The Bank Restriction Act 1797 ( 37 Geo. 3. c. 45) was an Act of the

Parliament of Great Britain The Parliament of Great Britain was formed in May 1707 following the ratification of the Acts of Union 1707, Acts of Union by both the Parliament of England and the Parliament of Scotland. The Acts ratified the treaty of Union which created a ...

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 Kingdom of England, English Government's banker and debt manager, and still one ...

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 or bank notealso called a bill (North American English) or simply a noteis a type of paper money that is made and distributed ("issued") by a bank of issue, payable to the bearer on demand. Banknotes were originally issued by commer ...

for gold. The overprinting of banknotes caused the Bank of England to loose 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, or simply Newcastle ( , Received Pronunciation, RP: ), is a City status in the United Kingdom, cathedral city and metropolitan borough in Tyne and Wear, England. It is England's northernmost metropolitan borough, located o ...

Sunderland Sunderland () is a port City status in the United Kingdom, city and metropolitan borough in Tyne and Wear, England. It is a port at the mouth of the River Wear on the North Sea, approximately south-east of Newcastle upon Tyne. It is the most p ...

, and Durham that had in turn requested monetary support from the

, was the invasion of Britain on 22–24 February 1797 by French forces in

Fishguard Fishguard (, meaning "Mouth of the River Gwaun") is a coastal town in Pembrokeshire, Wales, with a population of 3,400 (rounded to the nearest 100) as of the 2021 United Kingdom census, 2021 census. Modern Fishguard consists of two parts, Lowe ...

. When news of this event, now known as the Battle of Fishguard, 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 (28 May 1759 – 23 January 1806) was a British statesman who served as the last prime minister of Kingdom of Great Britain, Great Britain from 1783 until the Acts of Union 1800, and then first Prime Minister of the United Kingdom, p ...

after Britain declared war on revolutionary France in 1793. 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 were 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 twice was Prime Minister of the United Kingdom (1834–1835, 1841–1846), and simultaneously was Chancellor of the Exchequer (1834–183 ...

(the future Prime Minister, acting as Chairman of the Bullion Committee), 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 Anglo-Irish playwright, writer and Whig politician who sat in the British House of Commons from 1780 to 1812, representing the constituencies of Stafford, Westminster and I ...

publicly bemoaned the way in which the

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 list of c ...

’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", still in use today.

References

{{reflist 1797 in economic history 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