614 



TRANSACTIONS OF SECTION F. 



in gold to any extent, both for internal usci and for export. Thus the 

 ' exchange ' of the whole world has centred round the sterling bill, which had 

 come to ba regarded, in Mr. Franklin's phrase, as actual ' interest-bearing 

 gold.' Nearly every foreign State Bank was in the habit of keeping a certain 

 portion of its reserve in sterling bills, which were renewed from time to time 

 as they became due, and only 'melted' when and as these banks desired to 

 replenish their stocks of gold. In practically eveiry foreign country the rate of 

 exchange on London is not reckoned by the value of the unit of currency of 

 that country in pounds, shillings, and pence, but by the number of francs, 

 marks, dollars, &c., necessary to purchase the pound sterling. 



The outbreak of war found London the creditor of the world as regards 

 short-dated obligations, and the hurried calling in of such obligations caused 

 a stampede for sterling remittances, which rose to extraordinary prices. The 

 normal rate in New York for London cable transfers is 4.86^ dollars the pound 

 sterling, but in August last year rates of 6^ dollars were dealt in. In other 

 centres it was impossible for a time to obtain sterling remittances at any 

 price. Many countries forbade the export of gold ; arbitrage operations, which 

 in more normal times are used as a lever to redress variations from normal 

 exchange rates, ceased altogether ; the creation of finance bills stopped abruptly ; 

 the Stock Exchanges of the world were closed. Gradually, however, as men 

 began to view the situation more calmly the confusion was allayed. Credits 

 which had been abruptly recalled were in many cases renewed. Emergency 

 measures which are described elsewhere helped to restore confidence. During 

 the prolonged Bank Holiday, one of the most important problems before the 

 Treasury was the re-establishment of foreign exchange, as it was recognised 

 that, until this was accomplished, it would be quite impossible to carry on 

 the foreign trade of this country. In order to do this, it was necessary in the 

 first instance to re-establish the position of the sterling bill. For this, two 

 things were necessary — the first to induce accepting houses to continue and 

 grant legitimate trade credits, and the second to induce banks and discount 

 houses to discount these acceptances when created. For the accepting houses 

 realised that a large and unknown proportion of their acceptances would not 

 be provided for by the drawers at due date, and the discount houses believed 

 that many of the bills bearing their endorsements might not be met by the 

 acceptors. Neither acceptors nor endorsers, therefore, felt themselves justified 

 in adding to their liabilities. 'These two apparently insuperable difficulties,' 

 Mr. Franklin writes,. ' were overcome by the Treasury, with the assistance of 

 the Bank of England, in a manner that will always be recognised as masterly.' 



One of these measures had a curious and unexpected effect. The Mora- 

 torium enabled foreign customers to postpone the transfer of the sterling to 

 London. ' There is no doubt,' Mr. E. F. Davies writes, ' that the Moratorium 

 saved enormous sums to foreign countries which were indebted to London, and 

 it also arrested the tremendous rise that was taking place in the foreign 

 exchanges in favour of this country. The following table shows the rates of 

 exchange current immediately prior to the War and the highest and lowest 

 quotations since : 



