What is the 'Bank Restriction Act of 1797'

The Bank Restriction Act of 1797 was an act passed by the British government to restrict the Bank of England from converting bank notes into gold. The act was passed in order to allow Parliament to print money to finance war with France.

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. 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 of 1797.

By the end of the war in 1814, the amount of currency in circulation was far larger than the amount of gold backing it, leading to a sharp depreciation in the value of British currency, the pound sterling. Convertibility to gold was restored in 1821 to stabilize the currency. By then, the amount of gold backing the currency had grown substantially and amounted to much more than the value of the pounds in circulation.

RELATED TERMS
  1. Emergency Banking Act of 1933

    The Emergency Banking Act 0f 1933 was a bill passed to restore ...
  2. GBP

    GBP is the abbreviation for the British pound sterling, the official ...
  3. Limited Convertibility

    Limited convertibility refers to a situation in which government ...
  4. Convertible Currency

    A convertible currency is one that is freely traded and trusted ...
  5. Currency Convertibility

    Currency convertibility is the degree to which a country can ...
  6. Gold Bull

    A gold bull anticipates the price of gold increasing over a period ...
Related Articles
  1. Investing

    What Drives The Price Of Gold?

    Gold prices are based on the economy and actual uses, but there are many other factors that dictate gold's perceived value.
  2. Investing

    8 Reasons To Own Gold

    This precious metal's rich history stems from its ability to maintain value over the long term.
  3. Investing

    Why the Price of Gold Is More Than Just Supply & Demand

    The price of gold is driven by multiple factors that work together in at times counterintuitive ways. Understanding the place of gold in a portfolio requires a look at history.
  4. Investing

    Is Now the Right Time to Buy Gold Mining Stocks?

    Examine the current case for buying gold stocks, and learn the reasons why gold and mining stocks may be set to begin a new rally in the near future.
  5. Investing

    Why is Gold a Counter Cyclical Asset?

    Gold is widely considered a safe haven during market turbulence. History has proven gold performs counter cyclically to the state of the U.S. economy.
  6. Investing

    The Contrarian: Gold Is Not the Safe Haven You're Looking For

    It's taken as gospel that gold is the ultimate safe-haven asset. We beg to differ.
  7. Investing

    4 Ways to Invest in Gold (GLD, FSAGX)

    Discover four different investment vehicles that investors can utilize to obtain exposure to the gold market in the precious metals sector.
  8. Investing

    What Is Wrong With Gold?

    Despite its historic and symbolic appeal, this metal is simply a commodity. Here we explore its meaning as an investment.
  9. Investing

    The Gold Showdown: ETFs Vs. Futures

    ETFs and gold futures are two ways to diversify into the metals asset class, but there are advantages and disadvantages to both instruments.
RELATED FAQS
  1. What are restricted shares?

    Understand what a restricted share is. Learn why a company would issue restricted shares to employees and why an employee ... Read Answer >>
  2. Has gold been a good investment over the long term?

    Examine the investment performance of gold dating back to 1933, when President Roosevelt required all gold bullion, coins ... Read Answer >>
  3. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center