The History Of The British Pound
Chapter Eleven
Story Highlights:
In this chapter, we turn our attention to Scotland – its currency, banks and banknotes with information about:
- The early years of using coinage in Scotland
- Coinage under the 1603 Union of the Crowns
- Scottish coins – Unicorns, groats and merks
- Scottish copper coins – Bodles, placks and bawbees
- Everything changes under the 1707 Act of the Union
- Issuing banknotes in Scotland
- The establishment of the Bank of Scotland and the Royal Bank of Scotland
- Changes and innovations in the Scottish banks
- Malachi Malagrowther and the fight for the Scottish pound-note
- The growing monopoly of the Bank of England
- Which banknotes are legal tender in Scotland
The history of Scottish banks and the Scottish pound
You’ve probably seen Scottish pound notes if you’ve ever worked in retail or been there on holiday. But have you ever wondered why 3 of Scotland’s banks are allowed to issue their own banknotes? In this chapter we’ll be looking at the Scottish pound (both coinage and notes): its history, the development of banks in Scotland and how innovative they were for the time. We’ll also give a brief history of these banks before describing the challenges which they faced – both from each other and from the government. Finally, we’ll answer the question about Scottish banknotes – are they legal tender or not?
The history of the Scottish pound
The history of the Scottish pound can really be divided into two separate eras: before and after the official Act of the Union (1707) which united Scotland and England/Wales into one new United Kingdom of Great Britain.
The early years of using coinage in Scotland
The Celts of Caledonia (present-day Scotland) were never conquered by the Romans but there were trading links between the regions north and south of Hadrian’s Wall. In fact, successive Roman governors paid the Scots substantial bribes (in coins) to ensure peaceful relations. When the Romans left, the Northern English kingdom of Northumberland stretched as far as Strathclyde and trade was carried out using sceart coins (the Old English word ‘sceart’ meaning ‘wealth’ or ‘money’).
The first Scottish coins
The first Scottish king to mint his own coinage was David I (1084-1153) and his capture of the mint and silver mines in Carlisle made this much easier. The only difference between Scottish and English coinage at the time was that the Scottish king was shown in profile (like our modern-day coins of the Queen) while the English kings used a full-face portrait.
After a period of exile in England, David I was heavily influenced by the Anglo-French system of coinage and so copied their weight standards with 12d (pennies) being equal to 1 shilling and 20 shillings to the Scottish pound. Successive debasement of Scottish silver coinage led to them being banned in England by proclamation in 1356.
Although David II (1329-1371) introduced a gold coin in emulation of the English noble, this wasn’t a success in a country where the majority of financial transactions were for small sums. Debasement continued to plague Scotland; every time a royal ordinance commanded Scotland’s citizens to turn in their coins for new, they were struck to a lower standard. By the reign of James II (1452-1488), the Scottish pound was no longer equal to the English pound but was calculated to be worth a quarter.
Coinage under the 1603 Union of the Crowns
When James VI of Scotland ascended the English throne and became James I of England, the exchange rate had deteriorated further with one English pound being the equivalent of 12 Scottish pounds. As a result, Scotland was ordered to use the same gold and silver coinage as England but was allowed to keep their own lower denomination copper coins. Just after this period (1638-1700), Scotland ceased to produce gold coins while silver coins were minted from 1664 to 1707. Let’s look at some of Scotland’s coins to see how they differed from their English equivalents.
Under the 1603 Union of the Crowns, Scotland was ordered to use the same gold and silver coinage as England.
Summary:
Although the Celts were separated from Roman territories by Hadrian’s Wall, there were still trading links with exchange of coinage.
David I was the first Scottish king to strike coins in the 12th century and based his system on the French/English system of pounds, shillings and pennies.
Successive debasements of Scottish coinage meant it gradually lost its value until one Scottish pound was worth 4 English pounds.
Under the 1603 Union of the Crowns, Scotland retained its copper coinage but was forced to use the same gold and silver standards as England.
