5 - Emergence of the Receipt System, 1660–1710

Summary

This chapter covers the Bank’s introduction of its receipt (quasi-repo) facility in 1683 and its simultaneous transition to a fiat-money standard. Data extracted from the Bank’s ledgers (which survive from 1666) show that before the introduction of receipts, the Bank routinely executed large purchases of silver in order to maintain the size of its balance sheet and to ensure an adequate stock of metallic assets. These data also show that the Bank’s open market purchases were curtailed after the introduction of the receipt system, which created greater incentives for Bank customers to deposit trade coins into the Bank. With the introduction of receipts, Bank ledger balances unaccompanied by a receipt lost their rights to redemption in coin—Bank money became fiat money. The archival data suggest that the transition to fiat money was chiefly motivated by a desire to improve Bank accounting, via a reduction in the set of feasible transactions involving precious metal. The chapter shows how the transition to fiat money also stabilized the market value of Bank money. An appendix to this chapter presents a methodology for classifying Bank transactions from entries in its ledgers.