The Battle for Britain's Gold Standard in 1931 by Kunz Diane B

Author:Kunz, Diane B. [Kunz, Diane B.]
Language: eng
Format: epub
ISBN: 9781351271400
Publisher: Taylor & Francis (CAM)
Published: 2017-10-07T00:00:00+00:00

Chapter Five

NOBODY TOLD US WE COULD DO THAT

August - September 1931

‘When England went off gold it was like the end of the world….’

Jackson E. Reynolds, President, The First National Bank of New York

i

On 24 August, even as Ramsay MacDonald began the task of forming a National Government, it was clear that it would not have a smooth passage. For on the same day The Times’ leader stated that the central bank credits were almost exhausted.[1] Representing the first published indication of the Bank of England’s utilization of its borrowed funds, this revelation had a negative effect on foreign exchange markets and caused the Bank to lose more foreign currency than on any previous day.[2] The acquisition of new credits thus continued to be the Government’s first priority; therefore Morgan Grenfell, at the request of the Bank of England, formally reiterated to Morgan’s (N.Y.) the request of the British Government for a short term credit, adding that the Government was simultaneously approaching Paris. As a stopgap measure the Treasury placed at the disposal of the Bank of England dollar securities amounting to some £28 m ($140 m) held for its account by Morgan’s (N.Y.).[3] Morgan’s (N.Y.) agreed to form a syndicate to provide the credit but as their offer would not remain open indefinitely, the New York house stressed the importance of concluding the transaction as soon as possible, emphasizing that it was of vital importance to arrange the French half of the transaction.[4]

Negotiations in Paris had in fact begun with the arrival of H.A. Siepmann on 24 August. However, he took the approach that the question of a credit was not a top priority matter, a rather surprising position in the circumstances and one that not only confused Governor Moret but diverged totally from the viewpoint held by Morgan’s (N.Y.) and Harrison.[5] The Americans were motivated by their precise knowledge of the extent to which the Bank had supported sterling and by a belief that any delay increased the likelihood of failure for a stabilization operation. Their sense of urgency was also influenced by the mixed reaction of the foreign press to the new British Government. The New York partners believed very strongly that the Government’s program must be seen to be widely supported by the British people, yet it was immediately and publicly evident that this was not to be the case. For example, The New York Times on 25 August reported that the trade union group of the Labour Party had declared war on Ramsay MacDonald and that Arthur Henderson now had an opportunity to become the Prime Minister.[6] But political concerns did not form the whole picture. In particular, various American financial publications focussed on underlying British financial weaknesses. Thus the Whaley-Eaton Service’s Foreign Letter of 25 August stated that ‘the British difficulty is too aggravated to be cured by a mere balancing of the Budget.’[7]

Negotiations for the American credit were conducted by Grenfell on behalf of his New York partners and by Harvey and Peacock for the British Government.

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