The note circulation of Scotland is peculiar to that of England because in the former country there is an issue of £1 notes. Thus in 1879, out of a total circulation of £5,522,000, no less than £1,974,000 represented £1 notes.

Another point to be noticed is the great confidence which the Scotch people have in their note circulation.

The issue of notes in Scotland is now regulated by the Act of 1845, but previous to that year any bank could be formed with the privilege of issuing notes.

The opposition to the Act of 1845 was overcome by giving the existing banks the sole right of issuing notes, which practically meant the exclusion of new banks in that country.

This Act imposed unequal conditions; for example, one bank was allowed to issue £1 for every £11 18s. 7d. of capital, whilst another could issue the same amount for £2 5s. 8d. of capital. Another hardship is supposed to exist in compelling the banks to keep gold in their vaults for the excess above the authorised issue.

There is always a large increase in the note circulation in May and November, consequent on the payment of rents, etc., being made on 15th May and 11th November. At these periods of the year large sums of gold are obtained from the Bank of England and sent down to Scotland in order that the Scotch banks can make their returns in accordance with the Act of 1845.

This hypothecated gold very soon finds its way back to the Bank of England after the returns are made up. The Scotch banks make a profit of about 2s. 6d. per cent. on their note circulation.

We will now state the leading provisions of the Act of 1845: (1) Scotch banks are allowed to retain their £1 notes.

(2) The power of issuing notes is confined to those banks that issued notes in the year preceding 1st May, 1845.

Banks amalgamating are allowed to retain the aggregate fixed issue of the separate banks. They may exceed their limits, but the excess must be represented by coin. They must make a return of the amount in circulation to the Stamp Office of the average amount of four weeks. If notes are in excess of the authorised circulation, and gold is not kept in reserve against such excess, then the bank which infringes the law must forfeit the amount not covered by gold.

Bank of England notes are not a legal tender in Scotland.

The Government reserves to itself the right of inspecting the books of the banks in order to ascertain the correctness of the returns.

The following tables show the present position of the note issue in Scotland: -

The note circulation of Scotland has increased in far greater proportion than the population.

The English bankers complain that the Scotch banks have privileges which they do not possess. It would be impossible for any bank to succeed in Scotland unless allowed to issue notes and this is prevented by the Act of 1845.

It seems only just and right that the Scotch banks should forfeit their rights of issuing notes upon opening London offices. It is manifestly unfair that English country banks and Scotch banks should be treated differently. Of course it was never contemplated when the Act was passed that the Scotch banks would open London offices.