Full text of Papers of Benjamin Strong, Jr. : Correspondence with Great Britain : Sir Brien Cokayne, Deputy Governor, Bank of England, 1916-1920

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PRIVATE.

Estes Park, Colo., August 3, 1916.

Brien Cokayne,
Care of Bank of England,
London, England.

Dear Jr. Cokayne:

I regret very much that my illness
delayed replying to your kind lettex
15th.of

s necessarily

I am spending some month- -here in
dice
and
Colorado, where I have a littlein touch
my absence
The managemethe Bank.
ho ver, dur
Treman, Deputy
be in the hands of 14r:
ober
ernor of the Bank, who\h s b-e' one of our directors
ce the bank was organize

'Park,

,e
Unfortunate
sage of the aM ements

has arisen as to the
"ederal Reserve Act at
, session of iC ngress,
t an effort will be made to
ain a favourab e opiniottiof Counsel covering the matter
days of race\
nd I ai ' hopeful that means will be found

vereti

hat'

,/ /

The basis_
ear-marking gold at the Bank of
suggesfild by the Governor, seems to Lao to be enl satisfaet5iry.
Mould not the same rule apply to
e
arkint 'of gold for account of the Bank of England
he
era Reserve Bank of Levi York? Assuming as an
ustration that you remitted to us say ,5,030,000 of Lew
Exchange and occasion arose for ear-marking that amount
old.
The price which the
ollars cost you expressed
sterling would not affect the operation of ear-marking
in Lew York.
You would have %5,0D0,000 credit either
our books or possibly invested in bills. Upon your inuctions, we wauld convert that creOit into gold upon
basis of the table of charges provided by the Assay
ice circular, which took effect April lLth, of which I
you a copy.
Assuming that the gold was ear-marked in
ndard bars, you would receive the exact equivalent in
d, less the assay office charge of LO/ 8.4000 for bars
v5I00O in value and over. Were we unable to obtain (sold
s, we would ear-mark gold coin at its bullion value, less
charge of LO/ a4.000, which is made for bars, the effect
g to set aside e sufficient quantity of gold to consume
amount of your balance, with a deduction only of the
rge
offor GO;
a vlDDO which is made for gold bare.
Digitized
FRASER
,

practical operation the Bank of England I assume
would never buy dollars and establish a balance in View York,
except under conditions which would show a profit in imThose
porting gold from Jew York, or at any rate no loss.
conditions would necessarily imply a sufficient discount on
dollars in London below gold parity to enable the operation
to be conducted without loss on the exchange and possibly
at a profit when tho account was liquidated.
In other words, fluctuations in exchange would not
interfere with the successful operation of the gold account,

as gold would be ear-marked by the debtin itution for
institution
the creditor institution only when the eredi
was buying exchange and remittinf, it/to the de or Institution, at rates which insured no loss( o the or ditor on
exchange.
of

1.4 to tile--,ear-marking
The above siL2gestio /1Aconsi drati'611, and just as
is tentative for y

shington as to our
soon as I learn o f the de i ion in
proposals, I will write y uk more fully and definitely.
o

the 'llvithr- he press reports of
Your letter, t
Amertean-securities, as well as
the success in a;_sembl
lotation of iumerican Foreign
the completely sucoes
,cent. notes, furnishes con :Acurities Company
with which the problem
vincing evidence o
de= t"with on your side. Of course
e is bei,
of exoh
sensitigindition of our money market indithe reo
cated th )lecessity-for prompt and thorough measures

to protect the- -- exchanges, and I believe that your large

shipments ; bad-have ,:one much to ease our market which
was tempor lily affected by large payments of taxes to
the Treasu y. Government expenditures from now on will
be very he ty and I expect to see the continued disbursal
of the Gov rnment's funds contribute somewhat to the
further ease of money until the Fall.

All you kindly give riv best regards to the Governor
and to your associates.

Thanking you for your letter and with assurance of
my esteem, I am,

Adthfully yours,

AI.0 Montview Boulevard.

Denver, %.iolorado,

October -0th, 1^,16.

bear

Your favor of the 28th of :leptember r aches me at this
to which

address, together with one from Norma

have already

r soli ed.

wha

Let me try to make

in my mind in regard

to methods of handling gold:<
n credit on our books rhich

It the Rank of ';ngl-n

it desired to convert

d, there would be two

ked

methods nosnible of o taininz t p gold.

My one method we would

present rvold certifi n es at t e oubtreeury in Mew York end with-------

This

draw ;:old sof

ight not he full weight, an the limit
;old coins are paid out by

of tolern
s the

ury so lon
noquently, if

r *ion doom not exceed that porcentage.

eon-

marked AlPrie%n coin ei itn bullion value, we

woulJ or necessity incur the lose between the bullion value end the
abraded leyil tender value of the coin.

trnsactions,

withallother institution, we hwve so for been successful in obt -in-

ing from the fAibtreasury nely 'Anted coins, thus avoiding any

abrasion lone, but we winnot tawny, roy u,on getting unabreded
mein,

,211

eu,;1.1 withdrawals, there is no ohnrr,e mnde by the Treasur:,.

The second method would be

withdraw United States

standard hare, that in, bare containing 99 7f. fine golfi end 1
per alloy.

For sue!. bare, as sthted i>

cop-

paragraph 6 of the enclosed

Oct. 20, 1916.

To 'irian ",.:okayne, Ego.

table of charges, the mints and Assay Offices of the United States
111
IP
make a charge of 50 cents per :;11000, cnd we woulc receive nnd
sorm^rk for you gold bars of the nominsl value of tf.e amount of
4.;,e Assay Of-

your credit to be earmarked, lees 1/20 of 1

letter of August 3rd could not

fice charge for standard bars.
have er

this clear.

This charge of 50 cents, by the way, it is
f treating

claimed by our Asia; Office exactly cover
gold end turning it out in that form,
tegtr, etc.

exchange, how-

This charg" really fi

over, r.ther than in the valu

as we view it.

rou!hly illustrate how 'the ac

k it J.* necessary to

at what

11 ff

'the Rank of En61:nd muot

became necessary, the &old ould

bur dollars sc that, in o
be landed in London w'

he following hypothetical ca l.o los . / ',he

sulation will illustra e

p int:

.8555

g(Aci parity iS
Lo nn

'due to insurance, freight,
mpo
n
.b osion, interest and sundries, we
.0525

1 esti:I.As
(

s is above tho normal in ordi-

The &early Cities charge of 50 cents per
$1,000 far standard bars is the
sovivalent per pound of
Total

.00245

$4.92145

7,0 if tho Bank of Kngland purchase.). dollars
n

rnte

exceediu: !4.92145 ar. t th,, Federal Reserve Rtink of row .ork

earmarked tf.r th:llars in standard gold bore, the Rank of tInglend

Brian Coknyno, Zeq.

Oct. 20, 1916.

would bo in position to bring the zold to London without 1o!ls,
Ain case (iollars declined in your market, r.nd withdrawal beOnne

necesmary for any reason.

The importnos of en errangerent of the character proposed between the 'lank of rnglnnd and tho Fedel noserve ',sinks
ill illustrated by what would transpire i.f thn

xchangon miter

declined or advanced below or above your ace

coot of

Should dollars sell in Lonlon at '4.90, the no

nt could be

liquidated et a profit without roving the gold

mould dollars nell i

Other han.i

he laid down in 1.ondon witnou

of moving the gold 'vac

to 2 cents on the poLn

either

tom,

would operat

of course, all in thr: lost

l minuted, thin owing would amount
eve or below the gold our ,4.8655

me, the A 8 C of how the dollar account
'coke.

"'hr exact reverse oould be true; of

the sterlir!g soc unt carried on our hooks.

In that case, the dif-

ference botgeen 77 n. 10+ d, your mint price for
of

The saving

we of profits earned form the diocount of bills.
n 4091119 t

the finn'47

; ;old cc.uld

Id renrssont tns ?refit on the uc-

nnd the aount,-e-f-ithat

count, exc

at 64.95, the

On the

red insted of chipped, and

0 ti

riske

in normal times with

ndon.

e thor party.

to ha effncted by the arrRngeme

4.91145.

.:ngl'ind proti ni

old,

cnd 77 F. 9

which preeumebly ,;old would be oarm%rked

for our account, is the equivalent in purpose An, onnunt of our Assay
iJffice charge of

!')')

cents per ;:1,000 for bars.

Sri n ,okayne, Esq.

it i

Oct. 20, 1916.

tai correct, wish you buy Collars iv London you

would einOw in the rate of exchange for the 11_0 of 1
for

charged

;(11,,i bars and when we bought sterling in New York we viould

allow in the rats of exchnge slightly more than 1/20 of 1
for tple (merge made by the jaw( of :Alglnnd for imr,:ediato credit

in order to avoid loos in rise either of uu s ro Id import the
;;old,

order it earmarked.

On the general question of

inc, of

I realize that the creditor inotitviion
understanding ate to a limit, m

'lace

debtor institution for a large

ate b .1uncos with the
Aritan

would care to furniuh in
uation was generally

without a

tne debtor institution

seems to Le taiLt

rod i

r di

desion.

isuct. a sit-

The debtor in-

stitution in 0-Ch ih t ice WOUlj ie expected to advice the: creditor
institution by cable
----

ate.

':xpe

he 1

to wnich it eau willing to o7)er-

ce will guide in this mutter better than hard end

fret rules

on coca ions when exchange ear- moving very otrongly

one way or

otoer

e would doubtleme unJortake transactions only

after an excnenge of cables which would agree upon specific limits
to the *mount to be handled.
As I wrote NorLatn, it is always in my mind thht the

con -

elusion of the war will gradually bring about a reversal of the ex
changes, the burden of furnishinf, gold for expert

largely fall

upon the, federal i.eaervo Banks and the demand will largely come
frro :.onion

the other leg.

that the arrangements proposed wiLl find tho boot on

.5.
To

Brian Ookhyne, Esq.

Oct. Hi, 1916.

At present, if, or When, necessary ap rev is of the plan

40 I

are obtained, the account would be o crated in eterlif.g

the Fed.

srol hederve Bunke would be buying bills in London wish but slight

Occacion to hhve gold earmarked during
are ootua!_ly fluctuating between 70

perie6 when our reserves
precticelly all in

end 60

gold.

'oince 1 last wrote you, i;ongres
idont nen signed the bill amen...J.11g Secti

14 of th

and the treeederal Leserve

Act so that it now reads an followo:
"Every- Federal reserve
&nail
wer,
with the consent of
e
fiord, to
Res
open and mointnin ace
is in f
gn countries, apnd eetabl n agnncioo in such
point correepon:lents
countries; Aereroever it mr,y dee
ent for the purollecting
bills of
pose of purchesi g, s
ink;,
t
th or without its
exchnnge,
epondents or agencies,
indorsement, thro
bine of exchange ri ng out of actual commercial
of more than ninety day@ to
transactions hi
"Taco, alv! which bear the
run, exclusive
rce,o-wible pn4tieut
signature of
the consent o
he t d al leserve Benrci to oncn and
nte for suoL foreign, correepo*
V.I. banki
a
en
2ASIWILls

that this rliminntes ell difficulty as

You

:ooncin usance

n bills end will permit the rederal hsserve flank

-07 York to r c ive

froon the dank of nialknd without

e inconvenience of earmarking gold, en; in thegr) too rondo:ate

e terl:s of the memorandum Jreiareci when 1

any_.

in Ion or can now

modifie.

I cm gled to sly thst thin 11,4,nerful

and the reset

everythinc and more than coul1 be ex,,ected io restore my

alth.

Brian Cokayne, gicie

Oct. 20, 1916.

1: he war newo must inused give you c,11 arat 6ncourage-

mert and I hope contributes to your satisfaction in the past two
years of hard vork and anxiety.

*ill you be boon enouo, to include the Governor in the

warm regards carried by this letter, any belie
Very sincerely yours,

Brian .,;ckqyne, Keg.,

Deputy Governor, Bank of Fnglan
London, Tngland.
143/Yev

SECRET

MF,710RANDII!! OF 7.ARCIT 1916

redrafted in accordance with letter from the Federal Reserve Bank of New
York dated January 18, 1917, and further amended by the Bank of England.

The following points confidentially and tentatively agreed upon
for submission and ratification by the rennective institutions, with a view
to being put into operation after the conclusion of the war: -

The Federal Reserve Bank of 7ew York

to act for itself and for such of the other eleven (11)
Federal reserve banks as join the account.
2.

ACCOUNTS.

The ?edeml Reserve Bank of

`'err York to maintain an account with the Bank of England

and vice versa.
3.

The accounts respectively to be kept free

of charges and °omission - except as regards actual outof-pocket expenses.
4.

BILLS.

The Bank of England to purchase,

as and when so requested, prime sterling bills for account of the 2ederal Reserve Bank of New York, for the
payment of which, at maturity, the Bank of England will
be responsible.

