5 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff concludes his series on Scottish free banking, addressing the controversial gold suspension of 1797.
|Prime Minister William Pitt the Younger|
commands the Bank of England to hoard gold
and shower Britain with irredeemable paper
VII. THE CONTROVERSY OF THE 1797 SUSPENSION
Under this arrangement the Scottish banks would be bankrupted in a matter of months, weeks perhaps.
Imagine if you will Chase bank collecting on deposited checks drawn upon Citibank, but Citibank being restricted by law from collecting on checks drawn upon Chase. Precious reserves would flow unidirectionally, with a constant reserve drain on Citi which would soon be ruined.