ABSTRACT
Sources: MCCUSKER / HART [1979], pp. 697-700 (1590-1660); MCCUSKER [1978], pp. 37f., 56f., 75f., 93f., 103, 110 (1660-1697); IISG Amsterdam, The Prices of Merchandise in London (1667); ibid., Prix Courant des Marchandises a Londres (1668, 1671-1675, 1679/80, 1682, 1684/85); ibid., The Merchants Remembrancer, London (1680); ibid., Le Memorial Des Marchands, Londres (16811683, 1685); The Course of the Exchange, and Other Things (1698-1850); The Economist, London (1850-1914). For the India Exchange: The Oriental Observer, Calcutta (1830-1832); The Economist, London (1858-1882); Indian Daily News / The Overland Summary of the Indian Daily News, Bengal Hurkarn and Indian Gazette (1883-1885, 1897-1901); GRUBER [1890], pp. 37-40 (1885-1889). Concordance: WdW III, pp. 113-122; WdW I/II, pp. 3-110; WdW VII, pp. 361-364; WdW IV, pp. 337-371; WdW II, pp. 66, 107-115
Currency: Since the Middle Ages the pound sterling at 20 shillings of 12 pence had been the currency unit of England, gold and silver being equally accepted as currency metals since 1423. Although a gold coin with a value of 1 pound, the so-called ‘sovereign’, had already been minted for the first time in 1489 and had gained greater importance for payment transactions after 1544, the shilling remained the most important money of account until late into the 17th century – especially within the exchange transactions – and silver did so as the most important currency metal. However, the silver money lost so much of its value at the end of the 17th century, above all after 1690, as a consequence of the Third Anglo-Dutch War (1672-1674) and the Nine Years’ War (War of the League of Augsburg, 1689-1697) that on average only 48% of its expected weight was left in 1696 (cf. QUINN [1996], passim). Therefore, on the one hand, the premium on unminted silver money and the export of English silver was generally forbidden in 1695 (in 1696 this regulation was extended to gold coins) and, on the other hand, the withdrawal and the reminting of the English silver money was ordered. Thus the old silver money disappeared from circulation but since a new one could not be minted very quickly, gold coins became more and more important as means of payment, although bills of exchange and the notes of the Bank of England, founded in 1694, should normally have been paid with silver. It was not until the reminting was finished in 1699 that the English monetary system regained its position at the time before 1672, and in November 1696 the rate on Amsterdam once again exceeded the parity, since exchanges on the Netherlands could then be paid again with full weighted silver coins. It was also possible to force the premium for gold coins – to be more precise, for the ‘guineas’ minted since 1663 (officially at 20 shillings) – which had risen up to 30 shillings in 1695, in various steps down to 21½ shillings until 1699. This tariffing was immediately accepted in trade as well. Thus gold money circulated again in payment transactions after it had become a trade coin since the end of the 1660s, supplied with a premium, and had been withdrawn from internal English payment transactions; that was the temporary end of the bimetallism. But when the exploitation of the Brazilian gold mines started in 1698, the gold import to England was considerably intensified by trade relations with Portugal in the following years, while trade relations for example with France were constantly pushing forward the export of silver at the same time. Silver was the obligatory means of payment in trade, although the state had to accept gold as well. When the value of the guinea was again reduced to 21 shillings in 1717 and in 1728 respectively (according to KRUSE [1782], p. 264), the guinea with a
of the 18th century this gold currency became steadily more stable: the inclusion of the old, well-worn gold coins from 1732, the further inflow of gold in connection with an outflow of silver and the minting of smaller denominations of the guinea as compensation for the lack of silver money in the retail trade were responsible for that development. When at the end of the 18th century the amount of minted silver was drastically reincreasing as a consequence of the considerably raised silver prices, the free minting of silver was cancelled, the silver coins were reminted into token coins and, at last, England’s gradual transition to a gold currency, starting in 1717/28, was settled. Therefore “the English monetary history of the 18th century is characterized by the change from a pure silver standard to a double standard and then to a pure gold standard” (REISS [1986], p. 177). However, the complete implementation of the gold currency in Britain was delayed until 1816 by the paper money period of the Napoleonic Wars. There was no governmental paper money in the exact sense of the word, but the notes of the Bank of England, founded in 1694 as a private company of bankers with the right to issue banknotes, fulfilled this function. The notes of the Bank of England were based on the older goldsmiths’ notes and, as money of a private payment community – the bank and its customers – they were at first something between money and a credit paper. Until about 1730 they had become established in trade and public finance in their main circulation area of London and Lancashire (cf. ASHTON [1945]), in particular since the bank was obliged to cash the notes into gold or silver. So, in London, bills of exchange were primarily paid with notes of the Bank of England. As in the whole of the 18th century – when the Bank of England survived the runs of 1707 and 1745 without greater loss – bills of exchange were the main financial supporters of the government during the Revolutionary Wars with France, because the state had always renewed the right to issue banknotes when it depended on credits of the bank. When more coins had to be raised on the continent to pay the troops, the reserves of the bank disappeared, so that issuing of metallic money in the amount of more than 1 pound sterling was forbidden by the bank by means of the Bank-Restriction Act of 1797 (extended several times). Thus the notes of the Bank of England were acknowledged as governmental means of payment even if they were privately issued, and now they could be used for all governmental payments within the country. Since the notes of the Bank of England could not be used to pay for imports from foreign countries, gold increasingly flowed out of Britain, the holdings of the public funds were deposited at the Bank of England in 1806, and payments of all governmental institutions were settled by transfers to this bank from then onwards. This actually meant the transition to paper currency, because the bank had already paid in notes since 1799 and the currency was nothing but paper money since 1806, although neither law on currency reform was enacted nor an acceptance obligation imposed. Until 1809 the notes had become England’s only means of payment. In order to redress the lack of small coins, the silver minting was resumed in 1816 and, so, the reform of the British monetary system began. On July 1st 1817 a new gold coin, the sovereign at 20 shillings, was proclaimed, so that the unit of account coincided with the actual monetary unit. The reform was completed when, after the passing of Peel’s Currency Bill of May 5th 1819, the Bank of England partially resumed cash payments on February 1st 1820 and to the full amount of the cashing sum on May 1st
1823. There were no essential changes in the currency up to 1914. As a result of this currency reform of 1816-1823, Britain was the first state in the world to adopt the gold standard. Since the beginning of the 19th century the British currency was constantly replacing the Dutch guilder banco as the ‘world trade currency’ (together with the Spanish peso), and in the course of the 19th century it became the most stable, most reliable and, because of this, also the most important currency of the world, which was taken as a model for other currencies not only within the parts of the British Empire scattered all over the world but also far beyond them. This development was fostered by two facts: first, the British currency system was gradually spreading over large parts of the Empire – for example, to Australia, New Zealand, the Cape Colony and most of the other colonies and British territories in Africa – and, furthermore, traditional foreign currencies of imperial areas were linked to sterling, like those of Egypt, British India or the Straits Settlements, as it had been happening since the end of the 19th century; second, because of the great importance of the British economy and its worldwide trade relations in the era of the Industrial Revolution, many states in
silver prices taking place from the 1860/70s demanded a turning away from silver in favour of gold as currency metal for reasons of economic and monetary policy. On account of its international economic power and because it was the first state to introduce the gold standard, Britain became the driving power and the most important factor for the development of the international payment system in the era of the gold standard from the 1870s up to World War I.
