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|
|Repealed by||Currency and Bank Notes Act 1928, Currency and Bank Notes Act 1939, Banking Act 2009|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|Text of statute as originally enacted|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), sometimes referred to as the Peel Banking Act of 1844, 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. It is one of the Bank of England Acts 1694 to 1892.
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.
Under the 1844 Act, bullionism was institutionalized in Britain, creating a ratio between the gold reserves held by the Bank of England and the notes that the Bank could issue, and limited the issuance of non-gold-backed Bank of England notes to up to £14 million. The Act also placed strict curbs on the issuance of notes by the country banks, barring any new "banks of issue" in England and Wales and thus beginning the process of centralizing banknote issuance.
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.
Bank deposits are sums of money that a bank, backed by considerable collateral, may choose to deposit in the holder’s account as a loan which requires repayment with interest. The money comes into existence when the bank creates the deposit, and when the loan is paid off, the money disappears from the bank’s balance sheet. While a loan is effectively a cash advance provided by the bank to the customer, in the long term the effect of unrestricted creation of bank deposits (money) can lead to inflation in the markets into which that money is channelled, such as the property market through banks' mortgage lending.
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.
The Bank Notes (Scotland) Act 1845 adopted a year later was more lenient. As in England, there could be no new banks of issue, but merging banks could combine their issues. Furthermore, banks in Scotland could issue more than their 1845 circulation 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.
Banking Act 2009
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".
- Henry Meulen – a critic who saw the Bank Charter Act as a cause of economic depression and political revolution
- Banknotes of the pound sterling – a list of note-issuing banks in the Sterling area
- Fractional reserve banking
- Central bank
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- The Short Titles Act 1896, section 2(1) and Schedule 2
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- "Money creation in the modern economy" (PDF). Bank of England Website. Retrieved 6 February 2014.
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- "Fox, Fowler & Co. £5 note". British Museum. Archived from the original on 2011-10-02. Retrieved 31 October 2011.
- "RBS History in 100 objects: Banknotes bill, 1844". RBS Heritage Hub. Retrieved 26 March 2018.
- "The Bank of England's Role in Regulating the Issue of Scottish and Northern Ireland Banknotes". Bank of England website. Retrieved 31 October 2011.
- "Banking Act 2009" (PDF). legislation.gov.uk. p. 135. Retrieved 6 January 2017.