ABSTRACT
The Bank Restriction, 1797–1821.—In 1797, Parliament authorized the Bank of England to suspend cash payments. The strain of the war had been too much for the Bank’s resources. The directors had had to meet heavy demands from the government for advances, and in this particular year an internal and an external drain of gold had combined to reduce the metallic reserve very low. The situation was complicated by rumours of a French invasion, which shook the confidence of the business community and caused a run on the Bank. 1 In these circumstances, the government had to come to the rescue of the directors and relieve them from the liability to cash the Bank’s notes in gold. This measure was intended merely to be temporary, but, by various continuing statutes, it was prolonged to 1821, so that for nearly a quarter of a century England had an inconvertible paper currency. The denomination of the notes was reduced. The Act of 1775 was suspended, and the Bank was permitted to issue notes of less than £5.
