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Danger To The Old Lady Of Threadneedle Street? The Bank Restriction Act And The Regime Shift To Paper Money, 1797-18211

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  • Patrick K. O’Brien
  • Nuno Palma

Abstract

The Bank Restriction Act of 1797 was the unconventional monetary policy of its time. It suspended the convertibility of the Bank of England's notes into gold, a policy which lasted until 1821. The current historical consensus is that it was a result of the state's need to finance the war, France’s remonetization, a loss of confidence in the English country banks, and a run on the Bank of England’s reserves following a landing of French troops in Wales. We argue that while these factors help us understand the timing of the suspension, they cannot explain its success. We deploy new long-term data which leads us to a complementary explanation: the policy succeeded thanks to the reputation of the Bank of England, achieved through a century of prudential collaboration between the Bank and the Treasury.

Suggested Citation

  • Patrick K. O’Brien & Nuno Palma, 2019. "Danger To The Old Lady Of Threadneedle Street? The Bank Restriction Act And The Regime Shift To Paper Money, 1797-18211," Working Papers 0082, Utrecht University, Centre for Global Economic History.
    • Handle: RePEc:ucg:wpaper:0082
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    Keywords

    Bank of England; financial revolution; fiat money; money supply; monetary policy commitment; reputation; time-consistency; regime shift;
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