The sinews of war
One of the forged Nazi £20 notes.
John Keyworth
The Roman statesman Cicero's aphorism that 'Endless money forms the sinews of war' is as true today as it was two millennia ago. There can be little doubt that the nation with the deepest war chest is more likely to be victorious in a conflict.
In the case of Britain, it was the Bank of England that kept replenishing that war chest and thereby played a major role in propelling the country towards economic and military pre-eminence in Europe. Particularly during the 18th century and during times of war, the Bank was Britain's secret weapon, one that gave the country almost limitless stamina to battle on. And it did this simply by using its borrowing powers and the confidence it commanded generally to raise money time and time again from the public for the government.
New notes
The Bank's paper – that is, its banknotes – has always maintained its face value. However, wars tend to bring with them rising prices because government spending increases during wartime and the country's production is mainly diverted towards the war effort. In the 18th century, this rise in prices in Britain tended to lead to the issue of greater numbers of notes of all kinds and of new, lower-denomination notes as the bullion-based coinage disappeared from circulation.
In 1759 during the Seven Years' War, when the lowest value note issued by the Bank was £20, the institution released a £10 note for the first time. In 1793, during the war with revolutionary France, the Bank's first fiver came into being, and four years later, £1 and £2 notes appeared. At the outbreak of World War I, the government issued £1 and 10-shilling notes to supplant the sovereign and half-sovereign coins.
During World War II, however, no new denominations were released. In fact, quite the reverse was true: in 1943, the Bank stopped issuing notes of all denominations of £10 and above. This was, according to the chancellor of the Exchequer's announcement to the House of Commons, 'to provide an additional handicap to those who may contemplate breaches of exchange control and other regulations'. In this way, notes circulating abroad could be isolated, and black-market operations and tax evasion made more difficult.
Large-scale forgery
The disappearance of high-denomination notes was also aimed as a counter-measure to the very serious threat posed by the Germans' large-scale forgery of the Bank's black and white Series 'A' notes, which ranged from £5 upwards, in the project code-named 'Operation Bernhard'.
The notes were produced by inmates at Sachsenhausen concentration camp. Various technical problems such as the quality of the paper and the ageing of the notes had been ingeniously solved by the Germans, and the forgeries represented a serious threat to the credibility of the Bank's notes.
If the original plan had been carried out – namely, the dropping of millions of pounds' worth of forged Bank of England notes on key British cities – the effect on the economy would have been disastrous. Everyday life would have been severely disrupted as people lost confidence in banknotes, and large areas of the country would have reverted to barter.
Fortunately, though, this did not happen – the bogus notes were, instead, used to finance espionage and other covert operations. Only a relatively insignificant number of them actually found their way into circulation.
John Keyworth is curator of the Bank of England Museum in London.
