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. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  3. Face Value

    The nominal value or dollar value of a security stated by the ...
  4. Gold Standard

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

    The abbreviation for the British pound sterling, the official ...
  6. Note

    A financial security that generally has a longer term than a ...
Related Articles
  1. The Gold Standard Revisited
    Budgeting

    The Gold Standard Revisited

  2. Using Technical Analysis In The Gold ...
    Investing

    Using Technical Analysis In The Gold ...

  3. What is Corporate Social Responsibility?
    Investing Basics

    What is Corporate Social Responsibility?

  4. Six Economic Reasons For Hong Kong Independence ...
    Economics

    Six Economic Reasons For Hong Kong Independence ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center