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 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 o ...

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 issue ...

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

, was the invasion of Britain on 22–24 February 1797 by French forces in Fishguard. 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 after Britain declared war on revolutionary France 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 (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 ye ...

), 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 publicly bemoaned the way in which the

had fallen under the influence of William Pitt the Younger 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’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 of ...

", 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