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British Currency School facts for kids

Kids Encyclopedia Facts

The British Currency School was a group of smart people in Britain who studied how money works. They were active in the 1840s and 1850s. They believed that if banks printed too many paper notes (called banknotes), prices for things would go up too much. This is called price inflation. To stop this, they thought banks should keep an equal amount of gold for every banknote they printed. This idea was also known as convertibility. They felt that controlling the amount of money helped keep prices stable and stopped gold from leaving the country.

How the Idea Grew

After a big war called the Napoleonic War, a new law was made in Britain. It was called the Bank Charter Act of 1844. This law said that only the Bank of England could print new banknotes. It also made sure that banks had to keep a certain amount of money and reserves.

A very important part of this law was that the Bank of England could only print new banknotes if they had enough extra gold to back them up. This law was passed when Robert Peel was the leader of the Conservative government. A main leader of the Currency School was Samuel Jones-Loyd, Baron Overstone. He was a British politician and banker.

What Happened Next

Not everyone agreed with the Currency School. Another group, called the British Banking School, had different ideas. They believed that banks didn't need a strict rule about gold. They thought people would naturally want to exchange their paper money for gold if too much was printed. This would stop banks from printing too much.

Even though the Banking Act was paused three times later on, the Currency School's ideas mostly won. The idea of backing paper money with gold continued until World War I.

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