History of Banknotes
For many years, we’ve used bank notes yet large chunks of society likely don’t know the history of banknotes. In fact, we wonder how many people just presume that money has more or less always existed?
First Use of Bank Notes
The first use of bank notes, or paper money, came around in the 7th century when it was first used by the Chinese. Whilst it came to be a common practice in China early on, the first paper money in Europe did not come until far, far later.
It took until the 16th Century for things to change, as by then goldsmith bankers were accepting deposits and effectively an old-school IOU. These receipts which would be used as cash receipts would be paid up on the time of demand.
In 1694, though, the Bank of England was formed in order to help raise capital for the war against France led by King William III. Notes were used in exchange for deposits, with the same promise to pay upon demand listed on these notes. Anyone who presented this to the BoE would be given gold in exchange. At first, notes were used for fees any larger than £50. Given the average person earned £20/year, most never had use for notes.
Bank Notes in the UK
However, as the 18th Century continued and thus the history of British banknotes in particular, took an interesting change.
At one stage at this point, in the early 1700s, notes were written for just about any value possible – ranging from £20-£1,000.
The £10 note became part of the history of banknotes after the Seven Years War, with heavy economic downturns causing the change. By 1793, we had the £5 note as well. The war against Revolutionary France was going poorly, though, and thus £1 and £2 notes were introduced to try and stop the bullion reserve from emptying.
By 1833, notes were legal tender for all sums over £5 in England and Wales so that the public would take these reserves instead. By 1844, the Bank Charter Act was formed which was key to the banks effectively taking over. Indeed, the last private notes to be printed in the UK would have come from Fox, Fowler and Co. in 1921 when right of issue was forfeited afterward.
The first fully printed note came in 1853, and basically removed the need for payee and signing notes individually in the form of an IOU. On a note, even today, it still holds the anonymous format of “I promise to pay the bearer on demand the sum of…” with the signature of the Chief Cashier being used instead of individual signatures.
By the beginning of the First World War, things changed again – gold was no longer associated with notes to preserve bullion stocks again. In 1914, the $1 note and 10 shillings began to become a thing, until Britain left the gold standard in 1931 and the note began fudiciary entirely.
For anyone interested in learning more about payments, look out for our upcoming blog Past, Present and Future of Payments – of course if you can’t wait, check out the Bank of England Museum