Moratorium

Summary of Moratorium

An official suspension of foreign remittances, including commercial settlements, usually as a result of a chronic negative balance of payments.

(Main Author: William J. Miller)

Introduction to Moratorium

Moratorium (Latin morari, “to delay”), legal suspension of debt payments over a specified period, usually effected by the judicial or legislative action of a government. Moratoriums are generally instituted in times of economic crisis or depression, when the enforcement of debt collections, either within a nation or among nations, would render the debtors bankrupt and cause a general economic collapse.

Moratoriums may also be instituted for other purposes, as in the governmental exemption of members of the U.S. armed services, during the period of their military service during World War II, from the payment of debts previously incurred in civilian life. One of the best-known examples of an intergovernmental moratorium occurred in 1931 when the Allied powers of World War I, acting on the suggestion of U.S. President Herbert Hoover, suspended for one year the payment of all international debts and reparation payments incurred during World War I. The aim of this moratorium was to enable the debtor nations to utilize their financial resources to alleviate the prevailing economic depression. Soon after his inauguration in 1933, President Franklin D. Roosevelt proclaimed a moratorium. He ordered all banks in the U.S. to close for a brief period, thereby enabling the federal government to prepare measures aimed at restoring confidence in the banks of the nation, which were at that time faced with imminent collapse.” (1)

Resources

Notes and References

• Information about Moratorium in the Encarta Online Encyclopedia

Guide to Moratorium