The new notes were originally designed to be issued in the form of loans to bankers, who were empowered to borrow up to 20 per cent. of their liability on deposits in the form of Treasury notes, giving a floating charge upon their assets and paying 5 per cent. for the accommodation. (See the Currency and Bank Notes Act 1914, and explanatory Treasury Memorandum.) Naturally borrowing currency on these terms was not a process which the great English banks wished to carry on longer or to a greater extent than was necessary, and some of them never made use of it at all. From the beginning some of them did not borrow Treasury notes but paid for them with a draft upon their balances at the Bank of England, and in a very short time those which had borrowed paid the loans off from the same source, and simply held Treasury notes in place of so much credit at the Bank of England.
Thus the amount of Treasury notes that could be issued was without limit, seeing that the Bank of England's power to create credits in its books, described in our first chapter, was still more unlimited than it had been before. As was there shown the Bank of England's power to create credit was not