Scottish coins – Unicorns, groats and merks
Some of the names given to Scottish coins were exactly the same as their English counterparts so you’d have found pennies, shillings and groats (4d) being used. In fact, ‘groatland’ was a Scottish land measurement for land with an annual rent of 4d. Unfortunately, however, the names given to some Scottish coins have fallen into disuse although you may still find references to them in traditional Scottish folk songs or in the poetry of Robert Burns. Some of the names were quite poetic such as the unicorn – a gold coin minted under James III and worth 18 Scottish shillings or the testoun (a silver coin produced in France in 1553, which was the first milled coin in Scotland).
Of the larger denominations, the merk (worth 13s, 4d) was also minted as a ½ and ¼ merk and a larger 4-merk coin although it wasn’t produced to sterling silver standards being only 50% silver. The name ‘merkland’ is still retained in Scottish deeds and legal papers today to refer to an amount of land.
Scottish copper coins – Bodles, placks and bawbees
The copper bodle (worth 2d) apparently derived its name from a Mint Master called Bothwell and gave rise to the idiom “I don’t care a bodle” i.e. not at all. The plack (worth 4 pennies) seemingly got its name from an ancient Flemish coin, called the ‘plaquette’. Another copper coin, the bawbee or billon (worth 6d), either got its name from a Mint Master called Laird Sillabawby or from the French word for debased copper coins: ‘bas billion’. Interestingly, this is also where the English shilling derived its nickname: a ‘bob’.
Of the larger denominations, the merk (worth 13s, 4d) was also minted as a ½ and ¼ merk and a larger 4-merk coin although it wasn’t produced to sterling silver standards being only 50% silver. The name ‘merkland’ is still retained in Scottish deeds and legal papers today to refer to an amount of land.
Designs on Scottish coins
Apart from the profile of the monarch on the obverse side, Scottish coins used a number of uniquely Scottish designs and emblems on the reverse. The gold ‘lion’ coin of the late 14th century featured St. Andrew crucified on the X-shaped cross while the 16th century copper bawbee showed a crowned thistle and a large saltire. Many Scottish coins from the late 16th century onwards had the Latin inscription ‘NEMO ME IMPUNE LACESSIT’. Meaning ‘No one provokes me with impunity’, this motto of the Order of the Thistle (and the Stuart dynasty) was revived by the Royal Mint to appear on the Scottish versions of the modern £1 coin.
As he was Scottish by birth, King James continued to use the Royal Coat of Arms on his coinage but made the Scottish lion more prominent in the design. Successive Stuart monarchs continued to respect the need for distinct designs for Scottish coins. For example, in 1677, under Charles II, the Scottish 6d (bawbee) showed the crowned thistle while the English equivalent featured Brittania.
Everything changes under the 1707 Act of the Union
One of the consequences of the 1707 Act of the Union was that Scotland was required to have a common currency with the rest of Great Britain. With the guidance of Sir Isaac Newton (in his role as Master of the Mint), the new currency in Scotland had to conform to the Troy weight of 12 ounces to the pound instead of the traditional Scottish measurement of 16 ounces.
The exchange rate was that 12 Scottish pounds were equal to £1 English so the conversion was as follows:
| Scottish old currency | English sterling |
|---|---|
| 1 Scottish penny | 1/12d |
| 2 pennies = 1 bodle | — |
| 2 bodles = 1 plack | — |
| 3 bodles = 1 bawbee | ½ penny |
| 2 bawbees = 1 shilling | 1 penny |
| 13s, 4d = £1 | 1s, 3d |
The minting of the new coins was carried out in both London and Edinburgh, with coins made in Scotland having a capital E added to them. The transition in coinage didn’t occur overnight with old Scottish coppers still being used in some more remote areas for years afterwards.
Summary:
Scotland based its currency on the English model but many of their coins had different names, many of which are no longer heard today.
Scottish coins used to feature distinctive Scottish symbols such as the crowned thistle or the saltire (the Scottish blue and white flag).
