Scotland's proud banknote tradition under threat

Scotland's proud banknote tradition under threat

JENNIFER VEITCH IF HE were alive today, then Malachi Malagrowther – better known as his alter ego Sir Walter Scott – would not be amused. Despite his sterling efforts to save the historic right of Scotland's banks to issue their own notes, that privilege has come under renewed threat. The Treasury is consulting on proposals to change the way Scotland's commercial banks – the Clydesdale Bank, Royal Bank of Scotland (RBS) and Halifax Bank of Scotland – back up their notes with other assets. Along with banks in Northern Ireland, they could face a collective bill of £80 million a year to continue issuing their own banknotes. If the proposal becomes law and the banks cannot come up with funds to cover their notes, an icon to Scotland's identity and more than three centuries of banking history could become extinct. The Bank of Scotland was the first to issue notes, when it was founded in 1695 – largely due to a shortage of coins – and the RBS followed suit when it was established in 1727.

George Dalgleish, curator of Scottish history at the National Museums of Scotland, says the banknotes were quickly accepted by customers, partly because of convenience, and partly because Scottish banks proved reliable. The right to issue banknotes was jealously protected by the banks, he says, to the point where they would step in to guarantee those issued by rivals who went under. "One of the curious things about Scotland is that the banknotes, from a very early stage, had a high degree of acceptability amongst the people using them. This was very different to England." He explains that the banking system was robust in Scotland and few financial institutions went bust, and when one did fail the other banks stepped in to guarantee their notes. "They knew that the right to issue notes was important to them financially. There were only a couple of occasions where the banknote system ran into difficulties, including the collapse of the Air Bank in the 1770s. Even then the system didn’t go down. It became so important to the banks that by the 1820s it was said that the Scots preferred paper money to gold because it was a lot easier to carry around." By the 1820s, the Scots had so much faith in the system that they campaigned for the right of Scottish banks to continue issuing notes, and it was Scott who led the charge. "Sir Walter Scott defended the banknote system because there was a suggestion by Robert Peel's government that they limit the issue of notes of £5 and above to Bank of England notes," Dalgleish says. "That was staunchly fought against by people like Scott, who wrote a whole series of letters - called the letters of Malachi Malagrowther - about the importance of Scottish banknotes as part of the Scottish financial system and as an example of Scottish identity. The government was defeated and the right to issue banknotes of £1 was continued."

Dalgleish says this enabled the Scottish banks to prosper. "Scottish banks did quite well throughout the 18th and 19th century, and that was the basis of the importance of the Scottish financial sector of today," he says. "The issuing of banknotes was very innovative and developed interesting ways of trying to combat forgery; the Royal Bank was the first to print three-coloured notes." But he adds that even today, Scottish banknotes are not legal tender – which explains why you may find a London taxi driver or a shopkeeper in Birmingham refusing the "foreign" currency. "They are technically promissory notes. They say 'I promise to pay the bearer.' People can refuse to take them. In England, people used to offer you 19 shillings, six pence for a £1 note." Ironically early Scottish banknotes are highly collectable, not least because of their attractive design, Dalgleish adds. "The earliest ones are very simple, with copperplate engraving or script, but as you get through the 18th century you start to get coats of arms and little vignettes, and the banknotes come to be almost like adverts for the banks. By the 19th century and certainly by the 20th, some of them are almost works of art which promote the idea of the solidity of the banks. Most of them had their headquarters engraved on them." Scotland's first bankers would have been amazed at how much some of these early notes would be worth today. A rare £1 note produced by the Glasgow Joint Stock Banking Company in November 1840, featuring engravings of Neptune and a shipping scene of the Clyde, is expected to fetch up to £4000 when it is auctioned on 12 September.

On the web The Treasury(Consultation on banknote issue arrangement in Scotland and Northern Ireland) National Museums of Scotland Chartered Institute of Bankers in Scotland Yet even modern Scottish banknotes are sought after. Earlier this year, RBS banknotes featuring an image of American golfer Jack Nicklaus were being auctioned on eBay for ten times their face value. Nicklaus was only the third person, apart from the Queen and the late Queen Mother, to appear on a Scottish banknote during their own lifetime. The popularity of the Nicklaus £5 note underlines the enduring interest in national currency as a symbol of Scotland's distinctive culture within the UK. But Charles Munn, chief executive of the Chartered Institute of Bankers in Scotland, says the banknotes are much more than a quirk of history. "The note issues were an integral part of a highly successful banking system that evolved in the 18th century and which became a model for banks in other parts of the UK and in other parts of the world. It enabled a very poor country to catch up with its richer neighbour during the industrial revolution," Munn says. "Scottish bank notes have formed the major part of the money-circulating medium of Scotland for 300 years. The Treasury consultation document on the future of note-issuing in Scotland and Northern Ireland makes no mention whatever of this history." Whatever the outcome of the consultation, another potential threat remains on the distant horizon, Dalgleish adds. "If Britain ever decides to enter the euro, the game's a bogie."

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