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27 July 1694Reputable source · 2 sourcesWell documented

The Bank of England Is Founded to Finance a War

A Scottish merchant's scheme to lend the Crown 1.2 million pounds becomes the first modern central bank

On the timeline · around 27 July 1694 · Modern FinanceModern FinanceThe Bank of England Is Founded to Finance a War16001650170017501800

Quick facts

Charter granted
27 July 1694
Initial loan to the Crown
1.2 million pounds at 8 percent interest
Proposer
William Paterson
First governor
Sir John Houblon

What happened

England under William III was fighting the costly Nine Years' War against France and could not raise enough money through taxation alone. William Paterson, a Scottish merchant, proposed that a syndicate of investors lend the government 1.2 million pounds at 8 percent annual interest in exchange for a royal charter to operate as a joint-stock bank. Parliament's guarantee of the loan, backed by the taxing power of the nation rather than the word of a king who might renege, made the scheme credible, and the subscription, opened in June 1694, was fully filled within twelve days. The Bank received its royal charter as 'The Governor and Company of the Bank of England' on 27 July 1694 and opened for business in August in the Mercers' Hall in Cheapside, with Sir John Houblon as its first governor. Within weeks the new bank had issued its first handwritten banknotes, promises to pay the bearer a specified sum, which began circulating among London's merchants as a form of currency in their own right.

Why it matters

The Bank of England became the template for the modern central bank: an institution that manages a government's debt, issues a national currency, and eventually acts as lender of last resort to the rest of the banking system. Central banks founded across Europe, the Americas, and Asia in the following two centuries, including the U.S. Federal Reserve in 1913, drew explicitly on its example.

How we know

The Bank of England's founding charter, the 1694 Tonnage Act that authorized the loan, and the Bank's own early minute books and ledgers survive in the Bank's archives and have been studied continuously by historians of English finance since the 18th century.

Sources

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The Bank of England Is Founded to Finance a War · History of Money · SourcedStory