The History Of The British Pound
Chapter Five
Story Highlights:
The history of sterling banknotes is the topic of this chapter with information about:
- Early banknotes and the role of scriveners and goldsmith bankers
- Promissory notes as a predecessor to banknotes
- The creation of the Bank of England and the first banknotes
- The influence of war on the development of banknotes
- The Bank of England’s growing monopoly
- Changes in the appearance of banknotes
- Banknotes during the 1st World War
- Sterling notes between the wars
- Fears of counterfeiting during the 2nd World War
- Whether there were real 1-million-pound notes
- Changes since the 2nd World War
- Recent changes in banknotes
The history of the banknote – A recent innovation
We now take it for granted that we can use ‘paper money’ for our purchases but compared to coins, banknotes are a relatively new innovation. Although there are records of notes being used in China dating back to the 9th century, the same is not true of Europe.
One reason for this is that until relatively recently, paper was a luxury material. The second reason was that people were generally distrustful of the value of paper notes. At least with coins, they could see that the value of their money was represented by the value of the coins’ precious metal, whether that was silver or gold.
In this chapter we look at the development of banknotes in Great Britain and how their acceptance was closely linked to the establishment of a strong central bank – the Bank of England. We explain where the idea for banknotes came from and trace the changes in their availability, use and appearance over successive centuries.
Early banknotes – The role of scriveners and goldsmith bankers
In the early 17th century, the scriveners were the first people to keep deposits for the purpose of re-lending and would issue their customers with a written receipt. Because of its security measures, merchants and bankers used to entrust their wealth to the Royal Mint in London. However, in 1640 during his clash with Parliament, Charles I seized the deposits as a forced loan to finance his army in the English Civil War.
As a result, financiers and merchants were forced to look elsewhere for a safe place to store their wealth. They chose to use goldsmiths, who took over the role of the scriveners – re-lending and issuing receipts (listing the quantity and purity of the precious metals which had been deposited). The major difference between these receipts and banknotes was that they couldn’t be assigned to someone else but they were predecessors to banknotes in the sense that the value of the money was held in the paper. Depositors would pay no fee for the safekeeping of their money but nor did they receive interest payments.
Promissory notes – Predecessors to banknotes
For those engaged in trade in the 17th and 18th century, promissory notes fulfilled one of the functions of banknotes. They allowed large sums of money to be transferred easily and conveniently from one country to another. Originally personally registered to the depositor, they were ‘running cash notes’. Later many carried the word ‘bearer’, which meant they could be transferred to a third party so they began to circulate in a limited way.
The creation of the Bank of England (1694) and the first banknotes
The Bank of England was set up at the end of the 17th century to finance William III’s war against France. The creation of a strong central bank meant banknotes could be issued in return for deposits. The note could be redeemed in gold or coinage by anyone who presented it for payment. If the amount wasn’t redeemed in full, then the note would be endorsed with the amount withdrawn.
The vast majority of Britons, who worked for a daily wage and were paid in coins, would never see a banknote.
These were the first banknotes but don’t imagine they looked anything like their modern counterparts. They were written on Bank paper, signed by the cashier, had to be made payable to someone and had the precise sum payable in £sd. In this sense, they resembled bankers’ cheques rather than banknotes. Originally no notes were issued for sums under £50 – a large sum when you consider that the average yearly income at the time was £20. The vast majority of Britons, who worked for a daily wage (paid in coins), would never see a banknote.
Summary:
After their deposits were seized by Charles I as a ‘loan’, bankers and merchants deposited their money with goldsmiths and received written receipts.
Promissory notes allowed those engaged in trade to transfer large sums safely but they weren’t initially able to transfer the notes to a 3rd party.
The creation of a strong central bank – the Bank of England – meant banknotes could be issued in return for money deposits.
The first banknotes were more like bankers’ cheques and were only available in large denominations.
The influence of war on the development of banknotes
Throughout the whole of the 18th century more banknotes were issued when Britain was at war since people tended to hoard their gold in times of insecurity. Their denominations would also get smaller so the first £20 note was issued in 1725, the first £10 note circulated during the Seven Years War (1759) while the £5, £2 and £1 notes were all temporarily available during the war with revolutionary France (1792-1802).
The appearance of the note also changed in this period. From 1725, banknotes were partially printed (the £ sign and the first digit) whilst the rest (the other digits, the name of the payee, the date and the cashier’s signature) were completed by hand. Although the notes could still be for precise amounts, they were usually for round sums.
The Bank of England’s growing monopoly
During the Restriction Period (1797-1821), the Bank of England stopped paying out gold in exchange for banknotes as there was fears that the gold bullion reserves were insufficient to meet demand. There was equal concern that provincial privately-held banks were issuing banknotes that couldn’t be redeemed, which had the potential to bring down the entire banking system. As a result, there were a number of parliamentary Acts which restricted the note-issuing powers of such banks giving the Bank of England the beginning of a monopoly in England and Wales.
