Book contents
- Frontmatter
- Contents
- List of figures
- List of boxes
- List of tables
- Preface
- 1 Introduction
- 2 Distant beginnings: the first 3,000 years
- 3 The Italians invent modern finance
- 4 The rise of international financial capitalism: the seventeenth century
- 5 The “Big Bang” of financial capitalism: financing and re-financing the Mississippi and South Sea Companies, 1688–1720
- 6 The rise and spread of financial capitalism, 1720–1789
- 7 Financial innovations during the “birth of the modern,” 1789–1830: a tale of three revolutions
- 8 British recovery and attempts to imitate in the US, France, and Germany, 1825–1850
- 9 Financial globalization takes off: the spread of sterling and the rise of the gold standard, 1848–1879
- 10 The first global financial market and the classical gold standard, 1880–1914
- 11 The Thirty Years War and the disruption of international finance, 1914–1944
- 12 The Bretton Woods era and the re-emergence of global finance, 1945–1973
- 13 From turmoil to the “Great Moderation,” 1973–2007
- 14 The sub-prime crisis and the aftermath, 2007–2014
- References
- Index
11 - The Thirty Years War and the disruption of international finance, 1914–1944
Published online by Cambridge University Press: 05 October 2015
- Frontmatter
- Contents
- List of figures
- List of boxes
- List of tables
- Preface
- 1 Introduction
- 2 Distant beginnings: the first 3,000 years
- 3 The Italians invent modern finance
- 4 The rise of international financial capitalism: the seventeenth century
- 5 The “Big Bang” of financial capitalism: financing and re-financing the Mississippi and South Sea Companies, 1688–1720
- 6 The rise and spread of financial capitalism, 1720–1789
- 7 Financial innovations during the “birth of the modern,” 1789–1830: a tale of three revolutions
- 8 British recovery and attempts to imitate in the US, France, and Germany, 1825–1850
- 9 Financial globalization takes off: the spread of sterling and the rise of the gold standard, 1848–1879
- 10 The first global financial market and the classical gold standard, 1880–1914
- 11 The Thirty Years War and the disruption of international finance, 1914–1944
- 12 The Bretton Woods era and the re-emergence of global finance, 1945–1973
- 13 From turmoil to the “Great Moderation,” 1973–2007
- 14 The sub-prime crisis and the aftermath, 2007–2014
- References
- Index
Summary
The outbreak of the Great War in the summer of 1914 created a whirlpool of financial disturbances that disrupted completely the global financial market. Until then, international finance, operating both through banks with foreign branches and correspondents and securities markets open to corporations and customers both domestic and foreign, had been expanding worldwide. When Austria declared war on Serbia on Tuesday July 28, stock exchanges in Montreal, Toronto and Madrid closed, followed on Wednesday July 29, by the closure of exchanges in Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome. On July 30, St. Petersburg and all South American countries closed, as did the Paris Bourse; first on the Coulisse (the bankers’ market) and then on the Parquet (the official exchange). When even the London Stock Exchange shut down on Friday morning July 31, only the exchanges in New York remained as markets where the world's panic could vent. All this happened before the Great Powers themselves got around to declaring war.
As with the outbreak of wars in the past, there was an immediate scramble for liquidity and the pound sterling rose sharply on the foreign exchanges (Keynes 1914). The shock of universal sell orders on all the world's stock exchanges was completely predictable, but two aspects were new and cause for future concern whenever the hostilities ended. First was the extent to which foreigners with open positions on the London Stock Exchange and with the London discount houses were unable to meet their obligations. The importance of the London money market for the finance of international trade meant that the outbreak of general hostilities inflicted what we now call “counterparty risk” upon the entire financial community of London. As the bulk of the world's international trade at the time was then financed through the London money market, whether a British firm was actually involved in the trade or not, counterparty risk reverberated throughout the world.
The second problem encountered in London was the pusillanimity with which the London banking community met the systemic liquidity crisis (Keynes 1914, pp. 461–462).
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- Information
- A Concise History of International FinanceFrom Babylon to Bernanke, pp. 231 - 252Publisher: Cambridge University PressPrint publication year: 2015