This chapter again uses data from the Bank’s ledgers, cash books, and other records to examine its policy decisions over much of the eighteenth century (1711—1791). Examination of these data indicates that the Bank’s accounting was highly focused on accurate tabulation of the total stock of Bank money. It is argued that this money stock had two functional components, de facto splitting the bank into two institutions: a passive bank whose money originated from customers’ deposits of coins under receipt, and an active bank whose money originated from open market purchases of metallic assets and credit operations. The data show that from 1727 forward, the active portion of the Bank’s money was systematically adjusted to balance out (sterilize) fluctuations in the passive portion. The chapter also discusses two crisis episodes when this policy approach broke down: (1) a financial panic in the autumn of 1763 that required a liberalization of the receipt system, leading to unbalanced expansion of the passive bank; (2) excessive lending to the Dutch East India Company during the Fourth Anglo-Dutch War (1780—1784), leading to a contraction of the passive portion and overexpansion of the active. The effects of the latter crisis were sufficiently severe that the Bank never fully recovered.

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.

This chapter further analyzes the workings of the receipt system, using data from the Bank’s cash books, which survive from 1711. These data show that heavy usage of the receipt system began from about 1714, following the end of the War of Spanish Succession. From about 1720, most coins entering the Bank under receipt were foreign coins. Inflows of coins into the Bank’s receipt facility are shown to be appreciable percentages of New World gold and silver production. Coins under receipt were usually withdrawn from the Bank less than a year after they were deposited, with the exception of gold coins, which were sometimes surrendered to the Bank upon expiration of their receipts (such coins were said to be “fallen to the Bank”). Waves of fallen gold coins sometimes coincided with surges of gold into Amsterdam, as occurred after the 1720 collapse of John Law’s system in France. Because the receipt system functioned much as a repo facility, the chapter concludes with a derivation of implicit discounts (“haircuts”) on coins under receipt. Haircuts on silver coins are shown to be consistently positive, while haircuts on gold coins are variable and sometimes negative. These haircuts, combined with higher redemption fees for gold, created incentives for more consistent use of the receipt facility for silver coins, while usage of the receipt facility for gold was intermittent.