Bank Restriction Act of 1797

DEFINITION of 'Bank Restriction Act of 1797'

An act passed by the British government in 1797 to free the central Bank of England from converting bank notes and other financial claims into gold. The act was created in response to the flood of paper money issued by the British government that resulted in an economic catastrophe.

BREAKING DOWN 'Bank Restriction Act of 1797'

In 1694, the Bank of England, a private corporation, was created out of the British government's need for cheap loans to finance its expenses. Three years later, the Bank was given monopoly rights that covered banking and note-issuing activities in England. However, once the war with France began in the 1790s, the British government's military expenses rose very quickly. Thus, the government issued paper notes that the Bank of England was expected to convert into gold on demand. But, by 1797, the Bank's gold reserves had been reduced to dangerously low levels as a result of heavy demands for gold redemptions from both domestic and foreign note holders. To save the Bank from bankruptcy, the British government passed the Bank Restriction Act. By the end of the war in 1814, bank notes outstanding had a face value of 28.4 million pounds on gold reserves of only 2.2 million pounds, which caused the British currency to depreciate about 30%, creating so much stress on the British economy that a gold standard was needed to stabilize the currency.

RELATED TERMS
  1. Government Bond

    A debt security issued by a government to support government ...
  2. Gold Standard

    A monetary system in which a country's government allows its ...
  3. Note

    A financial security that generally has a longer term than a ...
  4. Face Value

    The nominal value or dollar value of a security stated by the ...
  5. GBP

    The abbreviation for the British pound sterling, the official ...
  6. Bretton Woods Agreement

    A landmark system for monetary and exchange rate management established ...
Related Articles
  1. Budgeting

    The Gold Standard Revisited

    Think the value of gold is unshakable? Read this chronicle of its rise and fall.
  2. Investing

    Using Technical Analysis In The Gold Markets

    The quest for this shiny commodity has made millionaires of paupers and, on the flip side, ruined many an investor.
  3. Personal Finance

    What it Takes to Get a Green Card

    Grounds for getting a green card include having family members in the U.S., being a certain type of refugee or specialized worker, or winning a lottery.
  4. Economics

    The 2007-08 Financial Crisis In Review

    Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone.
  5. Economics

    How Warren Buffet Made Berkshire Hathaway A Winner

    Berkshire Fine Spinning Associated and Hathaway Manufacturing Company merged in 1955 to form Berkshire Hathaway.
  6. Career Education & Resources

    Laws & Regulations To Know Before Changing the Name of Your Business

    Discover some of the most important steps you need to take after making a decision to change your legally established business name.
  7. Personal Finance

    Passport Procrastinators: This Year, Renew Early!

    Millions of passports issued nearly 10 years ago when the Western Hemisphere Travel Initiative became law are expiring. Expect backlogs; leave extra time.
  8. Term

    Understanding Rule 144A

    Rule 144A is an SEC rule that changes the two-year holding period requirement on privately placed securities.
  9. Economics

    3 Economic Challenges Russia Faces in 2016

    Learn about the three largest challenges facing the Russian economy in 2016. How will low oil prices and high inflation impact the Russian economy?
  10. Retirement

    Power of Attorney: When It's Critical to Get One

    "The sooner the better" is the usual answer.
RELATED FAQS
  1. What is the Writ of Mandamus?

    A writ of mandamus is a court order issued by a judge at a petitioner’s request compelling someone to execute a duty he is ... Read Full Answer >>
  2. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  3. Can the IRS audit you after a refund?

    The U.S. Internal Revenue Service (IRS) can audit tax returns even after it has issued a tax refund to a taxpayer. According ... Read Full Answer >>
  4. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  5. What happens if property is wrongfully escheated?

    If your financial accounts, such as bank, investment or savings accounts, are declared dormant and the managing financial ... Read Full Answer >>
  6. How do financial advisors help you avoid escheatment?

    Financial advisors can help you avoid the escheatment of your financial assets by regularly reviewing all of your accounts, ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center