Scotland's experience of banknotes was very different from that in the rest of Britain. Thanks to legal differences existing since the 19th century, Scotland’s commercial banks still issued their own banknotes, whereas (with one or two minor exceptions) English and Welsh banks did not. This meant that while Scots had been using and trusting paper money for 200 years, for most people in England and Wales, ‘cash’ meant exclusively coins.
This familiarity placed Scotland at a theoretical advantage in 1914, when the government asked people to put their faith in paper money. There was, however, one obstacle. Another legal difference north and south of the border was that in Scotland banknotes were legal currency, but not legal tender. This was a technicality that wouldn’t normally matter, but in a crisis, there was a key distinction; legal tender is the only type of payment a creditor is obliged to accept for a debt. If Scottish notes weren’t legal tender, then customers could legally refuse them in payment from the banks, insisting instead on gold. In order to prevent this, the government extended legal tender status to Scottish banknotes, with the caveat that at their head offices, banks were still obliged to pay in gold or Treasury banknotes.
The increased importance of paper money required large volumes of new notes to be designed, prepared and printed. The costs of producing the new Treasury banknotes was a government expense, but the Scottish banks also had to step up their production. They already had note designs, of course, but the challenges of printing and issuing extra notes were significant enough. The Royal Bank of Scotland declared that it was ‘making notes as fast as they can be printed off.’
Paper money circulation continued to increase throughout the war, placing further demands on the Scottish banknote issuers. By 1918, Scotland’s banknote circulation had reached £25M, compared to £9.5M in 1914. Amid paper shortages and rising labour costs, the expense of producing all these extra notes was a significant burden.
After the war, the Scottish banks continued to issue their own notes, although they returned to their traditional status as legal currency but not legal tender. Note circulation continued to rise until 1920, peaking at £29M. It fell again in the mid-1920s, but still remained at least double the pre-war circulation.