End of the moratorium in Britain

On 4 November 1914 the general moratorium on the payment of obligations expired in Britain. After three months debtors once again had to settle payments on time, and creditors could recover them on the usual terms.

The moratorium was one of the emergency measures the government had resorted to in the days when war broke out, when panic gripped the City of London. On 31 July the London Stock Exchange was closed, and on 2 August a royal proclamation postponed payments on bills of exchange. On 3 August Parliament passed the Postponement of Payments Act, which allowed the government to extend the moratorium to other obligations. This power was used on 6 August. The general moratorium covered, with numerous exceptions, debts arising from contracts concluded before 4 August. Rent arrears, for example, were postponed only if they exceeded £5.

The moratorium was meant not only to protect debtors who had suddenly lost their income or their foreign trading partners because of the war. It was also a safeguard for the banks, which under it could suspend the withdrawal of deposits if customers stormed the counters en masse. When the banks reopened on 7 August, there was no panic. New Treasury notes and the Bank of England’s assistance to the City also helped.

The general moratorium was introduced for a month, until 4 September. The Chancellor of the Exchequer, David Lloyd George, extended it twice, first to 4 October and then to 4 November. The government feared that any defeat at the front might set off a new wave of panic, and that lifting the moratorium and then having to reintroduce it would be worse for the economy than keeping it. At the end of August, however, Parliament passed the Courts (Emergency Powers) Act. It allowed the courts to stay the enforcement of debts against people who could not pay them because of the war. Protecting the worst-affected debtors therefore no longer required a general suspension of payments.

The end of the moratorium was a sign that the worst of the financial crisis was over. The banking system had survived the shock, and the City was returning to normal work. But not everything at once. The London Stock Exchange remained closed until 4 January 1915.