The eighteenth century was the beginning of modern day banking in England. It was an exciting era in the economic realm, as it led to the emergence of modern financial institutions. International trade, as well as war with France , played a key role in the development of banks. During this time, many significant events took place, including the advent of the check and banknote, the founding of the Bank of England, and the first instances in British history of inflation and forgery.


Banks originated from goldsmith houses

Many of the services provided by banks were merely a continuance of those offered previously by merchants, brokers and goldsmiths of the city. Indeed, it was the goldsmith houses of the late seventeenth century that became the banks of the 1700’s. The goldsmiths were well-to-do men with secure lodgings. The future bankers were not simply keepers and dealers of coin. They were men whose promises to pay were widely accepted as legal money. They were men of character and integrity.54 They issued endorsed receipts, which one could return to collect his money. Shown to the left is a picture of Child & Co’s first issued banknote, issued in 1729.55

Anyone kept money with them might write a letter giving instructions to transfer a certain amount of money into another persons account. Thus, the concept of checks was born.56 Indeed, the coin shortage resulted in unregulated private bank notes supplying the need for money in circulation.57 The birth of banks can be, in part, attributed to British imperialism. The new avenues of international trade and commerce necessitated financial institutions to provide and move capital (Price 52).58 Shown to the right is a chart, which shows the growing number of British banks during the eighteenth century.59

Child and Co.'s

First Issued Banknote55


Emergence of Banks in

the Eighteenth Century59

Year Banks in London
1750 20
1765 30
1770 50
1800 70


Bank of England
The Bank of England began in 1694 when King William III asked a wealthy friend and merchant, Mr. Patterson, to underwrite the cost of the ongoing war with France. This favor resulted in the founding of a limited liability, privately owned, joint-stock bank. The Bank of England quickly grew and soon handled all of the government’s securities. Besides acting as the banker for the government, the Bank of England served another important purpose: it released the very first banknotes. These notes were handwritten for an exact amount of money, signed by the cashier of the bank and could be redeemed for gold and silver coins. During the latter half of the eighteenth century, the bank began printing notes with fixed sums (see picture to the right). They were available in denominations from £1 to £1,000 during the eighteenth century (although the smaller bills were not released until very late).60

The Bank of England introduced almost as many problems as it solved. The issuance of notes contributed to the first wave of counterfeit money. As a result, the Bank of England eventually began printing the bills on paper with visible watermarks, although these were not manufactured until the nineteenth century. Also, the increasing national debt (due to the Napoleonic Wars), led Parliament to halt the redemption of banknotes for gold and silver coin. This period, known as “The Restriction Period,” caused the first instance of inflation in the English economy. It was a trend that would continue far into the future.61


Bank of England's Printed Ten £ Banknote60


Act of 1708

Despite the imperial commerce’s demand for financial institutions, the growth of banks was hindered by the1708 Act. The 1708 Act restricted banks with more than six partners from issuing bank notes. Therefore, most banks remained as partnerships in order to retain the ability to issue notes. However, banks were inherently unstable because the death of a partner could effectively shut down a bank. Indeed, in 1784, only seven British banks had more than one office. One of the pioneers of these allied but separate offices, Abel Smith is shown below. The small size and instability would be features British banks would retain until well into the nineteenth century.62

Banks had different functions

Banks arose according to the various need of the people. By the end of the eighteenth century, three main types of banks were in operation:

  • West end banks: Hoares, Coutts, Childs and Drummonds were mainly involved in business with the aristocracy, gentry, government (securities) and wealthy lawyers.


  • East End banks: Martins, Curries, Glyn Mills, Mastermans made loans to the members of the stock exchange, did business with traders and manufacturers, and acted as liaisons for country banks.63


  • Country banks started springing up in the latter half of the eighteenth century. There were less than a dozen before 1750. Their arrival was due mainly due to the recoinage of guineas in 1774, which created a special need for banks to collect coins and provide alternative currency.64

Abel Smith, British Banker62

Abel Smith



Click on the logos65 below to discover which banks they belong to!