The foundation of the Bank of England is due to William Paterson, a Scotchman, who in 1693 proposed that the expenses of the war with France should be met by a national loan. Forty merchants subscribed £500,000 towards the sum of £1,200,000 lent to the Government at the rate of 8 per cent. per annum. For this consideration, the subscribers were to be made a corporation under the title of the Governor and Company of the Bank of England.

The Act passed in 1693 stated: "Their Majesties may make commissioners take subscriptions for £1,200,000"; and section 20 states: "Their Majesties may appoint rules for transferring, and make the subscribers a corporation by the name of the Governor and Company of the Bank of England".

The Bank of England did not originally have the sole monopoly of joint-stock banking, but when it was proposed to start another bank in 1708 on the same principles, the directors succeeded in obtaining that monopoly.

The Charter was renewed in 1697, 1708, 1713, 1716, 1721, 1742, 1746, 1749, 1764, 1781, 1800, 1808, 1816, 1833, and 1844.

Mr. Bagehot considered the monopoly given to the Bank of England was injurious for the following reasons, viz.: (1) Banking ought to be free, because monopolies are likely to be injurious to the public unless kept within reasonable limits.

(2) The Bank, being in some indirect manner connected with the Government, is supposed by many to be in reality a Government institution.

(3) By this means it had a better reputation than other institutions of a like character.

(4) When crises, panics, etc., occur in the country, it was expected to lend money to all comers.

(5) Finally, in consequence of this monopoly, it became the sole cash reserve for the country.

No doubt the Bank occupied a far more important position than it does at the present time. The rapid growth of English joint-stock banks has been the cause of this change.

The Bank of England is managed by a governor, a sub-governor, and twenty-four directors. The late Mr. Bagehot thought it would be better if the Bank had a permanent head rather than a continual change of governors. The re-election of Eight Hon. W. Lidderdale during the Baring crisis shows somewhat the necessity of having a permanent governor. The Bank of France has a permanent head, the governor being appointed by the Government for life.

The influence and position of the Bank of England during the eighteenth century were far greater than in the present day. The London bankers were then very jealous of its position. Its large capital and its large issue of notes made it a very formidable opponent.

We can easily understand how it came to pass that the Bank should fix the rate of interest for money. Being the only joint-stock bank, and also holding large deposits in comparison with the private bankers, caused it to assume that position.

We have stated that the rate of interest fixed by the Bank of England became the market rate, but the enormous increase of capital in the other banks has now led to an alteration in this respect.

The London joint-stockbanks have in a certain degree abandoned their usual plan of allowing interest on deposits to be governed by the Bank rate.

The Bank of England is comparatively a small lender of money and therefore its rate does not indicate the real value of money in the market. We must ascertain exactly the whole supply of capital and demand for it before we can ascertain the correct rate of interest. Including loans and discounts the Bank lends less than 1/6 of the amount lent by the London joint-stock banks and less than 1/5 of that lent by the London Bill brokers.

However, as a lender of money, it has always exercised great caution, and only advanced money upon the best securities. The capital of the Bank amounts to £14,553,000, which is enormous compared with the capital of other banks, and tends to keep the dividends low. Thus from 1797 to 1822 the dividends were from 10 per cent., and from 1817 to 1876 the average was 8.6 per cent.

The Bank was started on condition that a certain sum, viz., £1,200,000, should be lent to the Government. The increase in the following years was due to further loans to the Government of the day, and in return it obtained renewals of its charter and also other advantages.

The following table shows when loans were made to the Government and the balance of debt still due to the Bank of England: 1694= 1,200,000 1708= 2,175,000 1716= 4,175,000 1721= 9,100,000 1742 = 10,700,000 1746 = 11,681,000 1816 = 14,686,000 1844-76 = 11,015,000

The following table shows the increase in its liabilities: -

Since the passing of the Bank Act of 1844 its reserve from 1846 to 1891 in proportion to its liabilities has diminished from 1846-54 = 51 per cent. „ 1864-72 = 42 „ „ „ 1885-91 = 42 „ „ but in 1895 the proportion increased to 58 per cent.

In this country the Bank of England is the only bank where large amounts of gold can be obtained to meet home and foreign demands, etc. Its position therefore as a bank of discount is very often impeded, because the rate of interest is advanced in order to prevent the reserve of gold getting too low.

It has been mentioned that the Bank Act of 1844 divided the issue from the banking department, and from that time the two offices were kept separate.

The weekly returns were to be drawn up as follows: Issue Department.

Notes issued.

Government debt. Other securities. Gold coin and bullion. Silver bullion.

Banking Department.

Proprietors' capital.

Rest.

Public deposits.

Other deposits Seven day and other bills.

Government securities.

Other securities.

Notes.

Gold and silver coin.

The business of the Bank of England consists of three groups or divisions, viz.: (1) The management of the National Debt. (2) Issue of bank notes. (3) Government and private banking.