Bank Restriction Act of 1797

What Is the Bank Restriction Act of 1797?

The Bank Restriction Act of 1797 was an act passed by the British government to confine the Bank of England from changing over banknotes into gold. The act was passed to allow Parliament to print money to finance a war with France.

Understanding the Bank Restriction Act of 1797

In 1694, the Bank of England, a private corporation, was made out of the British government's requirement for cheap loans to finance its expenses. After three years, the Bank was given monopoly rights that covered banking and note-giving activities. Be that as it may, when the war with France started during the 1790s, the British government's military expenses rose rapidly. Subsequently, the government issued paper notes that the Bank of England was expected to change over into gold on demand.

Nonetheless, by 1797, the Bank's gold reserves had been decreased to hazardously low levels because of heavy demands for gold recoveries from both domestic and foreign noteholders. To save the Bank from bankruptcy, the British government passed the Bank Restriction Act of 1797.

Toward the finish of the war in 1814, the amount of currency in circulation was far bigger 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 reestablished in 1821 to balance out the currency. By then, the amount of gold backing the currency had developed substantially and amounted to significantly more than the value of the pounds in circulation.

Features

• The Bank Restriction Act of 1797 was a British act passed to confine the Bank of England from changing over banknotes into gold.
• Initially, the bank was made so the British government could access cheap loans to finance its expenses.
• Nonetheless, when the war with France started during the 1790s, the British government's military expenses rose rapidly.
• Toward the finish of the war in 1814, the amount of currency in circulation was far bigger than the amount of gold backing it, leading to a sharp depreciation in the value of British currency, the pound sterling.
• To save the Bank of England from bankruptcy, the British government passed the Bank Restriction Act of 1797.