View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

April 15th, 1916.

dear Lord Cunliffe:

It was my intention to write you at some length
mediately on my return home, in fact, I recall promising that
I would do so the last time I saw you, but a wireless message

received on the "St. Paul" informed me that I was expected in
Washington to-mop row to attend a meeting which will last for

a week or more and I am only able now to send you this brief
line to advise you of my safe return and tell you once more

how grateful I am to you and your associates for your many
courtesies to me w#ile I was in London.

I shall not be sat-

isfied teat our account is on a fairly mutual basis until you
have given me opportunity to entertain you in new York.
Assuring you of my warm regards, and with best
wishes to yourself and your associates, I beg to remain,
Faithfully yours,

Lord Cunliffe,
Care The Bank of England,
London.
BS Jr /VC:.?




ibq
r).

PRIVATE.

May 23rd, 1916.

My dear Lord Cunliffe:

It has been impossible since my return home to
write you in regard to our conversations on account of the
nressure of other matters.

There are two question still to be disposed of
in completing the confidential memorandum prepared while I
was in London:

First, is the difficulty about days of grace.

It

has been arranged,
1.

To obtain the opinibn of the Counsel of the
Federal Reserve Board as to the application
of our statute to fhe purchase of bills which
are subject to days of grace, as now established by the law in England.

2.

In case his opinion does not justify our exceeds
ing the 90 days limitation, tee text of an amendment to the Federal Reserve Act curing this defect has been prepared and printed and has already, I believe, been submitted to the Committees of the House and the Senate.
I am told
there stiould be little difficulty in the passage
cf the amendment, but it is just 6 well not to
count on favorable action until it is actually
accomplished.

The other matter is the basis for earmarked gold

and

for gold shipments, and I would appreciate an exaression of your
views as to how this should be dealtvith.




Should we not arrange

-

or

aunliffe.

ay 23, 1916.

for the establishment of a definite price per ounce at which
gold, either in bars, or in gold coin will be earmarked by
both institutions!

So far, I have had little opportunity to study this

matter, but am inclined to think that a fair plan would be to
deal with the account on both sides upon the basis of the actual mint value of fine gold, either in bars or as found to be
contained in the coin.

Then, if gold coin is snipped in set-

tic:went of existing balances, it would be furnished by the

debtor bank and taken at bullion value, but if it should have
been earmarked and subsequently recredited to the account of
the creditor bank by the debtor bank, it would, I suppose, be
credited back at its bullion value, thus giving the debtor
bank the benefit of the recovery of any difference between the
abraded and the bullion value which might have existed in the
quantity of coin originally earmarked.

She importance of this question would be minimised and
possibly eliminated were we always able to use gold in the form
of fine bars, if the price be a fixed one; on the other hand, it
would become more complicated, should it become necessary to earmark or ship in coin other than sovereigns or eagles.
In a preliminary way, I feel quite willing to recommend
that the waiter be dealt with rather informally and without too
detailed a plan being established in advance, so long as we find

the means of carrying out the spirit of the memorndum which




or'

un

contemplate) thft these transactions shall be fair and *eon
Will you be good enough to

the same basis as to each party.

write me your views about this'

For your information, i en-

close a copy of the latest table of cnarges imposed by the
mints and assay offices of the Unites States for the treatment
of gold.

Since returning, I have discussed quite in confidence

with some of my associates, the general character of the plan we
formulated while I was in London and have been over the memorandum with them.

=heir attitude justifies my suggesting that we

should endeavor to complete the uetails of the plan,particularly
with reference to snipping and earkarking gold and establishing
an understanding as to the price so as to be Inc-pared in case of
nee:, to start operations this Falli

.)though, as

stated to you

in London, it is not possible at this time to advise you officiril..

ly that we can do anything before the conclusion of the war.
I suppose you have observed that a considerably larger
acreage is being planted in cotton this year than last year.

So

far, 1 have seen no reason to modify the views expressed to you
while in London in regard to the possible course of exchange this
tall, except as they might be modified by the success you are realising in assembling American securities.

If you Can confiden-

tially give me any light on that subject, I would appreciate it.
With kindest regards to yourself and your associates
and again many thanks for your co rtesy to me while I w*,s in London,

1 Et.,

Faithfully yours,

Governor.

Lord Gunliffe,
Care The Bank of England,
London, England.


http://fraser.stlouisfed.org/
RS Jr
Federal Reserve Bank of St. Louis /VC

S

Denver, Colorado,
January 6, 1917.

y dear Lord Cunliffe:
Accompanying this letter is a letter from the Deputy Governor

of the ?ederal Beserve Bank of 77 York, which is the result of considerable study by my as.7ociates and myself, and I trust that it will meet

your viays and those of your associates as to the character of the arrangements which may how be entered into between the Bank of rngland
and the federal 7eserve Bank of 7ew York.

In a general way I have endeavored to make somewhat more specific the plans which were discussed last "arch when I was in London,

particularly as to the method of dealing with gold, adopting as the
basis of values standard gold of the two countries in accordn7-,le with
1,710 suggestion conveyed tu ::k7 by nuputy Governor Cokayne's letter of

June 15th last.

Permit me to repeat the expressions which sere exchanged at
our last conference in regard to the operation of this plan.

It will

be impossible to cover every detail in advance of the exrerience gained
from actual operations and I, therefore, feel sure that ron 7:111 feel
quite free to r4iggest modifications from time to time, as we would like

to feel equally at liberty to do so, and in the meantime I an hopeful
that an arrangement of this character as modified from time to time as

the result of exnerience, will prove to be of inestimale value to our
respective institutions and to the financial relations of the banlig of
England and the 7nited Itates.
I am just now in correspondence with 7onsieur Pallain of the

Bank of 7rance, looking; tayard some arrangement of a similar character
ith that institution, and trust that the references to that sugustion



January 6, 1917.

Co Lord Cunliffe.

*In

the enclosed letter meet with your entire approval.

In any event,

it is my nresent exnectation to visit both England and France, if ny

health permits, in the early sumer of till's year, and any details which
need further attention can be dealt with personally.
"Iith warmest regards to yourself and your associates and best
wishes for .the New Year, I am,

Yours faithfully,
(Signed) Benj. Strong.

Rt.

Lord Cunliffe,
Governor of the Bank of England.

BS /CC

7nc.

New York, 7. Y.
This letter was written by Governor Strong at a ti'-e when he

expected me to sign the formal letter to the Governors of the Bank of
!ngland.

low Governor Strong has signed the letter himself, but

I

think that nevertheless it would be well to send forward this personal
letter from him to you.




Deputy Governor.

Denver, Colorado,
January 6, 1317.

