Bank Charter Act 1844

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Bank Charter Act 1844
Long title An Act to regulate the Issue of Bank Notes, and for giving to the Bank of England certain Privileges for a limited Period.
Territorial extent United Kingdom of Great Britain and Ireland
Other legislation
Repealing legislation Currency and Bank Notes Act 1928, Currency and Bank Notes Act 1939, Banking Act 2009
Status: Current legislation
Text of statute as originally enacted
Revised text of statute as amended

The Bank Charter Act 1844 (7 & 8 Vict. c. 32) was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted the powers of British banks and gave exclusive note-issuing powers to the central Bank of England.[1] It is one of the Bank of England Acts 1694 to 1892.[2]

Purpose[edit]

Until the mid-nineteenth century, commercial banks in Britain and Ireland were able to issue their own banknotes, and notes issued by provincial banking companies were commonly in circulation.[3]

Under the Act, no bank other than the Bank of England could issue new banknotes, and issuing banks would have to withdraw their existing notes in the event of their being the subject of a takeover. At the same time, the Bank of England was restricted to issue new banknotes only if they were 100% backed by gold or up to £14 million in government debt. The Act served to restrict the supply of new notes reaching circulation, and gave the Bank of England an effective monopoly on the printing of new notes. The Act exempted demand deposits from the legal requirement of a 100-percent reserve which it did demand with respect to the issuance of paper money.[4]

The Act was a victory for the British currency school, who argued that the issue of new banknotes was a major cause of price inflation.

Although the Act required new notes to be backed fully by gold or government debt, the government retained the power to suspend the Act in case of financial crisis, and this in fact happened several times: in 1847 and 1857, and during the 1866 Overend Gurney crisis.

Also, while the act restricted the supply of new notes, it did not restrict the creation of new bank deposits, and these would continue to increase in size over the course of the 19th century.

As a result of the Act, as provincial banking companies merged to form larger banks, they lost their right to issue notes. The English private banknote eventually disappeared, leaving the Bank of England with a monopoly of note issue in England and Wales. The last private bank to issue its own banknotes in England and Wales was Fox, Fowler and Company in 1921.[5][6]

The limitations of the 1844 Act only affected banks in England and Wales, and today three commercial banks in Scotland and four in Northern Ireland continue to issue their own sterling banknotes, regulated by the Bank of England.[7]

Banking Act 2009[edit]

The Banking Act 2009 abolished the "weekly return" of the number of banknotes issued by the Bank of England: "Section 6 of the Bank Charter Act 1844 (Bank to produce weekly account) shall cease to have effect".[citation needed]

See also[edit]

References[edit]

  1. ^ "Bank Charter Act 1844". Bank of England. Archived from the original on 3 December 2010. Retrieved 2010-10-27. 
  2. ^ The Short Titles Act 1896, section 2(1) and Schedule 2
  3. ^ "£2 note issued by Evans, Jones, Davies & Co.". British Museum. Retrieved 31 October 2011. 
  4. ^ "Yesterday was a Historic Day — Mises Economics Blog". Blog.mises.org. Archived from the original on 18 September 2010. Retrieved 2010-09-17. 
  5. ^ "A brief history of banknotes". Bank of England website. Retrieved 31 October 2011. 
  6. ^ "Fox, Fowler & Co. £5 note". British Museum. Retrieved 31 October 2011. 
  7. ^ "The Bank of England's Role in Regulating the Issue of Scottish and Northern Ireland Banknotes". Bank of England website. Retrieved 31 October 2011. 

External links[edit]