One of the most important pieces of legislation in this period was the 1826 Country Bankers Act. This gave only joint stock banks with more than 6 partners and at least 65 miles from London the right to issue banknotes. In order to ensure a wider distribution of notes, the Bank of England was allowed to open branches in major English provincial towns.
Seven years later, the Bank Notes Act specified that Bank of England notes were legal tender, which was intended to inspire confidence in them even if there was a shortage of gold.
The Bank Charter Act of 1844 gave newly-established banks no rights to issue banknotes, which effectively was the start of the Bank of England’s monopoly in England and Wales. However, a further Act of Parliament the following year allowed 3 banks in Scotland and 4 in Ireland to retain the right to issue their own sterling notes.
Changes in the appearance of banknotes
From 1853 banknotes became fully-printed for the first time and included the phrase ‘I promise to pay the bearer on demand the sum of..’, which is still found on banknotes today. Up to 1870 notes would include the signature of one of the 3 cashiers of the Bank of England but after, their signatures were replaced by that of the Chief Cashier.
None of the banknotes of the time carried a portrait of the monarch – in fact that wouldn’t happen for another century. Nor were the notes particularly attractive to look at. Printed on white paper with black printing, the reverse side of the note was left completely blank; numismatists call them ‘white notes’.
Summary:
During the 18th century, the appearance of banknotes changed and in war-time more notes were issued for smaller denominations.
Parliamentary legislation in the early-mid 19th century strengthened the Bank of England’s monopoly on issuing notes – with the exception of Scotland and Ireland.
In the late 19th century banknotes changed in appearance but still didn’t resemble modern notes.
Banknotes during the 1st World War
During the 1st World War, the 1914 Currency & Bank Notes Act gave HM Treasury the temporary wartime power to issue £1 and 10/- (10 shillings) notes to replace the (gold) sovereign and half-sovereign. This required the suspension of the 1826 parliamentary Act, which had prohibited the issue of banknotes under the value of £5. These were the first pound-notes since 1821 and were nicknamed ‘Bradburys’ after the prominent signature of Sir John Bradbury (the Permanent Secretary to the Treasury).
Sterling banknotes between the wars
Although there was a short-lived attempt to return to the gold standard in 1925 (with sterling fixed at the pre-1914 rate), this was abandoned in 1931 as the effects of the Great Depression began to be felt across the world. This is an important landmark in the history of sterling banknotes since it meant that the issue of notes was now fiduciary, meaning they were backed by securities rather than gold. This could only be achieved when people had confidence in the banking system and more specifically, the issuing bank – the Bank of England.
From 1928 the Bank of England’s role became of increasing importance as it took over the printing of notes from the Treasury. In the same year, the first coloured notes made their appearance and were printed on both sides. All notes featured a vignette of helmeted Britannia, the signature of the Bank’s Chief Cashier but no date nor portrait of the monarch. The differing colours helped to distinguish between the notes at a glance. Therefore, the 10-shilling note was predominantly red-brown while the pound-note was green. Higher denominations continued to be monochrome however.
Fears of counterfeiting during The 2nd World War
There were very real concerns during the 2nd World War about counterfeiting. The Nazi plans (Operation Andreas and Operation Bernhard) to forge £5/£10/£20 and £50 notes and to flood the world economy with them in order to destabilise the British economy and hamper the war effort show these fears weren’t unfounded.
The Bank of England took a number of measures to safeguard the integrity of their banknotes. During the war period, notes showing a value of higher than £5 were withdrawn from circulation. Also, the notes were printed in different colours to combat forgery. Therefore, the 10-shilling note changed to mauve and the £1 note was blue-orange. For the first time a metallic strip was threaded through the paper as an additional security measure.
Were there real one-million pound notes?
When you hear about the existence of one-million pound-notes, you might think about the comic tale written by Mark Twain but there were in fact such notes.
Nine such notes were issued on 30th August 1948 in connection with the financial aid given by the Americans to the British in the post-war period under the Marshall Plan. Signed by E.E. Bridges, these banknotes were used as ‘records of movement’ internally by the Bank of England and were cancelled in October 1948.
Summary:
During the 1st World War, 10-shilling and £1 banknotes were issued to replace the half-sovereign and sovereign coins.
Between the wars, banknotes were no longer backed up by gold while the notes themselves changed in appearance.
Because of fears of forged notes during the 2nd World War, the Bank of England ceased production of notes higher then £5, changed the colours of notes and added security measures to prove their authenticity.
Million-pound banknotes were issued as part of the Marshall Plan.
Changes since the 2nd World War
Banknote denominations
After the end of the Second World War, there were no notes higher in value than £5. The Bank of England stopped printing ten-pound notes until 1964, the twenty-pound note wasn’t reissued until 1970 while the fifty-pound note only circulated from 1981.
