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Danger to the old lady of Threadneedle Street? The Bank Restriction Act and the regime shift to paper money, 1797-1821

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  • Nuno Palma

    (University of Groningen)

  • Patrick O’Brien

    (London School of Economics)

Abstract

"The Bank Restriction Act of 1797 suspended the convertibility of the Bank of England's notes into gold. The current historical consensus is that the suspension 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 Restriction period, 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

  • Nuno Palma & Patrick O’Brien, 2017. "Danger to the old lady of Threadneedle Street? The Bank Restriction Act and the regime shift to paper money, 1797-1821," Working Papers 17001, Economic History Society.
  • Handle: RePEc:ehs:wpaper:17001
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    References listed on IDEAS

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    8. Angela Redish, 1993. "Anchors Aweigh: The Transition from Commodity Money to Fiat Money in Western Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 26(4), pages 777-795, November.
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    Citations

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    Cited by:

    1. Nuno Palma, 2018. "Reconstruction of money supply over the long run: the case of England, 1270–1870," Economic History Review, Economic History Society, vol. 71(2), pages 373-392, May.
    2. Philip Garnett & Simon Mollan & R. Alexander Bentley, 2017. "Banks, births, and tipping points in the historical demography of British banking: A response to J.J. Bissell," Business History, Taylor & Francis Journals, vol. 59(5), pages 814-820, July.
    3. O'Brien, Patrick Karl & Palma, Nuno, 2020. "Not an ordinary bank but a great engine of state: The Bank of England and the British economy, 1694-1844," eabh Papers 20-03, The European Association for Banking and Financial History (EABH).
    4. Mike Anson & David Bholat & Miao Kang & Ryland Thomas, 2017. "The Bank of England as Lender of Last Resort: New historical evidence from daily transactional data," Working Papers 0117, European Historical Economics Society (EHES).
    5. Irigoin, Alejandra, 2018. "Global silver: Bullion or Specie? Supply and demand in the making of the early modern global economy," MPRA Paper 88859, University Library of Munich, Germany.
    6. N. Palma, 2019. "The existence and persistence of liquidity effects: Evidence from a large-scale historical natural experiment," The School of Economics Discussion Paper Series 1904, Economics, The University of Manchester.

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    More about this item

    Keywords

    Bank of England; financial revolution; fiat money; money supply; monetary policy commitment; reputation; and time-consistency; regime shift; financial sector growth;
    All these keywords.

    JEL classification:

    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913

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