These bills to be such as are believed

to arise out of actual commercial transactions, to have
no more than ninety (9')) days to run, e:Iclusive of days

of grace, and to bear the signature of two or more responsible parties.

The Federal reserve Bank of 7ew

York, likewise, to purchase prime dollar bills of a sinilar nature for account of the Bank of England, and to be
responsible for their payment at maturity.

Inch bills

to be at the absolute disposal of the institution for
whose account the purchase is made in either case.
(a)

The -?ederal Reserve Bank of ':err York would

pre"er that bills purchased for its account by the Bank of England should consist so far as possible of those bearing-

.")

the names of American drawers, or indorsers,
no long as this requirement does not involve
the acceptance of other than prime bills
which are eligible for discount at the Bank
of England, and a sinilar policy would be
pursued by the Federal Fescrve 'lank of .!Tew

York in purchasing bills bearing the names
of Fnglish draers, or indorsers, for the
Bank of Fngland, shonld it be possible to
do so.
(b)

It is expected that nurchases of bills
either institution for the other will be
at the current market rates.
5.

.021 :REST.

When balances vrith the Bank of

England cannot be invested in bills, the account of the
:lederal Deserve Bank of 7ew York nay be dealt with on an

interest basin, at rates to be agreed upon.
An the Federal '"eserve Bank of 7ew York is not

authorized by law to allow interest on balances, balances

at the credit of the Bank of rngland, if they are to earn
interest, must be invested in bills.
6.

GOLD.

Subject to Clause 10 and an below

stated, the debtor institution will, at the request of the
creditor institution and so far as it conveniently can,
set aside and earmark gold on a bullion basis representing
balances due.

Such gold to be clearly identified as to

ownership.
(a)

The Bank of 7ngIand to earmark and set aside
refined gold bars for the Federal -eserve
"-lank of row York, when so requested, and

charge its account at the rate of 77 shillings 10 1/2 pence per rnglish standard
ounce, eleven -twelfths fine, or
(b)

When standard gold bars are not available,
the lank of nngland to earmark and set aside
eagles for account of the New York bank at
their bullion value, at that rate of 77 shillings 10 1/2 pence per ounce, for the equivalent of the English standard of fineness, or

(o)

The Bank of rngland to earmark and net aside
sovereirns at their bullion value, at the
rate of 77 shillings 10 1/2 pence per ounce.

(d)

Gold bars, or gold coin, so earmarked but not
shinned, to be taken by the Bank of Pngland
(if returned to the credit of the !Tew York
bank) at the sane value at which they were
earmarked in the first instance.

(0)

It should be understood that the Federal Reserve Bank of :Jew York cannot require the
lank of Fngland to earmark eagles at bullion
value In order to Irport then anti reaftlze the

profit between the bullion value and face
The right to
value of American coin.
determine in the event of shipment whether
American coins shall be shipped or not to
rest with the Bank of England.
The 1.ederal Reserve Bank of '.:sew York to carmark vnd

set aside gold for the Bank of England when so requested and
charge its account on the following; basis:
(f)

Refined gold bars at the rate of t18.604651
per United States standard ounce of gold
nine-tenths fine, nlus the Assay Office
charge of 50¢ per "1,000 in value if and
when incurred, or

(g)

'Iovereigns at their bullion value of
^18.604651 for each ounce of gold of the
'United fltaten standard, nine-tenths fine,
or

(h)

eagles at their bullion value of "10.604651
per ounce.

(1)

Gold bars, or gold coin, so earmarked but
not shipped, to be taken by the 2ederal reserve bank (if returned to the credit of the
lank of rngland) at the same value at which
they were earmarked in the first instance,
excluding the Assay Office charge above-mentioned which will be borne by the Bank of
England.

)

It should be underst;od that the Bank of
England cannot require the 'z'ederal Reserve
Batik of New York to earmark sovereigns at
bullion value in order to import then and
realize the nrofit between the bullion value
and face value of English coin.
The right
to determine, in the event of shipment,
whether English coins shall be shipped or
not to rest with the 2ederal Reserve Bank
of New York.
7.

Subject to Clauses 6 and 10, the debtor insti-

tution to ship gold to the creditor institution, on request,
at the cost and risk of the creditor institution.

(Mere

gold is shipped by one institution of its own accord to the
other and not at the rcquest of the other, such shipment to
be at the risk and cxpense of the shinning institution.)
8.

Gold bars earmarked or shipped by either insti-

tution to the other must be suitable for coinage purposes, alloy to be copper, and an all.mance made for any variations in
gold contents above or below the standards specified above.
9.

The earmarking and shipment of the gold coins

of any other nation nay be undertaken unon the basis of the
'glue of the Tint 7n1ft captained in such coins, with deduction

-4-

of an allowance to cover the cost of conversion into gold
bars of 7nglish or Anerican nint standard respectively.
10.

The intention of the arrangements is that

all transactions in gold (other than earnarked gold) bet-:eon

the two institutions shall be voluntary and upon exactly
equal terms as to each.
11.

TVOTTATIOTT.

It is expected that informa-

tion will be exchanged by correspondence resnecting credit
matters and financial conditions.
12.

DURATIOr.

The arrangement to be subject to

cancelation by either institution, in whole or in part, except as to transactions in process, on notice by letter or
cable;

it being understood that any unliquidated balance

either way may be settled in gold if no agreed.

If circum-

stances require or justify commercing operations before the

conclusion of the war, a summation to that effect may be
made by either institution.
13.

It is hoped that the Pederal Reserve Bank

of New York will eventually reach an arrangement on similar
lines with the sank of France, to which end negotiations are
already in progress.
14.

ro announcement directly or indirectly to be

made regarding the contents of this memorandum without the
explicit consent of both institutions.

2nd ''arch, 1917.

Denver, Colorado,
February 2, 1917.

Dear Mr. Cokayne:

Your kind letter of January 15th is just r
time this letter reaches you my official letter
and that in great part covers some of

ived and by the

1 be in your hands
ioned in your

letter just received.

As you say, all the appar

les seem to have boen

smoothed away and I am now

can conclude our arrange-

meats promptly.

eived from your other

You have undoubt

correspondents on

re in regard to that

announcement by th

rd.

to comment When I
touch di

It is difficult for me

quarters and so much out of

t is goi

ee, however, with much that you

titularly as to the dangerous character of some of the ex-

say,

nansi. which has takeh
develop

e in connection with purely domestic

te.

If the

xceedingly tense situation with Germany develops

as it well may, all of these difficulties to which you refer and particularly those of the foreign e;:changes will be promptly resolved.

Will you be good enough to thanc the Governor for his
which I heartily reciprocate,

.nd take this moans of convoying the same

to Norman and your good self.
Yours sincerely,
Brian Cokayge, Esq.,
Bank of 1)agland, London.
BS/CC

ood wishes,

Denver, Colorado,
:Jay 19, 1917.

PERSONAL.

Dear Mr. Cokayne:

Your recent communications addressed to New York have been read
with great interest and official reply will be sent forward by early mail.
I am writing to express to you personall:: the gratification which

the conclusion of this arrangement has afforded me and which feeling is
shared by all of my associates in New York.

)f course the complete value

of this close alliance will not develop until after the war, unless war

emergencies later develop which will make the services of our respective
institutions of importance 1_ connection with government financing.

Never-

theless, you may be assured that we here regard this arrangement between
the Bank of England and the Federal Reserve Bank of New York as simply one

manifestation of the growth of the strong feeling of kinship between your
neople and ours, the fruits of which I trust we will all be able to enjoy
to the fullest possible extent.

With warmest regards to you and your associates. I am,
Very sincerely yours,

Brien Cokayne, Esq.,
Deputy Governor, Bank of England
London.

BS/CC

January 21, 1918.

Dear Sir:

This note will be presented to you by my friend, Mr.
John T. Pratt, who is just leaving this country to accept a
position of importance in the American Red Cross, Field
Service, in France.

I hope that Mr. Fratt's duties will permit him opportunity to present this letter to you, as he is a very
warm friend of mine and I am sure you will be glad

to know him.

Anything that you can do to facilitate his work or

his trip will be greatly appreciated by me.
Faithfully yours,

Sir Brien Cokayne,
Bank of England,
London, England.

73:-.11IAB

44,
January 21, 1918.

Ly dear Sir Brien:

I have taken the liberty of giving a note of introduction addressed to you, to my friend, Mr. John T. -)ratt,

who is sailing for France this week.

Mr. ?ratt is a well-known New Yorker, the son of
Mr. Charles Pratt whom you doubtless know al, one time con-

nected with the Standard Oil Company.

ince the outbreak of

the war he has been engaged in some important work in the De-

partment of Labor, in Washington, and has now resigned to take
up work in France.

He is a very warm personal friend of mine and a delightful fellow in every way, and I hope his engagements
abroad permit him opportunity to meet you.

Anything that you

can do to facilitate the objects of his trip will be warmly
appreciate a.

7,ith kindest remembrances for the New Year, and thanking you in advance, I beg to remain,
Sincerely yours,

Fir Brien CokaynaBga-dr-grigland,
London, England.

B8/LRR

Aprib 27, 1916.

;Sy dear Sir Brian:

This may appear to you a rather belated note which
is intended to convey to you my congratulations and hearty .;ood

wishes upon your accession to the Governorship of the Bank of

.gland.
Durinc the last year I have begun in a small way to
realize what a tremendous responsibility you gentlemen of the
Bank management have had to carry since the outbreak of the war,

and that fact is so thorouhly realized in London, that it seems
to me no higher compliment can be paid to a banker than to

achieve the position which you now occupy.
I am sending you the warm wishes of the youngest member of the Central Bank fraternity that your administration will
be one of great achievement and success and will bring honor to
the bank and to the new Governor.
With warmest regards, I am,
Faithfully yours,

Governor.

Sir Brian Jekayne,
--767ernor; Bank of England,
London, England.
BS*VOlt

Air

April 16, 191,

PERO OLAL:

Dear air Brien:

For some time I have

toping to send you a little account of how

things are going with us, bOrcontinued absence in -:ashington has made it difficult
for me to keep 74 with my correspondence.

I am sending you a cable to-day, as per enclosed confirmation, which explains itself.

The last forty-eight hours has witnessed one of those curious

somersaults in opinion which now and then, in fact all too frequently, occur in this
country.

There has been a widespread demand for a 5

loan of some sort when the

Government again appealed-to the money market, everyone apparently overlooking the
fact that with the war ended our Treasury could probably work itself into position
to reduce its borrowing demands to a descending scale, instead of continuing the
ascending scale while the war was on.

It has been found possible to do that;

conscluence the amount of the loan Las been limited to four and a half billion
dollars (of course one must smile when speaking of a loan limited to four and a
half billions) and this decision, coupled with the terms announced, which are described
in detail in the enclosed statement, has afforded such relief, particularly to the
Liberty Loan Organization, that the satisfaction is complete and widespread.
I have no doubt the loan will be a great success.

Our aim will be to

effect the widest possible uistribution of the 4 3/4,: notes, which enjoy exemption
from normal taxes, upon the i.heory that there will be very large subscriptions for

the notes which are tax-exempt from those who pay heavy surtaxes;

that those sub-

scriptions will be the ones to be cut down, and the subscribers will be forced into
the market to buy the 4 3/4;_ notes and convert them.

The mechanical difficulties of

r en.aoka

handling this loan will be tremendous, but, barring that, it presents advantages
uciiirs have not been possible in any previous loan and are only made possible by
the approach of that time when our Government will no longer be a borrower.

luch perplexity was caused in our bank councils by the disparity in rates
between the various issues of Government bonds and notes created in this offering.

Our bank now makes fifteen-day advances upon the collateral of Treasury Jertificates
of Indebtedness or the Government's bonds at

and we discount subscribers' notes,

for periods up to ninety days, when indorsed by our member banks at 4 l/4, being the
coupon rata on the old loans.

Inasmuch as the Treasury certificates, which run for

short periods, bear 4 112a., the old issues of Liberty isonds, with one exception, 4 1/4%,
and the new issues bear a 3/4`a and 4 3/4,.:, we will face a situation of much difficulty.

This has been somewhat exaggerated by the fact that many of our national and state
banks made commitments to subscribers for the Fourth Loan to carry them for a year at.
the coupon rate, and we were reluctant to make an advance in rates Which would penalize
the banks that wore still carrying those loans.

The solution of the problem was easy, however, when the amount of the next
loan was limited to f.ur and a half billions as our position is still so strong that
we feel justified in maintaining our rates unchanged at their present level,

course it invites the possibility of considerable expansion should our conclusion be
arong that the loan can be placed without much employment of bank loans.

