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Rh The exchange facilities available were entirely inadequate for the purpose of making the payments necessitated by these pur- chases, and artificial methods had to be adopted to provide in suitable foreign currencies the funds required. The natural procedure was by borrowing, and by the realization of such assets as were marketable in the creditor countries.

Though in some instances, and more particularly in the early days of the war, it was possible to effect loans abroad on the credit of the borrowing countries, it was found necessary to a large extent to provide collateral security in addition. The various securities quoted on the Stock Exchange and others of similar nature held in the Allied countries formed the natural and most fruitful field for obtaining suitable collateral and for providing the assets most readily marketable abroad.

Before the introduction of any official control a considerable amount of securities of the United States of America and other foreign countries was sold abroad, on account of the relatively high prices obtaining and the favourable terms on which the proceeds could be remitted home, owing to the fall in exchange rates which had already taken place. Even after the introduction of official action these natural sales continued, though necessarily in decreased volume. The funds provided by means of these sales and from loans effected abroad without collateral security supplied in the main the necessary sums to pay for the purchases made, but as the demand for goods and raw material became more insistent the British Treasury found it necessary to take official action. In July 1915 instructions were given to the Bank of England to purchase American dollar securities by private treaty or through the London Stock Exchange and forward them to New York for sale. By this means securities of the nominal value of $233,000,000 were obtained before the end of the year and the pressing requirements of the Treasury were satisfied.

By Dec. 1915, however, it had become apparent that this somewhat haphazard method of purchasing available securities was not altogether satisfactory nor likely to achieve the desired results, and it was therefore decided to adopt a more compre- hensive scheme. Accordingly, the Treasury appointed a com- mittee, known as the American Dollar Securities Committee, with a permanent secretary of the Treasury as chairman, the deputy governor of the Bank of England as deputy chairman, and four members, two of whom were nominated by the Bankers' Clearing House and two by the Committee of the London Stock Exchange. The management was placed in the hands of Mr. (afterwards Sir) George May, the secretary of the Prudential Assurance Company.

In order to obtain some idea as to the volume and class of securities available a circular letter was sent to all the larger investors, such as insurance companies, banks and trust com- panies, asking them to submit lists of American dollar securities held by them, with a view to a possible sale or loan to the Treas- ury. Active operations were begun in Jan. 1916, at the Nation- al Debt Office in Old Jewry, by the issue of a list of 54 selected American dollar bonds which the Treasury was prepared to purchase. The prices offered were based on the current New York closing quotations of the previous evening, the New York percentage price being converted into the London sterling price at the existing rate of exchange with accrued interest.

In illustration of the procedure adopted it may be mentioned that the official prices were not only posted up at the London Stock Exchange but by a special arrangement were telephoned by the General Post-Office to all the provincial stock exchanges at about 10 A.M. This enabled the country stockbrokers to deal promptly with the committee by means of a short telegram stating the amount they wished to sell and quoting the official number assigned to the particular security. Such bargains held good pro- vided that the telegram was handed in at the provincial post-office not later than 2 o'clock (later extended to 4 o'clock) on the day of the quotation. As regards London dealings, the bargains were booked over the counter at the National Debt Office. To facilitate delivery of securities a branch of the Bank of England was installed in Old Jewry and on the Bank's officers devolved the duty of accept- ing the securities in good order and paying the purchase money. It is interesting to note that brokerage was paid by the Treasury and not by the seller, while unstamped bonds were accepted on the same terms as those bearing the English stamp. In the early

days of the scheme payment was made at the seller's option in Brit- ish Government Exchequer bonds then being issued. In this way the double purpose was served of obtaining the means of securing a credit in New York and increasing subscriptions for British Gov- ernment securities. Additional lists of bonds and snares for which daily prices were quoted were published from time to time, while special prices were made for suitable securities not appearing in a published list. Since it was essential for the Treasury to obtain the largest possible credits in New York at the earliest possible date negotiations were entered into with large holders of securities, and bulk prices were quoted for large and comprehensive blocks.

The scheme was successful from the outset, as will be seen from the fact that securities to the value of over 40,000,000 sterling were obtained in the first ten weeks of its operation.

During the first months of the Committee's existence no securities had been taken on loan, but towards the end of March 1916 a deposit scheme, subsequently known as scheme A, was introduced. Briefly the scheme was as follows:

Securities were to be deposited for a period of two years from the date of deposit, the lender to receive all interest and dividends on the securities deposited by him, plus an additional J of i % per annum on the nominal amount. During the currency of the loan the lender was entitled (i) to have his securities sold in New York free of expense, the proceeds being paid to him in London at the current sterling rate of exchange, or (2) to obtain the release of his securities in New York against payment to the Treasury agent there of a sum in dollars equivalent to their American value, a sim- ilar sum in sterling being paid to the depositor in London.

The Treasury was also prepared in most instances to purchase for sterling the deposit certificates in London at the current Ameri- can prices of the securities deposited. Though there was no inten- tion to realize the deposited securities except in an emergency, the right to do so was reserved to the Treasury as otherwise the securi- ties would have been useless as collateral for loans in New York.

In Aug. 1916 a further loan scheme, B, was brought into force. It differed from the previous scheme in that (i) deposit was for a period of five years from a fixed date, instead of two years from the date of deposit; (2) under it were included many colonial and foreign stocks and bonds in addition to the purely American securi- ties; and (3) the right to realize securities as given under scheme A was limited to American securities having a market value in New York. Power was given to depositors under scheme A to transfer to scheme B, and this option was in most cases exercised.

The securities purchased were sold immediately a suitable oppor- tunity offered, and those remaining unsold, together with deposited American dollar securities, were used for short borrowing as required. The main use, however, to which the deposited securities were put is illustrated by the particulars of a typical loan floated in the United States of America prior to the entry of that country into the war:

UNITED KINGDOM 3-5 year $\ % Notes Dated Nov. i 1916.

Amount of loan 300,000,000

Collateral 360,000,000

Composed of $ 59,500,000 Australasian. 25,500,000 South African. 20,000,000 Argentine and Chilian. 30,000,000 Japanese. 15,000,000 Egyptian. 5,000,000 Cuban.

25,000,000 British Railway Debentures. 180,000,000 U.S.A. dollar securities and Canadian.

Up to May 27 1916, rather less than five months after the formation of the Committee, the amount paid for securities purchased exceeded 51,000,000 sterling, while the nominal amount of securities deposited on loan was about 8,000,000. Since these figures, however, were not sufficient to provide the funds required, the Chancellor of the Exchequer stated in Parliament that powers would be taken to impose a special tax of 2S. in the i on the income of all securities that the Treasury, by means of special lists, declared its willingness to purchase. The necessary authority of Parliament was granted. Relief from the additional tax was only obtainable by selling or loaning the specified securities to the Treasury. The effect was immediate. In the first two weeks following the announcement the purchases exceeded 23,000,000 sterling and the deposits 15,000,000 sterling. In course of time the purchases greatly decreased but the deposits, mainly owing to the introduction of scheme B, assumed very large proportions. For example, during the month of Sept. 1916, the securities taken in on loan amounted to about 100,000,000. The enormous requirements of the Treasury are