Under the 1707 Act of the Union, Scotland had to adopt English coinage and the new coins were minted in London and Edinburgh.
Overseen by Sir Isaac Newton, the conversion rate was £1 (English) sterling was equal to 12 Scottish pounds.
Issuing banknotes in Scotland
Although we’re used to only accepting recognised banknotes nowadays, it should be emphasised that issuing banknotes was something that many provincial banks did across the whole of Great Britain and at the time, it wasn’t considered unusual. Across Scotland alone, 80 different banks used to issue their own notes. What’s more interesting is how the 3 banks – the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank – managed to retain this privilege in the face of legislation and opposition.
Let’s begin by looking at the establishment of these banks in Scotland and how bitter rivalry almost destroyed them.
The establishment of the Bank of Scotland and the Royal Bank of Scotland
Set up in 1695 (a year after the Bank of England), the Bank of Scotland was the first bank in the UK to issue banknotes. These were in set denominations and were redeemable for cash on demand. They also produced the first ever pound-note in 1704.
As the Bank of Scotland was felt to have funded the Jacobite uprising, the Royal Bank of Scotland was set up in 1727 to counter this political trend. The name ‘royal’ in its name was a reminder of both its Hanoverian and Whig ties.
In the year it was established, the Royal Bank of Scotland issued notes of 6 different monetary values. Often bound together in books, the paper wasn’t perforated and so had to be cut. This also worked as a safeguard since edges could be compared if there were suspicions of forgery. Although forgery was punishable by death as a treasonable act until 1832, it wasn’t difficult to do since the first notes (like their English counterparts) were issued only in monochrome and were written only on one side of the paper.
Cut-throat competition between the two main Scottish banks
In an effort to drive the Bank of Scotland out of business or to buy it at a bargain price, in 1728 the Royal Bank of Scotland began to stockpile its rival’s notes in order to present them for payment at exactly the same time. When they did this, the Bank of Scotland didn’t have sufficient reserves to honour the notes and was forced to call in its loans. Then, still struggling, in March 1728 it was obliged to suspend all payments. Although this temporarily relieved the pressure, the Royal Bank was able to take advantage of the resulting loss in public confidence to expand its business and pick up customers. However, it didn’t have enough money for the takeover it had planned.
As a direct result of this trick, the Bank of Scotland issued further notes with an option clause. This gave them the option to delay payment on banknotes for 6 months but to offer interest on the sum during this waiting period. Realising that this tactic could be used against them, the Royal Bank agreed to a truce although the 2 banks didn’t recognise each other’s notes until 1751.
Changes and innovations in Scottish banks
In 1777, the Royal Bank of Scotland was the first bank in the UK to pioneer the use of colour in an effort to deter forgers. This is something that the Bank of England wouldn’t do for over 150 years. These first coloured notes were quite simple by modern standards having a blue triangle and the words ‘One Guinea’ and the king’s head outlined in red. The smallest bank of the 3 note-issuing banks, the Clydesdale Bank, wasn’t set up until 1838. Established in Glasgow to take advantage of the rivalries between Glasgow and Edinburgh (where the main 2 banks were based), it was very quickly able to expand into other Scottish provincial towns.
Malachi Malagrowther and the fight for the Scottish £1 note
When the government announced that banknotes under £5 would no longer be issued, there was immediate uproar in Scotland. Led by Malachi Malagrowther (the pseudonym of the Scottish author, Sir Walter Scott), there was a campaign to save the Scottish pound note. In a country which was always short of coins with few precious metals, the pound note had an important role to play for the commerce of Scotland and the circulation of money. If the history of the English pound note had been dominated by the need to fund wars, then Scottish banks and the notes they produced were predominantly used to facilitate trade.
It was an open secret that the campaign had been led by Scott since the character he’d adopted was supposedly the descendant of a character from one of his books. After an enquiry, the campaign was successful and the Scottish £1-note was saved. It’s fitting that the front of the Bank of Scotland’s tercentenary notes all have Scott’s portrait while their new £5 polymer note will also feature the man who saved the Scottish pound note.
