IDEAS home Printed from https://ideas.repec.org/p/ucg/wpaper/0082.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://cgeh.nl/sites/default/files/WorkingPapers/cgehwp82obrienpalma.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. Newby, Elisa, 2012. "The suspension of the gold standard as sustainable monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1498-1519.
    3. Palma, Nuno, 2018. "Money and modernization in early modern England," Financial History Review, Cambridge University Press, vol. 25(3), pages 231-261, December.
    4. 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.
    5. Mark Dincecco & Mauricio Prado, 2012. "Warfare, fiscal capacity, and performance," Journal of Economic Growth, Springer, vol. 17(3), pages 171-203, September.
    6. Stephen Quinn & William Roberds, 2016. "Death of a Reserve Currency," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 63-103, December.
    7. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133.
    8. Rudiger Dornbusch & Jacob A. Frenkel, 1984. "The Gold Standard and the Bank of England in the Crisis of 1847," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 233-276, National Bureau of Economic Research, Inc.
    9. Peter Temin & Hans-Joachim Voth, 2003. "Banking as an Emerging Technology: Hoares Bank 1702-1742," Working Papers 93, Barcelona School of Economics.
    10. Marie-Thérèse Boyer-Xambeu & Lucien Gillard & Ghislain Deleplace, 1994. "Régimes monétaires, points d'or et « serpent bimétallique » de 1770 à 1870," Revue Économique, Programme National Persée, vol. 45(5), pages 1139-1174.
    11. Oscar Gelderblom & Joost Jonker, 2015. "Enter the ghost: cashless payments in the Early Modern Low Countries, 1500-1800," Working Papers 0074, Utrecht University, Centre for Global Economic History.
    12. Sussman, Nathan & Yafeh, Yishay, 2006. "Institutional Reforms, Financial Development and Sovereign Debt: Britain 1690–1790," The Journal of Economic History, Cambridge University Press, vol. 66(4), pages 906-935, December.
    13. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
    14. Michael D. Bordo & Pierre L. Siklos, 2015. "Central Bank Credibility: An Historical and Quantitative Exploration," NBER Working Papers 20824, National Bureau of Economic Research, Inc.
    15. repec:ucp:bkecon:9789057420016 is not listed on IDEAS
    16. Temin, Peter & Voth, Hans-Joachim, 2006. "Banking as an emerging technology: Hoare's Bank, 1702 1742," Financial History Review, Cambridge University Press, vol. 13(02), pages 149-178, October.
    17. Dornbusch, Rudiger & Frenkel, Jacob A., 1984. "The gold standard crisis of 1847," Journal of International Economics, Elsevier, vol. 16(1-2), pages 1-27, February.
    18. Bordo, Michael D & Redish, Angela, 1993. "Maximizing Seignorage Revenue during Temporary Suspensions of Convertibility: A Note," Oxford Economic Papers, Oxford University Press, vol. 45(1), pages 157-168, January.
    19. François R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January.
    20. Ian P. H. Duffy, 1982. "The Discount Policy of the Bank of England During the Suspension of Cash Payments, 1197–1821," Economic History Review, Economic History Society, vol. 35(1), pages 67-82, February.
    21. Clark, Gregory, 2001. "Debt, deficits, and crowding out: England, 1727–1840," European Review of Economic History, Cambridge University Press, vol. 5(3), pages 403-436, December.
    22. 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.
    23. Antipa, Pamfili M., 2016. "How Fiscal Policy Affects Prices: Britain's First Experience with Paper Money," The Journal of Economic History, Cambridge University Press, vol. 76(4), pages 1044-1077, December.
    24. repec:zbw:bofrdp:2013_020 is not listed on IDEAS
    25. repec:cup:cbooks:9781107039018 is not listed on IDEAS
    26. Bordo, Michael D. & White, Eugene N., 1991. "A Tale of Two Currencies: British and French Finance During the Napoleonic Wars," The Journal of Economic History, Cambridge University Press, vol. 51(2), pages 303-316, June.
    27. Bordo Michael D. & Kydland Finn E., 1995. "The Gold Standard As a Rule: An Essay in Exploration," Explorations in Economic History, Elsevier, vol. 32(4), pages 423-464, October.
    28. Sargent, Thomas J & Velde, Francois R, 1995. "Macroeconomic Features of the French Revolution," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 474-518, June.
    29. Larry Neal, 1998. "The financial crisis of 1825 and the restructuring of the British financial system," Review, Federal Reserve Bank of St. Louis, issue May, pages 53-76.
