Bank Restriction Act of 1797

AAA

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.

INVESTOPEDIA EXPLAINS '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. Face Value

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

    The abbreviation for the British pound sterling, the official ...
  4. Gold Standard

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

    A financial security that generally has a longer term than a ...
  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. Economics

    Benefits From A Tango Of China-US Trade and Debt

    China has been accumulating US debt for many decades. Here's why it continues to do so, and the risks and benefits of this for both the US and China.
  4. Stock Analysis

    How MasterCard Likely Earned a Spot in Your Wallet

    An in depth look at MasterCard and its future prospects as an investment.
  5. Personal Finance

    Industries That Will Disappear Soon

    As new technologies are introduced, new industries and jobs are created. However, which older industries and their profits are going the way of the dodo?
  6. Stock Analysis

    Is This Dividend Stock A Value Or Value Trap?

    We can say that Fifth Street Finance has had a rough year, but there's a huge difference between an undervalued stock and a stock that's cheap for a reason
  7. Taxes

    Is It Smart To Get Dual Citizenship?

    Does it ever make sense to be a citizen of the U.S. and somewhere else? Yes, so you can work minus a visa – not so much, if you get drafted into the army.
  8. Retirement

    Expat In America: Visas To Retire In the U.S.

    It isn't easy for non-citizens to retire in the United States unless a family member is already a citizen. But some visas will allow for longer visits
  9. Stock Analysis

    Chesapeake Energy Sees History Repeating Itself

    Chesapeake was on the wrong side of natural gas when its price plunged in 2012, and it appears to be repeating itself after the price of oil plummeted.
  10. Stock Analysis

    Is Union Pacific Still A Good Dividend Stock?

    It is impossible for a competitor to secure enough right-of-way real estate and cost advantages to compete with U.S. Class I railroads, like Union Pacific.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center