This section is from the "The Science Of Wealth" book, by Amasa Walker.
Mixed currency is a modern invention, as yet known only to a small part of the human race, and but partially understood even in those countries into which it has been introduced.
The Bank of England, the parent of all mixed-currency institutions throughout the world, was established in 1694; but its operations were so limited, and its influence so partially felt, during the first century of its existence, that the character of the currency it issued was hardly appreciated. This bank made a grand suspension in 1796, and continued in that state for over twenty-three years. This was the first occurrence* which demonstrated practically the true nature of this kind of currency.
* The bank suspended for two years, very shortly after its organization; but its capital and operations were then too limited to occasion much notice.
If we carefully observe the composition of a mixed currency, we shall find it to consist of promissory notes issued by individuals or corporations legally authorized to do so, in excess of the actual specie held for their redemption. These notes form the circulation or currency, and consist wholly of paper; yet, as they profess to be convertible, they have the same power in exchange as the specie itself, so long as confidence in the ability and integrity of the promisors remains unimpaired.
This is rightfully called a mixed currency, because it is, in fact, composed in part of value and in part of credit. So far as specie is held for the payment of these notes, this kind of currency is actually convertible, and equivalent to money; but, in so far as the credit element exceeds the specie, it is only a promise to pay money, and is inconvertible. A mixed currency, therefore, can only be regarded as partially convertible; the degree of its convertibility depending upon the proportion the specie bears to the notes issued and the deposits. It is this proportion of specie, whatever it may be, which determines the quality of this kind of bank-note circulation. Its quality is the great question of interest to all who use this kind of currency; and of that we propose now to speak.