588 TRANSACTIONS OF SECTION F. 



ending July 29, and as much as 8,211,000^/° in the next week, which included 

 the days during which mobilisation took place. When it is remembered that 

 Great Britain was not as yet at war, the financial situation was evidently serious. 

 On August 1, Germany declared war upon Russia, and the next day a state of 

 war existed between Germany and France. War between Great Britain and 

 Germany was declared on Tuesday, August 4. Prior to the latter declaration, 

 which might be expected to have affected our Money Market most, there had 

 been the breakdown of the foreign exchanges and the closing of the Stock 

 Exchange. It had been necessary to support the accepting houses by the Mora- 

 torium in their favour of August 2. Scarcity of legal tender was felt, and 

 there was an apprehension in many quarters that war between this country and 

 Germany would result in further grave disorders of credit. This was the 

 situation which had to be faced on Sunday, August 2, and Monday, August 3. 

 Fortunately the Monday was a Bank Holiday, and by proclamation the Tuesday, 

 Wednesday, and Thursday were appointed as special Bank Holidays, thus pro- 

 viding five days (if the Sunday be included) for the preparation of further 

 Emergency Measures. An Act, known as the Currency and Bank Notes Act 

 (4 & 5 Geo. 5, c. 14), was passed on August 6, authorising the Treasury to issue 

 Currency Notes for 11. and 10s. as legal tender for any amount. The holder of 

 a Currency Note is entitled to obtain on demand during office hours at the Bank 

 of England payment for the note at its face value in legal tender gold coin. 

 Postal Orders were to be temporarily legal tender for the payment of any 

 amount. This provision was revoked as from February 3, 1915, by proclama- 

 tion. Under Clause 3 of this Act the Bank of England and any Scottish or 

 Irish Banks of Issue may issue notes in excess of the limit fixed by law so far 

 as temporarily authorised by the Treasury and subject to any conditions attached 

 to that authority. Banks of Issue were indemnified against any liability on 

 the ground of excess of issue after August 1 in pursuance of any authority from 

 the Treasury. The former provision may perhaps be termed a suspension of 

 the Bank Act; but, unless the legal limit has been exceeded, no formal suspen- 

 sion has actually taken place. Under these circumstances it is more correct tn 

 describe the arrangement as providing the machinery by which the Act may 

 be suspended had the need arisen. Further Treasury Notes were issuable to 

 bankers through the Bank of England up to 20 per cent, of their liabilities on 

 deposit and current accounts. 



Closely connected with these measures was the proclamation of August 6 

 under the Act 4 & 5 Geo. 5, c. 11, postponing other payments besides bills of 

 exchange till September 3 (subsequently extended till November 3), with certain 

 exceptions, the chief of which were payments of wages or salary, sums not 

 exceeding 5l. dividends on trustee stocks, cashing of bank notes by the issuing 

 banks, payments by Government Departments (including Old Age Pensions and 

 liabilities under the National Insurance Act). These measures provided for the 

 re-opening of the banks on Friday, August 7, upon a basis which, if artificial, 

 was believed to have protected the banks. But that protection was founded on 

 the Moratorium, which was so strange to English practice that a few years ago 

 it was described as 'a strange beast inhabiting the Balkans.' It was necessary 

 in making the first steps towards more normal conditions that foreign exchange 

 should be restored and the Stock Exchange re-opened. As regards the former, 

 exchange transactions in the early days of August were remarkable. The value 

 of the sovereign rose as much as 30 per cent, in a single day in New York. On 

 the other hand, owing to a temporary adverse balance due to France, the 

 sovereign depreciated in Paris by 4 per cent. Between August 12 and Septem- 

 ber 5 a scheme had been formulated which provided that the Bank of England 

 would provide acceptors with funds to pay all approved pre-Moratorium bills 

 at maturity. The Bank was entitled to interest on these advances at 2 per cent, 

 above Bank Rate, and undertook not to claim repayment of any sums not 

 recovered by acceptors from their clients till one year after the end of the War. 

 The Joint Stock Banks undertook with the assistance of the Bank of England 

 and the Government to finance new bills upon similar terms. The Government 



■° A large part of this sum would be held by banks in anticipation of heavy 

 withdrawals by their depositors. 



