A piece of paper purporting to pay the bearer on demand a specified sum of money in gold or silver coin. Bank notes originated in the old receipts given by goldsmiths. The issue of bank notes is now restricted to the Bank of England and the requirement to pay coin on demand has, since 1931, been abolished. The issucof bank notes by other banks was curtailed by the Bank Charter Act 1844 which stated that no bank could be formed with the power to issue notes and that any bank that amalgamated with another or became a limited company would automatically relinquish the right to issue notes. These provisions resulted in the gradual extinction of all noteissuing banks except the Bank of England, although the last of them did not disappear until 1921. The Scottish and Irish banks still retain a limited right to issue notes, but this ther weakened by the provisions regarding legaltender and by the need to support note issues by balances held at the Bank of England.
Bank of England notes in issue were originally required to be backed by gold and government securities, but the notional (unbacked) fiduciary issue allowed by the Bank Charter Act 1844 has grown to such an extent that now, particularly since the abolition of the gold standard, the note issue is virtually controlled by express governmental policy (direct policy since the nationalization of the Bank of England in 1946). The currency of this country is now a non-convertible paper currency controlled by the government.
|Reference: The Penguin Business Dictionary, 3rd edt.|