The oldest among banking systems in anything like their present form is the Bank of England, which dates from 1694, and which as operated to-day finds its fundamental charter in the Bank Act of 1844, which superseded earlier statutes. The bank, although owned by individual stockholders, is to all intents and purposes a public institution whose most important functions are the general direction and control of the money market, the handling of government finances, and the supplying of a uniform note circulation.

Great Britain was the earliest country to develop banking upon the modern highly specialized and differentiated basis. At the close of the seventeenth century England had already advanced far toward a recognition of the special functions performed by the issue of bank notes and of the necessity of centralizing a certain proportion of the banking resources of the country in the hands of one institution. At that time there was in existence a considerable number of banking houses operating in competition with one another and controlled by no single policy; owing, moreover, no obligations to the government save those owed by any good citizen.

Under the Act of 1844 the issue department of the bank was permitted to put out notes only when protected pound for pound by coin or bullion, except that a basic issue of �14,000,000 sterling might be placed in circulation upon a basis of the government debt. Other banks of issue were to transfer their note-issue privilege from time to time to the Bank of England, and such transfers were to bring about an increase in the issues of the Bank of England to the extent of two-thirds of the independent bank circulation so retired. Before the war the note issue secured by government bonds had thus risen to the equivalent of about $90,000,000, the total outstandings being about $150,000,000.

The function of the Bank of England in controlling the market is exerted by the performance of a very conservative commercial banking business based upon the discounting of short-term paper, partly for banks and partly for individuals, the bank, where necessary, going out into the open market and buying such paper of specified amounts as might be available. Before the European War the handling of government finances consisted largely of the receiving of public funds and the disbursing of them upon suitable check or warrant, or from time to time conversion operations in the long-term debt when necessary, accompanied occasionally by short-term advances. The war changed England's financial structure to a great extent, bringing about alterations which may or may not be permanent. In the Currency and Bank Notes Act of 1914, convertibility of currency and bank notes into gold was provided for, but for several reasons has never been really effective. The government had issued, early in the war, treasury notes which varied in amount from time to time, and at the time of the armistice probably amounted to about �1,600,000,000. Under the Currency and Bank Notes Act both currency notes and Bank of England notes were made legal tender for any amount, and both kinds of currency have continued to circulate in large volume, the total in currency notes outstanding at the close of 1921 being �423,000,000. It may be assumed that eventually the currency notes will be retired and the Bank of England may succeed in getting back to a basis of actual convertibility of notes into gold.

The war, however, has made but little change in the actual practice of banking in Great Britain. For a long time it has been the custom of other banks to carry their reserves in the form of deposits with the Bank of England. In the United Kingdom as a whole there are to-day about seventy-five institutions, and while the Scotch and Irish banks are in a sense more or less independent of the Bank of England, they do in practice carry considerable balances with the latter, while the so-called English joint-stock banks, with head-quarters in London, have been in the habit of carrying the bulk of their reserves with the head office of the bank. While the Bank of England has at the present time eleven branches here and there, these are merely for the purpose of convenience, the English joint-stock banks having much more numerous branches which serve as the actual medium of communication with the public at large. The Bank of England has of recent years, although carrying a certain number of deposit accounts for private individuals and also doing a discount business for such customers, tended to become more and more a bankers' bank, dealing largely in bankers' acceptances and confining its operations so far as practicable to liquid paper. During the war, like all other banking institutions, the Bank of England was, however, obliged to make very large advances to the government on the strength of the treasury notes or short-term bonds issued by the latter. Such issues were not a satisfactory basis for the creation of deposit credit or the issue of currency, and the level of prices, partly as a result of this method of banking, accordingly advanced about 100 per cent between 1913 and a date soon after the armistice. Effort was made by British financiers of the more conservative group to obtain a cessation of government short-term borrowing from the Bank of England, but without any material success, although the total volume of such loans has in the aggregate fallen off. There has been a steadily declining movement of government obligations toward the banks and a steady increase in the amount of government obligations absorbed and held by individuals. One of the important features of postwar development in Great Britain has been the tendency of the larger banks to consolidate, there being at the present time five outstanding institutions of great size. Both in the case of the Bank of England and in that of other European banks, it seems that a restoration of convertibility of paper and deposits into gold can be effected only in case the foreign balance of the country's trade is restored to a suitable level, and such a result can be accomplished only through increased exportation and reduced importation, associated probably with the borrowing of considerable amounts in actual gold from foreign countries. It is as yet uncertain how or under what conditions so extensive a reform as is indicated can be brought about.