It all started in the year 1690 with a decisive defeat of the English navy at the hands of a French fleet.

⁣⁣⁣⁣The King of England at the time, King William III, was humiliated. He sought to rebuild the navy as quickly as possible. This was to protect England and stave of possible invasion by the French. However, the problem was the amount of money required and the royal purse wasn’t exactly abundant.

⁣⁣⁣⁣The King of England was not in a place to borrow the money. This was because his predecessor Charles II had flat out repudiated (refused to repay) a vast debt he owed to London’s gold merchants a few decades before. Borrowing is normally based on a promise that any money that is lent will be repaid. And the royal family at the time were not seen as reputable when it came to making repayments⁣⁣⁣⁣.

King William III was limited in his options⁣⁣⁣⁣. An entrepreneurial banker called William Paterson caught wind of this… and he had a bright idea. His idea was to create a private bank, this bank would bear the crest of the nation of England (and therefore inspire trust to the uninformed eye). Any creditors who made deposits into the bank would be given an enticing rate of annual return on their money of 8%…⁣⁣⁣

⁣…the part they they didn’t disclose was that these same funds would then subsequently be borrowed by the King. ⁣⁣⁣⁣The Bank Of England was subsequently created. And William III then in turn borrowed the necessary funds to rebuild the English navy. It was an indirect method for King William III to acquire capital. Capital that others would not provide for him given that he was deemed to be at too much of a risk of defaulting⁣⁣⁣⁣.

And that’s how the UK’s central bank was born. Through a backroom deal between an entrepreneur called William Paterson and a King who was at the time broke. ⁣⁣⁣⁣Of course it's not all bad – this monetary system has given us immense progress in certain period of history. It’s just interesting to know how it all began.

⁣⁣⁣⁣I’d really recommend the book “The Creature From Jekyll Island” as a good read on financial history if anyone is interested⁣⁣