    30. Neal, Larry, 1991. "A Tale of Two Revolutions: International Capital Flows 1789-1819," Bulletin of Economic Research, Wiley Blackwell, vol. 43(1), pages 57-92, January.
    31. L. D. Schwarz, 1985. "The Standard of Living in the Long Run: London, 1700–1860," Economic History Review, Economic History Society, vol. 38(1), pages 24-36, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patrick K O'Brien & Nuno Palma, 2020. "Danger to the Old Lady of Threadneedle Street? The Bank Restriction Act and the regime shift to paper money, 1797–1821," European Review of Economic History, European Historical Economics Society, vol. 24(2), pages 390-426.
    2. Patrick K. O'Brien & Nuno Palma, 2023. "Not an ordinary bank but a great engine of state: The Bank of England and the British economy, 1694–1844," Economic History Review, Economic History Society, vol. 76(1), pages 305-329, February.
    3. P.Antipa, 2014. "How Fiscal Policy Affects the Price Level: Britain’s First Experience with Paper Money," Working papers 525, Banque de France.
    4. Antipa, P., 2013. "Fiscal Sustainability and the Value of Money: Lessons from the British Paper Pound, 1797-1821," Working papers 466, Banque de France.
    5. Adam Brzezinski & Nuno Palma & François R. Velde, 2024. "Understanding Money Using Historical Evidence," Annual Review of Economics, Annual Reviews, vol. 16(1), pages 571-595, August.
    6. Newby, Elisa, 2012. "The suspension of the gold standard as sustainable monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1498-1519.
    7. P. Antipa & C. Chamley, 2017. "Monetary and Fiscal Policy in England during the French Wars (1793-1821)," Working papers 627, Banque de France.
    8. Carolyn Sissoko, 2022. "Becoming a central bank: The development of the Bank of England's private sector lending policies during the Restriction," Economic History Review, Economic History Society, vol. 75(2), pages 601-632, May.
    9. Michael D. Bordo & William Roberds, 2022. "Central Bank Digital Currencies: An Old Tale with a New Chapter," FRB Atlanta Working Paper 2022-18, Federal Reserve Bank of Atlanta.
    10. Cutsinger, Bryan P. & Rouanet, Louis & Ingber, Joshua S., 2023. "Assignats or death: The politics and dynamics of hyperinflation in revolutionary France," European Economic Review, Elsevier, vol. 157(C).
    11. Andrea Papadia, 2024. "Fiscal policy under constraints: Fiscal capacity and austerity during the Great Depression," Economic History Review, Economic History Society, vol. 77(1), pages 90-118, February.
    12. Campbell Leith & Eric Leeper, 2016. "Understanding Inflation as a Joint Monetary-Fiscal Phenomenon," Working Papers 2016_01, Business School - Economics, University of Glasgow.
    13. Kim Oosterlinck & Loredana Ureche-Rangau & Jacques-Marie Vaslin, 2013. "Waterloo: a Godsend for French Public Finances?," Working Papers 0041, European Historical Economics Society (EHES).
    14. Margaret M. Jacobson & Eric M. Leeper & Bruce Preston, 2019. "Recovery of 1933," NBER Working Papers 25629, National Bureau of Economic Research, Inc.
    15. Nuno Palma, 2016. "Reconstruction of annual money supply over the long run: The case of England, 1279-1870," Working Papers 0094, European Historical Economics Society (EHES).
    16. Karaman, K. Kıvanç & Pamuk, Şevket & Yıldırım-Karaman, Seçil, 2020. "Money and monetary stability in Europe, 1300–1914," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 279-300.
    17. Michael D. Bordo & William Roberds, 2024. "Central Bank Digital Currencies: An Old Tale with a New Chapter," Working Papers 323, Princeton University, Department of Economics, Center for Economic Policy Studies..
    18. Alberto Giovannini, 1992. "Bretton Woods and Its Precursors: Rules Versus Discretion in the History of International Monetary Regimes," NBER Working Papers 4001, National Bureau of Economic Research, Inc.
    19. Jagjit S.Chadha & Elisa Newby, 2013. "'Midas, transmuting all, into paper': the Bank of England and the Banque de France during the Napoleonic Wars," Studies in Economics 1315, School of Economics, University of Kent.
    20. Temin, Peter & Voth, Hans-Joachim, 2005. "Credit rationing and crowding out during the industrial revolution: evidence from Hoare's Bank, 1702-1862," Explorations in Economic History, Elsevier, vol. 42(3), pages 325-348, July.

    More about this item

    Keywords

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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucg:wpaper:0082. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Carmichael (email available below). General contact details of provider: https://edirc.repec.org/data/cgeuunl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.