01 The Hour
Friday
7 August 1914. The United Kingdom. Reconstructed to the day.
The banks opened that morning after four days shut. The August holiday had fallen on the Monday and had been extended to the Thursday.
Waiting in the branches was money printed in a hurry. Treasury notes of one pound and ten shillings, given legal authority by an Act passed on the Thursday, run off at speed and distributed to branches all over the country in time for the Friday, because business customers would be in that day for the cash to pay the weekly wage bill.
One subsection of the same Act made every postal order legal tender. Britain was at war, and there was no run.
02 The Sequence
Week to 1 Aug 1914 Firms turned to the Bank of England, which made large loans to tide them over. As the week progressed its rate rose from 3 per cent to 10.
3 to 6 Aug 1914 The bank holiday was extended through the week. A general moratorium was imposed under which no debts could be enforced, including, as a precaution should it become necessary, bank deposits. The Chancellor told the House that when the holiday was extended they had time to consult the various interests and had come to an understanding with them as to the extent of the general moratorium.
6 Aug 1914 The Currency and Bank Notes Act was passed. It authorised Treasury currency notes of one pound and ten shillings, and provided that the holder of a currency note was entitled to obtain on demand, during office hours at the Bank of England, payment at its face value in gold coin.
6 Aug 1914 Subsection 6 of the first clause provided that, for the purpose of meeting immediate exigencies, all postal orders issued either before or after the Act were legal tender. The holder of such a postal order was entitled to payment at face value in coin, on demand, during office hours at the Bank of England, and two provisos of the Post Office Act 1908 were disapplied to them.
6 Aug 1914 The same Act made bank notes issued by a bank of issue in Scotland or Ireland legal tender for a payment of any amount in Scotland or Ireland respectively, released those banks from any obligation to pay their notes on demand except at the head office, and allowed them to pay their notes in the Treasury currency notes.
7 to 8 Aug 1914 The banks reopened on the Friday. There was no panic and no run. On the Saturday the bank rate was brought back down to 5 per cent.
19 Aug 1914 An auction of 15 million pounds of Treasury bills. The moratorium, scheduled to run for a month, was twice extended.
26 to 27 Aug 1914 In the Commons it was put that the result of subsection 6 had been that the Post Office had forced into currency an immense number of postal orders; that every post office was forcing them into circulation and refusing to give silver change; that old age pensions were being paid throughout the country in postal orders instead of in silver; and that the payment of wages in this postal currency was a very great inconvenience. The Chancellor answered that further issues would be stopped first, and that in a very short time the power they then had of being legal tender would be recalled.
03 The Hidden Dependency
A postal order is not money. It is an instrument for sending money, bought at one counter and cashed at another, and in 1914 there were a great many of them in small denominations, already printed and already in the hands of the Post Office.
The new Treasury notes took days to print. The postal orders existed on the Thursday. One subsection turned the stock on hand into legal tender, for the purpose, in the words of the Act, of meeting immediate exigencies.
What that looked like at the counter is in Hansard three weeks later. Post offices paying pensions in postal orders rather than silver, and declining to give change in coin. An instrument made for sending money had become the money, and the office that issued it had become the place it came from.
An instrument made for sending money had become the money.
04 What Still Worked
The Counter At The Bank
Both of the new kinds of paper carried the same promise. A holder of a currency note could get its face value in gold coin, and a holder of a postal order its face value in legal tender coin, on demand, during office hours, at the Bank of England.
The Scottish And Irish Notes
They became legal tender for any amount in Scotland and Ireland respectively, and their issuers were relieved of the obligation to pay on demand except at the head office, and permitted to pay in Treasury notes instead.
The Friday Wage Bill
It was met. The notes were printed and distributed to branches around the country in time for the reopening, which is what the whole week's work had been arranged around.
05 The Document
The Document 6 August 1914
The Currency and Bank Notes Act 1914, 4 and 5 George 5, chapter 14, passed on the Thursday of the extended holiday.
Four short clauses. Treasury currency notes and their redemption in gold at the Bank. The power of the Treasury to call them in. The postal order subsection and the disapplication of two provisos of the Post Office Act 1908. The Scottish and Irish notes. An emergency currency, a redemption promise and a provision about Post Office small print, in the same few pages.
06 The Pattern Library
1 When one retail withdrawal channel closes or fails, demand concentrates on whichever channel is left open, and the capacity of that channel sets what a depositor can obtain.
Observed: Northern Rock 2007, Cyprus 2013, India 2016, Greece 2015, United States 1933, Argentina 2001, Lebanon 2019, Worldpay 2026, TSB 2018, Afghanistan 2021, Nigeria 2023.
2 A currency replacement can require physical work on every unit of the estate before the new money can circulate, whether a modification to each cash dispensing machine or a stamp affixed to each note, so the changeover proceeds piece by piece rather than all at once.