The portrait of the Queen on banknotes
It might be difficult to imagine but Queen Elizabeth didn’t appear on banknotes until the Bank of England’s ‘series C’, which were printed after 1960. The original portrait of the Queen showed her wearing the George IV State Diadem and a pearl necklace in full view facing left. In ‘series D’ notes this effigy was updated to show her wearing State robes, the Diadem, Queen Victoria’s Jubilee necklace and Queen Alexander’s cluster earrings. She was also shown next to Nike (the ancient Greek goddess of war/victory) and below the seal showing Britannia.
Designs of Bank of England banknotes (before 1970)
We’re so used to seeing pictures of important British historical figures on the reverse of banknotes that it might surprise you that this only started in 1970 when the £20-note was issued with the picture of William Shakespeare on the back. So what designs were featured on the reverse of notes?
All of the pictures on the reverse of old banknotes were of symbolic value. In the 1960s the 10-shilling and one-pound notes showed the logo of the Bank of England: a seated Britannia with her shield and helmet and holding out an olive branch. Other patriotic designs included pictures of St. George and the Dragon (representing England) or a lion holding a double-sided key – the symbol of Britain’s economic strength.
Decimalisation and the banknote that never was
The decimalisation of the pound sterling didn’t affect banknotes in the same way that coinage was changed because the pound remained the currency of Great Britain. The main difference was that after February 1971 it was worth 100 (new) pence instead of 20 shillings (or 240 pennies).
One victim of the change, however, was the 50-pence banknote. Originally, the 10-shilling note was due to be issued as a banknote – the equivalent of 50p – with a picture of Sir Walter Raleigh on the reverse. However, the pre-release of the seven-sided 50-pence coin in 1969 seemed to make the issue of a banknote unnecessary. The Royal Mint and Bank of England also took into consideration the fact that the average lifespan of a 10-shilling note at the time was only 5 months before it had to be withdrawn for looking tatty. So although the banknote was already designed and was due to be issued at the same time as the £20-note with Shakespeare as part of series D, it became an indirect victim of decimalisation – and of course inflation.
The demise of the £1 banknote
The second victim of inflation could said to be the £1 banknote. Traditionally green in colour, the one-pound note had been issued continually since 1928. The last pound-note was issued in 1978 as part of the Bank of England’s series D and featured a portrait of Sir Isaac Newton on the reverse. He was shown holding a book and was accompanied by a telescope, prism, map and the solar system, which all represent his work in physics.
The minting of £1 coins in 1983 was the death knell for the pound-note. They stopped being issued after 1984 and were no longer legal tender after 1988.
Summary:
After the end of the 2nd World War, £5 was the banknote with the highest value while Queen Elizabeth’s portrait didn’t feature on banknotes until 1960.
Sterling banknotes showed patriotic designs but didn’t feature historical figures until 1970.
The only effect of decimalisation on banknotes was that the 10/- (50p) note was issued as a coin instead.
Soon after the minting of one-pound coins, one-pound notes were withdrawn from circulation.
Historical figures on Pounds Sterling
Since 1970, all sterling banknotes have featured prominent Britons on the reverse: men and women who are seen to have made a contribution to society in their own particular fields of endeavour. They have been drawn from different disciplines including literature (Dickens on the £10 note, 1992-2003), science (Faraday on the £20 note, 1991-2001), music (Elgar on the £20 note, 1991-2010), social reform (Fry on the £5 note, 2002-17) and politics (Winston Churchill on the £5 note, present day).
Along with a recognisable portrait of the historical figure, there is always a scene from their life which represents their innovation or achievement. For instance, the £10 note with Florence Nightingale (legal tender: 1975-1994) used to show a picture of her watching over the wounded from the Crimean War and holding her lamp.
Recent changes in British banknotes
After the counterfeiting scare of 1940-1944, the Bank of England took security measures more seriously.
Improvements in security measures
During the period 1855-1940, the security measures on the ‘white notes’ relied on different minor imperfections in the printing procedure, which might be assumed to be printing errors and which would change between bank issues. After the counterfeiting scare of 1940-1944 and the increasing sophistication of forgers, the Bank of England took security measures more seriously.
Over time, they have used watermarks, metallic threads through the notes, foil patches, raised print, holograms and ultra-violet features; all in an effort to stay one step ahead of counterfeiters. Their latest measure (since September 2016) has been the issue of polymer banknotes. Why have they replaced paper notes?
Why do we Have Polymer banknotes?
The polymer five-pound note with Sir Winston Churchill issued in September 2016 is due to be followed by a polymer £10-pound note (with Jane Austen) in September 2017 and a £20-pound note featuring JMW Turner by 2020.
One of the reasons why banknotes are being changed to polymer is that the ink coating within the transparent plastic film allows the inclusion of ‘windows’ as protection against counterfeiters. Apart from security, another reason for the switch to plastic is that it’s resistant to dirt and moisture and so notes will stay cleaner than their paper equivalents. The final explanation given by the Bank of England is that polymer notes will improve the quality of banknotes in circulation since they are over twice as durable as paper. This will also save money since notes won’t need to be re-issued so frequently.
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