£344,300,000 as against £210,400,000 in 1923, and only £179,800,000 in 1922-made the sustained recovery in exchange illogical.

But the advance in sterling did not stop with the beginning of the new year. When the rate advanced in January from $4.73 to $4.802, the premium on gold in the open London market, which had been as high as 4934 per cent in 1920, and had stood above 15 per cent only a year ago, fell to barely 2 per cent. With this plain evidence of what the situation actually was, the entire London community suddenly woke up to realization that the time was at hand for full resumption of gold payments by England.

THE positiveness and unanimity with which

financial judgment moved in that direction was not the less remarkable when contrasted with the atmosphere of scepticism and discouragement which had surrounded the

Financial London and Gold

whole discussion during 1924. As recently as last autumn, the one or two London bankers who urged Resumption immediate resumption and asserted it to be entirely practicable were regarded as enthusiasts, or at most as controversialists of an academic rather than practical sort. But the persistent advance of sterling itself toward the gold parity of $4.865% appeared to convince even the most hesitant.

The London foreign exchange market frankly conceded the probability that sterling would go to par; the London bankers recognized the fact that the "psychological moment" had presented itself and must not be allowed to pass. In February, 1923, as Mr. Lloyd George put it, "the pound sterling looked the dollar in the face and turned away." It had risen to $4.72; no suggestion was made of gold-resumption plans, and subsequent political uncertainties sent the price down again to $4.20 almost within a year. The consensus of London financial judgment evidently was that this mistake, if mistake it was, ought not to be repeated.

THIS sudden change of attitude appeared to

have been adopted by the entire financial community. It is a London custom for the responsible chiefs of the great British banks frankly to discuss with their shareholders, at

Prediction of the Bankers

the January annual meetings, the larger financial questions of the day. Their judgment as thus expressed was quite unqualifiedly in favor of early return to gold payments and immediate preparation for it. The head of the

(Financial Situation, continued on page 70)

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sume," was and is entirely misleading. Discussing the problem of resumption, one year after the Civil War, Senator John Sherman declared that if the Treasury would only meet its obligations, no power on earth could prevent resumption within the next twelve or eighteen months. The Treasury obligations were punctually met; nevertheless, it was very nearly thirteen years after that declaration before the paper dollar was at par and the Treasury was redeeming United States notes in gold. When Sherman himself, as Secretary of the Treasury, undertook in 1877 and 1878 to carry out the resumption statute, he found that the necessary preliminary steps required a year of careful preparation, including purchase of gold in Europe for the redemption fund, on what was then a very large scale, through sale to foreign bankers of United States government bonds.

PRECISELY what details will be necessi

tated in the programme of British gold resumption has not yet been fully discussed. The problem with England now, as with the United States in 1879, is not alone to resume

British

gold payments, but to maintain In Prepar- them without the danger of an exing for hausted gold reserve in case of a Resumption gold-export movement. The parliamentary committee, which examined the question as long ago as 1918, reported that three prerequisites must be attained before resumption could be effective; cessation of public borrowing to meet a public deficit, limitation of the note issue not secured up to its face value in gold, and the "making effective" of a relatively high Bank of England rate. The two first-named stipulations have long since been met, but the question of the Bank of England rate is still complicated by doubt over the question, how far an advance in the London rate for loans could be made to perform its pre-war office of attracting from foreign markets not only British capital, loaned there at lower rates, but foreign gold in payment for the transferred credit.

The probability is that careful negotiation with the important outside markets will have to precede any formal announcement of resumption and this negotiation, in the present highly-organized machinery of central banking

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likely to be conducted by the London bank officials than by Downing Street. The governor of the Bank of England has already been in personal conference with our own Federal Reserve authorities at Washington and New (Financial Situation, continued on page 72)

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York; undoubtedly for that purpose, and presumably with at least the tacit approval of the British ministry. What would naturally be sought in American banking circles is the general assurance that, if gold were to flow from New York to London without disturbing the equilibrium of the Federal Reserve System, no move (such as the raising of the American official bank rate) would be made with the view of arbitrarily stopping the gold export.

This general assurance has presumably been obtained. Both the Treasury and the Federal Reserve are aware that resumption of gold payments in Great Britain, especially if imitated elsewhere in Europe, would greatly facilitate our own foreign finance and trade; also that the huge mass of superfluous gold in the United States was a potential menace of American credit inflation, and that release of a substantial part of it would be for the best interests of all concerned. With Continental Europe the case is not so clear, because its governments, unlike the United States, impose close restrictions and official control on gold-export movements. It is conceivable that the similar existing supervision over gold exports from Great Britain might be continued, even after

next December, in the case at least of cour tries which prefer to retain such artificial barriers. No risks of a break-down in a formally adopted resumption programme are likely to be taken.

Great Britain's Paper Currency

T is also entirely probable that the British paper currency will be taken in hand. That currency now consists of some £145.000,000 Bank of England notes, secured up to face value by gold, and of £280,000,000 of the so-called "currency notes," a wartime expedient, against which is held a reserve of about 9 per cent in actual gold and 9 per cent in Bank of England notes. No one to-day expects return to the old and clumsy pre-war British currency, under which ne paper money circulated in less denominations than the five-pound note, with the result that gold sovereigns and half-sovereigns were in common use as pocket-money. The British | people have learned to use the one-pound and ten-shilling currency notes, and are no more likely to give them up than our own people were disposed to give up the "dollar-bill" after the gold resumption of 1879.

(Financial Situation, continued on page 73)

72

(Financial Situation, continued from page 72)

But the amalgamation of these two British paper currencies-against which the combined gold reserve is even now 35 per cent, or little less than the 40 per cent required against our own Federal Reserve notes-will unquestionably be urged. What measures, if any, would be taken to accumulate a larger home reserve of gold, is probably still an uncertain consideration. An American loan, similar in purpose to our own London "resumption loan of 1878," would not necessarily be involved; it would be possible to keep in England all or most of the gold which the Transvaal produces and exports.

These are details and technicalities. The United States learned in 1879, as England will also unquestionably learn when it makes up its official mind to resumption of gold payments, that larger considerations are invoked by such a step than the mere fact of possible shifts in foreign trade and in rates of foreign exchange. Resumption of British gold payments, assurance that foreign capital deposited at London will no longer be subject to the risk of loss if the sterling rate should depreciate heavily before the deposit was recalled, would surely mean a movement of foreign capital to London such as has not occurred since British gold payments were suspended at the outbreak of the war.

The powerful economic forces which at the end of 1914, when New York was the only central market in the world to maintain such payments, turned the gold movement wholly in our direction and immensely fortified the Federal Reserve, even before we began our trade in war munitions, would at once be called into operation in favor of Great Britain.

Aspects of

Our Own Gold

Exports

THERE can be little doubt that the export movement of gold from the United States is in large measure a response to this prospective change in England, with such sequel as is expected to attend it in the rest of Europe. Unlike many past gold-export movements from New York, the very large shipments of this season have not been accompanied either by tightening money rates or by a falling percentage of bank reserves to liabilities. Discount rates on the New York market have ruled only a fraction over the rates of last summer, which were nearly at the low pre-war record. Money has, in fact, been cheaper this year at New York than at London. Notwithstanding the export since November of $125,000,000 gold (which was drawn from the Federal Reserve) the twelve Reserve banks held at

(Financial Situation, continued on page 74)