Observed: India 2016, Czechoslovakia 1993.
3 Withdrawal limits imposed on a domestic banking system can be written to exempt cards issued outside it, so one machine dispenses under two rules according to where the card was issued.
Observed: Greece 2015.
4 Domestic payment and deposit channels can continue operating while cross-border payment routes fail, with the central bank standing in as the intermediary for payments to and from the country.
Observed: Iceland 2008, Germany 1931.
5 When the institutions that convert payment instruments into cash are closed, wages and checks already received cannot be spent, and merchants and carriers extend their own credit in place of the missing conversion.
Observed: United States 1933.
6 A public employer short of the national currency can pay wages in an instrument it issues itself, which then circulates alongside the currency it stands in for.
Observed: Argentina 2001, United Kingdom 1914.
7 Withdrawal restrictions can be imposed by individual institutions and their trade association rather than by statute, so the limit differs from bank to bank and no law governs it.
Observed: Lebanon 2019.
8 A cash withdrawal ceiling is paid only in the denominations the machine is permitted to hold, so a ceiling and a denomination rule set together decide how many notes a withdrawal is, and a ceiling has to be raised alongside the denominations that pay it when the existing notes no longer carry it.
Observed: Zimbabwe 2008, Nigeria 2023, Venezuela 2018.
9 A payment outage can hit card authorisation and merchant funding as separate faults, so acceptance at the terminal is restored while the money owed to the merchant arrives a day late under its own incident notice.
Observed: Worldpay 2026.
10 A retailer that loses electricity can go on trading by taking cash and rationing goods by hand, so the counter outlasts the checkout system that normally prices and settles the basket.
Observed: Texas 2021.
11 A systems migration can leave account records readable but wrong, including presenting one customer's account to another, so a working login is no guarantee that the balance on the screen belongs to the person reading it.
Observed: TSB 2018.
12 The size of a card processing failure can be counted twice, once on first attempts and once after the same card was presented again, and the second count can be about half the first, so part of the recovery runs through the cardholder at the till.
Observed: Visa Europe 2018.
13 A restriction on access to money can be written by purpose as well as by amount, so a balance that cannot be drawn in general becomes payable when it is used for wages, taxes or relief, and the test applied is what the money is for.
Observed: Germany 1931, Brazil 1990.
14 A deposit freeze can be paired with a transferable certificate issued against the frozen balance, so the deposit becomes a claim that can be sold before it is released, at a price the market sets rather than its face value.
Observed: Ecuador 1999, Argentina 2002.
15 A per head issue of a new currency can be distributed through the administration that issues food rations rather than through the banks, so the ration card is the proof of entitlement and the banks are used to collect the old money rather than to pay out the new.
Observed: Germany 1948.
16 When the persons under sanction become the governing institutions of a country, the prohibition reaches ordinary payments that merely touch the state, and access is restored by successive general licences written by activity, so what decides whether a payment can be made is which licence it falls under.
Observed: Afghanistan 2021.
17 One foreign currency can carry more than one price at the same moment inside a single country, the authority setting them by the use the money is put to or by the date a balance was credited, while another price goes on being made outside the official ones.
Observed: Lebanon 2019, Mexico 1982, Egypt 2016.
18 A payment abroad can be made conditional on prior approval by a committee working to a ceiling set for the whole country each day, so what a firm can pay turns on the capacity of the approval process rather than on the balance in its account.
Observed: Greece 2015.
19 Scarce foreign exchange can be rationed through the commercial banks under published guidelines, with the central bank selling only the net requirement at a daily auction and checking compliance through reporting after the fact rather than approving each payment in advance.
Observed: Iceland 2008.
20 A payment instrument issued by a bank in a country under strain can be valid and unusable at the same time, because the counterparty abroad requires a second bank to confirm it, so the trade stops at the confirmation rather than at the instrument.
Observed: Sri Lanka 2022.
21 Notes of a single currency can trade against one another at a discount according to denomination, so the same sum is worth more or less depending on which note it is held in.
Observed: Iraq 2003.
22 A compulsory conversion of deposits can be narrowed by further instruments after it is already in force, so what the measure finally takes is settled by the exceptions rather than by the decree that announced it.
Observed: Argentina 1990.
23 The administration that rations a currency held at an official price can be dismantled in the same announcement that frees the price, so the list of who may buy and the queue behind it end on the day the rate is let go.
Observed: Egypt 2016.
24 An instrument made for remitting money rather than circulating can be declared legal tender in an emergency because a stock of it already exists in small denominations, after which the office that issues it pays it out in place of coin and declines to give change.
Observed: United Kingdom 1914.
Changed today: Entry 6 gained United Kingdom 1914, where old age pensions were paid across the country in postal orders instead of silver and wages were paid in the same postal currency. Entry 24 added, on a remittance instrument declared legal tender because a stock of it already existed.