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974 be provided out of revenue for the annual reduction of debt, especially of the floating debt. Money needed for reconstruction purposes should not be provided by the creation of new credit and the shortage of real capital must be made good by genuine savings. Under an effective gold standard all export demands for gold must be met and foreign claims must be checked as before by the use of Bank rate. The Committee also pointed out that the differential rates for home and foreign money would be neither practicable nor desirable when the war was over. It recommended that all banks should transfer their gold holding to the Bank of England and that the principle of the Bank Charter Act should be maintained of a fixed amount of fiduciary issue, the amount of which was to be arrived at by experiment during the after-war period. The committee tentatively put forward 150 millions as a possible limit. It also suggested the transfer of the currency note issue from the Treasury to the Bank of England when once the amount of the fiduciary issue had been settled, and in the meantime recommended the policy of cautiously reducing the uncovered issue and replacing with Bank of England notes the securities with which it was then backed. The Committee's aim was thus in effect a restoration of the Bank Charter Act of 1844, with the suggestion that if the limit on the fiduciary note issue had at any time to be passed this should be done with Treasury sanction as under the Cur- rency Act of 1914 instead of by a letter of indemnity from the Chancellor of the Exchequer. The conservatism of the report was naturally criticised by those who wanted to remodel the British monetary machine, but was on the whole well received in financial circles as indicating the way to return to a system which had worked so well until it was shattered by the war.

Very little had been done up to the middle of 1921 towards the adoption of these recommendations. During 1919 Government finance, by its failure to meet expenditure out of revenue, left the money market struggling under the double burden of financing official expenditure and meeting the needs of commercial cus- tomers who wanted to finance after-war enterprise. A Funding Loan brought out in the middle of the year produced only 473 millions, of which 925 millions were subscribed by banks under official pressure. The Cunliffe Committee's insistence that de- mands for gold for export should be met was so far from being acted on that the gold standard was abandoned in March 1919 by the addition of gold coin and bullion to the list of articles which could only be exported under licence. This measure immediately followed the removal of artificial support of the price of sterling in New York. On the other hand, something was done towards restoring the money market to normal conditions. The rate given by the Bank of England to other banks for surplus balances was dropped on July 22 1919, and the special rate of 45 % given on foreign money was wholly abolished in Oct., having been dropped with regard to French, Italian and Belgian money in January. The latter part of this year also saw the inauguration of an attempt to improve the monetary position by making money officially dear, by raising the rate at which Treasury bills were offered and by putting Bank rate up from 5 to 6 % in Novem- ber. The idea behind this policy was apparently a desire, by making money dearer, to check speculation, credit expansion and the holding-up of commodities. Its critics pointed out that it was doubtful as a check on speculation in commodities at a time when rising prices were putting enormous profits into the pockets of those who were bold enough to back the advance, and if it checked speculation it would probably also check production and that the only certain result of it would be to cost the country some millions in financing the floating debt. In view of the enormous outstanding amount of Treasury bills the Bank of England's power to control the market by means of its rate was seriously weakened, because the holders of these bills by refusing to renew them when they fell due could at any time compel the Government to borrow from the Bank of England on Ways and Means advances in order to meet the maturing bills, and so in- crease the amount of cash at the Bank of England in the hands of the other banks, which they could if they chose convert into currency notes. This fact also weakened the effect of a Treasury

minute which was produced at the end of this year putting a limit on the fiduciary issue of Treasury notes. Nevertheless there can be no doubt that the policy of the Treasury and the Bank of England in raising the level of money rates had a con- siderable psychological effect and brought home to many users of credit the fact that the policy of unlimited expansion was abnormal and would have to come to an end some day.

In 1920 another turn of the screw wasapplied by theraising of Bank rate to 7% in April, following a very large expansion in Ways and Means advances necessitated to meet Treasury bills which their holders had allowed to mature. This measure was shortly afterwards followed by a dramatic change in trade con- ditions from exuberance to depression, which was accentuated by industrial crises; but in spite of the very heavy fall in wholesale prices there was a further expansion in bank deposits, currency notes and the Bank of England's note circulation; the increase in this last item amounted to more than 41 millions, of which, however, 15 millions were put into the currency note reserve in accordance with the recommendation of the Cunliffe Committee. Moreover, the other banks, adopting another recommendation of the Cunliffe Committee, sent their holdings of gold to be added to the Bank of England's stock. These contributions, in exchange for which they took out notes, or increased their balances at the Bank of England, amounted to over 40 millions.

In 1921 the process of deflation began in earnest with reductions in the circulation of Bank of England notes and currency notes, and also in the deposits of the joint-stock banks, which from the beginning of this year revived the pre-war custom of monthly bank statements. The Bank rate was reduced to 6J % in April and would probably have come down to 6 % soon after but for the long-drawn crisis in the coal-mining industry. The reduction to 6% was actually made on June 23. On July 21 the rate was reduced to 55 %, and in Nov. to 5 per cent.

If the London money market was thus a long way from restoration to its pre-war position it had certainly come much nearer to normal working by the end of 1921 than any of its European rivals. How it would fare in future competition with New York, enormously strengthened by the great mass of wealth that America had acquired at the expense of warring Europe, was a matter about which it was only possible then to make guesses, in the existing attenuated condition of international trade. Even in 1921, however, in spite of America's determina- tion to finance her own trade and the measures taken to enable her to do so by the Federal Reserve Act, bills were still to be seen in Lombard Street drawn against shipments of goods from the East and from other foreign countries to the United States.

(H. W.) MONGOLIA (see 18.711). The economic development of Mongolia remains greatly restricted by lack of transport facilities, and the trade of the country must continue to be insignificant until railway communication is established between Kalgan and the Siberian railway. Passenger traffic by motor- cars between Kalgan and Urga (two days' run) had by 1921 been started by two Chinese companies, but trade was still carried by camel caravans, which take about a month on the journey.

History. For several years before the overthrow of the Manchu dynasty, resentment against China's military and colonizing policy had steadily increased amongst the Mongol princes and their followers, who realized that China's systematic policy of peaceful penetration, if unchecked, must entail the gradual extinction of the autonomous rights conferred on their country by the Ta Ching emperors. Before the revolution in China, the misgivings and grievances of the Mongol chieftains had produced a definite separatist and nationalist movement in Outer Mongolia, which looked to Russia for support. The provocative attitude and actions of Santo, the Chinese resident at Urga, stiffened the opposition of the Mongol leaders, who rallied round their spiritual ruler, the Living Buddha (Hutukhtu). In July 1911 they despatched a secret mission to Petrograd, asking Russia's help to secure their independence. The outbreak of the revolution in China provided them with an opportunity for a coup d'etat. Early in Dec. the Amban and other Chinese