We have

notified the bankers privately, however, that we reserve entire freedom of action to
enable us to deal with any situation that arises, and I am hopeful that the general
feeling of optimism will result in good distribution of the notes without excessive
demands upon as,

This, in brief, is our new situation, and I am optimistic of a

satisfactory outcome.

It was somewhat due to my own oversight that there arose some possibility

of a misunderstanding of our action in maain6 that small cable transfer to our credit
on your books and I should have written you and explained the situation.

4/1r/19.

air Srien Jokagne

We attach grout importance to the understanding which,we now have wit.
The settlement of the earmarked gold account might have

you vreat institution.

appatred to jou, and.to us, as indicating that the agreement was a formality rather
thicis an actuality and so I asked to have this transfer made

simply that the accouut

might be maintained under your eyes as an active reminder of something that exists
/and is not forgotten.

We have no expectation of asking you to ship gold, in fact,

for us to aocumulate exchange at this time and put the agreement literally into
operation would be the last thing that we would consider except you yourselves
proposed gold shipments and desired to have 112 join you in the arrangements under

which they would be made.

And while on that subject, may I suggest the advisability

that we keep each other closely informs', of developments along this line?
Of course your action in discontinuing support of exchan,e? makes the gold

embargo effective positively, rather than passively.
shall do about our embargo.

Our problem now is what we

There seems to be some doubt as to the powers conferred

by the Trading with the Ememy Aot and as to how long they continue.

Our belief is

that the Act intended that the President should continue to exercise this power
after the war ended so that determination of our course as to gold exports will be
upon grounds of policy entirely.

I am wondering what your own views are as to what

we should do and would be glad to hear from you about it.

No doubt it would be un-

wise to na.o any change until after this next loan is placed as there is a possibility
of a considerable exodus of gold to neutrals at once the embargo is removed and we
do not wish to create an unfavorable sentiment as to our reserves while the loan is
in course of being placed.

It seems to me that the important thing just now is for us to exchange
information as fully and freluently as possible on this important subject.

All you not give my best regards to your associates, and the same to
your good self.
Faithfully yours,

Sir Brien Cokayne,
Governor, Bank of

http://fraser.stlouisfed.org/
London, England,
Federal Reserve Bank of St. Louis

England,

PER 3 Jli

Dear :fir brim:

Your letter of flay 2d has been read with a great deal of interest.

I am hoping in the near future to send you a fairly complete report on conditions over hare and write you more fully than I have yet been able to in
regard to this difficult subject of the gold embargo.

By good fortune our

friend drenfell is on this side and i hope to-day to have a rather full dis-

cussion with him on this subject, the santance of which he

doubtless con-

voy to you.

I agree with much that you sad in regard to our own position.

\7e

Dow, substantially, what tae possibility of gold demand may be, with the ex.-ceptior. of India aad egypt, those being the only real danger spots with the

possible exception of Japan, *1.o has accumulated very large balances in this

country as doubtless she has with you, a considerable part of which balances
has been temporarily invested in our ireasary Jertificates of Indebtedness.
I have all along felt that whatever action was decided to be taken
in regard to our embargo on gold exports should, if possible, be coupled with
an arrangement between the Bane_ of Lgland and this bank so as to bring our
policy into harmony.

I am writing jr. Strauss on the subject to-day and will

write you further.

You doubtless have on

hand a copy of the Trading with the 2:new Act

and will observe that that paragraph relating to the embargo on gold exports
does not seem to be limited to the period of the war, as do other sections of
the bill.

It may be, therefore, that the President's power to exercise this

contimal will continue until definitely terminated by executive act.

If opportunity occurs,

I will cable you something of our plans

about the gold embargo as soon as known.
;1th kindest regards, believe me,
Eaitilfully yours,

Brien Jokayne,
an of :eland,
London, Rneland.

BS/113B

Hotel Astoria, Brussels,
August 5, 1919.

My dear Sir Brion:

With this I am enclosing to you copy of a dispatch which I am sending throw;h the American 'imbaseador at London in order that it may be
transmitted through the Embassy code.
In exTJlanation of this te.egram, I find that it will ne difficult
me to ma e such arrangements as would seem to be necessary to ensure the prompt dispatch of the gold held by the Banque Natioualo de
Belgi7ue to the Bank of Eng_and because of our having no organization
near at hand to ta-a charge of it.

The Governor of the Banque was good enough to explain to me the
method which you had am)loyed, which has led me to ma':e the suggestion
which I 4M transmittirv; by te1egraph.
Please be assured that if you find it possible to comply with
this request it will be very greatly appreciated and I shall certainly make it ray business to reetrtotate at the very first s:),portanity.
I beg to remain,
Faithfully yours,

Sir Brien Cokayne, Governor,
Bank of Eng and,
London.

Bs/v

TELEGRAM
August 5, 1919.

URGENT

404

Alli.,:RICANAnASSADOR,

London

Benjauin Strong Governor Federal Reserve Bunk of New York
desires following message transmitted promptly as ,o:-,sible to Governor

Bank of England quote On arrival Brussels I find approximately two hundrel
and ninety million marks gold could be shipped at once to !onden for
treatment us discussed with you but considerable difficulty will be
experienced in effecting trank,ortation without "ecessury arrangements

being first uade in London as was done with shipment recently made by you
stop

Would it be possible for Bank of England to handle this gold in

behalf of Federal Reserve Bank of New Yora

by same method stop

In this

event National Bank of Belgium would be instructed to act upon direction
of Bank of England in arranging details of transportation stop

Also

could Bank of England arrange for insurance cover in London preferably
through Chubb and Sone to cover all risk and payable in dollars in New
York stop

Federal Reserve Bank_ would of course ex:-:ect to pay all costs

and service charges and would greatly a;preciate courtesy stop

Kindly

telegraph reply both to Brussels care Banque Nationale and Amsterdam care
Nedorlandsche Bank unquote

STRONG

TELEGRAM
Amsterdam, August 8, 1919.

GOVERNOR BANK OF ENGLAND
London

Many thanks for your telegram stop

The total amount both

Brussels and Amsterdam probably four or five
million pounds less than
amount mentioned your telegram stop
About one third of this is in
Brussels and two third here stop

Would appreciate your telegraphing

me oare Nederlandsche Bank advising if
arrangements for shipment can
cover Amsterdam as well as Brussels

STRONG

acs.

MKT.

aiLs
awe, sirs.
?wait r to ostireto day VMS witewsistimi
of your tologre Sot SIMMilesd MAW* that yew will

be helPIV to smog, shipmate fronts* desterdne sari
r-

Brussels end edit pialomee ambled to hew York
lag tile

kW lama.

asst..

I preemie that the sable to Smelts* pastes

to imeersewo emi repot to Wows 3es tam* t alresily

roger Sr risers. Chubb S sees bray ryes%
tMt inworisse I s d011en re be *Mori for wore
the tor willion dollen ow way sr riposart.

Was

*dog to the nerosity for re7 Wise bort
for ablest Saar weeks, possibly orsibet law, I
bum nroseted kal. '.
Kent to dialer *Mb ,you the

arreeponest of the details for noving the ennunt of
gold
to be shipped ahleh will be tar the present

as ODUOVet
Frost Basesele to Lomas 1110.1100.8011 larks,
leaving 90.004).(100 Warta

fir the peeled with the Ilatiosal

lien* of sigh.
These 7/80/01.1/011 Melo I hope pee eon
anent. to ship for as y fir sees welbot "kWh yes par

seed with y3ar or shipmate

dollars by cable to Two gosh.
will discos ell details.

418.4111061/ MM insossee
Cesommeles this, Sr. iOnt

At Millieriat t homes sartipsi that limy doll
erploto es err sommt and right of 101,000,000 SOSIVA
gold narks, the shipest sf ebletkeeneet well be erreeged
entil my return in sky event.

This bases 240,040,006
not all Germs eels bat La pert bars, dome oaks
sea scam severeigne es well possibly as
other gold este
*hide I hiss *sweep& with the Nalerlseessbe Desk to
weigh in the ege and report directly to Dew York, sad
it is this annual AMA I veal& hits to hare shipped is
iseden as pile as it ens be arranged by the ammo

Mrs

sidled ibises sr weir with your or
sorring by

imeeeseee le dialers.

Airiest seed

10111aVie boa soppy
also kid yo.; the oithowisstiom
Morel looervo Book owoorksig MY
this matter obLah I Intended to

of this letter will
twiddled ow b the

poem to doe' with
Immo with $ oo fwevious17.

i WA

With sees limbs for year sesietaleo
mmter which is deeply epreoistso, t beg to ressine

Whitt lailz Jews,

r:o tha Gowengor of the Bast of *161.,.11.1

noto1 Ritz, :saris,

August 18, 1919.

The flovernor of the fInnit of Nngland,
Lonon, -11731and.
j)es.2.

ir:

Thin not will be -:resented to you b7 r. V. I. rent, who has -wawaponied me to Furore to assist in vnrious matters, including the arrangenent for the shi-onont of Old from ,:alsterdam and Brussels to London.

Iwime to n7 expected absence of a few weeks I am aelariR )(r. rent to
Pe is thoroughly famili5:r with
carry on the intier luring my absence.
it ,and 11..s the necessary code snd chock words to enLble him to communicate prom qtly ,Ath the /Federal reserve Pik.
It is not intended in ;-ry way to alter the arrangements that you
may mite for effecting the shipment of this gold from Brussels and :dasterdam to London, but Yr. rent will ect in my place during n absence so
that we may have someone on the -round with whom to communicate.

Again with m.ny thrmks for your courtesy, I beg to remain,
Paithfully Troure,

.131v

Paris, August 19, 1919.

i
Governor Bank of

England

London

Replying your telegram regarding insurance I am just advised
by Federal Reserve Bank that Chubb quote rate about ::even ,,ad one half
cents per hundred dollars covering all risks from Brussels to London stop
No rate yet arranged from Amsterdam stop

Also advised if entire Amount

placed in America none elsewhere probably possible to insure seven million
five hundred thousand dollars one conveyance and possibly might increase to
ten million dollars one conveyance stop

They cannot now guarantee this amount

but requeit advice if business is likely to eventuate and will then advise
rate definitely stop

Am cabling New York t ere will be ten or more shipments

of maximum amount and to quote definite rate both Brussels and Amsterdam direct
to yousto)

Kindly advise Kent
STRONG

Hotel Ritz, Paris,
August 1::),

Dear Sir:

I am just in rectei:'t of confirmations of cables ;-sassing between us, dated

the 12th Augu t, over the signature of your Deputy Chief Cashier, and beg now
to confirm the receipt of the telegrams mentioned, together with the following:
August 12.
Your telegram of Path received stop
Will be ha-2,py to arrange shipments both Amsterdam and Brussels stop
Have cabled New York respecting business (insurance?).
1.

2.
Augu
14.
Learn from New York insurance can be arrnaged terms unknwwn
to Bank but understood cabled you direct.
5.

August 1.

soon as authorized.

We are ready to Lend to take delivery at both centres .4.0
rte await terms upon which to insure :rich Chubb.

I now beg to confirm the advisees sent to you with :Ir. I?. I. Kett that I
have abandoned for the present my intention of visiting Constantinopl, but
will greatly appreciate Mr. Kelt's assistance in arranging the details of the
gold shipments hile he is in London.

I also beg to confirm sending you today the following telegra:.:

'ReAying your telegram regarding insurance I am just advised by
Federal Reserve Bank that Chubb quote rate about seven and one half
cents per hundred dollars covering all risks from Brussels to London
stop
No rate yet arranged from ALsterdam stop
Also advised if entire
amount placed in America none elsewhere probably possible to insure
seven million five hundred thousand dollars one conveyance and possibly
might increase to ten million dollars one conveyance stop
They cannot
now guarantee this amount but request advice if business in likely to
eventuate and will then advise rate definitely stop
An cabling New
York there wi 1 be ten or more shipments of maximum amount and to quote
definite rate both Brussels and Amsterdam direct to you stop
Kindly
advise Karat"

The amount of gold to be included in the present shipments consists of
approximately 2-o,nomono marks out of a tote- of 290,9^0,000 marks now held y
the National Bank of Belgium and ap.roximately 240,00(),,00 marks out of a total
ofFRASER
440,000,00' marks hold by the Nederlandsche Bank.
Digitized for

B. of E.- 2

The
The gold held in Bruosels, I am advised, is entirely German coin.
"320,999,299
following:
gold held in Amsterdam is reported to consist of the
roubles,
s, 1,7'54,500 sovereigns, 16,300,000 Austrian crowns, 5,500,01N")
bars, fine weight 21,837 kilograms, or a total of 40,000,00C gold marks

The 2ev),f100,00P marks to be left for the 2reseat in Austerdam will consist
entirely of German gold coin and the gold to be shipped is to include the balance of the marks and the other coin and burs.

