CHAMBERS'S INFORMATION FOR THE PEOPLE. 



ment in the world, was projected by William 

 Paterson, a Scotchman, and received its charter 

 of incorporation, July 27, 1694. It was constituted 

 as a joint-stock association, with a capital of 

 .1,200,000, which sum was lent at interest to the 

 government of William and Mary, at the time in 

 a state of embarrassment. At its very outset, 

 therefore, the Bank of England was a mere 

 engine of government ; and in a lesser or greater 

 degree, it has held this character through all the 

 stages of its subsequent history. At first, the 

 charter of the Bank was for only eleven years ; 

 but in consequence of the great services of the 

 institution to government, its charter has been 

 at various times renewed. The last renewal 

 was in 1844, and the charter of that year still 

 subsists ; its terms being subject to modifica- 

 tion or revocation by the legislature at pleasure. 

 By the act or charter of 1844, the Bank was 

 divided into two departments the issue and the 

 tanking. 



In the issue department, its sole business is to 

 give out notes to the public. Before the separa- 

 tion of the departments, the government was 

 due to the Bank ;i 1,015,100. This sum was 

 declared to be now a debt due to the issue de- 

 partment, and for the issues of notes to that 

 amount, no gold requires to be held by it This 

 was just the same thing as if the Bank had origin- 

 ally lent ;i 1,015,100 of its notes to government, 

 and these notes had found their way into circu- 

 lation. The Bank was also allowed to issue 

 additional notes on securities, that is, to lend 

 them to a limit which at present amounts to 

 ^3,984,900, and this also without holding gold. 

 The amount of notes which may thus be issued, 

 without gold being in reserve against it, is 

 .15,000,000. All notes issued above that amount 

 can be issued only in exchange for gold. At the 

 passing of the act in 1844, the limit of notes to be 

 issued against the government debt and securities 

 was fixed at .14,000,000 past experience having 

 shewn that there was not the least risk of there 

 being at any time less than that amount of Bank 

 of England notes in the hands of the public. It 

 was thus rendered certain that for all of its notes 

 that might be returned to it for gold, there would 

 be gold in store, and that, according to the views 

 of the supporters of the act, the Bank would be 

 prevented from interfering at pleasure, by issues 

 of notes, with the circulation. The augmentation 

 of the authorised circulation from fourteen to 

 fifteen millions is on account of the lapse of 

 country banks. The Bank must account to gov- 

 ernment for the net profit of the extra issue ; 

 and the profit which the bank derives from its 

 issue department is the interest received on the 

 ,14,000,000 of government debt and securities, 

 which, at 3 per cent., is .420,000 yearly. But 

 out of this the Bank pays to government, for its 

 banking privileges, and in lieu of stamp-duties, 

 .180,000. The expense of the issue department 

 being .160,000, the net yearly profit upon it to 

 the Bank is thus 80,000. The Bank also makes 

 a profit of ^20,000 to .40,000 yearly upon bullion 

 and foreign coin. These are brought to the Bank 

 for notes ; they are worth 3, 175. iod. per 

 ounce ; but the .Bank is obliged by its charter 

 to purchase them at ,3, 175. o.d. The holders 

 prefer taking this price to having their bullion 

 and foreign coin coined, free of charge, at the 



494 



public Mint, as the delay in the coining is equal 

 to a loss of interest of id. per ounce. 



Viewed in its banking department, the Bank 

 differs from other banks in having the manage- 

 ment of the public debt, and paying the dividends 

 on it ; in holding the deposits belonging to govern- 

 ment, and in making advances to it when neces- 

 sary ; in aiding in the collection of the public 

 revenue, and in being the bank of other banks. 

 For the management of the public debt, the Bank 

 receives about .247,000, against which there has 

 to be set .124,000 of charges. The remaining 

 profits of the Bank are derived from its employ- 

 ment, like other banks, of its deposits, on which it 

 allows no interest, and of its own capital. The 

 capital was originally ,1,200,000 ; in 1816, it 

 reached ,14,553,000 the present amount. 



In 1797, the Bank found itself likely to be 

 obliged to suspend payments, and its notes were 

 declared by law a legal tender, although no longer 

 convertible into coin. This state of matters con- 

 tinued till 1821. The notes during this interval 

 not having been convertible into coin on demand, 

 there was no check upon the Bank in the amount 

 of its issues ; and the currency became depreciated 

 that is, a 5 note would not exchange for five 

 sovereigns ; and every man to whom $ was due, 

 was thus obliged to accept payment in a 5 note, 

 not worth .5. It is, however, said that the value 

 of gold at the time was enhanced owing to absorp- 

 tion by hoarding and by military-chests, and that 

 the depreciation was more apparent than real. 

 The export of gold following on a rise of prices 

 occasioned by an issue of bank or government 

 notes is unlimited, except by exhaustion, if these 

 notes are not payable in coin on demand, and are 

 issued without any check from without or self- 

 imposed. But as prices estimated in these notes 

 rise, the price of bullion, like other commodities, 

 rises too, and the price of coin which can be con- 

 verted into bullion, or be used abroad at its pre- 

 vious purchasing power, rises also. Since 1821, 

 the Bank has been oftener than once on the verge 

 of a suspension of payments, owing to foreign 

 drains of gold. The separation of the banks into 

 two departments is regarded by many as having 

 a tendency to produce a suspension in times of 

 panic, when the reserve is reduced by withdrawals 

 to supply a foreign drain, or to meet an internal 

 run. Before the separation, the Bank, in the case 

 of withdrawals of gold, had the whole amount of 

 gold within the Bank to meet them ; but now it 

 loses the command of all the gold in the issue 

 department. It cannot get that gold unless in 

 exchange for notes, but, its reserve being reduced 

 or exhausted, it has none to spare. The restric- 

 tion of credit consequent upon the approach to an 

 exhaustion of the reserve of the banking depart- 

 ment is so great, that the fear of it occasions a 

 panic ; and in 1847, ^57, and 1866, on the pos- 

 sible suspension of payments by the banking 

 department, owing to a reduction of its reserve, 

 being apparent, the government of the day took 

 the responsibility of authorising the Bank to lend 

 additional notes, not represented by gold, which 

 was an indirect way of getting at the gold in the 

 issue department where the object of the borrowers 

 was to obtain gold. 



The Bank of England is situated in the centre 

 of London ; but it has a branch in the west end, 

 and several branches in the provinces. 



