English money crisis
The English money crisis refers to the money shortage triggered by the English Parliament in 1696 .
procedure
In the Middle Ages , coins deteriorated across Europe . This was promoted by a large number of mints. Coin deterioration was carried out through the official reduction of grain , pruning and counterfeiting. The English parliament therefore suspended the bad coins in 1696. May 2, 1696 was determined to be the last day on which still cropped crowns , half crowns and shillings were accepted by the state treasury to pay taxes. In doing so, the government made a serious mistake. It did not have enough of the new coins required for economic activity, so that the withdrawal of the bad coins led to a shortage of money. In addition, citizens had postponed the delivery of the clipped silver coins until the end. The result was a three-month financial crisis.
Money was now tight, even rich citizens did not have the necessary coins to pay for the most essential food. The general public was dependent on another instrument, the kerbholz . The exchange flourished again. The population also besieged the state treasury, so that the military had to be called in to maintain public order. But in the end, most of the silver stored in the treasury was gone. Only around four million pounds sterling were left in the treasury in the form of bars and tinkling coins. The mints were working too slowly to meet the demand for new coins. Factories struggled to pay their workers in coins. Even the richest residents rarely had the means to pay the baker's or butcher's bill. However, their notoriety and knowledge of their assets gave them the opportunity to pay with promissory notes. During this time, the banknotes issued by the Bank of England, which had been founded two years earlier, experienced their first boom.
But now there have already been the first attempts at fraud with the new banknotes. When the bad coins were in the melt and there was still too little new coin in circulation, a goldsmith asked the Bank of England to pay £ 30,000. However, their directors refused to redeem the obviously counterfeit banknotes. In the period that followed, diatribes appeared about the bank. Soon the directors of the Bank of England also found themselves unable to please honest creditors. The Bank of England requested an additional deposit from the shareholders. Now you were able to pay at least 18 percent of the submitted claims in hard cash. The payment made was acknowledged on the banknotes. There was great excitement among the population. The value of the banknotes began to decline. A note over ten pounds was worth nine pounds in the morning and only eight pounds in the evening.
At that time, the British Treasury Secretary Charles Montagu u. a. Isaac Newton , his college friend from Oxford, for advice on how to solve the problem. Newton devoted himself to financial reform with great dedication. He was appointed Mint Administrator ( Warden of Mint ), technically led the coin reform and was later ennobled by Queen Anne for his services. Montagu introduced exchequer bills , also known as treasury bills . These were interest-bearing and were repaid and collected from the taxes of the following year. It was more or less a matter of early tax revenue. The treasury bills had face values of five to 100 pounds. They quickly helped to alleviate the liquidity crisis because they served as a means of circulation. After the supply of money on a large scale worked in this way, the state treasury also planned to issue treasury bills with small denominations of 15 and 20 schillings. This was to counteract the shortage of small coins. However, this was no longer necessary as the mints had minted enough new coins in the meantime.
In 1699, Montagu's action was completed, the total cost of which was £ 2.7 million with a regular government income of £ 2 million a year.
literature
- Bernard Shull, Gerald A. Hanweck: Bank Mergers in a Deregulated Environment: Promise and Peril . 2001. In it: Absolutism and Enlightenment. Pp. 195-197. ISBN 1-56720-379-5 .
Web links
- The Great Recoinage of 1696: Charles Davenant's Developments in Monetary Theory on researchgate.net (English)