Gentlen2en:
(1)

1 have the honor to advise you t

he F

:;land

has consented to the appointment of the
.eserve 3ank of New York as its co:resp

Reserve Board

ant, or agent,

of London, in conformity with the

the Federal
the City

e) of 3ootion

14 of the -Fedora.' Reserve Act

-ongress which

effect September 7, 1916.
(2)

actions between the

In order to ester

two institutions, t

ens prepared in London in
on with the amendment to Sec-

:larch 191G shou1,1 now be

as that amendment necessitates a

t =on 14 above referred to

modification of the to

of the

randu

Paragraph 2 o
to pa

of

orandum in certain particulars.

should be modified to conform

oction 14 as amended, Which now provides that "..IM
RESERVE B3ARP (ever; Federal .:..oscrve Win::

THF CONSI:=

ACCJUNTS 1e3R SUCH ?OIU1 d;

shall have po

T3 31).10 AND MAINTAIl.

COUESPOEIDEUiS

AG CIS ".

stated in the

randum, that bsiancos maintained by the Ban:: of akaand

with

the 'i.'ederal

(4)

It will not, therefore, be necessary, as

Reserve Max of New Yor

shall be held as ear-marted

.'aragraph 3 of the memorandnm should be modified to conform

to the said amendment which now provides that -every _edema .eservo
Shall have porier *
4 to buy and sell



*

* bills of exchan3e

_-allrI1M1.11.

2.

41

To the Governors of the 3ant of :gland.

January 6, 1917.

arising out of actual commercial transactions which have not more than
90 days to ran, 1.X011JSITS JP DAYS )F GAACEP.
(5)

All of paragraph (e) of Section 14 o

quoted as folloas, the word in parenthesis

the Act as amended is
omitted from the origi-

nal paragraph and the words in capitals being

ose added to the original

paragraph by the terms of the ame
".,very Federal Reserve 3an
accounts with other Federal roe
with the consent of the :'ode
(banking) accounts in fore
and establish agencies in
best for the purpose of
exchange, and to bey and
through such correspondents
out of actual corsaorci=
trans
days to run, EXClk
of two or more
onsible
Fi:LRAI. RES-111V
JARD TJ aeZi
FeRaGN CYIL
iDaNTS JE AGaNC

paragraph

thority in conferred b:; the law upon

Rese

Sta

Meg, and colleetiag bills of
or without its indorsement,
vies, bills of exchan ge arising
which have not more than ninety
CL, and Which bear the signature
THS
1TH THE CONSEAT
WI
1; BALKING ACCOUBTS FOR SUCH

twithstanding the amendment to

(6)

o allow

t

shall have p
To establish
e banks for axe
purposes and,
and maintain
e Board, to o,
s, appoint correspondents,
es wheresoever it may deem

st on deposits

nor, ia fact, is any in-

allowed on the 'eposits of funds of the Government of the United
,

or of the m

not b

r banks or the :Tystom, so it will consequently
eat

molification in the terms of that paragraph

of the memo
(7)

earagraph 7, Gold Shipments,

No agreement has yet boon

reached as to questions of abrasion, price of bar gold, price of coin,
shipping charges and other details of that character.

It is, there-

fore, suggested for yor consideration that the following arrangements
shall for the ?resent apply to transactions ie gold, pending the determination of more precise terms, based upcy; experience:



To the Governors of the Ban

(a)

of .Lb gland.

January 6, 191.7.

ao first two sentences of oaragraph 7 of the ae,Teement

to resin unchanged.
(b)

The Ban: of Aadland to ear -mark

d set aside refined sold

bars for the Federal aesorve Bank of New

,

oar-:lar...ed at the rate of 77 shillings 9

,hen sold is ordorod
per -654-ta,ek standard

ounce, eleven-twelfths fine, or
standard gold bars are not avail

(c)

3nsland to ear-ark and se

the Banc of

es for account of the.liew York

Bank at their bullion v

o of 77 s. 9 p. per ounce, for

the equivalent of the iAgl

of fineness, or

(d) The BaW:

ric and sot aside sovereigns at

their bullion
(e)

.

9 p. ner ounce.

so ear-rlared Int not shipped, to

col

be taken by t

if returned to the credit of the tow
7Aut

at Which 44mss oar-rte rkod in the first

(f)

it ahead

cannot requir

understood that the Federal Reserve 3amic of New

he San 4 of gland to earrtiric eagles at bullion
import them and realize the profit between the bullion

441111100.-

value and face value of American coin.

Tne right to determine in the

event of shipment dbether America,: coins shall be shipped or not to rest
with the Bank of :a gland.

Ac erican sold coins Allah are abraded below

the limit of tolerance of one-half of ono oar cent not to be ear-rt.:x*40d

or shipped if other gold or coin is available.
Tfle Federal Reeerve Bank of Bey York to ear-mark anu sot aside sold
 for liasow


ane)dlitittie i.C41 Q.CCett4.41r.

the Ban4 of England
AO

n the following basis:

January 6, 1917.

To the Governors of the 3an.: of gland.

(a)

jefined bold bars at the rate of v18.504651 ear United

States standard ounce

tetX the

:f gold nine-tenths fine,

assay office

charge of SON per 4000 in value, or
(b)

Sovereigns at their bullion value s f .J8.604651 for each

ttenAt Cgrew

ounce of gold of the Amertese-i-htert standard,

ne-Tenths fine, or

(c)

iagles at their bullion

'04651 ner ounce.

(d)

Gold bars, or ,_;old coin,

so ear-marked

not shipped, to

be taken by the Federal Res

if returne:i to the credit of UM

Bank of &gland) at the

Which 1,6r

first instatel Orr-11144/
tch4ak tact L
Gary
(e)
It shout
require the F

dot.? t &boa 7ywnrrent)
at
cgf-tra

ork to ear-mark sovereigns p
kerwme
6414 e
Mlareld.
the Bank the nrofit be
them and realize o England cannot
value of in,;lish coin.

at bullion v

The rijit

ipmont, Jhether dish coins shall

tween the bull
to de

ft?

rest eith the 2oderal Reserve Bank of Jew York.
oh are abraded below the limit of tolerance not

shipped if
(

aka

talkear-marked in the

not to
r gold or coin is available.

ish saki coins
old
.'!Iger-marked or shipped by either institution to the 1.1)

other must be suitable for coinage purposes, allot; to bo copper, and

an allowance made for any variations in cold contents above or below
standards soecified above.
(;11

(9)

The oar-marking acid shipment of the told coins of any other

um414takt
nation to be 41aut.-014h upon the basis of the value of the fine ,pld

A

tamed 1. sueu cans, with deduction of an allowance to cover the cost




x_

1 2

A.-

1),t

s

5.

gp,

January 6, 1917.

To the Governors of the 3ank of liaigland.

or conversion into ,pld bars of Ilaglish or American mi..t standard

respectively,

In general, the concluding soutane

(10)

memorandum to apply to all transactions in

of paragraph 7 of the
-so that the effect of

tho arrange:lents will be to ma,:o all shipment

cold between the two

institutions upon exactly equal ter
?aragraph 10.

