Bank Charter Act

BANK CHARTER ACT. This act (passed on July 19 1844, as 7 & 8 Vict. cap. 32) is the basis of the present organization of the Bank of England, embodying the practical maxims of the so-called "currency school." To effect this, the act lays down three main principles.

(a) Limitation of the volume of uncovered issue, that is, notes not covered by bullion, (b) Centralization of issue, and (c) Separation, in the case of the Bank of England, of the business of banking and the business of note issue.

The first principle is given effect to by sections II. and X. XVII. of the act, which restrict the uncovered notes of the Bank of England to f 14,000,000; enact that after the passing of the act no new bank of issue shall be permitted "in any part of the United Kingdom"; restrict the business of note issue to such banks and bankers as then lawfully issued notes (though allowing such banks, if amalgamating, to issue an amount equal to their aggregate circulation), depriving bankers once ceasing to issue notes from resuming such issue, and, finally, limiting the note issue of such bankers to the average of their circulation for a twelve-weekly period before May 6 The second principle is given effect to by the fifth and twelfth sections of the act. These provide that the Bank of England may increase its uncovered issue of notes by a sum equal to two-thirds of the notes previously issued by any banker, who ceases issue by agreement with the bank, or who discontinues issuing in conse quence of bankruptcy or liquidation of the business, or on any other ground.

Separation of "Issue" and "Banking..

The third principle is given effect to by the second section of the act, which provides, in effect, that there shall be an issue department and a banking department at the Bank of England. Notes were to be freely issued if gold were tendered to the issue department at the rate of f3.17s.9d. in notes per ounce of standard gold (section IV.) : but it was not the intention of the Act to force the issue depart ment to hold only securities and gold; for by section III. the issue department was allowed to hold at any one time an amount of silver bullion not exceeding one-quarter of the gold coin and bullion in the issue department. Since 1853, however, except for a short period in 1860-61, the bank has ceased to hold silver in the issue department.

In addition to thus regulating the note issue, the act provided for a payment of f 18o,000 by the bank to the Government (sec tion VIII.) ; exempted the notes of the bank from stamp duty (section VII.) ; provided that the profits from any increase in the uncovered circulation should go to the public (section IX.) ; provided—a most important section—for a weekly account of the state of the bank in prescribed form (section VI.), and for returns from other issuing bankers (section XVIII.).

For further details, see BANK OF ENGLAND and BANKING AND CREDIT.

(T. E. G.)