I am just advised by the United States Treasury Department that it may be
necessary to make 44 payment on behalf of the United States government of a:proximatoly St0,000,000 to the Bank of Spain in Madrid, and Mould other arrangements for making this payment prove impossible within the limited time at
our disposal, would the Bunk of England be willing to set aside out of tho gold
to be held for our account an amount of a,Jproximately $10,000,000, cslaua-ekina
it for account of the Bank of Spain pending the completion of other arrangements?
I shall endoavor to oaks a diroct dhijment to Uadrid out of the balance
of the gold held in Amster&m,or Brussel s, but, failing that, would greatly appreciate being able to conduct the transaction through your good institution.
.lay I also ask that you be good enough to show this letter to Mr. Kant,
who will be glad to do what he can to facilit.am the armngements.

Again thanking you for your iany courtesies, I bog to remain,
Very truly yours,

The Governor the Bank of England,
London, England.

B8/7

Hotel Ritz, Paris,

August 22, 1912.

Dear Sir:

I am this morning in receipt of your telegram of the 21st instant,
reading as follows:
Our re:2resentatives have
"Received your letter 19th stop
We aro in touch with
otarted for Brussels and Amsterdam stop
Kent and await his completion of insurance with Chubb before
Shall be hup?y when you
definitely arranging shipment stop
when
held
on your account to
so direct to transfer a portion
order of Bank of Spain.",

and much appreciate your assistance in arranging matters with Mr. Kent.
With this I beg to enclose confirmations of telegrams as follows:
August 4, 4-'9.
19, 1919.
"
I beg to retain,

Faithfully yours,

The governor the Bank of England,
London.

BS/V
(Two enclosures)

Hotel Rita, Paris,

August 23, 1919.

Dear Sir:

Since my letter to you of August 19,
to make the shipment of 240,000,000 marks
in receipt of more precise information as
to be moved and Am now writing to know if

asking that you be good enough
from Amsterdam to London, I am
to the amount of gold required
this can be increased to a total

of 360,000,040 marks, leaving 80,000,000 marks in four lots of ':!',:TO,c,'")0

each,whiCh have been exactly counted, weighed and examined, for eafekee2ing with the Nederlandsche Bank.

Dr. Viecering, of the Nederlandsche Bank, is being advised by me
to this effect, and I have asked him to inform your representatives who
are now in Amsterdan, but they will undoubtedly desire instructions direct from you, Which I will greatly appreciate your conveying to them as
well.
Mr. Kent probably explained to you the possibility or our being
I am
under the necessity of moving some gold to Paris or Liadrid.
awaiting cable instructions in this matter and have decided that it
would be more convenient to make the shipment from Brussels than from
either Amsterdam or London, if it is possible to arrange it, and it
may be that I shall telegraph you and the Banque Nationale de Belgique
making some change in the -mount to be shipped before that shipment is
completed, which T trust will cause you no inconvenience.
I um sending a copy of this letter to Mr. Kent at Claridge's Hotel,
London, in order that he may be informed, and again wish to thank you
for your courtesy in this matter 7hich has relieved me of conoiderable
anxiety and is very greatly appreciated.
Very sincerely yours,

The Governor the Bank of England,
London.

Hotel Ritz, London,
September 8, 1919.

The Governor of the Bank of Ehgland,
London.

Dear Sir:

With this I am enclosing transcript of a resolution passed by the
directors of the Federal Reserve Bank of New Tork, under the authority
of which I have been acting in arranging for the dhipuent of the gold
which you have been good enough to handle in our behalf, and which you
may desire to place on file.
I um today in receipt of a cable from the Bank containing the following:
"we have increased insurance to a total of 41j45,0:7,C,C(7, and

further that it is understood and agreed that in cases whore
elipmenta by two vessels arrive at porta in England and both
or parts of both of these shipments should go forward by one
train or otherlland conveyance to destination in London the
(clause in policy?) as
limit of liability is waived as regards these shipuants while so conveyed by land to London".
A later cable contains the following:
"We have covered insurance 44t),-r-,-77 aar::s from Amsterdam and 2'-`c,-0:',-m() marks from Brussels",

and a still later cable, dated September 5, states:

"Chubb has succeeded increasing insurance from 16,5010,00 to
of
on and after September 8th".
It has been decided to move all of the gold, that is, 440,000,00C
marks held in Amsterdam and 29c,^ -r, -,c marks held in Brussels, to London, and from the above you will observe that it will now be possible
to .lake shipments from each point of a total of 37,50(,),m" by each separate conveyance, advice of which I would appreciate your conveying to your
representativeo in those places.
The total docowIt If ii.eurance must again be increased to cover the
9P,(10,-^e: marks addai.ional to 1-4. -hipped from Brussels, and I am

cabling to the Bank asking that

http://fraser.stlouisfed.org/
cable advises to me, of Which I
Federal Reserve Bank of St. Louis

this be arranged ,t once-, wtth-temmtd-.4111-__
will advise you on receipt.
I am also

asking that an effort be made to increase the total amount covered on
one shipment to 31-,^","',(-r, as the time required to ship the entire
now to be moved will, I fear, cause you cmsiderable inconvenience.
With much a)preciation of your courtesy, I be

Faithfully yours,

(1 enclosure)

to remain,

London, So.:Umber 11, 1919.

The Governor of the Bank of England,
London.
Dear Sir:

I am Just in receipt of a cable from the Federal neserve Bank of
New York asking if I will arrange with you to send a cable to the Bank
on Saturday of this week advising the total amount of the German gold
which has actually arrived at the Bank for our account up to date.

Of course, I understand the impossibility of getting an exact statement upon the responsibility of the Dank, but I presume it will be possible to send a cab:e indicating the amount reported by your representatives to have been shipped in each lot, and consequently the amount understood to have been received.
I am asking. whether any further special cable advIces of the arrival
of ahipments are needed and will advise you of the rojy.
Thanking you; I am,
Very truly yours,

&3/V

London, Se.tember 15, 121-,

Deur Sir:
I be

to thank you for your note of the 12th insult informing me

that the Bank expected another shipment of 27,000,000 marks on the
13th instant.

Yours very truly,

E. M. Harvey, Esq.,
Chief Cashier,
Bank of England,
London

London, Se teabfts 16, 1919.

My dear Sir Brien:

Replying to your letter of the 12th instant, it will suit us admirably to deliver to you iziGcT,^7 in sovereigns now held for our account in Ameterdt.m, receiving in exchange the corresponding value in
London.
The Nederiandsche Bank reports holding bags reported to contain
sovereigns 1,5,4,50n, of which they estimate the weight at kilos
12,413.607.

My understanding is that these sovereigns have been weighed in the
small canvas bags in which they are packed and sealed and an allowance
made for the weight of the bags and seals, so that these weights may
not be accurate within some small percentage.
In other words, I am unable to deterLiine the quality of the sovereigns and suggest that an account be made of the exchange no that I
may be able to include it in the accounting required of us in connection with the total gold received from the Germane.
Thank you for the suggestion to exiedite the cam,,ietion of our
shipments.

I am just advised by cable from Lle Federal Reserve Bank of New
York that the total amount of insurance has been increased to
$184,325,-, Which ia supposed to cover the allowance of one per
cent. for shipping costs, but I am not certain, even after allowing for
15608,^00 which will not now be shipped, whether this total is sufficient
to cover the entire amount.
If it is not, may I ask you to be good
enough to advise me, or if I have already sailed, to advise the Federal
Reserve Bank of New York by cable.
I 412M also advised that so far it hasbeen impossible to increase
the amount of insurance above /7,5'',0,00r for any one conveyance.

Tours very truly,
Sir Brien Cokayne,
Governor The Bank of England,
London.

London, Setember 1E, 11:.

My dear Sir Brien:

In response to a cable addressed to the Federa_ Reserie Bunk
suggesting an arrangement by which the Indian goverwdent wou_d accept gold in London inst'ad

New Ye* against e..ies of council

bills in New York, I am advised by the Federal Reserve Bank of New
York that the arrangement meets the approval of tho Bank, but, under

the conditions still maintained relating to gold exorts, it wilL be
necessary to obtain the further approval of the Gold Committee of
the Federal Reserve Board.

In case no advices reach no prior to my sailing on Saturday, I
shall take the matter u2 on arrival in New York and advise you of the
outcome.

Yours very truly,

Sir Brian Cokayne,
Governor The Bank of England,
London.

BS/V

ti
London, September f!,

121").

My dear Sir Brien:

I am this mornin, in receipt of a cable from the Federal Reserve Bank of New York asking if I will arranle with the Bank of
Englund to send cable advice, of arrivals of _old, in addition to
those advised last Saturday, whenever they aggregate an amount approximating 100,000,-00 marks, in order that the necessary entries
This I trust you may be able
may be madeon the books in New York.
to do without inconvenience.
It seems desirable that all of the gold received should be
melted and reduced to bars, with the exception of the sovereigns wld
such of the gold as may be in fine bars, the value of which is known
to the Bank and would in the usual course be acceptable without remelting and assaying.
We would also greatly appreciate receiving advice. from time to
time of the actual values ascertained after melting, to include a report
of the actual fine gold value of sovereigns, whether those originally
received or the equivalent in gold bars,which you ma deliver to us
in exchange for sovereigns.
You will also, I understand, in due course submit to us a statement of the charges and disbursements incurred in handling t;_is matter for us, Lich may be charged to our account or which we will remit,
as you may prefer.
We great4 appreciate your Good service in this
matter.

Faithfully yours,

Sir Brien Cokayne,
Governor The Bank of England,
London.

BS/11

London, September 19, 1919.

My dear Sir Brien:

I am advised by the Federal Reserve Bank of New York that the
New York agent of the Bunk of n:,ntreal has offered to deliver the
gold received by them in payment for rupees sold in New York for account of the Indian goverr7ent, in exchange for an equivalent amount
of gold held by the Bank of England for account of the Federal iieserve
Bank of New York.
This we understand to be pursuant to the arrangement which we have
discussed, and the amount involved is, I 4M advised, about $3,500,000.
In reply, I 412 advising; the Federal Reserve Bank that the proposal
made by the Bank of ':ontreal should be accepted If approved by the Gold
Committee of the Federal Reserve Board, and that I understand the Bank
of England will acoept the equivalent value in gold bare, allowing
g cents per $100 for fine bars, being the equivalent of what such bars
would cost if obtained from the mint or assay office in the United States.

I take the liberty of suggesting, however, that any English bars
which may be received direct froze Amsterdam and which you are willing to
accept without remelting, at the values at w.i.eh received, should not be
subject to the charge of gg per
If, upon further consideration, this arrangement seems to require
revision, I am sure you will not hesitate to suggest it, and we will do
the same.
Faithfully yours,

Sir Brien Cokayne,
Governor The Bank of England,
London.

BS/V

October 6,

My dear Mr. Governor:

You will, I am pure, understand what a great pleasure it was to rde to
spend a few weeks in London in such delightful association with you ans
your fellow associates and directors in the Bank of England.
I am
writing now to advise you of my safe return home after a most comfortable
trip and one of great enjoyment on account of the oportunity which I had
for seeing quite a little of Lord Grey.
Almost immediately upon my return, Mr. Albert Rathbone, an Assistant
Secretary
the Treasury, sailed for Europe to undertake 50120 work for
the Treasury, going, I believe, as financial adviser to the Peace Organization in Paris.
I am anxious that you and your associates should know
Mr. Rathbone, and, although he left on too short notice for me to furnish
him with a letter of introduction, I am sure that when he calls you will
recognize him as one of my intimate associates in the work of the Treasury Department during the war period.
By profession Mr. Rathbone is a lawyer, a partner in the firm of
Joline, Larkin
Rathbone, and enjoys the reputation of being one of the
foremost corporation lawyers in the city.
He gave up his practise in
order to assist in the work of the Treasury Department and has Lno so
solely from patriotic motives.

Mr. Rathbone is a man of the highest character and of much ability.
I um anxious that you should know him well enough to understand the high
purpose which has actuated him in all of his work for our government, and
I am sure that you can assist him when he is in London, in any matters
where he is brought in contact with your own Treasury officials and other
officers of your government.
You will also, I am sure, not object t my having asked him to call
upon you for advice and information :hen he needs it.
Assuring you of my appreciation of anything you are able to do to
facilitate the object of Mr. Rathbone's trip, I beg to remain,
Faithfully yours,
Sir Brien 044,01ae,

Governor The Bank of England,
London.

BS/V

Bank
of England,

FRIVtTi:

November ij, 1919.

My defer Eir

rien:

It wa

rEit ideri:ure to have your letter of October 2Jth and

to get all of the interesting news tar_t, it contain:Z.
was really more than a plea,ure, it Ofa.

My visit vita you

an education, and I profited a great

deal by it.
Mr. R...tiitone oxpects to take tue first o;portunity to d_..11 at the

Lank, but I an sure that he has been very busy in Paris and probably unable
to ra_ch LoLoori without, serious interference to his work.