(11)

No arrangement having ye

concluded with

the Bank of :,ranco, it is pro

the Federal Re orvo Bank of New

York endeavor forthwith t

arrangement of similar character

with that institution and
three institutions s

between all

o each.

t is proposed that the terms

4ith

(12)

rms of the understandin

repared in ;.;arc". 1916 shall otherwise

of the memorand
aoply.

that the Bank of imgland furnish the
Reserve Bank of New :fork ;pith the necessary docurnts and papers
to

111°.°11.1*-

to the opehi.

,1" an account with the sauc. of iIialand and accom..

directions and forms applying to the openinj of
.

I

;.

of ..-;ngland with the Federal le3serve Bank. of Lew

York.
(14)

it is desirable, on account of difficulties of cable com-

munication and the necessity for safe-guarding exchanges of cables in,
volviag payments of money, that the Bang. of ,m gland should suagost the

plan to be pursued in the use of cipher codes and Ghee.% words between
the two institutions.



To the Governors of the 311114 of bland.

(15)

January 6, 1917.

The Federal Pneserve Bum:. of New York woul.: prefer that

bills purchased for its account by the Bank of 14gland should consist

so far as possible of those bearing the names f American drawers, or
endorsors, so 10116 as this requirement does n

of discount at primeBank
other than the bills which are eligible

c: WO

uat;41

by the Federal Reserve
74arrya,.

bills for the Bank

thriatt,t45 or 641.gyt(ito
d, should

f bills by either institution
t rates.
lett rs, the Federal 1-1 © =rve

f the above plan to the thar

Item) with th

provisions of

morandum of aarch 1916 is attached

t this time to form any opinion as to

ye undertaken by Federal reserve Banks

lan, but in general it is understood that

nary to actual operations by either

nterest of both institutions will be

on of the proposed arrangement, the

k will appreciate cable acknowledgment




involve the acceptance




Zenver, Colorado,
alLnuary 18, 1917.

Gentlemen:
(1)

1 have the honor to advise you that t

Federal Reserve 3oard

has consented to the appointment of the 3ank of

by the ;.sederal

in the City of

Reserve 3ann: of :Jew Yon: an Its oorrespo

London, in conformity with the provisions of paraar

of :Action 14

clot of Con6re

of the Federal ReserVe Act as

Which took

effect September 7, 1916.
(2) In order to establish
tw

of transactions beta on the
tions prepared in -Aeolian in

institutions, the

h the amondmont tD 300-

::arch 1916 should now

of

nscossitates a

tion 14 above refs

a,:

modification of the

in certain oarticulars*

to

t

a

CAU

(e) of Section 1

THEFAD=::
power) T) OP

shall

Should be modified to conform

1h

(3)

as amended, which now provides that ".,11%

iSSAVA BOARD (every .Pederal hesorve Bank
MWIRTALN BAUM ACCJUNTS 17._.V. SUCH FaBALON

It will not, therefore, be necensary, as
stated in the memormiurs, that balances maintained by the

of ..;a6land

with the :'ederal Reserve ilanz> of Neu York shall na hold as oar-mp.rglod

geld.
(4)

?Brame* 3 of the nemorandu:. should be modified to conform

to the said amendment Match now provides that "every l'ederal Aserva :iam4

Mull to bay and soil
have poclor



* . bills of eacchantA

Apr

To the ..iovernors of the Ban,: of .:stand.

January 18, 1917.

arising out of actual commercial transactions ,which have not more thaw

90 days to run, :=TIKA,V4 JP DAV IF GRACiP.
(5)

All of paragraph (e) of Section 14 of

tted from the origiquoted as folloas, the :lord in narenthosis boing
o the original

its'

dmentt

vo power (e) To establish
for exchan6e purposes and,
oarti, to opoa and maintain
appoint correspondents, and
soever it may deem best for
collecting bills of exchange,
indorsaaonts, throu,;h such
arising out of actual
than ninety days to run,
the signature of two or

nv

,

ik

12B

17415.:aAL

_

an

JUNTB

5UCH

CJIViit,Sn

twithstandinc the curondment to

thority is conferred by the law upon
deposits, nor, in fact, is any in-

funds of thn ,:novornment of the United

the Systom, so it will conseluontly

fication in the terms of that paragraph

ents.

no agreement has yet been

n, price of bar .;old, price of coin,
of that character.

it is, there-

tion that the following arrungenronte

nsactions in ;old, pandint, the de
based upoq experience:


o Act as anendod to

To the :iovernors of the Bank of :.ngland.

january 18, 1917.

first two sentences of paragraph 7 of the agreement

(a)

t D remain unchanged.
(a)

The Bank of Nyland to ear-mark =.,

4t aside refined jold

bars for the Fodoral ::esorve aUMA of New York,

an gold is ordered

oar-marked at the rate of 77 Shillings 9 pence

tilt:A.13h standard

ounce, eleveno-twelfths fine, or
(o)

hen standard gold

t available, r..'8ank of

.rigland to emr-mr: and sot

or account of the New York

Wolk at their bullion vale

of 77 s. 9 d. per ounce,

for the cv,ulvalont of the ,414,41
(d)

of fineness, or

The Bank

rand set asldo sovortizole

at their bullion
(o)

f 77

3old

9 d. per ounce.

or dold coin, to ear-marked bat not shipped, to

be taken by the

York

.

of Jagland (
414

returnod to the credit of the Now
Which they were oar-marked in the first

ins
it ahoudd bra

New Yo
bullion

of requi

orstood that the Foderal ]iosorve Bank of
3.:_ink of oagland to ear-mark ()kilos at

or to import the

and realize the profit betwoon

the bullion value and face value of AmeriCan coin.

Tho rift to de-

termine in the event of shipment whother American coins shall be shipped
or not to rest with the Sent: of =Gland.

American gold coins which are

abraded bele/ the limit of tolerance of one-half of one per cent not to
be oar..markod or shipped if other jold or coin is available.
The ;:edoral 1.osorvo anc of New York to ear -mark an
 for the


sot asido jold

Bank of Jngland and charge its amount on the following basis:

T3 the ;;ovornars of the Bank of .laced.

(a)

.;anuary 18, 1917.

itafinod gold bars at the rate of ,18.604651 nor United

States standard ounce of gold nine-tanths fine, plus WI° assay offioo

Charge of 501 por 41000 in value, or
A(b)

the United :Mates standard,

418.604651 thoir bullion value
3oyoreigno at for each
tenths fine, or

at their bullion va lo 51 per ounce.
of 18

bars, or 80 MINalitited
,old cots,

returned

r
at the ass

:;0
A 11-.

to t

credit of the

h
47-they were oar-marked in

the

th.co

Charge above utantionod -Allah

(if

excluding
.,

not ship?ed, to

;Aid bars are returned, they

..