When the government announced that banknotes under £5 would no longer be issued, there was immediate uproar in Scotland.
Summary:
The Bank of Scotland was set up in 1695 and the Royal Bank of Scotland in 1727 and they both started issuing their own banknotes immediately.
In 1728 the Royal Bank tried to drive the Bank of Scotland out of business but a truce meant that they started accepting each other’s notes in 1751.
The Clydesdale Bank, based in Glasgow rather than Edinburgh, was established in 1838.
A campaign led by Sir Walter Scott saved the Scottish pound note, which was needed for reasons of commerce.
The growing monopoly of the Bank of England
The Bank Charter Act of 1844 can be seen as the beginning of the Bank of England’s power to issue banknotes exclusively. There was concern at the time that provincial banks across the UK were issuing notes without having the reserves to honour their financial commitments. This legislation had been the direct result of the Restriction Period (1797-1821) when the Bank of England itself had suspended all payments of notes into gold because they had had insufficient gold reserves.
However, the special case of Scotland – not least its distance from London – meant that the right of the existing Scottish clearing banks to issue notes was recognised in the Banknotes (Scotland) Act the following year. Originally other Scottish banks were given this right but with successive mergers and acquisitions, it’s now only retained by these 3 institutions. The question is – are these Scottish banknotes legal tender? The answer might surprise you.
Which banknotes are legal tender in Scotland?
As regards England and Wales, the matter is clear-cut; Bank of England banknotes are legal tender across both countries. Section 1 of the Currency & Banknotes Act (1954) stipulates that the only Bank of England banknotes that can be circulated in Scotland are those with a value under £5. However, since the demonetisation of pound notes in England and Wales in the 1980s, this effectively means there are no Bank of England notes which are legal tender in Scotland. So, what about the Scottish banknotes?
Apart for the emergency measures of both World Wars, Scottish banknotes aren’t legal tender anywhere…even in Scotland! However, the law makes it clear that if both parties agree, then effectively anything can be given in payment. In other words, just because something is legal tender, this doesn’t mean that all transactions must be carried out in legal tender. In addition, Scottish law says that any reasonable offer for the settlement of a debt must be accepted. Therefore, Scottish banknotes could be seen as promissory notes and can be used for the payment of goods and services but any retailer has the right to refuse them (wherever they live).
Other legislation regarding Scottish banknotes
Scottish banks only retain the right to issue banknotes because their headquarters are based in Scotland. All 3 Scottish banks have been involved in takeovers and mergers of English financial institutions over the past 50 years but have kept their base in Scotland for this reason.
Another anomaly of the law is that branches of Scottish banks located in England aren’t allowed to dispense Scottish banknotes. Expansion of Scottish banks and English banks into each other’s country has been limited because of a ‘gentleman’s agreement’ in 1874 to restrict themselves to their own countries. Nowadays, of course, Scottish banks do operate in England but under the names of their subsidiary companies.
Finally, after the economic crisis of 2008, the Banking Act of 2009 requires Scottish note-issuing banks to keep an equivalent copy of a Bank of England banknote of the same monetary value for every Scottish note they have in circulation. To avoid the inconvenience of storing and/or transporting these notes, the banks issue Giants (notes of £1 million) or Titans (worth £100 million) for internal use only.
Summary:
Although parliamentary legislation limited the note-issuing powers of banks in England and Wales, the 1845 Banknotes (Scotland) Act allowed Scottish banks to retain the right to issue notes.
Since the 1980s no Bank of England banknotes are legal tender in Scotland although neither are Scottish banknotes.
Scottish banknotes can be regarded as promissory notes, which are recognised as an acceptable means of payment (but not legal tender).
Since the economic crisis of 2008, Scottish banks must have an equivalent Bank of England banknote in their reserves for every Scottish note they issue.
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