| ‘FORM OF A BILL OF EXCHANGE1 | ||||
| (Place & Date) | ||||
| £ | Sterling | Exchange at per cent | ||
| Premium at | per cent | |||
| Discount at | per cent | |||
Thirty days after sight of this my first (second, etc) Bill of Exchange pay to the order of (A. B.) the sum of (expressed in words) Sterling for value received by me, in the currency of this place, amounting to (expressed in words) and no more, according to the Rate of Exchange, Premium, or Discount above stated, and charge the same to my Account, for the services of His Majesty’s Victualling Establishment as per Advice.
…………………… Agent
To the Commissioners for Victualling
His Majesty’s Navy
________________
We do hereby certify that the Rate of Exchange, Premium, or Discount upon Bills drawn on London, drawn for the Public Service, were precisely as stated, on the ………. Day of …………. 18.… At this place
…………… (two principal merchants)
I hereby certify the Truth of what is above stated, and that the two Merchants are Persons of Respectability, and considered capable of judging what they have certified.
…………… (Collector of the Customs)
I approve of this Bill, and believe the Rate of Exchange, Premium, or Discount to be correctly stated.
………………… (Commissioner or Commander-in-chief)’
Bills of Exchange are an ancient form of what are now known as ‘negotiable instruments’ which can be passed from hand to hand without the consent of the person or body on whom they are drawn. They are simply a promise to pay a stated sum of money at a stated time. Bank notes and cheques are types of Bills of Exchange.
So if a purser were to give a merchant a Bill drawn on the Victualling Board for £100, that merchant could expect to present it to the Victualling Board and exchange it for that £100. That scenario would require the Bill to say ‘Pay on sight’, or as modern bank notes do, ‘Pay on demand’. More often they would say, as does the example on page 181, ‘Pay thirty days after sight’, which meant that the Victualling Board would not pay out until thirty days after the merchant presented it to them. Some Bills were ‘ninety-day’ Bills or, rarely, even longer periods. Merchants would not be very keen to accept such delayed payments unless there were a guarantee of some interest in compensation for the delay. On the other hand, they may have needed to get some money in their hands quickly, and thus would be prepared to sell the Bill to someone else at a discount. This was the common method of paying for all business transactions at the time, and the system worked very well. There were groups of British merchants all over the world who would buy such Bills at appropriate discounts, and many foreign merchants would happily accept them as well, unless their country was at war with Britain; even then they could cope with the situation by charging a bigger discount.
Strictly speaking, it should have been irrelevant to the validity of a Bill that it stated that it was to be used for a particular purpose and countersigned by a particular set of people. However, the person or organisation that is to pay is entitled to impose conditions if they wish, provided that the person accepting the Bill in payment is aware of these conditions. Apart from the fact that it would have been obvious the moment the Bill was proffered, merchants in ports frequented by the Royal Navy would have been aware of the Victualling Board’s conditions; those who did not like them might be mollified by being shown the relevant part of the printed Regulations, or would just insist on being paid in cash, which is why pursers were issued with ‘necessary’ money.
Sooner or later someone would have to produce the Bill to the Victualling Board in London in order to receive their money, and for merchants abroad this would involve finding someone who was going to London, sending the Bill to an agent in London, or just selling it to someone else locally (a larger merchant or a bank) who had London correspondents. With small Bills, there was rarely any hesitation over payment, the Victualling Board dealing with any possible problems by charging the amount to the issuing person’s imprest account.
The easiest way to describe the concept of imprest accounts is to liken them to modern overdraft accounts, secured, in the case of pursers, by their unpaid wages and the bonds lodged by their guarantors when the purser took the job. The imprest was not cleared (or the wages paid) until all the requisite paperwork was produced and checked to ensure that the money had been spent properly. The imprest system was applied to victualling contractors as well as pursers, the only difference being the magnitude of the sums involved. Both purser and contractor were effectively in the same line of business, one as what we might call a retailer and the other as a wholesaler, and both, by drawing Bills, were doing what the modern business person does when they write a cheque for stock purchases. And just like the modern wholesaler does when they can see the necessity of writing a large cheque which will take them over their overdraft limit, these contractors wrote to ask the Victualling Board if they might increase their imprest limit.2 If the amount was large and they had no forewarning of it, the Victualling Board might write to the Admiralty and ask permission to accept the Bill, just as the branch manager of a bank might write to his head office today. The reason for this was that the Admiralty could not just spend money as it pleased; it had to stick to the limits agreed for each year by Parliament and if it was likely to exceed those limits it would have to go back to Parliament and ask for more. Given that this would cause serious unpopularity in politically fragile times, it is perhaps not surprising that on some occasions, when presented with an unexpected large Bill, the Admiralty might decide to refuse payment, or in modern terms, ‘bounce the cheque’.3
However, accepting a Bill did not necessarily mean it was paid out at the specified interval. There were long periods when the Admiralty’s subordinate boards just did not have the money available to pay their Bills, and in this case they would apply interest to the amount they would eventually pay and advise the owner of the Bill to watch ‘the course of the exchange’. This was an official statement as to when certain tranches of Bills would be paid. For instance, in January 1795 the Treasury stated that Bills from April to September 1791 were ‘in course of payment’ and that those from that period to March 1793 were ‘funded in five per cent’ interest.4