,.

for remeltinE; amounting

ioh is the axietin6 oharje.

:he

lever, Jill endeavor to have this

11 successful mill immodiately

rstood that the lAnk of izgland cannot

Bank of

Yor4 to ear-mark soverol.-ls

import them and realize the 2rofit botween

alue of A6lish coin.

zit,

The rigt to doter-

whothor .n(aiah coins Shall be shipped

ral 1:osorvo Ban: of Sas York.

Dm6liah ;fold

w the limit of toloranoe not to be shipnod

ilable.

: d or ehippod by either institution to the

nage purposes, alloy to be copper, and an



b.

To the Gavornore or the 3aa1t of .:1161and.

January 18, 1917.

allowance undo for any variations in gold contents above or below the
standards specified above.
The ear-markins and ahipment of the

(9)

coins of *iv other

nation to bo undertaken upon the basis of the vs

of the fine z;oId conm.

trained in such coins, with deduction of sin all.

to cover the cost

of conversion into geld bars

standard ro-

spectively.
(10)

In genoral, the

of paragraph 7 of the

memorandum to apply to all t

gold -so that the effect of

arran,;emente will be to make

institutions upon
(11)

pments of ,old between the two
each".

Pampa

yet been ooacluded with

the Bank of France,

the Federal :.oeorve 3ank of Bev

Yoram endeavor

arrangement of similar character

titution an the

wit

three

itutions shall

With the abo

d

terms of the understanding botwoen all

=made known to each.
modifications, it is proposed that the terms
tions nrepared in _arch 1916 shall otherwise

apply.
(13)

It is farther suggested that the Bank of ..n;,land furnish the

Federal Reserve Bank of New Yor e. with the necessary docuzaints and papers

to enable the opening of an account with the Bank of A241a4 and accompawing this letter are directions and forms aenlying to the opening of
an account b7 the lank of
York.



,n6land with the Federal reserve Bank of low

Jamary 18, 1917.

to the Csovornors of the Bank of england.

(14)

it is desirable, on account of difficulties of cable Com-

munication and the necessity for safe-euarding araboadas of cables

'bead segeest the
volvime payments of money, that the &mak of

an
oak in the use of
plan to be pursued movie between cipher codes
the two institutions.
(15)

The

edaral Esserve Sank o

Kew York

refer that

consist
f eogland
bills purchasod for ite account by

so far as possible of those be
endorsers, so long as this re
of other than prime bills which are
of

neland, and a s

policy

3ank ng the nemos in !, Chasing bills
of New York of eaglish drawers

ane. of

: :n nand

that pe_

a

d it be possible to do SO4
es of bills by either institution

ant market rates.
memorandum of *.earch 1916 is attached

sible at this time to form any opinion as to

ions to be undertaliee by Poderel Eeserve Banks

of the plan, but in general it is understood

hanged preliminary to actual operations by either

that the interest of both institutiona will be
conclusion of the eroposed Eli-I-arum:lent. the

f tiow Yor: will copreciato cable acknowlodgment,



s of Lmorioan drawers, or
s not involve the acooptauce

blo for discount at the eane
sued by the Izederal Emeorve







Western Union
- JFC

gable

Lord Cunliffe,

Bank of eland,
London, .;n,jland

e suggest the follo
Pleased to receive your letter
Omit references in o1)ening
memorandum
stop
First
conclusion of war as earlier start might be desirable
in paragraph six for earmarkipg gold only at convenie
necessary to have :ccountadefinitely on gold basis bu
may limit amount of such gold obligations in advance
:levies paragraphs ten and twelve to conform to our se
V;e will await reply by
Stop
changes satisfactory
transmitting further proposals
Char,,e Fed. RAs. Bank

120 Broadway

CE DESIRED'
essage

-IfirE$TE ex-

UNION
TEL :Pre- AM.

ter

WESTERN UNION

Message

t Letter
should mark an X oppoe class of service desired:
ERWIS
E TELEGRAM
L BE Ti
aLLZ.F.D AS A
FAST D

Receiver's No.

Check

Time Filed

NEWCOMB CARLTON. PRESIDENT

end the following telegram, subject to the terms
on back hereof, which are hereby agreed to

Denver, Colorc.fie

Alrli 3, 1911.

Lord Cunliffe.
Ban:: of al,land.
London, ::nclandi:

.Affootionate gr3etings to you and your associates at last fro:.

an enthusiastic friond and ally.
Strong.

(117. Benj. 7,trone.

41 A Eentvica 31v.




77GISTFRPD :TAIL
PRIVATT: AND OONFIDE7TIAL

April 12,1917.

"y dear Sir:

It gives me great pleasure to acknowledcm receipt of your letter
of !larch 2, 1917, in reply to ours of January 18th last.

Upon receipt of

your letter we sent you a cablegram under date of :larch 26th, of which

take pleasure in enclosing herewith a confirmation, and also a confirming
copy of cable received from you in reply on Varch 28th.
Referring to your letter of :larch 2nd, we are entirely in accord

with the changes which 7ou have suggested with regard to the various provisions of the memorandum, with the exception of the ones cwicerning which we
cabled, and we understand that you agree in principle to our suggestions as
sent you by cable.

Accordingly we have prepared a new memorandum, incor-

porating changes in the opening paragraph of the memorandum and in clauses
6, 10 and 12, and trust that the proposal may now be found in form satisfactory to both institutions, so that we may have a ratification thereof by the
directors of each in the near future.

An indicated in our cable; we think it essential that all accounts
should be reciprocally on a gold basis, except as definitely arranged in advance for specific periods and amonnts, and have consequently inserted phraseology to cover that point in clauses 6, 10 and 12.
T7Ith respect to the Assay Office charge for remelting, amounting to

one dollar per thousand ounces, which is referred to on pages 3 and 4 of your
letter of :larch 2nd, we are pleased to be able to advise you that we have made

arrangemente with the ?reasury repartrient and the Assay Office for the waiving



4/12/17.

Lord Gunliffe.

2.
I

reference thereto may proper-

krrour favor, and consequently any

y be omitted fr

suggested in your letter.
n our agreement, as
In view o
nearly completed,
the fact that our arrangements seem so

various offienclosing herewith signatures of the

we are taking the liberty
cers of this bank, who are an

other docuorized to execute checks, drafts and

nients in its behalf, and also f

by-laws
rclose heredith a certified copy of our

as amended to date, and signetn

who will
e cards for execution by the offioern

sign in your behalf.

There is also enclosed

draft of a for

be given to the press einnitaneously
*rests with your araroval.

of public announcement to

the two institutions, nrovided

"e would,

it

course, be pleased to make any changes

in the text of such announcement that nay be

agreeable. to you and would suggest

that the text and the date of publication be a

tinged by cablegram.

