British internal exchange rates
This cheque is an unusual reminder that within Great Britain internal exchange rates existed until some time in the early nineteenth century.
The cheque was drawn in London on Herries Farquhar & Company by the famous Edinburgh bankers, Sir Wm Forbes Hunter & Co, and was for £200 cash. The back is endorsed as follows:
So £201 5. 0d in Edinburgh was the same as £200 in London! This was not because England and Scotland are different countries: the system operated between London and Newcastle, and no doubt
other towns. Money was reckoned to be more valuable in London because the investment opportunities were there. Given the cost of moving money - here we see two shillings simply to post a cheque to Scotland - it was easy to see how that situation came about.
If money was being sent to London, the sender bought a Bill of Exchange at his local bank. This bill would be redeemed in London at a certain number of days in the future. Thus the local banker had use of the money for a period before his London account was charged and was thereby compensated for having to pay out in "heavier" London pounds. The number of days varied according to rate of exchange, which itself reflected the volume of traffic in each direction. Around the beginning of the nineteenth century, forty days was common for remittances from Scotland and fourteen to thirty-one days from Newcastle. This system could not work if the transaction started with cash drawn in London and so a formal exchange rate was used, as in this case.
Very little has been written on this subject and it is difficult to say at what distance it operated and when it may have ceased, but it could not have survived the penny post.
Geoffrey L Grant
Copyright 2010 BBHS