You will observo the slight change in our rates, concerning which
I wrote Norman, and 1 litre, likewise, read with interest of your own rate
increase.

It sews :;

as though we wsre Loth moving along in the same direction

althouzU I confess that our own position is still somewhat cramped, as I think
it should not be, by the views of our TreaLury.

On th

whole, however, we

have t: ken a -trong ,te, in the right direction and if further must be done
we will find a way to do it.

cur trouble here ju,t now i. an excessive Inc

aangeroui: speculation which ap liee not only to stocks, but to rea' eAate
and commoditieL to

one extent, and the country is bein fiocded with pro-

motons of all kinds, guod, bad and indifferent, the cunesuence:, of which,
E.E. you realize, are the hnevitabl

t :duches.a

I am di;i,ap-ointed by the privN.te informAion which hs

in regard to the distribution of your new lo.n.

come to me

The loan is most attractive

Aid I should 6uee,-, that in course of time it will b, well absorbed, but, at

http://fraser.stlouisfed.org/the moment our people ::eeta Lo tae preoccupicd with a
Federal Reserve Bank of St. Louis

peculative m_nia which

it Prien Cokayne

11.1..).19

makes the task of the bond distributor a difficult one.
which ha:. been, us you realize, toward

hope thA our

hiwber money rAes, ie not embarrassing your own policy in regard to foreign
The aewsper account,: would indicate that th, se are being dr:Arn

b,ilances.

home, but

Heavy

may hay that the haze ex-erience is being felt here.

balanceh heretofore carried by neutrals are being checcd upon, which is a
natural onough develoollent with exchange as it Li and only adds, to my con-

viction that credit from now on will be an exi:ensive commodity, for which the
world is going; to Lid high ,ricas.

A few cli,.ing. enclosed will possibly

u,oa this. general subject.

be of interest
Takin

the Germ.,n gold into ohr reserve, unfortunately,

done

durini, my abence, in fact while I was on the ocehn, and once done cannot
I think it c.!

to chanced.

a aist,_ke, but, As we are handling this matter

for all of the twelve reserve bans

I su,

o ,e they had some riLht to adopt

their own policy.

taare any prospect of your paying un a visit?

it would be a

grai,t plea.mre to have you aere, and we would make a very detrmined effort
to have it a profitable trip.
'nth kinde:.t regardi.

mzny th nk:

to me, I am,
yourL,

Sir Brien Golca no,
d,
g
Tha hank o
Throdnoedle EAre,t, London.

B7.4SE
?nc.

for your many courtesies

FERE-ONAL AND CONFIDENTIAL;

December 4, 1919.

My dear c_ir Brien:

Your note of Nover:ber 5th in regerd to the gold aocount re;ched
me by the Ee.me mail bringing, a most intale,eting ioteer from Norman, whice I

believe you reed before it elis dispatched.

He tells me.thet he is leeving

for the Louth of Frence eo I ehall take the liberty of writing you in redly
to both letters enc kocsibly you will Ld good enough to chow him my letter
on his return, or before.

kb you have ob:erved, we were eecceeeful

trting rate advences

in the Federal Reeerve Fyotem eerly ie Nuvember, Cut our efforte to ering
about further chanee, which I, perecnally, sLrougly Le.Lieve ehoula Le done,
have eo far not met with fever en Washincton auu iL nu
further increaee will

looks as tho.k01 no

e poesiLle until after the Lurn of the yeer.

This I

greetij deplore, becaueo the oodetry eeeme to be abeoreed in a riot of extravagance end

,peculatlon such as I have never before witnessed, end I

of nothing which eill check it
by the r.eJerve ranks.

now

FO effectually 5'6 a etrcng rate ,olicy

The difficulty, as you eiay ecurmi.

otill restL with

the ire.eury, whoee officers feel that much higher retee pill force severe
declines in the Government's war bond_ end necessitete t. .eying much higher

rater for their ,recent short borrowings.

Ae shell ho,e in duo ceur.e, how-

ever, to reconcile our views end policie; and

the Treaeury's, end, if we do

not eucceed in doin, so, I Peer that ye will not succeed in checking further
prize edvances, a recurrence of the speculetion which was temporarily checked
by our previous action, end, of cuuree, e. further reduction in our reserve
percentages.

I may eay to you suite confidentially that this Eank eubeitted

it 'erien Cokayne

IL.e.l.

r'
higher rate.. for Ai rov .1 by the Federal Reeerve Loare a little over a week
3.6o

they Aere dieap,rowed, although this *a

never announced.

There is mucn diecuseion of the - position of the foreign exchaagee

and peceie ere tonderine

nether teere is eny bettoe.

I pereonaliy, cannot

imrovament in .preent conditicns, in feet, believe they may grow
nurse unless etees are tekon to re.i:erict ,urchaeee in thi_ country which are

not of an eseential character;

thie sii

make financieg of food stuff:_, raw

materials and neceseitiee much ee,ier for you and ue.
erogrese eeem

In the meantime, little

to to made in the way of any gener,i, orgenized credit arrenge-

ment for Euroee.

The Treasury seems op,oeed to Govrnment credits,

sibly wit: jood rfe,on, s..nd the genrel condition, of the
it difficult,

.nn e

merket makes

nob, to elece foreign loans at anything' ike reeeon,.:: e r_tes.

Yhet cal I eey in ree_rd to the anfortunete situation about the
treaty?

It is diets,_ ins to mny of U6 mho feel that our country should be

exerting every means in its ,ower to give goral and material aid to Furoees
cut a :sell body of determinec men

era the Senate h..ve wed , revet ehice has

been eucceeeful so f_r In ereventin, retlf_c tioe
seem to re f.tel to
I do net

tneut reeervLtone eaich

erovieione of the eaegue of nations covenant.

ook for the pasesgc of

ny risolution ceclerine the ..ter ended, ouch

ae h_s been discussed, and stiII have come no

th :.t a comeromiee &ill be

arrived at, alt.:lough I fear the reeervetione *h_ch will to required for any

such comromise will still be rather severe.
',that ha:: trenee.re.:1 in our money merket is rather curious

significant.

Tee e,aculation in stock&

follot,ing the slight .td-..nce in oer retee

used dangerous proportioe ,

.nd,

u in November, we uadertoot tc

caution the benkere in the, cite tett our feeilities must not be emelojeo for

furnishing credit for the.e eeeculetive oeerations.

They neve snot down:

retn.r ehar,ly on the ,-,tock exchange borrowing:, with the re:xit that 0

hed a

Le/

12.4.19

r Erien Cokayne

considerable likiuidation and a rather ,anicky collapse in etock values, but,
after all, the difficulty la only in small t=art the stock exchange ioali ac-

The demand for every kind of goodir, and particuirly those of a
luxury character, with the accompanying advance:, in ixices of hll kinds,

has

c?,used constant expansion of the loan account of all the hunk:, of the country.
This is Fu,,ortud, of cous:-(0, by increa in,

demands 1.n tho h7,sorve Banks and

is reflected 171 Vie 6nal decline in our ra*srvs3.

this extrav-

7o lonz a

agance continuo.., wa ars building 111.1 a structure of oreit which 60M6 day will

have to come rioon
eee

to 'o

-,n!

I derlore dnlay in eound a.aasurss to chock it. There

feeling also that our tax laws operate to prevent li,,uidation

of account, in whioh large book ercfite ars carried but which cannot. Le realized

without incurring liability for heavy excess rrofit. ,ayments, ma, on the other
hand, ar

insistent selling of thess ecouritie:. There loreos, if realized, will

reduce tax iajments, such, for ih.tince, as ilinz; of our oar fond:.

Cur Tre%a-

ury is alive tc the danger of this :.itu_tion and Secret- rj Glass's r-csmmendationa just sub.citted t.) Conesesh for Cu:Lagos

the tax law ar

aimea to romeuy

the difficulty.
I wish u;r2 :moil that ;ou could came and visit us.

The views you

neve ex..ressed to me, which I assure you havo b& n greatly ap,rsoiated, might
well be eiteresiied to others in our councils. and, I believe, qould do ua all
much good.

Finally, don't think too harzhly of us over here because of Lllia unfortunate trety muddliJ.

It will work out in Lama way or oth.Jr and I think

the heart of the country is all right, tut just a bit misled just now.

Vith kinceet regrth, I am,
Sincerc.dy yourL,

Fir -rien Cokalna,
Bank of En.land,
Thre.dneedle ;;treat, London.

December 10, 191.
My dear Lir Erien:

Since writing you last week, I have received your meet interesting letter
of November 19th, which is only pertly answered Ly whet I have written.

Our situation is very eimiier to yeer own, tut, of ccuree, you have been
able to advance your r:, tee to e levae which has given you a sontrol of the m,rket

somewhat beyond anything which *e can claim here, our rotes for edvencee upon Treasury certificetae of indebtedness remaining at 4-1/4% slid 4-1/2%.

There is a great

bulk of horrowing from our benk in the form of short &dvancee secured by these obligations (of ehich there ie over three and one-half billions outstanding) so tte.t it
eill rek_uire still further rate advances by both the tame emd the Treasury to enable
ue to obtain control.

My own feeiing is that chile your higher rate

would ordinarily help the

exceengee, end, in the long run mill do so, much difficulty mill, neverthelesappersi:t

so long as unregulated imports continue ty Europe and so long eE our on mone, merkets
must remein oL high L..c: no*, or oven higher.

The reiorts of our export trade indi-

cte where the difficulty lies and it may re,-,uire even low ratee for eteriin, and
frence to erect the barrier th-t is reeelired egeinst luxuries.

ehet I, pereoe lly,

deplore is the iossibility that your importers may be enterin, into contr cte, ne one
poeeiLly for e very large amount, but the aggreg-te being considereble

without, hav-

ing exchange cover in hend, and, when p.ey dey comes, dollere must be had et any price

on your Ade, or sterling sold at any
tation for eterling reeultimg.

rice on this eide, with a conetently lower quo-

If your importers ere buying for cesei end selling on

cr.eit, tee eituetion is by ao much the worse!
Your policy in regard to logic., credits masquerading as 90 day bills is site
similar to our own, send, of course, causes ,ome comeleint
porters.

rnong our tenkere

oh ex-

12.1e.19

What you say about the reoerve de.letion it intereetine, becel.ee I remain,-

her the discueeion at luncheon one day when sume ono, I think it was Kindereley, ad-

vanced the theory that loss of sold in itself caused a contrction in credit.
be ver

I will

much dierseeointed if your policy of eddine cov r to the currency note:_ out of

your o*n nete rer rve, eith resulting lower reserve. end rreseure to maintain e high
bank rete, does not, in the lone run, effect the check lion both credit and note expansion which tecomes imperative when your reserves decline.

eil: not cl.eck our conntent exien. ion.
we c-.nnot check it.

is first mede.

not attrect gala, but, I fear,

ica, but 1 feel very confident

rve Ea.nkB, eember banks Bill

stomere to borrow from thee, end

, together cith lo.er ericee in-

e.
I mu.t any that new

e are peeking phenomenal profits

ke "hot cekes" whenever offered.

ile not Le earmanent, or, pos-

oductive ineustrie, broeeet a-

ontact.

.re, in me oeinion, now in ouch
till:: erotic:,

nlikely at the moment of Aritine

ees
until next January t the

My own position it that without rite advances

If .e do advance rtes, Anice is the first end fundementel steee

eretion of the rate and ,Dolly

t aggressively to

But the rate ie ;diet

I have Leen confronted bare with the insistent ergument th-t reteu alone

doer_ it

emonstrance with cur eeeke,

ive etocke,

Eir Brien Cokayne

Sir Erien Cokayne

12.1:).19

en.rliebt.

e are much interested, but personally I as not deeply concerned at the

moment, soy Le rize in silver.

Cur silver dollar

ilver re_che. tomething above 4.33.

o,n

.e melted and export 1.;

her

They are now le.vinp, the country for toe

East, but 1 ho,e in the near future to :es an arrangement mad

by which thin int.vemeut

will to regulated and the rP.tes for exchsr.ge in Chins brought under some control.

Our subsidiary coin

n t become endangeret, until silver reacne

,Lt

;1.4c

or somowh.t abow3, the exact melting point, I tmlieve, being about1.3b8, witnoot allowing for mtradon snd expen,:es.

diver after

t,3s to tay %11 t may or miy not happen in

reoont i-,pootaoular performance, tut I Phould hoe th,t, ,ith Lie

large reserve of silver dollars still in the country t.:-,era would be little iikellhoOd

of our eutsidilry coinage being endangered,

/.t,

r .te for a long time to como.