"ith respect to the last paragraph of y.
your bank will take the initiative in preparing a co,

ur letter, we assume that

a for use between the two

banks, concerning which we shall hope to hear from you

ortly.

In view of the entry of this Government into the

against Germany,

We do not doubt that you share with us the opinion that an early

tablishmen4

of our proposed reciprocal relationship would be extremely beneficial
financial and commercial interests of both countries.

Assuring you of our very great pleasure in anticipating close relations between the two banks, I an,
Yaithfuliy yours,

Deputy Governor.
Lord Gunliffe,
Governor, Bank of "ngland,
London, rngland.



im...

72!:7°

SPEC/AL DmivrnY

April 23, 1917.

ArGISTrerD "-AIL

ir dear :sir:

In the absence of Governor Strong tine_ of eoputy Governor Tranan, I

take great pleasure, in behalf of the bank, in welcoming you to thin country.
and hone that et may sone have the pleasure of arrant ine for n einit frorn you
at the bank.

neanwhile I' beg to enoloeo herewith a copy of a camunicetion, with
the enclosures, whioh eeputy Governor ereman forwarded to you by reginterod

mail on April 12th and which, unterelly, you have not end en opnortunity of
Boeing.

eonnibly your prenenne in this country will onelle es to weever-late

these neeotiatiens earlier than would otherwise have been feasble, °specially
in view of the exietine conditions, which arpear to es to mato such a course
most advinable.

eo have communicated with governor Strong to-day by telephone, he
boing atilt unfortunately in eenvor on account of his health, and ho has requested 'is to send you his greetings and warn nersonal regards.
eoth 7!r. "mean and eyeelf look forward with great pleas ere to eneting you at Secretary 7cAdoe'n to-morrow niteht.
leeferrine to tho first paragraph on peel, 2 of

Trenants letter

of epril 12th, we are onitting from thin copy the signeturen of the various
officers of this bank who are authorized to execute documents and also copy
of our by-lawn and signature cards for execution by the officers of the !Stink
of Theland.




2.

Lord Cunliffe.

p
With assurances of high regard, believe me.
:'ours faithfully,

Chairman.

Lord Cunliffe,
Governor, Bali,- or rnland,
C/O Rritish Commission,
16th Street,
Washington, -. C.

.7PC/CYP

nos.




27,/17.

Denver, Colorado,
April 22, 1917.

Ey dear Lord Cunliffe:

It was a very great disappointmont to me not to bo in Now York
or Washington so that I might extend to you personal greetings and a
welcomo to our country.
You know how keenly 1 desire that your mi-ssiou to this country

will be a comploto succoss, as I have -evory roason to anticipate it will
,be.

presence in this country will afford

I

trust to concludo the negotiations now pending between the Boaz of
,

England and the Federal Reserve Bank of Now York, and I have asked mg
associates in New York to get into communication with you for the purpose of ascertaining When would be n'conveniont time for me to return
East in order to moot you and continue our discussions.

Ly health is now really completoly restored and I am expecting
to return permanently about Juno 1st and could do so earlier if your
plans made it necessary in order that I might see you before you leave.
With warmest rogards, I bog to remain,
Very truly yours,

1.t.

IOU.

Lord Cunliffe,
7;ashiugton, D. C.

BS/CC



04-cA4A-v.

aitA,/

4 7c4-,_




p4t"eArvsk

,tu,

hwagt,,7

,44

4.44.s.

/1"..4 tem.

RAIA...

frAly

Xt. LAAramt-v.,,

avrAA,v,a.4

et

4.44
0.4.1

ELM
v,evu.Ar+,-2-




111
Denver, Colorado,
May 17, 1917.

M dear Lord Cumliffe:
It was a great pleasure to have opportunity to Welcome you to
this country and to discuss Vlo many important me'ters that are now occupying our attention.

You undoubtedly realize how difficult will be the

handling of financial transactions in a country or such vast extent as this
and with a banking system as complicated as ours is.

This first loan will

be the test of our ability to handle similer future transactions and it has
been of the greatest possible assistance to have the benefit of your views
and advice in rreparation for the problems we are facing.

My plans have now taken definite shape and I am proposik; to return to Yew York permanently the last of this month, so as to be there during
the last stages of the placing of the Liberty loan.

If, however, any questions

arise in which I may be of any service to you or to your associates, will you
not be good enou7h to write or telegraph me here and I will return at once,
if it seems desirable for me t.) do so.

I have left word at the office to proceed at once with the ar-

rangement of the last details looking to the commacement of transactions with
the Bank of England, and tae the liberty of su,,e'estin.,.: that it mi,:;ht be woll

to have a memorandum prepared and sent to us as promptly as possible, indicat-

ing just what procedure should be foliaged in case it seems desirable to arrange
for ear-marking gold in South Africa or Australia.

This I suppose should in-

clude a statement of the character of the custody who will be responsible for
safe-keePing of the gold, the character and quality of the gold and, if




2.

Ilt

To - Lord Cunliffe.

May 17, 1917.

possible, a cable code Which might be used in case of emergency for
transmitting directions for its handling and disposition.

As to transactions in London, those doubtless must be nominal
while conditions are as at present.

i.s soon, however, as our department is

organized, signatures, etc., exchanged, i had thought to arrange for the

purchase of a moderate amount of demand or cable sterling, simply to be
held in account as a start; tne amount of course to be limited to Whatever
the Bank of England considers desirable.

Arrangements have been made for the engrossing of the memorandum
agreement, Whic- will be forwarded for exemplification as soon as completed.

1 sincerely trust that you and your associates of the British Commission will return to England satisfied that the American people in heart
and spirit are, without reservation, committed to your groat cause and that
the influence of the resources of the country will be brought to bear to bring
the war to a decisive conclusion in the near future.
With warmest regards, believe me,
Paithfully yours,

Rt. Hon.
Lord Cunliffe,
2829 Sixteenth St.,
Uashington, D. C.

BS/CC




BANK
OF

NEW

Sent by

YORK

(FOE

COPY OF TELEGRAM

maliffe

71277111A,

treat

nehlugtm,
_iovorrn- It7or7 lea se
torar.;m to vet you arriq% Nov 74r* Akulay
morning
re ,Als atsf >ri ur, to irIvito you to lig. with hisi;Tualkicy or .!isdneu13,
,tGy fleet or second to neet wholly informally a fv0 of our 16ading byre
141
both lin and Ire hops r:oet sincerely 3mu eau ei%ar- u o*
ef thee* eesii*O.
We
ondf-reti7:nd hoe dIffiaolt it le for you to WAX* definite plane ;.and

linte your tele:honing us ov-r our vire to the Treasury VAiiding when you LIrc
0.oeivion
able to roach
l'iorr
fodf:?..ral

120 Zroodvey



Ateervc.,. 31s-Y4

Jay,

June 28, 1917.

