Encyclopedia of Money: Stop of the Exchequer (England)

In January 1672 Charles II issued a proclamation that suspended payment on tallies and Exchequer orders to pay, an action that became known as the Stop of the Exchequer. The British treasury is called the Exchequer, because during the Middle Ages transactions with the British treasury took place in a room with tables covered by checkered cloth. The modern term check is a derivative of exchequer.

During the reign of Charles II the Exchequer discounted tallies and Exchequer orders to pay to goldsmith bankers, paying interest rates above 6 percent. Tallies were wooden sticks that represented a debt of the government and Exchequer orders to pay were paper orders that were replacing the wood tallies, which were a holdover from the Middle Ages. The goldsmith bankers paid 6 percent interest on near-money accounts (deposits not readily available on demand, such as modern certificates of deposit) in order to raise funds for discounting tallies and paper orders from the government. Tallies and paper orders were similar to some present-day government bonds that are bought at a discount (an amount less than face value), and can be redeemed at face value at some maturity date in the future. The government pledged to redeem the tallies and paper orders in a rotating order.

When the goldsmith bankers had no more money to loan out, and were no longer able to discount tallies and paper orders, Charles stopped redemption of the tallies and paper orders already held by the goldsmiths. This Stop of the Exchequer initially caused a run on the goldsmith bankers and many were eventually ruined by this action. Later the government honored about half of its debt to the goldsmith bankers.

The Stop of the Exchequer reminded people of the seizure of the mint in 1640 and created more doubt about government involvement in banking. It also cast a shadow on paper money, and postponed the development of an institution such as the Bank of England for another 20 years. The credibility of government money suffered a severe setback from this experience, and in England issuing paper money became the province of banks.