Wean-

wors,:; things could happen to us than to ,,Ly for ,ur im,..rta from ths E. st by

melting. silver lol.rr. and selling the silver at better

than k1.3'O1

Possibly you :.ill to good enough also to she:, this letter to Norman hos
you have opportunity .L :.sink equally addreEted to him,

no give

my marme,A re-

gards, ..hich I also t.end to yoU.

hope Norman gets a good rest bsfore taking on the responsibilities of
govsrnon,hip of your gre...t institution, ,And I certainly

have hed in -your adminiAr ten.
sincerely yours,

FAr

rion Cok.yne,
c/o The Lank of England,
,:ceet, ..ondon.
Threadneedle

P.3.311E,

him such a success as you

FEDERAL RESERVE
BANK OF NEW YORK

MISC 4

OFFICE CORRESPONDENCE
Tollh

Mr. Case

Date

Jan. 3, 1920

Subject :

Benj. Strong (telephoned)

From

\\SVIK11

Will M . Case kindly read attached cable from Sir Brien Cokayne
--)li
and my reply, .n

Harding?

B'3.MSB

ommunicate both privately and confidentially to Governor

h4iPc. 35

12:20 noon

FEDERAL RESERVE BANK
OF NEW YORK

Sent by

TELEGRAPHED IN CIPHER
nu ry

LOAEON

OGX1iIN

2&ny thacb for cable

Saw Paiah yeeterd,4

tta sitution fhklyA
i!ENj. STRONG

A-4

Phoenix, Arizona, March 30, 1920.

Sir Brien Coyne,
0/6:Bank of England,
London, E. C. En::land.

Confidential
Iy dear Sir Brien:

Your letter of February 2nd only reached me
yeoterkty on eccourt Qf my two m-nt-e.rA)esnoe on our
oning trip, and I hasten to Flalswer it quite persowli4
an,17 confidentially because I am returning the letter to
our Mr. Jay pith the reluest 1-Jat-he write you fully on
Nrrioue matters whioh it contains.
In 7eneral, I

anxious that you and NoriLan

feel tt cvory care is exercised to keep you
posted as to our devalofrente and particularly az to the

devolopnont
our policy, and fAarthermore, that
-los
and lettere whioh you ar.;.gsod en(Air,h to send-me reach the
oyez (%f a very rmited nu tor of leoo21e, and will be coupeci
vat?, such safeguards as you youraelf feel should eurround
tehm,

It ,sae been t;:.; gratest possible help to Ea
an:: to my associates to h;:vo the benefit et thee,;

and unreoerved cxeringes of views, and I sincerely hope that
notLing will be a:lowed to interfere pith the for the bens, fit cf yourself and your successor, if it ie a bonefl t, us
you are gcct enough to
certainly for my own assistance) in whioh it h
been invaluable.
Nritinr to you a., I do without my teserve, I
feel justified in explaining that it iL; very difficult for

ee f my aseociatee in this country tf understand the
tritIons and for wvnt cf a better word, may I say, the
peculiarities of your .:re!.:t bank. We, here, aro inclined
publish everything i)rol%dcae*, as you have probably notices
if you have elv,:r taken the time to glance through the Fc:deral
Pezherv:! bulletin.
PoscJibly, I e also justified ia
in behalf cf my aczcoic,tes tl:A tAnv hz,mc none of tholl had the
oprortur*ty of vinitin7 you in London as I have, ana until they
do, which I hope ::111 be t%e orze before long, my absences .ay
sonctimee nakc you feel reluctant in continuing our correa, ondence.
You need have no such feeling, however, a I think Mr. Jay,
after reading my letter, will have a better.underatn.nding of our

C O Y.

EHIVATE.

Bank of England,
15th June, 1916.

Dear

strong,

she Governor is taking a short holiday and asks
me to thank you for your letter to him of the 23rd Lay.
You seem to have pretty nearly surmounted the difficulty about the days of grace, and we shall no doubt hear

from you before long either that the amending Act has been
passed or that your Counsel found it unnecessary.
the basis for earmarked Gold and for Gold shipments

is more difficult to arrange, especially in such unsettled
times as these, for we have seen that even Gold can be at a
discount, as in :Dweden at the present moment.

probably we shall, as you suggest, have to establish
some tentative basis to start with and see how it works out,
and we see no reason why all the Gold should not be dealt
with on each side on the actual value of the Gold contents.
The fixed price at which this Bank is compelled to buy all
s

Standard Gold (11/12ths fine) is 77/9

per ounce, which is a
s

fairer standard of value than the -int price of 77/10, as
the former represents the price that can be obtained directly

Gold is deliVered while fmm the latter has to be deducted
the varying cost of waiting till the metal, at the good pleasure of the Mint, is turned into coin.

The Governor suggests

s d

that this fixed price of 77/9-should be the basis for such ear

marking as was contemplated by the :emorandum.

It would no

doubt be a very convenient figure for the earmarking on this
side as it would represent the price at which the earmarked
Gold could always be turned into cash at a moment's notice.
But I do not myself see how, in view of possible fluctuations
in the Exchange, we could fix a sterling price for earmarkings
in hew York.

It seems to me that the basis price for such

operations should be the American counterpart to our price of
8 d
77/9,

i. e., the prompt cash value in dollars of the United

States :Ant price of the Gold contents of the earmarked Gold.
,e are much pleased to see that your associates favour
the general plan we discussed.

I do not think the Governor

intends to discuss it with his colleagues here until we hear
from you that you are ready to act.
Our purchases in America

in the coming Autumn will

no doubt be very heavy and will have to he paid for largely
out of Capital, either in the shape of American Securities,

which is the most convenient form, or otherwise - e. g., in
Gold.

So that the course of Exchange will probably depend,

as you say, more on the extent to which we can collect these
Securities than anything else.

(There seem, however, to be

plenty of them left here and we have taken in some 120,000,000
worth a week since the surtax was threatened).

It is wonderful

how the patriotism of our holders of Americanshas been stimulated by a little fillip of additional taxation:
With very kind regards and hoping to see you here again
before long,
Yours faithfully,
(Signed) Brien Cokayne.

Benjamin Strong, Esq.

186

attic

of (Ifultlanb,

' 28th September,1916.

Dear Mr.Strong,
Thank you for your letter of the 3rd August,
in which you need not have expressed regret for delay in writing,

firstly, because there is really no hurry at all and, secondly,
because you will see that with less excuse I am just as dilatory
in answering you.

I see that I had misunderstood the suggestion in your letter of the 23rd May that we should try to establIsh
"a definite Price per ounce at which gold should be earmarked in
"both institutions".

I took this to mean that you wanted the

same price to rule on both sides of the Atlantic, and that is why
I suggested on the 15th June that the London (sterling) price
could hardly be made apnlicable in New York.

We quite agree with what you narwrite,viz.,
that any dollars which vie may hold with you

should

be converted

into their gold equivalent in New York if we wanted to earmark
gold.

But did you not make a slip of the pen in writing that we

should receive the equivalent in standard bars less the Assay

Office charge of 50c" per 11,000?

I gather from the table of

Assay Office charges which you kindly sent us that 50es.per
1,000 less than the nominal value will be paid by that Office

for

41; for standard bars tendered, so I suppose that you would earmark bars to the nominal value of $100,000 for us against a
40111

credit of t99,950.

Is that right?

On the general question of the mutual earmarking of gold, Norman has already mentioned to you the
fear which I expressed to him the other day that circumstances
might - though not very probably - arise in which it would not
suit the debtor institution to earmark unlimited amounts of
gold.

So I will not go over that ground again, but confine

myself to passing on the Governor's answer to this point,viz.,
that the ear-marking of gold should not be obligatory though

in 99 cases out of 100 any request to earmark would be
willingly complied with.

I do hope you are quickly regaining your
health and will soon be as well as ever again.

The war is going satisfactorily and we seem
to benin the straight° now, though we cannot tell how far off
the winning post is

The Governor sends his best wishes, in which

he is cordially joined by
Yours .very truly.

Benjamin Strong, Esq.

il3mth

FEB

of 60110

15th January, 1917.
,?

Dear Ur. Strong,

I am heartily ashamed of my delay in
answering your letter of the 20th October (t) but we have

really been up to the eyes in work, and I knew you would understand and forgive.

Your letter most fully and clearly
explains the bearing of the 5 cents charge on bars.

The

reason why we did not understand it before is that we thought
it was a charge on taking standard bars and giving current
coin for them, whereas I now see that it is a charge for providing such bars.

I am glad to see that you have got rid of
the obstacle of the °days of graces and have got powers to
open accounts, both at home and abroad, with foreign clients;

also that you thoroughly appreciate the fact that unlimited
earmarking might be inconvenient and that the extent of it
would have to be determined by mutual agreement.
All the apparent difficulties seem thus
to have been smoothed away, and there anpears no reason,
except lack of the necessary time, why the matter and its

expediency

expediency should not now be discussed with our colleagues.
Other difficulties will no doubt crop up, but as you most

it truly say actual experience is the only sure guide.
40

The premature announcement of your
authorization to appoint us ns agents did not really do the
faintest harm.

The Governor particularly wishes one to thank

you for your courteous telegram on the subject and to say that
he quite realized what must have happened.

As a matter of

fact the announcement, though premature, was probably useful

as it tended to allay the feeling of soreness which had been
caused by the Federal Reserve Board's warning against taking
either long or short loans of the belligerents.

We ourselves,

while declining to regard that warning as intentionally
unfriendly, are still somewhat at a loss to divine its real
purpose.

I almost wonder that the Board, when it saw that

millions of money were being invested in ephemeral works to
supply the enormous temporary requirements of the Allies did
not issue a warning in time to check such dangerous expansion.
And if it had done so a year or two years ago it would have
benefited not only the United States but also perhaps.
indirectly, ourselves by forcing us to become more selfsupporting.

When however the huge outlay had been incurred

and the gigantic orders placed, it did seem rather odd that a
warning should have been given against facilitating the

raising

kraising of funds with which to pay for them.

However we

realize that, as the Spaniards say, everyone is master in his

-own house, and that we have no right to enquire the motive for
your internal warnings and regulations.
Fortunately the American Exchange position,

which has given us plenty of anxious thought, seams easier now,
and I hope that if money rates keep low on your side it may
continue so.

We have still a fair amount of gold to spare in

case of need and our good friends the Japanese are helping us
to a good many American dollars.

But the War is not over yet

in spite of all the peace talk.
-----

The Governor

in wishing

happiness in the New Year and above all complete restoration
of your health and strength.
Yours sincerely,

Cltadv(t_.2,

Benjamin Strong, Esq.

C-4e161-7 7

BANK OF ENGLAND.
11110

*i(5-Cott' -eg&Ord,
SCAKale ca-tv-zysio

(e2.4k-tr

ttise-v Qte/644'f

(- It

MEMORANDUM,

?-4-4

TcrtevC;a1/0-&°,,,

VERY PRIVATE AND CONFIDENTIAL.

(grot°

A Bank, as the term is understood in this country, may be broadly
described as a firm or institution whose main business is to receive from
the public monies on Current Account repayable on demand by cheque.
The Committee are of opinion that the present system of
registration must be abolished and that no firm or institution should be
entitled to describe themselves as Bankers, as a Bank or as a Banking Company,
unless
(1) Their main business is as described in the definition above,
(2) They register according to Board of Trade requirements.

The Committee recommend that the Board of Trade requirements
include the publication of an audited Balance Sheet by all Banks, Bankers
or Banking Companies, and also the publication of the number of the
Shareholders ; in the case of a private partnership, or proprietorship, outside the

scope of the Companies Act, the names of the partners must be disclosed and,
in the event of the death or retirement of a partner, such death or retirement

must be reported to the Board of Trade and be by them duly advertised.
The Committee are of opinion that Balance Sheets must be published at fixed
periods either yearly or, preferably, half -yearly ; owing to the congestion of
business at the half years ending June and December, it is suggested that
such Balance Sheets, one of which shall be audited, be published in April
and October.
The Committee are of opinion that the Board of Trade should also
have power to withdraw, at any time, their permission to any Bank, Banker
or Banking Company, to describe themselves as such.
The Committee recommend that all Banks, Bankers or Banking Registration of
Banks.
Companies be registered in one of the following five classes.
All British Banks, Bankers or Banking Companies whose
main business is in the United Kingdom, their Head Office
being in the United Kingdom.
CLASS 2. All British Banks, Bankers or Banking Companies whose
main business is abroad, their Head Office being in the
United Kingdom.
CLASS 3. All Indian and Colonial Banks, Bankers or Banking
Companies with Head Office in the United Kingdom.
CLASS 1.

CLASS 4.

CLASS 5.

All Indian and Colonial Banks, Bankers or Banking
Companies with a Branch or Branches in the United

Kingdom but with Head Office in India or the Colonies.
All Foreign Banks, Bankers or Banking Companies with a
Branch or Branches in the United Kingdom.