My dear Lord Cunliffe:

This is my first opportunity to send you some account of
what has transpired with us in connection with placing the Liberty
Loan, in the details of which I know you will be very mach interested.
About one week prior to the closing of the books, which was
scheduled for 12 o'clock noon on the 15th, the total subscriptions
Realizing the gravity of

reported aggregated about v1,000,000,000.

the situation relative to any failure, arrangements were at once made
to publish the subscriptions throughout the United States by districts

and a rough apportionment of the loan was made first between Federal
Reserve Districts, then between states and finally among all emir:unities

and the banks in those communities.

At the same time, clocks were pre-

pared and set up throughout the country and bulletin boards were erected
on which the day to day changes were posted.

Various organizations

which bad charge of the advertising and publicity extended their propaganda into even the remotest parts of tne country with typical American
enterprise and enthusiasm.

In twenty-four hours, the effect was felt

and it is no exaggeration to say that sitting in this office one could
feel the growth of the wave of response.
a storm.

It was like the approach of

By the 13th and 14th it had taken hold of all classes, with

the possible exception of the farmers who in this country get their news
only once a week on account of the distance from neighbors and towns, and







2

To Do rd Cunliffe

I think that now that the results ar

pretty well judge of the extent to w
can people was finally aroused.

The total subscriptions wer

we had ,300,000,000 privately pledge

was never filed and I would estimate

and Chicago there might have been 15
tion to those actually turned in had

tion of the number of subscribers ha

estimated to exceed 4,000,000 and do

that figure, because so many banks fa
opinions I can get indicate actually

result is the scheme of allotment has
which will have to be filled in some

short certainly 15,000,000 of bonds

order to take care of those whose sub

reported in total and consequently re

people subscribed for amounts not exc

Our organization was very

short time permitted for perfecting d

The enclosed chart indicates the char

city, which was supplemented by the s
covering all the cities and towns in

The chief money difficulty

anticipated and explained to you whil
began to withdraw balances from New

#3

6/28/17.

To Lord Ounliffe

a
were called upon to settle balances with the other reserve banks aggregating over ')O ,000,000 in the sixteen days.

The arrangements in New

York worked perfectl:; but this difficulty about interior withdrawals

could only be net by our discounting very freely, which we did to the

extent of about 250,000,000 and this was supplemented by imports of
gold to New York, advances on which were made by this bank, by transfers
of .deposits from the interior to New York City and by distributing ad-

vances to allied governments as rapidly as the market showed sigue of
needing that additional contribution.

On the whole, we got by very

well but the 6 % renewal rate on the stock exchange seemed to be inevitable with the enormous shifting of loans occasioned by these withdrawals
of cash to the interior.

By a very narrow vote in the Rouse and a very satisfactory vote
in the Senate, the bill amending the Federal Reserve Act was finally
passed and signed by the President on the 21st instant.

This gives us

the dement of elasticity which our whole system lacked and which I think
we can rely upon for the future to take care of a reasonable bank aspen:lion, provided banks generally understand the situation and cooperate.

Our local clearing house is taking the lead in this direction,

all member banks now settling their balances through un instead of by the
use of cash at the clearing house and I. anticipate that before the week

is over arrangements will be made by Which our notes will serve all pur-

poses of vault reserve and clearing house settlements where debit balances
must be paid to nonmember banks in cash instead of being settled on our
books.

I am hoping that the issue of small denomination gold certificate:

will shortly be discontinued by our government and then it seems there will




To Lord Cunliffe

6/28/17.

mo.

be no obstacle to a very large accumulation of gold by the reserve
banks.

Already, the movement of gold into our vaults has started,

this week showing the total of gold holdings to the reserve banks to
exceed 41,200,000,000.

On the whole, I think the results of this first offering of
war bonds be our government has been an astonishing succeed, far beyond our anticipations and I am most hopeful about future issues.

In

general, the sami,, can be said of the satisfactory operation of the reserve banks.

No such transaction would have been lossible in past

years without the services of these institutions and we would certainly
have had a repetition of an uncontrolled money market, issues of clearing house loan certificates and possibly a premium on currency.
If my present plans are carried out, I shall leave in the
course of a few days for Denver for a few weeks' rest and be back here

probably arouni the first of

enoast.

We all have most delightful memories of your visit here and I

hope that you and your associates took back with you an impression
which will hearten and encourage everybody on your side.
With warmest ro:;ards to you and your associates, I beg to remain,

Faithfully yours,

TO

Lord Cunliffe,
Care Bank of England,

London, &gland
NS,VCM




111111.-^

,enver, Colorado,
July 23, 1917.

Six:

bob: to °A:m=10dg° zooeipt of your favor of Juno
that our oablo statod that the sun paia to the

21s

ional City

was

_

erica' or ty12(

:'hip was, of oourse. a

q3hical orror, as tho exact sun vita

Wo, of

,rstand that the rates quotod in your
,ld oa.

casion ariso

w
o uo

omploy any

Tply at the tint), and Lhoulo ootho funds

hold in oar-ti arkod

oablo 1,1 adv

apprecin

you at your oonvonionoo

as to the possiblo

o to tho responsibility

and oost for shippinr:

quival

of

we mirrht temporarily amp oy by invoetnont i

:a. in cul:ront account with the Lnnk.
It :-.1ao

occurred to me that
ozoollont

r your institution and ours to

in touoll by nail or

if nocessary, in rogard to our

opoetivo nonoy nfl.raoto

siblo transactions of imnortanco Which might offoot
At the proseilt time our mvskot is fooling the offeots

hoavy transfors occasionod as a result of the Liberty

ments and the ahange isc the reserve requirements of

l LankE.

Doubtlee the market will settle down to a

able condition within the next thirty days.




.52,500,000.

f Buell amount as

comorcial

bills

n

41111114,1=6

July 26, 1917.

:.;fInk of 41v1and.

Should my ourgostion aT?peal to you favorably, wo night

agroo to amshange =bleu on a certain day oaoh uvek, to bo supplenonted by a 'otter, civinr: naoh information as might provo
c)

vain° in oannootion'wit71 our money Lanrkoto.

gratifiod to loam
o that your
-010asuro an

ait to this side avo you w MO- t3ctisfaction
L did us.

With wrxr

To




of youk oaf() roturn and

Tho Governor,
of the Bank oi
London, L.

-ds to you

your azsooiaton,




August 16th, 1917.

Dear Lord Cunliffe:

Your fine letter of July 12th pleased me very much indeed.
I cannot feel that Ave have fcund the logical method of rais-

ing these great loans without money disturbances because we hwe a
ver\ complicated and cumbersome machine in the United States for
dealing with these mutters by reason of the great number of banks and
trust companies, but we have at len.st had an experience which will be

a good guide for the future and ve will all profit by it.

