Danger to the Old Lady of Threadneedle Street? The Bank Restriction Act and the regime shift to paper money, 1797–1821

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 that 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 that 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.