The Bank Restriction Act 1797 was an Act of the Parliament of Great Britain (37 Geo. III. c. 45) which removed the requirement for the Bank of England to convert banknotes into gold. The period lasted until 1821, when convertibility was restored. The period between these two dates is known as the Restriction period.

Reasons for restricting

An increasing number of people were trading their

banknotes A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes were originally issued ...

for gold. Due to the overprinting of banknotes, the Bank of England was losing its supply of gold, and due to the

gold standard A gold standard is a Backed currency, monetary system in which the standard economics, economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the ...

, the value of each banknote was diminishing. The timing of the act, which had been under consideration for a few months owing to runs on banks in

Newcastle-upon-Tyne Newcastle upon Tyne (Received Pronunciation, RP: , ), or simply Newcastle, is a City status in the United Kingdom, city and metropolitan borough in Tyne and Wear, England. The city is located on the River Tyne's northern bank and forms the la ...

Sunderland Sunderland () is a port city in Tyne and Wear, England. It is the City of Sunderland's administrative centre and in the Historic counties of England, historic county of County of Durham, Durham. The city is from Newcastle-upon-Tyne and is on t ...

, and

Durham Durham most commonly refers to: *Durham, England, a cathedral city and the county town of County Durham *County Durham, an English county * Durham County, North Carolina, a county in North Carolina, United States *Durham, North Carolina, a city in N ...

that had in turn requested monetary support from the Bank of England, was the invasion of Britain on 22–24 February 1797 by French forces in

Fishguard Fishguard ( cy, Abergwaun, meaning "Mouth of the River Gwaun") is a coastal town in Pembrokeshire, Wales, with a population of 3,419 in 2011; the community of Fishguard and Goodwick had a population of 5,407. Modern Fishguard consists of two ...

. When news of this event, now known as the

Battle of Fishguard The Battle of Fishguard was a military invasion of Great Britain by Revolutionary France during the War of the First Coalition. The brief campaign, on 22–24 February 1797, is the most recent landing on British soil by a hostile foreign force ...

, became known in London, a much greater run on the Bank of England was feared, had a large number of holders of

attempted to convert them into gold when bullion reserves were heavily reduced. However, because the total face value of the notes in circulation was almost exactly twice the actual gold reserves held (£10,865,050 of notes, compared to £5,322,010 in bullion), this would have bankrupted the Bank, and Parliament decided to suspend these 'specie payments' with immediate effect; this suspension was renewed annually until 1821.

Reasons for overprinting

British banknotes were overprinted by the government of

William Pitt the Younger William Pitt the Younger (28 May 175923 January 1806) was a British statesman, the youngest and last prime minister of Great Britain (before the Acts of Union 1800) and then first Prime Minister of the United Kingdom, prime minister of the Un ...

after Britain declared war on

revolutionary France The French Revolution ( ) was a period of radical political and societal change in France that began with the Estates General of 1789 and ended with the formation of the French Consulate in November 1799. Many of its ideas are conside ...

in 1793. Passing of the Bank Restriction Act released the government from the fear of mass redemption of such convertible banknotes, and by the end of the war in 1814, the banknotes in circulation had a face value of £28.4 million, yet was backed by only £2.2 million of gold. However, by 1821, and with radical economic policies instigated by Sir

Robert Peel Sir Robert Peel, 2nd Baronet, (5 February 1788 – 2 July 1850) was a British Conservative statesman who served twice as Prime Minister of the United Kingdom (1834–1835 and 1841–1846) simultaneously serving as Chancellor of the Excheque ...

(the future Prime Minister, acting as Chairman of the

Bullion Committee The Bullion Committee was set up in order to research the possibility of putting Britain onto the gold standard and how to carry it out. Sir Robert Peel was the chairman of the committee. He managed to put sterling on the gold standard two yea ...

), this situation was reversed, and with £2,295,360 of notes in circulation being backed by £11,233,390 of bullion, the British government resumed "convertibility" on 1 May 1821 (two years ahead of schedule).

In popular culture

After the passing of the act,

Richard Brinsley Sheridan Richard Brinsley Butler Sheridan (30 October 17517 July 1816) was an Irish satirist, a politician, a playwright, poet, and long-term owner of the London Theatre Royal, Drury Lane. He is known for his plays such as ''The Rivals'', ''The S ...

publicly bemoaned the way in which the Bank of England had fallen under the influence of

by describing the institution as "An elderly lady in the City, of great credit and long standing who had unfortunately fallen into bad company". This in turn led to

James Gillray James Gillray (13 August 1756Gillray, James and Draper Hill (1966). ''Fashionable contrasts''. Phaidon. p. 8.Baptism register for Fetter Lane (Moravian) confirms birth as 13 August 1756, baptism 17 August 1756 1June 1815) was a British caricatu ...

’s famous cartoon entitled ''Political Ravishment; or the Old Lady of Threadneedle Street in Danger'', which depicts Pitt seducing the Bank of England, personified as an old lady attired in £1 and £2 notes, for her fortune. This cartoon is the origin of the Bank's nickname of "

The Old Lady of Threadneedle Street The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government ...

", still in use today.

References

{{reflist 1797 in economics Banking in Great Britain Banking legislation in the United Kingdom Great Britain Acts of Parliament 1797

Reasons for restricting

Reasons for overprinting

In popular culture

See also

Further reading

References