Banks, Bankers or Banking Companies who would be included in
Class 4 or 5, must not be allowed to register unless properly constituted and
recognised as a Bank, Banker or Banking Company under the laws of the
country where such Bank, Banker or Banking Company is domiciled.
The published Balance Sheet must be in the standardized form Publication of
Balance Sheets.
A annexed ; no Profit and Loss Account need be shown.
In the case of Banks, Bankers or Banking Companies in Class 2, 3
or 4, the Balance Sheets must show, in the standardized form, the position of
the Head Office or the Branch in the United Kingdom. (In the case of Banks,
Bankers or Banking Companies having more than one Office in the United
Kingdom, the accounts of such Offices must be consolidated). In addition to
these Head Office or Branch Balance Sheets, such Banks, Bankers or Banking
Companies must publish in London each General Balance Sheet of their Bank,
copies of each general Balance Sheet to be lodged with the Board of Trade,
or other Government Department, within reasonable time after publication.
In the case of Banks, Bankers or Banking Companies in Class 5, the

Balance Sheets must show, in the standardized form, the position of the
Branch or the Branches in the United Kingdom ; the Government to enact
that British Government Securities to the extent of x per cent. of the liabilities

of the Branch or Branches in the United Kingdom shall be lodged with
the Bank of England, or other approved institution, the amount of
such Securities to be adjusted according to the liabilities disclosed by each
yearly or half-yearly Balance Sheet, as may be determined. (In the case

of Banks, Bankers or Banking Companies having more than one Office in the
United Kingdom, the Accounts of such Offices must be consolidated.) In

.addition to these Branch Balance Sheets such Banks, Bankers or Banking

Companies must publish in London each General Balance Sheet of their Bank,
copies of each General Balance Sheet to be lodged with the Board of Trade,
or other Government Department, within reasonable time after publication.

In addition to the yearly or half-yearly Balance Sheet, all Banks,
Bankers or Banking Companies must publish a Statement at the end of each
month (signed by a qualified Officer of the Bank) in the standardized form B

annexed, the figures of such Statement to be the average of their weekly

Balance Sheets during the month ; in the case of Banks, Bankers or Banking

Companies in Class 2, 3, 4 or 5, the figures to be those of the average of

the weekly Balance Sheets of their Office or Offices in the United Kingdom.
Auditing of
Balance Sheets.

Each year one Balance Sheet in the standardized form must be

audited by either

( I ) Members of the Institute of Chartered Accountants, or
(2) Members of the Society of Incorporated Accountants and Auditors.
The average Statement published at the end of each month need not be audited.

Detailed instructions must be drawn up, both for the guidance of Banks,
Bankers or Banking Companies in compiling the Balance Sheets and Monthly
Statements and for the guidance of the Auditors in auditing the Balance Sheets,
as to the class of item which may be included under specified headings. The
Committee consider that the following instructions should be laid down :( 1 ) The items under the heading of " Money at call and at short notice "
must not include money placed at more than a month's notice.

(2) The items under the heading of "British Bills of Exchange" must
include only Bills payable in the United Kingdom, drawn on, and
accepted by, British persons, British firms or institutions domiciled
in the United Kingdom, and Banks, Bankers or Banking Companies
included in Classes 3 and 4.

(3) If account is taken of "goodwill" it must be set out as a separate

heading in the Balance Sheet and in the Monthly Statement.
(4) Any operative charge on any of the Assets must be disclosed in the
Balance Sheet.

(5) Such contingent liabilities as, in the opinion of the Auditors, it is
essential to disclose must be shown in the Balance Sheet.
(6) A Bank, Banker or Banking Company holding 25 %, or more, of the
Shares in, or Stock of, any other Bank, Banker or Banking Company

must give full particulars of such holding in the Balance Sheet
on a separate line between the headings "Loans and Advances" and
"Other Assets."

Crossed Cheques.

The Committee recommend that only Banks, Bankers or Banking
Companies comprised in Class 1 be entitled to present " crossed " cheques for
payment over the counter.
The Committee are aware that, under their proposals, certain firms
or institutions, such as Discount Houses, would not be entitled to register
as Banks, Bankers or Banking Companies, and that certain hardships might

he inflicted on them because, with regard to assessment of Income Tax,
they have hitherto been classed with Banks, Bankers or Banking Companies.
The Committee recommend that, with regard to such assessment, the special
nature of the business of such firms or institutions be taken into consideration
by the Inland Revenue Authorities, independently of the question whether
they are entitled to register as Banks, Bankers, or Banking Companies.
The Committee recognise that an Act of Parliament will be required
before effect can be given to the foregoing recommendations and they are

of opinion that the Act should provide that Banks, Bankers or Banking
Companies who have been established for at least five years at the date of
the passing of such Act shall be allowed a period of twenty - four months,
calculated from the date of the passing of the Act, before such Bank,
Banker or Banking Company is required to conform thereto.

28th February, 1918.

.0)

Form A.

(NAME OF BANK).

BALANCE SHEET as

LIABILITIES.

ASSETS.

Capital :-

Cash :-

Registered
Subscribed

(1) Coin, Bank and Currency Notes,

£
£

and Balances with the Bank
of England
Xeil
.
(2) Balances with London Clearing
Agents and with other
Banks. Bankers or Banking

Companies in the United E
Kingdom

Paid up

(3)

Reserve Fund

Domiciled Bills
Balances abroad .

Investments :-

Guarantees and other

(I) Securities of, or guaranteed by, British Government
Indian and Colonial Government Securities.
British Corporation Stocks. British Railway
Debenture and Preference Stocks .
(3) Other Investments

(2)

Notes in Circulation

Loans and Advances
Other Assets
Bank Premises .
Liabilities of Customers for Acceptances,

as per contra

Liabilities of Customers for Endorsements,

Guarantees and other obligations,
as per contra

.E
Number of Shareholders

Acceptances

obligations

Money at Call and at Short Notice
British Bills of Exchange
Foreign Bills, Foreign Bank Bills and

Current, Deposit, and other Accounts

Endorsements,

Items in transit

(Signed)

Form B.

(NAME OF BANK).

Statement of the average figures of the weekly Balance Sheets during the month of
LIABILITIES.

ASSETS.

Capital :-

Cash :-

(I) Coin, Bank and Currency Notes,
and Balances with the Bank
of England .
(2) Balances with London Clearing

Registered

and with other
Banks, Bankers or Banking
Agents

Subscribed

Companies in the United

Kingdom .
(3) Items in transit

Paid up
Reserve Fund

Domiciled Bills
Balances abroad .

Acceptances

Securities of, or guaranteed by, British Government

Indian and Colonial Government Securities,
British Corporation Stocks, British Railway
Debenture and Preference Stocks
(3) Other Investments
(2)

Notes in Circulation

Investments :-

Guarantees and other

(I)

obligations

Money at Call and at Short Notice
.
British Bills of Exchange
Foreign Bills, Foreign Bank Bills and

Current, Deposit, and other Accounts

Endorsements,

Loans and Advances
Other Assets
Bank Premises
Liabilities of Customers for Acceptances,
.

as per contra

Liabilities of Customers for Endorsements,

Guarantees and other obligations,
as per contra .

Vault of Ch100

FILM!
t,74:;

FEDERAL

My dear Mr.Strong,

bEPT. 8th February, 1919.

r 11)

RESER vz nANK

Thank you so much for sending me Mr.
Kenrierer's pamphlet about the Federal Reserve System which

I have never thoroughly got into my head though I often
wish I had.

I believe that this little book will help me

to do so and if it does I

shall

be very grateful.

I was extreriely sorry to hear from Mr.

Strauss, who was with us yesterday ion a fleeting visit, that
you have had to go off again to the country to recruit.

hope you will take a real good holiday and set yourself up
for good.

I hope the visit of Mr. Strauss and Mr.
Lar".ont to Paris means that the Peace Conference are going

now to devote more thought to the great financial questions

which are so vitally important to all of us.
Yours sincerely,

Benjamin Strong, Esq.

C;)
Q

!.;e.

MAt ,4 3 19i9

Dear Mr. Strong,

LI B RA RY
FanitMAY

2nd May, 1919.
FEDERAL RESERVE BANK

I have to thank you for two letters, one
from Lake George of 5th February and the other from New Yo?i

of 16th April.

I cannot help thinking that the inflation
in America to which you refer in your earlier letter must he
relatively so insignificant, compared with that of Europe,
to be almost negligible. Here it is unfortImately still
increasing, and although, as you say, it is
ossible to
settle down seriously to house -cleaning till the Government
stops borrowing, I hope we shall before long remove one of
the special contributory causes, viz., the comparatively low
level of money rates here.
We are much interested in all you writ e
about your somewliat complicated Liberty Loan and I have no
doubt it will be a great success. I only hope that we too

may soon be able to raise a good loan to pay off a large Dar.
of the swollen issues of Treasury Bills and advances to the
Goveranent.

Thank you very rinch for all you write
about our agreement with you and about gold exports generally.

I was quite sure you had no intention whatever to expose
our nakedness by making large demands on us for cold, but
as the agreement would strictly have entitled you, after

buying sterling exchange in your market to any amount, to
ask us to earmark or ship the equivalent in gold, I thought
it more businesslike to o'ive previous notice (as provided
for in the agreement) that vie should not be prepared for
such large demands.

This we did, you must remember, before

our Government prohibited exports of gold except under
licence, and indeed before we thought there was any likelihood of such a step being taken.

This prohibition has of

course deprived us meanwhile of the power of implementing
our aree-Ient with you unless we can get the corresponding
licence to export or eaxilark the gold.

The prohibition rude

wonderfully little stir because 90 people out of 100 believed
that geld exports were already prohibited by law.
I had a little talk with Mr. Strauss when

he was first here about your embargo on gold shipments and
then told him that I should rather have liked our two
countries to open their free gold market simultaneously. At
that time I hoped that the question of Great Britain's huge debt
to the United States would be quickly settled in Paris and

that we should take early steps to protect our Exchanges by
bringing our money rates at least up to international level.

But

But nothing has been done about our debt to America, and our
Government, whose 31% Treasury Bills really make the market
Ali rate for money, has not seen its way to nut up rates;

so that

there does not seem to be any prospect of the Exchange righting itself sufficiently to allovrus safely to reopen our free
gold market yet awhile.

Although, therefore, I should still like our
two countries to act simultaneously in this latter. I cannot
honestly pretend that we ought to ash you to wait for us.

am really rather sceptical about the "considerable exodus of
gold to neutrals" which is however, as you say, possible when
your embargo is removed.

I do not believe that neutral

Europe requires any appreciable amount and I doubt whether she
would even consent tr) receive any large quantity.

South

America might take a goodish lump but not more than you could
comfortably afford.

The only real danger snot, I believe, as

I told Mr.Strauss, is India whose digestive powers for gold
seem to be boundless.

I fancy that at present no imports of

gold into India are allowed except to the Guvermeqt, and
although that maybe only War legislation I daresay you could
make some arrangement with the Indian Government to prevent
India from absorbing (if she can afford to draw It) too large
a quantity of gold which, if left to herself, she would siraply
waste by hoarding it in the earth from which it cane.

I think
Mr.

111111
Mr.Strauss was to see the India Office here to enquire wheer
any such arrangement could be rade.

Egypt is also a hoarder

of gold to some extent but I do not expect she would be a ilk
real danger.

I am interested to see that you think
your embargo on gold exports could, if thought well, survive
Peace.

There is little doubt that ours would lanse at the

end of the War (thou* that may only mean the Ratification
of the Peace Treaty ;which right be many months ahead) and

would require fresh legislation for its revival.

In confirmation of what I said above about
neutral Europe, I have just heard that Sweden is enquiring
at what rate she could ship gold either from here to Arierica

or from Sweden via London to the United States.

I shall be very much interested to hear
what you decide, or think of doing, about your gold embargo.
I hope you are keeping well. and will not

overwork yourself again in pushing the new Loan.
Always yours sincerely,

Benjamin Strong, Esq.

(4eceived at "'aria August 16th

London, August 1C, 1919.

1JAMIN STRONG

Governor Federal Reserve Bank,
Care Nederlandsche Bank, Amsterdam.

Bunk will be happy to make all arrangements for transport to London of
not exceeding the thirty five million pounds you mentioned verbally stop The
amount mentioned in your telegram is mutilated stop Bank will also attend to
insurance if possible in the manner you desire.

Governor Bank of England

London 0-89-15/8-4/15

London 13824

18H58

Governor Strong
Federal Reserve Bank
Ritz Hotel Paris

Received your letter 19th stop
Brussels and Amsterdam stop

Our representatives have started for

We are in touch with Kent and await his completion

of insurance with Chubb before definitely arranging shipment stop

Shall be

happy when you so direct to transfer a portion when held on your account to
order of Bank of Spain.

GOVERNOR BANK OF ENGLAND

4---reirn-

/Fir

BANK OF ENGLAND,

7tS

2-eA4W.%*

Q-ts4 J

Ure44C.

