One of the first acts of the new government was a complete recoinage, which was finished in 1699; but the measure failed of its purpose, for the reason that the exports of silver regularly exceeded the imports.
In 1717, a committee of the House of Lords considered the condition of the currency, and Lord Stanhope then explained very lucidly the cause of the scarcity of silver. Among other papers he produced a report from the Custom House, by which it appeared that, in the year 1717, "the East India Company had exported near three million ounces of silver, which far exceeding the imports of the bullion in that year, it necessarily followed that vast quantities of silver specie must have been melted down, both to make up the export, and to supply the silversmith."[327] For the decade from 1711 to 1720 the annual export of bullion by the East India Company averaged £434,000.[328] At the accession of George III., in 1760, Lord Liverpool estimated that shillings had lost one-sixth, and sixpences one-quarter of their original weight, while the crown-piece had almost wholly disappeared.[329] Even Adam Smith admitted that because of this outflow silver had risen in value, and probably purchased "a larger quantity both of labour and commodities" than it otherwise would.[330]
In this emergency the British merchants showed the resource which has always been their characteristic, and, in default of an adequate supply of specie, relieved the strain upon their currency by issuing paper. Mediæval banking had gone no further than the establishment of reserves of coin, to serve as a medium for clearing bills of exchange; the English took the great step of accelerating the circulation of their money, by using this reserve as a basis for a paper currency which might be largely expanded. The Bank of England was incorporated in 1694, the Bank of Scotland in 1695, and the effect was unquestionably considerable. Adam Smith has thus described the impetus received by Glasgow:--
"The effects of it have been precisely those above described. The business of the country is almost entirely carried on by means of the paper of those different banking companies, with which purchases and payments of all kinds are commonly made. Silver very seldom appears except in the change of a twenty shillings bank note, and gold still seldomer. But though the conduct of all those different companies has not been unexceptionable ... the country, notwithstanding, has evidently derived great benefit from their trade. I have heard it asserted, that the trade of the city of Glasgow doubled in about fifteen years after the first erection of the banks there; and that the trade of Scotland has more than quadrupled since the first erection of the two public banks at Edinburgh."[331]