Moratorium, << `mawr` uh TAWR ee uhm, >> is a postponement of the time for payment of debts or financial obligations. It is accomplished by executive or legislative decree. The moratorium delays legal action on debts. But the moratorium does not release the debtor from the obligation to pay. It merely postpones the day the debt is due.
A moratorium has frequently been declared following a money panic, political or industrial upheaval, or national calamity, such as flood or earthquake. However, today moratorium refers mostly to the postponement of payment on commercial debts. The instruments of the credit system, such as bills of exchange, drafts, and bank deposits, are the kinds of things that are affected by a moratorium.
Moratoriums were used only on occasions of public disaster before World War I (1914-1918). The United Kingdom declared the first war moratorium in 1914 on bills of exchange that were due in London. President Franklin D. Roosevelt declared a moratorium in 1933 to save the financial system of the United States from complete collapse. During the 1980’s, groups of commercial banks in industrial countries declared moratoriums on the repayment of loan principal by developing countries.
