Use of Notes as "Till Money" in Relation to the Establishment of Branches
Banking by branches in Scotland has proceeded even more rapidly than in England, and the percentage of branches per head of the population is higher in the northern part of the Kingdom. This wide diffusion of banking facilities in Scotland has been largely brought about by the fact that its banks, having the privilege of note issue, were able to hold their own notes as "till money," so economising in the matter of cash. The following passage is from a work entitled Scottish Banking, 1865-1896, by A. W. Kerr, author of a History of Banking in Scotland:
Were it not for the power to issue notes, and the readiness with which the public receive them, the banks could never have afforded to open a third of the branches which have been established. The reason for this is a very simple one. Without the right of issue a bank must, at every one of its offices, hold the whole of its balance of cash in the shape of coin, or of notes of other banks, which, as far as it is concerned, are as unprofitable as coin. Such balances entail a complete loss of interest which can only be borne where the amount of business is of considerable extent. There are probably not above 100 (at most 200) localities in Scotland that would satisfy such conditions. When, however, a bank can hold its till money in the shape of notes, it is enabled to extend its operations into districts which would otherwise be quite inaccessible....
The authority of a practical Scotch banker is equally emphatic on the point. Mr. Robert Blyth, general manager of the Union Bank of Scotland, read a paper at the thirty-first annual convention of the American Banking Association, in October, 1905, on the subject of Scottish banking. In the course of this very interesting paper he made the following statement: "It is in another quarter altogether that the Scotch banks find the value of the £1 note. It is the unissued notes in the tills of the branch offices, forming the till money at more than a thousand branches, wherein the real value lies. Without them the banks would require to keep £8,000,000 or £10,000,000 of gold coin, not as a reserve but as till money. It is these £1 notes which have enabled branch offices to be planted in every part of the country."
It thus appears, from the highest possible authority, that the Scotch banks are enabled by their right of note issue to economise gold to the extent of £8,000,000 or £10,000,000, and it is amusing to observe how the objects aimed at by Peel's legislation with regard to note issue have thus been defeated even more completely in Scotland than in England. In England banking turned the flank of Peel's Act by developing the use of cheques, which superseded the note as the common form of payment in daily transactions. In Scotland, banking evaded the spirit of Peel's regulations, which were intended to insure that every addition to currency should be secured on an addition to the bullion held by it, by actually economising bullion to the extent of £8,000,000 or £10,000,000.