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any other form than that of their individual currencies, excepting on terms that would render such importation unprofitable. After the end of the war, when the demand for their produce slackened, these countries suffered from, this somewhat original form of legislation by which gold was refused in payment. The exchanges of all of them fell to a substantial discount hi New York, and three out of the four went to below their pre-war value as expressed in sterling.

Control of Exchanges. Towards the end of 1915 the future out- look for sterling in New York began to assume a very serious aspect. The normal floating stock of American securities (as apart from regular investments) held in England was nearly exhausted, while the demands on America for war material were greater than ever. The British Government then decided that a supreme effort must be made to control foreign exchanges in general, and more particularly to ward off at all costs the threat- ened collapse in the gold (or in other words, the international) value of the pound sterling, as represented by its dollar exchange. Realizing, very wisely, that this task was too vast and too difficult to be dealt with in an adequate manner by any of the existing Government departments, they appointed a small committee which was known as the " London Exchange Committee " and gave them a free hand to deal with the situation as they thought best. The members of this Committee, which was under the chair- manship of the then governor of the Bank of England, Lord Cunliffc, included Sir Brien Cokayne (afterwards Lord Cullen), deputy-governor of the Bank of England; Sir Edward H.Holden; Sir Felix O. Schuster; Mr. Gaspard Farrer; Mr. Stanley Baldwin; the Hon. Sydney Peel. Later Mr. Baldwin retired and was replaced by Mr. H. G. Levick. The Committee were mainly men of international reputation, not only conversant with foreign ex- change but also accustomed to deal with vast sums of money, and whose capacity had been proved by the success of the institutions they controlled. The activities of this Committee were not con- fined to American exchange, although that was considered to be its principal task, for the maintenance of the American exchange in itself was a support to the exchanges of the Allied nations and a great help to neutrals, for whose commercial transactions it was the only element of steadiness. It also watched carefully other exchanges, especially that of Holland, the wealthiest and most important of European neutral states.

Before starting their work the London Committee had to convince themselves that the means at their disposal were adequate for their task. What were these means? First came the stock of gold in the vaults of the Bank of England, over which they were given control, but this was none too large as a reserve against the Bank of England notes and the ever-increasing amount of Treasury notes that had taken the place of gold as the medium of circulation. Secondly, there was a considerable stock of gold held independently in the vaults of the London clearing banks, but this also was better left untouched if possible, as it formed a most valuable secret reserve that could be used to replenish the stock of gold held by the Bank of England should need arise, as indeed it did later on. Then there was the fresh gold coming in regularly from the gold-mines of the British Empire, averaging about 55,000,000 per annum or about 65% of the total world's production. This valuable " gold-income " was also placed at the disposal of the Committee to do with as they thought best. Finally, there was an unknown but certainly a very large quantity of foreign and colonial stocks and shares remaining in the hands of British investors and having an inter- national market on realization: owners of these securities (see DOLLAR SECURITIES MOBILIZATION) were invited to sell them or to lend them to the British Government on favourable terms, and power was taken to commandeer them at market price should it become advisable to do so, but the amount forthcoming volunta- rily was found to be ample. 1

1 The value of the foreign securities actually deposited in this way at the British Treasury reached the high figure of 438,311,- ooo; this amount was considerably larger than had been expected. In addition to this, securities were sold to the Bank of England to the value of 46,000,000 and to the " Dollar Securities Committee "

Having completed their exhaustive enquiries, the Committee decided that the means at their disposal were adequate and that the object in view was worth the cost. They embarked on their great task in Jan. 1916, and from that date until March 1919 the pound sterling was steadily maintained at a figure in New York equivalent to about par if allowance is made for the increased cost of freight and insurance for gold. It was not until March 1919 that it was decided that, the object having been achieved, control or " pegging " might be removed and the exchange allowed gradually to take its own course without interference.

It may be mentioned here that while financial authorities have been unanimously of opinion that this " pegging " of the American and English exchanges was the greatest, the most difficult, the most far-reaching in its effects, and the most successful of all the financial schemes embarked on during the war, there are some who think that the control was enforced for a longer period than was necessary, in view of the great expense entailed and the manifest fact that an exchange cannot be stabil- ized by artificial means for all time.

The Anglo-American exchange was the only one that was actually " pegged " or fixed, but the other exchanges were watched with equal care, and where ordinary means did not suffice gold shipments were made to Holland as well as to America. Important negotiations were entered into with such Governments as Argentina, Uruguay, and especially Japan, and proved very useful in maintaining some sort of stability for the pound, while other understandings were effected with various banks in Scandinavia, Spain and Switzerland.

The decontrol took place without any flourish of trumpets, and it was some little time before the world realized its full significance. It was not until July 1919 that the American ster- ling exchange fell below $4.50, nor till Dec. of that year that it broke below the $4.00 mark. In Feb. 1920 it fell below $3.50, when it touched $3.19, the lowest point recorded. In April 1920 it temporarily rose once more to over $4.00, but subsequently declined again below that level. The fluctuations in exchange after decontrol gave rise to a vast amount of speculation.

One of the chief causes contributing to the success of the task of the London Exchange Committee was the confidence inspired in the minds of neutrals, for it stands to reason that, great as were the resources placed at their disposal, the amount of the indebtedness of England to America soon became much larger, increased as it was by England assuming responsibility

of 170,044,000. The following table gives fuller details of these operations :

Purchases

.

Loaned Securities.

Total

Dollar bonds Dollar shares Sterling bonds Sterling shares Registered stocks Home railways Franc bonds Krone bonds Florin bonds Florin shares

136,002,988 48,263,552 27,803,232 875 4-"9,358

9,300 445,091

39,571,276 60,718,776 115,160,124

171,851,047 17,494,182 338,340 452,894 364,550

175,574,264 108,982,328 142,963,356 875 175,970,405 17,494,182

338,340 452,894 373,850 445,091

216,644,396

405,951,189

622,595,585

These figures are exclusive of a special creation of $40,000,000 Can- adian Pacific Railway 4 per cent Dollar Debenture stock, depos- ited by the Canadian Pacific Railway Company. Of the total amount purchased, as given in the first column, i.e. 216,644,396, the Bank of England bought 48,600,000 and the Dollar Securities Committee 170,044,000. The deposits on loan on March 31 1919 amounted, therefore, to 405,951,000, which, with the deposits on loan sold to the Treasury, 24,360,000, and the 8,000,000 special deposit of the Canadian Pacific Railway Company, made the bal- ance actually deposited 438,311,000. As will be seen from the above table, dollar securities constituted the major portion of those mobilized. Of the American securities, amounting to 250,543,000, which came into possession of the Treasury, 177,614,000 or more than 70 % were bought for resale in New York, and 72,928,000 or 29 % were still held in Great Britain at the time this report was made. A good deal was subsequently disposed of, bringing the total amount redeemed by the United States to about 200,000,000.