a laconic, pipe-smoking Treasury mandarin who “could be silent in several languages,” was a brilliant mathematician who consulted with his economists and had long been at odds with the Bank’s hard-money policies. During World War I, the Bank had actually printed up excellent counterfeits of
German
money with the full knowledge of the British government. They were delivered regularly by taxi to the head of naval intelligence, probably for use by spies in Germany. But when it came to fakes, Catterns of the Bank had a short memory. Replying to Phillips, he insisted it would hardly be worth the expense and trouble of printing a special reserve of pounds to defend against “a danger which does not seem very likely to materialise,” and in any case, “[W]e do not believe that notes could be put out which would not be distinguishable from our own issue.”
The Treasury took a while to digest this pompous claim before parrying with its own politely skeptical and canny analysis on June 5. Maybe the Bank could spot a fake, Phillips replied, but would an ordinary Englishman be able to tell the difference between a good counterfeit and a real pound note? And once the rumors started flying, “the average man… would begin to suspect all notes.” What would the Bank do then? Publicize the scheme or try to hush it up? What if the Germans dropped the bills in installments, printing up new versions to keep up with the Bank each time it issued a new design? And, finally, who would compensate the trusting but unfortunate souls who got stuck with the air-dropped fakes?
The Bank retreated to ponder Phillips’s uncomfortable questions and came back on June 9 with its solution: It would print a small reserve stock embedded with a special metal thread in a cellulose strip. The Bank had been experimenting with this for several years but hesitated to stick the strip on a new issue of notes for fear of public embarrassment if the device failed. Phillips nevertheless told the Bank to print 300 million pounds’ worth of notes as a secret reserve to replace slightly more than half of all notes in circulation. New bills, fetchingly lithographed in mauve and rose, were finally issued in May 1940 in denominations of one pound as well as a half-pound, or 10 shillings. The only catch was that the Germans, already working on their counterfeits, had wisely decided to get more punch out of each pound by forging mainly black-and-white fivers, more or less the median weekly wage for an English workingman (and nowadays merely the price of a round of drinks at a pub). Thanks to a typical British muddle, Nazi plans for a financial blitzkrieg were pointing straight at the biggest gap in the enemy’s defense, the five-pound note.
Five-pound notes were imposing certificates measuring eight by five inches, with flowing script. The intricate drawing of Britannia on a throne, the date which was also impressed in the watermark, a serial number for each bill, a system of letters and numbers denoting successive issues — all these, the Bank was certain, made its system virtually inscrutable because each note had to match the Bank’s own records or it would be rejected as a forgery. Further, each new issue was designed with security markings so subtle — a broken line, an off-center dot — that counterfeiters were meant to mistake them for misprints and correct them, thus falsifying the note. Out of tradition and prudence, shopkeepers insisted that their customers sign the notes on the back with name and address as if they were being endorsed like a check. The face of the notes bore the bold signature of the Bank’s chief cashier, Sir Kenneth Oswald Peppiatt — K. O. Peppiatt — who, like the Treasury’s Waley, was a World War I officer decorated with the Military Cross. A racing enthusiast and bridge player, he was a man of tall and imposing bearing, easily displaying his supreme self-confidence whenever cornered by extracting a cigarette from the gold
German
money with the full knowledge of the British government. They were delivered regularly by taxi to the head of naval intelligence, probably for use by spies in Germany. But when it came to fakes, Catterns of the Bank had a short memory. Replying to Phillips, he insisted it would hardly be worth the expense and trouble of printing a special reserve of pounds to defend against “a danger which does not seem very likely to materialise,” and in any case, “[W]e do not believe that notes could be put out which would not be distinguishable from our own issue.”
The Treasury took a while to digest this pompous claim before parrying with its own politely skeptical and canny analysis on June 5. Maybe the Bank could spot a fake, Phillips replied, but would an ordinary Englishman be able to tell the difference between a good counterfeit and a real pound note? And once the rumors started flying, “the average man… would begin to suspect all notes.” What would the Bank do then? Publicize the scheme or try to hush it up? What if the Germans dropped the bills in installments, printing up new versions to keep up with the Bank each time it issued a new design? And, finally, who would compensate the trusting but unfortunate souls who got stuck with the air-dropped fakes?
The Bank retreated to ponder Phillips’s uncomfortable questions and came back on June 9 with its solution: It would print a small reserve stock embedded with a special metal thread in a cellulose strip. The Bank had been experimenting with this for several years but hesitated to stick the strip on a new issue of notes for fear of public embarrassment if the device failed. Phillips nevertheless told the Bank to print 300 million pounds’ worth of notes as a secret reserve to replace slightly more than half of all notes in circulation. New bills, fetchingly lithographed in mauve and rose, were finally issued in May 1940 in denominations of one pound as well as a half-pound, or 10 shillings. The only catch was that the Germans, already working on their counterfeits, had wisely decided to get more punch out of each pound by forging mainly black-and-white fivers, more or less the median weekly wage for an English workingman (and nowadays merely the price of a round of drinks at a pub). Thanks to a typical British muddle, Nazi plans for a financial blitzkrieg were pointing straight at the biggest gap in the enemy’s defense, the five-pound note.
Five-pound notes were imposing certificates measuring eight by five inches, with flowing script. The intricate drawing of Britannia on a throne, the date which was also impressed in the watermark, a serial number for each bill, a system of letters and numbers denoting successive issues — all these, the Bank was certain, made its system virtually inscrutable because each note had to match the Bank’s own records or it would be rejected as a forgery. Further, each new issue was designed with security markings so subtle — a broken line, an off-center dot — that counterfeiters were meant to mistake them for misprints and correct them, thus falsifying the note. Out of tradition and prudence, shopkeepers insisted that their customers sign the notes on the back with name and address as if they were being endorsed like a check. The face of the notes bore the bold signature of the Bank’s chief cashier, Sir Kenneth Oswald Peppiatt — K. O. Peppiatt — who, like the Treasury’s Waley, was a World War I officer decorated with the Military Cross. A racing enthusiast and bridge player, he was a man of tall and imposing bearing, easily displaying his supreme self-confidence whenever cornered by extracting a cigarette from the gold
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