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The Limits to Central Bank Co-operation, 1916–36

Published online by Cambridge University Press:  12 September 2008

Kenneth Mouré
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Extract

Central bankers failed in their efforts to reconstruct the international gold standard on a durable basis after World War I. The gold-exchange standard did not unite them in a managed international system in the 1920s, and it perished with little regret in 1931. Stephen V. O. Clarke's monograph on central bank co-operation sees ‘considerable merit’ in the stabilisation efforts from 1924 to 1928, followed by failure to maintain the system from 1928 to 1931.1 Critics have pointed out with justice that co-operation was irregular before 1928, and that central banks continued to co-operate after 1931.2 Clarke recognizes that no conceivable improvements in central bank co-operation could have coped with the combination of political and economic convulsions in 1931; national goals necessarily took priority in central bank policies, and international objectives were determined by national experience and interest.3

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Articles
Information
Contemporary European History , Volume 1 , Issue 3 , November 1992 , pp. 259 - 279
Copyright
Copyright © Cambridge University Press 1992

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References

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2 See Eichengreen, Barry, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (New York and Oxford: Oxford University Press, 1992), 220Google Scholar; Kindleberger, Charles P., The World in Depression, 1929–1939, rev. ed. (Berkeley: University of California Press, 1986), 157 n. 53, 297.Google Scholar

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9 The Bank of France had used an inexperienced intermediary (the Comptoir d'Escompte rather than Rothschilds) to draw gold from London. The Comptoir took too much gold directly from the Bank of England, leading to an abrupt rise in Bank rate; the Bank of France sent an emissary directly to the Bank of England to ease the resulting strains. Plessis, Alain, La Politique de la Banque de France de 1851 à 1870 (Geneva: Librairie Droz, 1985), 241–5.Google Scholar

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18 Strong diary entries for 28 and 30 Mar. 1916 (quote from latter), 1000.2, Strong PapersGoogle Scholar. They were particularly concerned that the French government, as well as the Bank of France, guarantee that gold would be shipped as agreed between the banks.

19 He was concerned that opposition from Adolph Miller and the new members on the Board would render conclusion of an agreement with the Bank of France difficult. Strong to Jay, 22 June 1921, 320.114 (1), Strong PapersGoogle Scholar. See also Crane, J. E. for Harrison, 27 Sept. 1926, C261.1, France, Bank of France 1919–1926, FRBNY.Google Scholar

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22 The report of the Financial Commission is reproduced in the Federal Reserve Bulletin (June 1922), 678–80. See also Clarke, Stephen V. O., ‘The Reconstruction of the International Monetary System: The Attempts of 1922 and 1933’, Princeton Studies in International Finance, no. 33 (Princeton: International Finance Section, 1973), 11–14Google Scholar; Sayers, , Bank of England, i. 153–63Google Scholar; SirClay, Henry, Lord Norman (London: Macmillan, 1957), 135–8Google Scholar; and Boyce, , British Capitalism, 39–41.Google Scholar

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28 Eichengreen, , Golden Fetters, 188–91, Table 7.1.Google Scholar

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30 Strong's most vehement statement to this effect came in response to the idea of a central bankers' meeting to discuss the gold problem in 1928, in O. E. Moore, ‘Memorandum of Conversation with Sir Arthur Salter’, 1000.9, Strong Papers; similar views were expressed with greater moderation in his correspondence with Norman in 1922 and 1925. See also Clarke, , Cooperation, 39–41Google Scholar; Chandler, , Benjamin Strong, 278–81.Google Scholar

31 Norman to Strong, 15 Apr. 1925, elaborating a suggestion put forward by cable on 21 Mar. Norman wished to invite those bankers with whom he had developed positive relations: Strong, Moll, Vissering and Schacht. Norman to Strong, 11 May 1925, 1116.5 (2), Strong Papers.Google Scholar

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37 Sayers notes that Norman went ‘much further into international politics than the Bank of England could have expected to go’, and that ‘the episode provides an important example of the unreality of any rigid line between central banking and international politics’. Sayers, , Bank of England, i. 174, 180Google Scholar. On central bank involvement in the Dawes Plan see Clarke, , Cooperation, 45–70Google Scholar; Sayers, , Bank of England, i. 174–83Google Scholar; Clay, , Lord Norman, 194–217Google Scholar; Schuker, Stephen A., The End of French Predominance in Europe: The Financial Crisis of 1924 and the Adoption of the Dawes Plan (Chapel Hill: University of North Carolina Press, 1976), 300–18, 348–52.Google Scholar

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42 Jean-Claude Debeir, ‘La Banque de France et la coopération monétaire internationale dans les années 1920’, in Fridenson, Patrick and Straus, André, eds, Le Capitalisme français, 19e–20e siècle: Blocages et dynamismes d'une croissance (Paris: Fayard, 1987), 280–1.Google Scholar

43 Slightly different interpretations are given by Clarke, , Cooperation, 134–8Google Scholar, and Eichengreen, , Golden Fetters, 209–16.Google Scholar

