In Scotland, unlike England, there was no officially chartered bank with public responsibility for the currency and a possible lender of last resort role. Instead you had free banking where the circulating medium consisted mainly of paper notes issued by private banks .. In the entire history of the system there were only two failures due to overissuing of notes or credit – in marked contrast to the fragility of the English country banking system of the same period. There was also sustained competition and innovation with a move after 1810 to an extensive branching system (again unlike England).
As Adam Smith and many other contemporary observers pointed out the system was robust and effective and played a major part in Scotland’s transformation from one of the poorest and most backward countries in Europe to an economic powerhouse. In 1750 Scotland’s income per capita was half that of England, yet by 1850 is was equal to England’s – despite sustained growth in England as well as Scotland. This monetary independence ended with the passage of the Scottish Banking Act of 1845 (following on from Peel’s Bank Act of 1844), which took away the right of free note issue and made Scottish banks explicitly subordinate to the Bank of England.