Shortly after the establishment of the Bank, its credit, by no fault of the management, sustained a most severe shock.

For some years previously the scandalous practice of clipping the silver coin had been carried on to a great extent, in spite of the severe laws enacted against it. In the summer of 1695 the evil had gone to such a length that it took thirty shillings in silver coin to purchase a guinea. In the early part of 1696 a new silver coinage was issued to the Bank, but by this time silver had almost disappeared from circulation, having been exported to purchase gold, the profit on the transaction being so great. When the new silver was coined there naturally ensued a rush to procure it, and the Bank was obliged to repay in silver of full weight the notes it had previously given in exchange for clipped and debased coin. The loss thereon was of course very large, but that was only a part of the evil; the new silver could not be procured quickly enough to meet the demand, and in consequence a notification was published partially suspending cash payments. Bank notes upon this fell to 20 per cent. discount, and to rectify it an expedient was adopted of a very bold, but, as it turned out, of an entirely successful character. This was an increase of capital, the subscriptions to which were to be received at par, in bank notes standing at the above-mentioned discount, and in exchequer tallies, which were still more depreciated. Upwards of £1,000,000 was thus subscribed, and by the withdrawal of that sum from circulation the remaining part was raised to its nominal value; the foreign exchanges also, which had long been very adverse to this country, were much improved.

Up to this time the Bank of England had by law no exclusive privileges as to the issue of bank notes, but by the 8th and 9th William III, cap. 20, it was enacted : " That during the continuance of the Corporation of the Governor and Company of the Bank of England no other bank or any other corporation, society, fellowship, company, or constitution, in the nature of a bank, shall be erected or established, permitted, suffered, countenanced, or allowed by Act of Parliament within this kingdom."

This did not expressly prohibit the establishment of joint-stock companies doing banking business; it simply bound the legislature not to sanction, by Act of Parliament, the establishment of any company in the nature of a bank. Accordingly, a few years after, a corporation of mining adventurers began to transact banking business and issue notes. To meet this evasion of the law an amendment was passed in 1707, and re-enacted the following year, and is as follows :

" That during the continuance of the said Corporation of the Governor and Company of the Bank of England it shall not be lawful for any body politic or corporate whatsoever, erected or to be erected (other than the said Governor and Company of the Bank of England) or for any other persons whatsoever, united or to be united in covenants or partnerships, exceeding the number of six persons, in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes payable on demand, or at any less time than six months from the borrowing thereof." As banking could hardly have been then carried on without the privilege of issuing notes, this prohibition effectually prevented any opposition to the Bank of England by the establishment of joint-stock banks down to the year 1826. But while thus careful of the interests of the Bank, the legislature appear to have forgotten those of the public, and took no precaution against the issue of notes by private bankers. This omission was taken advantage of to a great extent, especially in the country, where shopkeepers turned bankers in all directions, and flooded their respective neighbourhoods with what too often proved to be worthless paper. This now appears to have been an extraordinary policy; to prohibit the issue of notes by a corporate body, for whose stability there was some guarantee, but to allow individuals who might not be worth sixpence to push as many out as their customers could be induced to absorb.

In the year 1759 the Bank of England first issued notes for £15 and £10, the minimum having previously been £20; no further alteration took place until 1795, when £5 notes came into use.

It is worthy of remark that about the year 1781 the London bankers discontinued the issue of notes, and took to giving out cheque books in lieu thereof; since that date no notes have been issued in London save by the Bank of England, although until the passing of the Act of 1844 there was no legal impediment. The year 1797 will always be unfavorably remembered as the date of the suspension of cash payments in this country-an incident which to a commercial nation like Great Britain must necessarily be looked back upon with shame and regret. Various causes tended to produce the state of things which rendered this step imperative, and by many writers the management of the Bank of England has been rudely censured. Sir John Sinclair, a writer of considerable ability, in his ' History of the Revenue/ published in 1804, quotes the opinion of a contemporary, and expressly says that he agrees with him to the effect "that the conduct pursued by the Bank of England for a considerable time previous to the suspension of the payment of its notes almost warrants the suspicion that instead of really dreading that suspension as an evil, they rather looked to it as an advantage."* There is no doubt that the holders of bank stock did benefit largely by the supension, as the following figures will testify.

In the year 1797, when the restriction first began, the highest price of bank stock was 146, the lowest 115.+ We will take the price every five years down to the resumption of cash payments in 1821:

The reason for this wonderful rise is not difficult to find. Prior to 1797 the usual dividend on bank stock was at the rate of 7 per cent. per annum. Between that time and 1821 the undermentioned additional distributions were made :*