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49 Moreau suspected that a drop in Bank rate in mid-April was ‘bluff; Souvenirs, 288. Quesnay was certain that this reduction was unwarranted and blamed it for the surge in foreign exchange arriving in Paris; J. A. M. de Sanchez, ‘Memorandum for Mr. T. W. Lamont’, sent with Sanchez to Lamont, 18 July 1927, France's Financial and Political Situation file, JPM.Google Scholar

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54 For Moreau, use of his sterling and dollar balances to tighten credit in London, forcing London to act in turn on Amsterdam and Berlin, was the ‘gold standard’ solution to the problem. For Norman, the problem lay unmistakably in Paris, where high interest rates, low security prices and the prospect of an appreciation of the franc made Paris ‘irresistible’ to short-term funds. De jure stabilisation was the obvious remedy, but Moreau declared this politically impossible. Moreau, , Souvenirs, 324–6Google Scholar, and Siepmann, ‘Note of a conversation in Paris on Friday 27th May, 1927’, G 1/34, BOE. Strong recommended similar measures in Strong to Moreau, cable no. 15, received 27 May 1927, AN 374 AP 6.

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57 Although Eichengreen suggests that dissatisfaction with the arrangements between Moreau and Norman prompted this meeting ('Central Bank Cooperation', 81), Norman and Moreau seem to have been satisfied with the results of their co-operative approach. Moreau's invitation was linked to his actions in May, which required that the Bank of France be included if such meetings between the key central bankers were to be co-operative rather than conspiratorial; see Strong to George L. Harrison, 27 July 1928, 1000.9, Strong Papers. Strong warned Moreau in May that Norman and/or Schacht might come to New York, and he checked with Norman and Schacht before extending an invitation to Moreau on 9 June to join them.

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61 From Norman's manuscript notes reproduced in Sayers, , Bank of England, iii. 96–100Google Scholar. See also his gloomy note, Norman to Strong, 25 July 1927, 1116.7 (2), Strong Papers.Google Scholar

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85 The statutes are reproduced in an appendix to Paul, Einzig, The Bank for International Settlements (London: Macmillan, 1930), 160–79.Google Scholar

86 Norman's appreciation of the Bank is evident in his testimony to the Macmillan Committee on 18 Feb. 1931, repr. in Sayers, , Bank of England, iii. 242–8Google Scholar. On the foundation and character of the BIS, see ibid., i. 352–9, and Roger, Auboin, ‘The Bank for International Settlements, 1930–1955’, Princeton Essays in International Finance (Princeton: International Finance Section, 1955), 1–7.Google Scholar

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91 On the essentially political nature of the crisis, see Schuker, Stephen A., ‘American “Reparations” to Germany, 1919–33: Implications for the Third-World Debt Crisis’, Princeton Studies in International Finance, No. 61 (Princeton: International Finance Section, 1988), 54–64.Google Scholar

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109 Diaries, Morgenthau (thereafter MD), Vol. vi, and account of events by Merle Cochran in MD vii. 73–95, Franklin D. Roosevelt Presidential Library, Hyde Park, New York. According to Cariguel, the American Treasury credit had saved the franc. Cochran to Morgenthau, 19 June 1935, MD vii. 88–9. Also Clarke, ‘Exchange-Rate Stabilization’, 9–10, 13.Google Scholar

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111 Knoke-Cariguel telephone conversations recorded 15 Nov. to 10 Dec. 1935, C261.1, Bank of France 1935, FRBNY; Morgenthau conversations with Cochran, 5 and 12 June 1936, MD xxvi. 118D and 178; L. W. Knoke, ‘Facilities granted Bank of France by the Secretary of the Treasury’, 12 June 1936, C261.1, Bank of France 1936, FRBNY.

112 St Pierre is the more populous of two French islands off the southern coast of Newfoundland. Morgenthau asked Jay Crane to pursue this through the Bank of France on 18 Jan., having had no luck pressing it through normal diplomatic channels; Crane memorandum, 18 Jan. 1935. When Morgenthau obtained satisfaction, Crane records, ‘He asked me to call Mr. Cariguel at the Bank of France and tell him that the Secretary was delighted to have the St. Pierre matter fixed up and was anxious to cooperate closely with the French. Secretary Morgenthau said that he wanted to develop close contacts with them, that the State Department agreed … and the Secretary wanted to forget about the British and play ball with the French.’ Crane record of telephone conversation with Morgenthau, 9 Apr. 1935, C261.1, Bank of France 1935, FRBNY.

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114 Meeting in Morgenthau's office, 18 Sept. 1936, MD xxxiii. 8Q-S.Google Scholar

115 Siepmann, to Sproul, Allan, 27 Oct. 1936, ADM 25/11, BOE.Google Scholar

116 See Drummond, Ian M., ‘London, Washington, and the Management of the Franc, 1936–39’, Princeton Studies in International Finance, No. 45 (Princeton: International Finance Section, 1979)Google Scholar, and idem, The Floating Pound and the Sterling Area, 1931–1939 (Cambridge: Cambridge University Press, 1981), ch. 10.

117 Strong to Norman, 2 Oct. 1922, 1116.3 (1), Strong Papers.Google Scholar

118 Siepmann, , ‘Central Bank Co-Operation’, G 14/33, BOE.Google Scholar