Banking and Banknotes Had a Shaky Start in Australia
Posted on 2/18/2020
In 1788, an exile colony was founded in southeast Australia in an area called New South Wales. The colony, the first in Australia, was founded with very little currency. England at the time was waging wars almost continuous around the world, causing a coin shortage for the country that was even worse in its colonies.
Australians were forced to use barter, receipts, promissory notes and what few coins they had to conduct trade. These methods sufficed for a time but the need for currency did not go away.
The colony’s promissory notes were issued by a wide range of entities, which made it difficult to prove that the notes had any value at all. People also realized that these notes were very easy to fake, and counterfeits soon plagued the colony as well. The currency shortage was so dire in Australia that construction of The Sydney Hospital was paid in rum. The colony’s government reportedly paid the builders 60,000 gallons for their efforts.
The colony’s leaders realized that they couldn’t continue to operate this way if they wanted to become more than an exile colony. Lachlan Macquarie, the colony’s administrator from 1810 to 1821, asked Great Britain to establish a bank in Australia but his request was denied. Macquarie saw it as his duty to provide a stable means of exchange for the colony so, in 1817, a bank was established without a decree from the home country. Under the guidance of Macquarie and some other prominent figures in the colony, the Bank of New South Wales was established as the first bank in Australia.
The bank proved to be a success and provided a more stable means of exchange for the colony than IOU notes. Yet because the bank was not officially chartered by the British government, barter and private issues of promissory notes persisted.
Once Britain’s period of warfare abated, the home country passed legislation in 1825 making British currency the official currency of Australia. Once the legislation was passed, England sent £100,000 worth of coins to the colony. Shortly thereafter, Australia’s odd assortment of currencies began to be phased out.
The colony relied heavily on the shipments of coins from the home country, but a turning point came for Australian currency when gold was discovered there in the 1850s.
Britain began to see Australia as a viable, profitable colony and an Australian royal mint was founded in 1853 to use the gold mined nearby. More banks began to open and issue paper money, but many colonists were leery of banknotes, making some of these early bank issues extremely rare because so few circulated. Even with this hesitation, however, the demand for banking services grew quickly as investments flowed in. In the early 1850s, only eight banks were in operation, with 24 branches. By 1890, over 30 banks were in operation, with over 1,500 branches.
As banks began to become more common around Australia over the years, people began to accept paper currency more.
But the 1890s proved to be a turbulent time for Australia, much like the rest of the world, due to overspeculation in banking. This period proved to be another turning point for Australian banking.
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