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Rh and of many of the importations of manufactures, it had become customary in past years for English banks to hold claims upon American institutions which gradually accumulated each year up to the opening of the autumn season, when the movement of crops to foreign countries provided funds which were used for the cancellation of these balances. At the opening of the war it was supposed that in trade with England such balances against American banks amounted to something like $500,000,000. One phase of Great Britain's economic policy upon the outbreak of war was to call in the balances due to her in foreign countries and generally to cut off trade relations that might subject her credit structure to fresh demands. At the same time the presence of German war-vessels in the Atlantic made it uncertain how long a time must elapse before the movement of goods to and from Europe would be resumed upon a normal basis. The export trade of the United States was thus seriously checked at the same time that extensions of credit by British banks were practically suspended. One immediate effect of this situation was to cause a large exportation of gold from the United States, while the shipment of goods was first reduced, and at last temporarily suspended. These two factors caused serious disturbances in the eastern part of the country and produced a general lack of confidence, while at the same time they tended to depress the prices of American staples. Cotton was affected with particular seriousness, its price declining during the autumn to a point as low as five cents per pound as against a figure, then regarded as normal or satisfactory, of 12 or 13 cents in the early part of the year. In consequence of this stagnation of export trade, there was a somewhat corresponding shock to domestic business, a resulting difficulty in making collections, and eventually a withdrawal of funds from banks not only for export of specie, but also for the purpose of domestic hoarding. Congress, which was then in session, hastened to amend the Aldrich-Vreeland Act of 1908, the measure thus adopted taking effect on Aug. 4 1914. Under the terms of this amendatory measure the issue of emergency currency was permitted under more liberal conditions than before. It would have been much better if the Federal Reserve Act, which was passed during the preceding Dec., had been brought into operation, but as a matter of fact reserve banks did not get under way until Nov. 1914. The action of Congress in passing the emergency currency law was, therefore, necessary in order to provide an immediate means of furnishing funds for the payment of depositors. The currency thus provided for under the new law was accordingly issued and eventually rose to a peak point of about $430,000,000. This served to take the place of gold which was then moving out of the country,

the total gold exports during 1914 amounting to approximately $223,000,000. Meanwhile the Federal Reserve Board had been organized in accordance with the terms of the Federal Reserve Act on Aug. 10 1914, and was immediately confronted by the great losses of gold which were being incurred by the banks in order to satisfy the demands of British creditors. In the belief that much of this withdrawal of gold was due to a lack of combined action on the part of the American banks, the board supervised the formation of what became known as the “international exchange fund,” or “gold pool,” which was in effect an agreement among American banks to provide a total of $100,000,000 of gold for export (or gold exchange), permitting any bank that might be drawn upon to supply itself from the common stock by depositing therein satisfactory funds in other forms. This measure was effective in restoring confidence while at the same time the first fear and uncertainty that had resulted from war conditions began rapidly to disappear; German vessels were soon driven from the North Atlantic and the movement of products from the United States to Europe was resumed upon a limited scale. The urgency of demands for cash declined and the banks (which had begun the issue of clearing-house certificates on Aug. 3) were able to retire their obligations on Dec. 1, although the Stock Exchange (which had been closed on July 31) was not reopened until later. Thus the banks of the country passed through the dangerous early stages of the war partly by exercising their own latent power and partly in consequence of the aid which had been extended to them through Congressional enactment and through coöperative effort under the leadership of the Federal Reserve Board.

The Banks and the Federal Reserve System.—The projected text of the Federal Reserve Act had been made public in June 1913, and had served as a basis for discussion from that date up to the passage of the Act on Dec. 23 of the same year. It may fairly be said that practically all of the banks of the country were opposed to it—the national banks primarily because it made membership in the system compulsory; the other banks because they feared that great changes and innovations in business would result from the new system. After the adoption of the Federal Reserve Act the question whether or not to enter the system became acute with national banks since the law had provided that a failure of any national bank to enter the system would mean the necessity of surrendering its charter and transferring itself to a state banking system, through reincorporation. Accordingly during the early part of the year 1914 there was constant discussion of the wisdom or the unwisdom of declining to accept membership. The result was a