The origins of English banking can be found in the activities of the London goldsmith-bankers during the period 1650 to 1700. London goldsmith-bankers initiated and developed the basic principles of accepting deposits on which interest was paid, made loans from the funds supplied by such deposits, issued their own promissory notes (or banknotes) and allowed depositors to access their accounts by use of ‘drawn notes’ (or cheques).
The note illustrated here is an example of an early drawn note or cheque. This example is dated 9 October 1725 and is addressed to Abraham Fowler, Goldsmith, who was a goldsmith-banker at the ‘Sign of the Three Squirrels…Fleet Street’. It states:
Pray you pay to Mr Thomas Hill without further advice the sum of seventy pounds. …and this receipt shall be your sufficient discharge for the same…
This is clearly a written order addressed to a banker directing the payment of a specified sum of money to a named person – which is the modern definition of a cheque. This bank of Abraham Fowler subsequently became the well known London private bank of Goslings & Co., which in turn was one of the foundation banks for Barclay & Co. in 1896. Goslings Branch of Barclays Bank continues in Fleet Street to the present day.
In 1694 the Bank of England was established and adopted and carried on the banking procedures of the goldsmith-bankers. In 1708 the Bank of England was granted a monopoly of joint stock banking when other banks were effectively prohibited from having more than six partners. This provision effectively shaped the development of English banking until 1826, when the legislation was repealed and joint stock banks were again permitted.
By the 1720s, banking had become a distinct specialist business with numerous banking firms operating principally within the City of London but also in the West End area of London.
The banknote shown was issued in 1729 by Francis Child Esq., the Fleet Street banker. The denomination of £10 is handwritten, as was the common practice at the time. It should be noted that this piece was issued and signed by the bank and is their promise to pay on demand. This distinguishes it from the ‘drawn note’, above, which originates from an account holder of the bank and directs the bank to make a payment.
Printed forms for cheques first began to be used in London in the 1720s and handwritten examples were less frequently seen thereafter. The use of cheques continued to expand to such an extent that, by the 1770s, specialized cheque clearing procedures were established in London and they achieved considerable economy in the use of cheques. Use of cheques then constantly expanded and by the 1870s most business finance was conducted by this means.
Banknotes in London did not develop in the same way and by the 1770s most, though not all, London private banks had ceased the issue of banknotes. This was because the extensive use of cheques in London reduced the demand for banknotes and also Bank of England notes circulated in London and took preference whenever banknotes were required.