<A6e

c9GeLrpe-ts

/eArral+.%.

fream.4" A, 4-ea,
e-C/St-4

das

P1L-Ge

Pro-A

,tuvZ

ank of bislane
9th September, 1919.

0
Dear Mr. Strong,

instant, enclosing transcript of a
Thank you for your letter of the 8th
Directors of the Federal Reserve Ba
you full authority to act on their

with the gold now being shipped fro

I note that the

been provided for with the exceptio
in Brussels and that each shipment
equivalent of r7,500,000.

We have

our representatives in Brussels and
:1,000,000 by each boat:

allowing
rep

equ

mor

the

tog

Ben

llt"
near 't..(lu'

o to7lber, 1910.

I '-r:mr, s7 '-on to 3rArernot, ritronl abefelt
riOrardnit? 3n1 without
the -,rItter t nrynt'Ioned t, 7.,r411
ro3rIxtrig any de "Isvite promise on br.',a2.11 of Ilia, 'Ian- (1,".o
seed, no reo.son vitly
Pedoral :7;edlervo fa-.-1!.. of /low The-)

they :Mould not be, as villincr to rrf.ve you gold n Ltmlon
as gold in .,°1-1-erina.

You ruy noreforo 3147r70fit to your
V-at in fauVIve x:11.en t`-ey
represent a ivnn in Il 11
for pold tlley should propose that delivery W7 it be r,,ILle
in London and neamittilo 7.1r,"tronr, vrill tell is Bar* t?" at
tl%is ,5pronoso.1 will 7-rob r bly be ru.:.le

Yours very truly,
(Sd.) 13:1IET COKAYNE.

14.11. SGuthey 111-i. C. S. 1. 0.

lank of thvlane
12th Septembe 1919.

111

Briefly, you may like to know that we ha
Dear Mr.Strong,
received Mks.94,000,000 from Brussels and the equivalen
In reply to your letter of yesterday we
say, Mks.87,000,000 in a mixture of Bars, Austrian Crow
shall be very pleased to send a cable to New York to-morrow
and Roubles from Amsterdam: we shall not get any more
stating the approximate total value of gold we have at
before the close of business to-morrow, and so these fi
As
present received on your behalf from the Continent.
will be what we shall cable.
you say, we cannot of course give any exact statement at
I take this opportunity of mentioning th
present.
we were under the necessity of shipping £680,000 in

Sovereigns from London to Brussels ova The National Ban

Belgium, but having in mind your Sovereigns in Amsterda

we thought it would be a considerable saving to all con

cerned to offer the National Bank of Belgium £680,000 f

your Sovereigns for delivery in Amsterdam, while in exc

we proposed to set aside for your Bank's account here
the corresponding number of Sovereigns we had previously earmarked for Belgium.

By this means you

will of course save both freight and insurance on the
£680,000.

The National Bank of Belgium have
rcadily agreed to the proposal, alld we are now making

arrangements to carry it through.
Yours ver

Benjamin Strong, Esq.

truly,

i3 auk of 640anb
19th September, 1919.

Pear flr.Strong,

I have received your letter of yesterday
and shall be pleased to nake arrangements for your wishes
to be carried out -with regard to

1. Cabling advices of arrivals.

O. Melting all the gold, except sovereigns and such

fine bars as the Bank of England would ordinarily
accent wit'iout re-,,eltincr and assaying.

3. Advising you from time to time of the results of
melting and reporting rarticulars of the bar gold
exchanged for sovereigns.

4. Sending you a statement of charges and disbursements
in due course.

Yours very faithfully,

Benjamin Strong, Esq.

iDAA OF ENG.LANP_.
-

20th October, 1919.
.

:4.

dear %Ir. Strom;,

ThElik j6U very much fur your farewell note with its

kind meeeaEes to us all which I pasFed on to my col1eeEues.

you that your visit wLs e real treat both

1 can assure

(icialiy and financik'ly to

of us and 1 ho e it will not be lonE before you pay us another.

tli

It seems

an aLe already since you were here.
I hkvs Cleo to thank you for a telegram about your Lold in
Ho'.1and which is beinL

f r a

received this murninE intru,..uci!L

Rathbone .ehom I am

letter of the 6th

anxious to meet

ae I had of u_Alrse, eir-udy heard much of him.

1 shkll be on y too delighted
if I can be of kny use to him but at ire:sent he is in Par

Yours sincere-.y,
1,_:1ed)

You will have seen that the Chancellor of the Exchequ
spell and raised Treasury Bill rates to 4 1/2% and 5%
for 3 a
tively, which move has brought our Bank Rate at last into har
rates.
But if it is true, as I have heard rumoured, that
Bel
from her long pending loan in the United States,x"because
she
money cheaper here", it is evident that we shall have to raise
protect our position and even our reputation for sanity.
The
should, in our present situation, undercut the United States
i
Europe is preposterous.

On the other hand I hope our Government will soon get
any other country than America. There is very little outstand
T

You will have seen by the time this reaches you that
s
from Canada to Japan, and not the least attractive feature
of

of this arrangement is that I expect it will suit your book very well.
I see that you are gradually taking into your Reserves all the gold
which we are receiving for you here from Holland and Belgium.
I hope the new loan which Morgans are bringing out for our Government
will be a success and that the exchange option will before long be so largely
availed of that the obligation will become a purely sterling one for our
Government. The only other early debts of our Government to the American
public are the $150,000,000 maturing in two years' time and that awkward
AnglO- French Loan due next year which will be a difficult problem to tackle.
I Ash I could see some way by which we could "shoot our half of the camel."

Translation of Incoming

FEDERAL RESERVE BANK
OF NEW YORK

CABLEGRAM
From

No. C

MNSIA.LLION OF
J_L:. LI, 1920

3, 1920

3njamin Strong, Esq.,
1.--ic,,deral Reserve Bank Hew York.

Press telegram from 1.I.merica indicates that Paish is advocating hugh loan to

teat Britain (stop) For your private information he ;r..s no connection
m

ission from authorities here and in advocating any such loan does not at all

represent their views,

COIL:1XE.

TELEGRAM SENT TO BENJAMIN STRONG, ESQ., ON THE 3rd JANUARY 1920.

S
Press telegrams from America indicate that Paish is
advocating huge loan to Britain.

For your private information

he has no connection with or mission from authorities here and in
advocating any such loan does not at all represent their views.

BANK OF ENGLAND. LONDON. E.C. 2

Ord January,

/920.

countries of Europe, or were even to request us to join heAl,
I consider we should be justified in doing so to a reasonable
extent.

As a natter of fact I believe, as I told you, that

however much we at this Bank ray set our faces against lending
to Europe, a certain amount of exporting on credit does and will
go on.

As regards further borrowing by this country,

we were startled to see reports from America in our papers yesterday implying that Sir George Paish was applying for a loan of
£3.500,000.000 to Great Britain and Europe, and I at once sent

you a confidential telegram, of which I enclose a copy, to say
that our Government had no connection with Paish and desired no
loan for themselves.

I see I need not have made my telegram

confidential as the Treasury openly disowned Paish who also
appears himself to have contradicted the report.

I have very

little doubt that poor Sir George, who is honestly and sincerely
concerned about the destitution of parts of Europe and was
probably trying to enlist your country's sympathy-therewith, has
been either deliberately or unintentionally misrepresented.
(See P.S.)

I have been greatly interested

in all you

tell me about your money rate policy and the points of similarity
with our position add to its interest.

The Government's

reluctance to pay more for its borrowing - the irritation of
Bankers and others at the depreciation in their securities and the taunts that the poor silly old Bank seems to think it
can attract gold - are all part of our dafly bread.

Your remark
that

that while dear noney may not by itself effect a cure no cure is
possible without it, puts the whole question in a nutshell.

I see

you have now fixed an all round rate and see your way to nalring it

effective, so that I hope you may not need to raise rates further.
There is no doubt that if your rate were to come up to ours and
remain there we should be forced to go uo again and we are anxious

to avoid as long as Possible exceeding a 6% Bari!- Rate as anything
above that bears hardly on legitimate borrowers.

But I agree with

you that credit is likely to be a costly commodity for some time to
come.

Just at present the plethora of money created
by the ridiculous uwindow dressing" of our Banks at the end of the

year has rendered our rate completely ineffective and the Banks are
eager buyers of January bills at 4Y:

But I think this ease,

though it may last a few weeks, is only temporary and the activities
of the tax-gatherer will be on our side before long.

Thank you for your kind remarks about my
visiting America, but much as I should enjoy it there is no chance
of my being able to get away durinz the three months that remain of
my Governorship, and after that I must really lie fallow for a bit
and then resume my duties to my own partners who have carried all
IV burden as well as their own for the last five years.
You will see that our Position here shews some
signs of tnendinR.

The recent Revenue returns were distinctly

encouraging and the labour sitqation seems a bit more hopeful.

Above all I think we are just about at the end of fresh Government

borrowing.

Indeed if Revenue comes in fast we may

quidilat

the end of it, and if your plan (of which I am always thinking)

for settling international Government indebtedness could API
arranged I think we should really begin to see daylight.
Since I last wrote to you the Treasury have
put into force several more of the Currency Conrittee's
recommendations.

Thus the Bankers' gold, something like forty

millions sterling, is gradually to be transferred to our vaults,

but as they will no doubt take Bank Notes in its place it will
not increase our Reserve.

Then again the maximum of the Currency Note
fiduciary issue for the present year has been fixed at Z320,600,000,

being the maximum attained in the early part of last year.

The

Currency Note Department hold £28,500,000 of gold and £4 millions
of Bank Notes.

So that any Currency Notes issued in excess of

£353,100,000 according to the weekly published figures will have
to be covered round for pound by Bank Notes.

Now I look forward

with some confiden e to a slight and gradual deflation of credit

as a result of the cessation of fresh Government borrowing and the
probable commencement of repayment of Government indebtedness
about the end of this quarter.

But if by any chance such

deflation should not take place and on the contrary further
inflation of credit were from any cause to occur, then Currency
Notes would expand again and the effect of withdrawing Bank Notes
as cover for the additional issue of Currency Notes might be to
deplete our Reserve to such an extent that penal rates for money

would

http://fraser.stlouisfed.org/
Federal Reserve
Bank ofbe
St. Louis
would
imposed.

CONFIDEN2IAL.
BANK OF ENGLAND. LONDON. E.C. 2

2nd February,

X19 20.

that

rest;

you u

arriv

treat

am ma

matte

lette

about
Bank

subje

not y

accor

Banke

are e

relyi
even

two o

Banks

of it

mitigation of the ridiculous "window dressing" which now takes

All

place at the end of every year.

You will also observe that the Coromitteehave
not speci2ied what percenta=ge of their liabilities the branches
of foreign Banks should hold in British Government securities 'out

have left this to the Government to settle.

I understand however

that something in the neighbourhood of 20% was in their minds.
The matter was allowed to sleep for some time
(I fancy under the impression that the Currency Committee would
take it up) but I have quite recently obtained the promise of the

Board of Trade, in whose province it lies to propose the necessary
legislation, to push the matter on again.
The other subject on which I want to say sorie-

thing unofficially to you is your telegram received to-day in
reply to our enquiry of the 27th about your money rate policy.

hope you will not have thought that we were asking too much in
inviting your opinion on such a matter, and I need hardly say that
your kind reply is very greatly apnreciated, for although it does
not give us any clear guidance as to your rresent policy I quite
understand your difficulty in giving it.

I was surprised, by the

way, to see that your telegram arrived in plain language.

Would

it not be better that any messages we may exchange on such subjects
should be put into code?
It is extremely difficult to see even a short
way ahead in these days, but ire are ho 'in=' that our present rates

will nrove more efficacious at this time of year when revenue

collections

collections are heaviest than they could possibly have proved in
101

the autumn.

Thus the pr
increase
in money
rates
willnocure.
But there
are several
evils
which
reasonable

(on paper) by exporting on credit are such as t
"shaded" by interest at 10% per annum.

I do not believe there is an
amount of speculation here on borrowed money.

avoid the present heavy taxation by investing f

appreciation rather than for a certainty of inc

as to create an unwholesome demand for speculati

Indeed this is carried to such a pitch that lar

shares are believed to have been placed here re
and American sellers.

Can we wonder that, with thi
tion to the demands that we have to meet, both

for our Allies, on the American Exchange, the d
continue to appreciate in sterling?

I am not

the fall in the American Exchange, and only hop

continue to be spared an actual breakdown in th

reaches a level at which it will provide its ow

anxious, as I have already said, to give presen

fair trial, but the one thing which would to my
a further rise would be that your rates should

Hence our anxiety for some guidance as to your
Always yours sincerely,

Benjamin Strong, Esq.

41L
11\
1

,141-11
4-(4y!eiii

f.1.1

9 Feb 1920

COPY

B-nk of England