End of specie payments

On 27 February 1797, the Bank of England ceased specie payments. The Bank’s bullion reserve supported the value of its notes and bills, which were convertible upon request to specie (gold and silver coins). This was followed by the passing of the Bank Restriction Act (37 Geo III c. 45) on 3 May 1797. Image: George Cruikshank, Bank Restriction Note (1819). Used with permission.

In 1795, the Bank began experiencing a significant drain on its bullion reserve due to the Government’s need for gold to finance the war with France and also to pay for imported grain after a succession of bad harvests. Concerned for its ability to maintain the convertible value of its banknotes, the Bank embarked on a policy of contraction. While initially successful, this reduction in the number of circulating banknotes was undermined in 1796 by runs on banks in Newcastle, Sunderland, and Durham. These runs prompted other provincial banks to suspend specie payments and request monetary support from the Bank of England. As news of the runs on northern banks filtered into London, panic gripped the financial community and demand for Bank of England notes increased exponentially as they still were convertible to specie. By 27 February 1797 the Bank’s bullion reserve had dwindled to less than £1,000,000, forcing it to suspend specie payments altogether (Order of the Privy Council). As a consequence of rendering its notes unconvertible, the Bank shook public confidence in itself and undermined the circulating paper currency. Indeed, without a convertible currency the British financial system was in imminent danger of collapse.

Articles

Mark Crosby, “The Bank Restriction Act (1797) and Banknote Forgery”