If our

next loan is brought out this Fall, as now seems likely, and if the
ount is as large ar larger than the last offer, I can see that the

money strain will be more difficult to

avert bf:cause of the immense

crop moving requirements of the " et which will come &t rJ)out the same

time.

The high price of our cereals and the high price of farm labor

are going to require the employment of the greatest total bank credit
for that purpose in our history.

This applies p

corn crop which bids fair to be a record crop And to require very
large advances to finance its harvest and movement.

But these mat-

ters are being studied And I hope we are successful in coping with
the problem.

The enclosed clipping from the iiew York Times may be

of interest in this connection.

-2-

4




To

Lord Cunliffe.

8/16/17.

I am glad to say that the short notesof our Treasury are
becoming very popular and even at the present limit of V.:

I an-

ticipate no difficulty in placing them in large amounts.
We enjoyed your visit here very much indeed and if it is
a possible thing I hope to return it before very long.
With kindest regards to you and to your as,:,ociates,

Very truly yours,

To

Lord Cunliffe,
Care The Bank of England,
London, England.

I am,

0 1
,

1,5

s

i.Witi:41 V 1

October

4-1a,

17s .4- VA"

OC1
l'AVI

PEASCrAL.
-

Dear Lord Cunliffe:

4111

I have just signed an official letter to you in reply to
your latter of 5eptember 3rd which I trust is quite satisfactory.
In addition to thnt,

] would like to send you this personal letter

to inform you somewhat of conditions in 'ew York which, of course,
reflect to some extent conditions throughout the country and to ask
if you will be good enough on receipt of this tc write or,

if nec-

essary, cable me anything of imnortance which might occur to you in
connection with conditions in London that sight have an effect unon
our money market.
Ity reason for asking this is because of the immensity of the

transaction we are now facing, and as you very well know,the rany dif-

ficulties of organizing our cumbersome and corplicated barking machin-

ery so that thig next loan may be placed without serious disturbance

to our money markets.

I would like first to describe to you what is being done to-

wards making the loan a success.

I must confine myself to our own

district which is probably the best organized of all the, twelve dis-

tricts, but to a lesser extent the others are organizing along similar

we have rotairvl our (leneral !Joan Committee, somewhat enlarged,

which is almost entirely an advisory committee, not only connection with




-2-

To

Lord Cunlifte.

10/4/17.

the loan operation itself but in relation to a general policy of the
1011

associated banks of flew York and the Federal Reserve Brink itself.

The influence of this Committee is what I have relied upon to secure
cooperation among the big banks of New York and 1 think our plans so

as those institutions ae c-ncerned are complete and effective.
67 of the larger banks and trust companies have entered into commit-

ments with a Sub-committee of the Liberty Loan Committee, the Subcommittee consisting of the following:

Ceorge F. Baker, Chairmen of the Board of nirectors of the
First Pational Bank,
James S. Alexander, President, National Bank of Commerce,
Walter E. Frew, President, Corn Exchange Bank,
Gates W. McGarrah, President, rechanics & Metals National Bank,
Charles H. Sabin, President, Guaranty Trust Company,
Frank 4. Vanderlip, President, National City Bank,
James N. Wallace, President, Central Trust Company,
Albert R. liggin, Chairmen of the Board of nirectors of the
Chase Natloral Bark, and,
Benjamin Strong, Chairman.
This Committee is to furnish as called uron a minimum of
1230,000,000 in order that we may escape any real money pinch.
amount will be furnished if needed.

A larger

This Committee also Proposes to have

money available on the Stock Fxchan-e for call loans and in very large
amounts every day.

The effect has already been to reduce call rates

but we have not yet succeeded in reducing time r tea as much as I had
hoped.

Possibly next week we will begin to lend time money and perhaps

at the same time make some purchases of commercial paper.
To be quite frank, it

s simply another method of inducing the

New York banks to borrow from the Federal Reserve Bank.




If they will do

-3-

To

Lord Cunliffe.

10/4/17.

so to the extent pledged, we will create such a large surplus reserve
among t e New York Clearing House banks that it will be possible to
put rates down to a very low level.

This, however, should not be

done suddenly and the arrangement will be timed so that the closing
week of the campaign will be conducted under rather easy money conditions I hope.

As to the machinery for nlacing the loan, while still not
all that I would like to see it in soma respects, is so infinitely
better than l',st time, having been developed with more deliberation,

that I have great confidence in the success of the loan although I
h,.ve kept this opinion very largely to myself because we need hard

work all along the line.
The committee handling the actual distribution of the bonds
is supervising a machine of tremendous proportions.

Our publicity

department consists of about 100 people and is divided between news,
advertising, posters, "features", etc., etc.

7ie have some of the

best newspaper men in the city in this organization and the whole un-

der the supervision of the editors or proprietors of the larger Eew
York papers who compose a committee of which Yr. Itons of the Associated Press is Chairman.

r:e also have a Speakers Bureau which includes

in its membership an organization known as the "4-rinute '.en" and I

am told that we now h we in that department alone 1,000 effective and
fairly well trained speakers who will cover every amusement place,
eluding moving picture theatres, in the district.




Sub-committees of the General Comrittee will have charge of
(a)

(b)
(c)
(d)

Large subscriptions from corporations and wealthy
individuals,
Trust company subscriptions,
National bank subscriptions,
State bank subscriptions.




-4-

To

Lord Cunliffe.

10/4/17.

Our district has now been divided into eight sub- districts

and we have twelve or fifteen hundred committees which cover all the

important cities and towns in the district, these being under the supervision of committees in New York with exnerienced bondmen in
charge of each subdivision and on the ground.

We also have about

150 committees covering all the trades in New York City and eomewhat
smaller organizations in other cities.

Responding to the desire fer

a nickname or slogan typical of this country, this trade organization
is known as the "Rainbow Division" - I surnose because of its com osite character -

and is operated under a general staff of efficient

men who are developing a tremendous enthusiasm in this organization
and whoue efforts I ar sure will nroduce wonderful results.
At a meeting at the bank to-day of the small grout of men

who are really in charge of the details and ranificatione of this
great organization,

I was told that including college students and

other organized bodies, we probably have 100,000 salesmen at .ork today in 'this district.

I have already signed about 15,000 letters

appointing committeemen who report directly to the bark.
are covering the district with rosters and banners;
every newsnaper and periodical will hive news articles, advertisements
and editorials every day on the subject of the loan from now on until
October 27th.

-orking alongside of this bank organization, we have

gradutIlly succeeded in coordinating chat is known as the toman's Nation-

al Liberty Loan Organization and their committees are reaching throughout the district along similar lines to those established by the bark.

-5-

To

Lord Cunliffe.

40/1

Not only has our selling arrangement developed far beyond anything

that was possible last June, but I am glad to say that the bank itself is now well equipped to handle the detail and the Department
in Thshington is actually delivering the rermanent bonds to the Subtreasury in New York so that we may deliver them rractically as sold.
With this,

I am enclosing a Treasury Department prospectus

of the loan Which will give you the particulars and da es of rayrnents.

