The Scottish Banks and London

The Scottish banks form a sub-group within the British monetary and banking system and as London is the centre of that system their relationship with the City is very important. This has long been the case. In the eighteenth and early nineteenth centuries the financial separation between Scotland and England was more pronounced, and Edinburgh enjoyed some position as a financial centre within Scotland. But the importance of London was asserting itself as early as the second half of the eighteenth century. We remarked that the Bank of Scotland and the Royal Bank, in the 1760s and 1770s, took steps to stabilize the bill exchange rate between Edinburgh and London by means of a stabilization reserve’ held in London ²²¹ —a pattern for the development of the Sterling Area mechanism in later days. In the 1780s and 1790s they took to holding a reserve of government securities which in time of stress could be sold for gold in London and this marks the beginning of the Scottish banks’ reliance on London as a reserve centre. Finally, with the great expansion of domestic and overseas trade during the middle decades of the nineteenth century London came to be a centre for the finance of trade; the London bill became an instrument both for financing the period of shipment and of effecting international payments; and the Scottish banks found that this was affecting Scottish trade as much as any other.