... are promissory notes issued by a bank and payable to bearer on demand, but unlike promissory notes, they may be reissued after payment.
The earliest recorded use of bank notes has been traced to China, where they are said to have been used since 119 BC. The origin of bank notes in England, however, was rather later than that, and began with the receipts issued by the goldsmiths for money left with them for safekeeping. By the middle of the 17th century many of these goldsmiths had developed a recognisable banking system with promissory notes, the direct forerunners of printed bank notes, being widely used. A promissory note was a written agreement whereby the maker promised to pay on demand, or at a fixed or determinable future time, a sum of money to a specified person or the bearer. The bank note is an open promise to pay and it circulates as cash.
A year after its formation in 1694, the Bank of England began to issue part printed, part handwritten bank notes in denominations of £10, £20, £30, £40, £50, and £100. By 1725, notes worth £60, £70, £80, £90, £200, £300, £400, £500, and £1,000 had been added. 1759 saw the £15 note and 1764, the £25 note.
The earliest surviving bank note issued by a provincial bank is one for £640 issued by Smiths Bank, Nottingham on 26 August 1728. Because the lowest Bank of England note was £10, the private banks also liked to issue notes of smaller values. An Act of 1775 prohibited the issue of any notes worth less than £1, and another, two years later, raised the limit to £5. This Act was repealed in 1787, and the Bank of England began to issue £1 and £2 notes. £5 notes were added to note circulation in 1825, but an Act of 1826 once again prohibited notes worth less than £5.
Bank notes were extremely varied in the 19th century, and those issued by private banks carried pictures of the town in which the bank was based, a coat of arms, or an animal. The notes of the Aberystwyth and Tregaron Bank were illustrated with pictures of black sheep, with the number of sheep varying according to the value of the note. In 1814, for example, the £10 note had ten sheep on it, the £2 note two sheep, and the 10s note, a lamb. The nineteenth century also saw the appearance of imitation bank notes. Despite their name, these notes were not forgeries, but were used as propaganda, advertisements, or as commemorations of events, such as military victories. Sold for a small sum, imitation notes were also used to raise money for charity.
All of this, however, must only have added to the general confusion already caused by the various Acts controlling the issue of notes, as well as the number of banks issuing their own notes. In 1808, the Government required any person issuing notes to take out a licence; 755 licences were issued in England and Wales. With so many different notes around, forgery must have seemed a relatively easy crime, but carried a stiff penalty for those caught. Between 1797 and 1829, 618 people were sentenced to death for forgery. 28,412 forged £1 notes were found in 1817 alone, which was presumably one of the reasons behind the 1826 Act. In 1832, the death penalty for forgery was replaced by transportation for life.
The Bank Charter Act of 1844 limited the right to issue notes to the Bank of England and those banks which had done so before 1844. However, with the exception of the Bank of England, the banks were only allowed to issue the average number of notes that they had issued in the twelve weeks before 27 April 1844. Once a bank stopped issuing notes, the Bank of England was then empowered to increase their note circulation by two thirds of the amount withdrawn. Any banks formed after the Act were forbidden to issue notes.
At the outbreak of World War One, the government authorised an emergency issue of £1 and 10s notes, and this was made permanent in the Currency and Bank Notes Act of 1928. This act also ordered the end of notes with a face value above £100. By that time, the only notes in circulation were those of the Bank of England. The last bank to issue their own notes was Fox, Fowler and Company, which amalgamated with Lloyds in 1921.
In 1943, all notes of £10 and above were withdrawn, and in May 1945, ceased to be legal tender for a short period, due to fears of a flood of German counterfeit notes destroying the economy. Following the introduction of the 50p coin in October 1969, the 10s note ceased to be legal tender on 21 November 1970. In April 1983 the £1 coin was introduced, and the £1 note finally ceased to be legal tender nearly five years later on 11 March 1988.