Blog
Jennifer Adam, Curator
In 1797, during a time of war between Britain and France, a surprise French attack caused a financial panic and a run on the Banks. To halt the panic, maintain gold reserves and prevent banks failing, the Government temporarily stopped banks from exchanging gold for banknotes. This was known as the ‘Bank Restriction’ period.
Restriction caused a shortage of gold coins in circulation. To ease this shortage, the Bank of England issued £1 and £2 banknotes for the first time. Until 1797 the smallest banknote was £5, worth over £500 today. But there was widespread distrust of the new paper money. The average person wasn’t that familiar with what a banknote looked like. Plus, people feared that banknotes would become worthless in the event of a French invasion. They trusted that coins made of precious metal would hold their value regardless of political events.