significant financial instability in England, and provincial banknotes were widely seen as part of the problem.

The 1844 Act banned new banknote issues. Those who already issued notes could continue, but only up to the level already circulating in 1844. If banks merged, the authorised issue of the absorbed bank would lapse. Meanwhile, it was already (since 1833) the case that provincial banks could open an office in London, but only if they gave up their note issue. All these provisions guaranteed that, over time, banks’ note issues would become gradually less worthwhile, until they voluntarily gave them up. The process was slow – the last private English banknote was issued in 1921 – but successful.

the Scottish people would not readily accept any threat to their notes

In Scotland, meanwhile, banknotes were a fundamental part of economic life. The general population used and trusted banknotes, and the government knew, from the uproar over the proposed ban on £1 notes in the 1820s, that the Scottish people would not readily accept any threat to their notes. Meanwhile, the Scottish banking system itself was patently stable and well-balanced, making the case for reform less apparent. 

In consequence, the Scottish Act was more lenient. As in England, there could be no new banks of issue, but merging banks could combine their issues. Furthermore, banks could issue more than their 1845 amount, as long as the additional circulation was backed pound-for-pound with gold reserves at head office. A generation later, and much to the envy of English competitors, the Scottish banks even took advantage of their exclusion from the 1833 ruling on London offices to open up in the capital without having to sacrifice their banknote issues.

Three Scottish banks, among them the Royal Bank of Scotland, have continued issuing banknotes to this day.