Bank Charter Act 1844

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The Bank Charter Act 1844 (7 & 8 Vict. c. 32) was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted the powers of British banks and gave exclusive note-issuing powers to the central Bank of England. This marked the beginning of the classic gold standard of the 19th century.

Under the Act, no bank other than the Bank of England could issue new banknotes, and issuing banks would have to withdraw their existing notes in the event of their being the subject of a takeover. At the same time, the Bank of England was restricted to issue new banknotes only where these were 100% backed by gold. The Act served to restrict the supply of new notes reaching circulation, and gave the Bank of England an effective monopoly on the printing of new notes.

The Act was a victory for the British currency school, who argued that the issue of new banknotes was a major cause of price inflation.

Although the Act required new notes to be backed fully by gold, the government retained the power to suspend the Act in case of financial crisis, and this in fact happened several times, in the years 1847, 1857, and in 1866, during the Overend Gurney crisis.

Also, while the act restricted the supply of new notes, it did not restrict the creation of new bank deposits, and these would continue to increase in size over the course of the 19th century.

[edit] See also

Henry Meulen - a critic who saw the Bank Charter Act as a cause of economic depression and political revolution
Banknotes of the pound sterling - a list of note-issuing banks in the Sterling area