You will observe the tremendous transfers involved as these payments
are made.

I think, however, we have made adequate provision to

avoid money market difficulties, at any rate, in the New York District.
ve are propoeine to qualify all of the banks through which subscriptions will be received as government depositaries and i believe that
the great bulk of the payments will be effected either by turning in
certificates of indebtedness or by giving the government credit directly on their ovn books.

The money will then be gradually drawn down

and if this is done so rapidly as to inconvenience the depdsitary

tes at

omissory
tifiaturity
3

rity
than

4 A

cotint
5 g




10/4/17.




-6-

To

Lord Cunliffe.

10/4/17.

Special Rates.

For notes, drafts and bills of exchange issued or drawn
for the purpose of buying or carrying bonds, notes or certificates of indebtedness of the United States, and se"cured thereby, having a maturity at time of discount of
not more than 90 days
3W '-/L
For trade acceptances having a m-turity at tine of discount of not more than 90 days
31
For one day promissory notes of member banks required
in connection with transactions involving the fiscal onerstionc of the government, secured by elisi171e parer
or bonds, notes or certificates of indebtedness of the
United States
2 ,; to 4 s;
The important rate is of course the 3J ;It rate for loans
at 90 days secured by these :sonde.

I

air horeful thst the payments

can be handled without too great a strain on our resources but
it may well be that osr diosourts and loans will this time run
over ;:S500,000,000 and possibly even beyond thst.

You are about to start a considerable loan camnaign on

your side and of course I am anxious to get the best forecast Dossible.as to the proSable courre of your rates.

This enema particu-

larly important at this season if we hsve a large movement of cotton because at the present level of rates our bsnks may be inclined
to carry bill3 in portfolio in London and not discount them which

would, of course, impose additional burdens unon us throurh locking
up that amount of free funds.
As our lovemmment borrowings increase in volume,

I an

much impressed with the importance of exchanging information with
yuu ful;i your associates and hope that you will feel quite free to

cable us fully of any material change in your market.




-7-

To

Lord Cunliffe.

10/4/17.

Won't you give my wa,mest regards to Cokayne and l!orman

and the same to yourself.
Faithfully yours,

Governor.
To

Lord Cun/iffe,
stank of England,

London, E. 0., 2,
England.

BS/VW

a
Cctobe. 4th, 1917.

MISCrAL.
Dear Lord Cunliffe:

I have just signed an o:ficial letter to you in rerly to
your letter of :Yptember 3rd which I trust is quite satisfactory.
In addition to that, I would like to send you this personal letter

to inform you somewhat of conditions in New York which, of course,
reflect to some extent conditions throughout the country and to ask
if you will be good enough on receipt of this to write or,

if nec-

essary, cable me anything of imrortance which might occur to you in
connection with conditions in London that right have an affect upon
our money market.
'.'y reason for asking this is because of the immensity of the

transaction we are now facing, and as you very well know,thu many difficulties of organizing our cumbersome and complicated banking machinery so that this next loan may be placed without serious disturbance
to our money markets.

1 would like first to describe to you what is being done towards making the loan a success.

I must confine myself to our own

district which is probably the best organized of all tat twelve districts, but to a lesser extent the others are organizing along similar
lines.

We have retain d our General Loan

:ommittee, somewhat enlarged,

which is almost entirely an advisory committee, not only connection with







-2-

To

Lord 'Alnliffe.

10/4/17.

-3-

To

Lord Cunliffe.

10/4/17.

so to the extent pledged, we will create such a large surplus reserve
among t e rew York Clearing House barks that it will be possible to
out rates down to a very low level.

This, however, should not be

done suddenly end the arrangement will be timed so that the closing
week of the campaign will be conducted under rather easy money conditions I hope.

As to the machinery for placing the loan, while still not
all that I would like to see it in some reseects, is so infinitely
better than 1,:st time, having been developed with more deliberation,
that

I have great confidence in the success of the loan although I

hnve kept this opinion very largely to myself because we need hard
work all along the line.

The committee handling the actual distribution of the bonds
is sunervising a machine of tremendous orouortiors.

Our publicity

department consists of about 100 people and is divided between news,
advertising, posters, "features", etc., etc.

best newspaner men in the city in this organization and the whole under the sunervision of the editors or proprietors of the larger Lew
York capers who compose a committee of which :"1.. Stone of the Associa-

ted Press is Chairman.

7e also have a Speakers Bureau which includes

in its membership an organization known as the "4-Yinute l'en" and I

am told that we now have in that department alone 1,000 effective and
fairly well trained speakers who will cover every amusement place, including moving picture theatres, in the district.




Sub-committees of the leneral Committee will h.ve charge of
(a)

(b)
(c)
(d)

:narge subscriptions from cornorations and wealthy
individuals,
Trust company subscriptions,
National bank subscriptions,
State bank subscrintions.

7e h




-4-

To

Lord Cunliffe.

10/4/17.

Our district has now been divided into eight sub-districts
and we have twelve or fifteen hundred committees which cover all the
imnortant cities and towns in the district, these being under the supervision of committees in New York with experienced bondmen in
charge of each subdivision and on the ground.

We also have about

150 committees covering all the trades in flew York City and somewhat

smeller organizations in other cities.

Responding to the desire for

a nickname or slogan typical of this country, this trade organization
is known as the "Rainbow Division" - I suppose because of its com osite character -

and is operated under a general staff of efficient

men who are developing a tremendous enthusiasm in this organization
and whose efforts I am sure will produce wonderful results.
At a meeting at the bank to-day of the small group of men
who are really in charge of the details and ramifications of this
great organization, I was told that including college students and

other organized bodies, we probably have 100,000 salesmen at eork today in this district.

I have already signed about 15,000 letters

appointing committeemen who report directly to the bank.
We are covering the district with Posters and banners;
every newspaper and periodical will f-ve news articles, advertisements
and editorials every day on the subject of the loan from now on until
October 27th.

'orking alongside of this bank organization, we hive

gradually succeeded in coordinating what is known as the Woman's National

,i.berty Loan Organization and their committees are reaching through-

out the district along similar lines to those established by the bark.




-5-

"'o

Lord Cunliffe.

10/4/17.




-6-

To

Lord Cunliffe.

10/4/17.

Special Rates.

For notes, drafts and bills of exchange issued or dram
for the purpose of buying or carrying bonds, notes or certificates of indebtedness of the United States, and secured thereby, having a maturity at time of discount of

not more than 90 der
For trade acceptances having a m turity at tine of discount of not more than 90 days
zor one day promissory notes of member banks required
in connection with transactions involving the fiscal ororations of the Government, secured by eligible papor
or bonds, notes or certificates of indebtedneos of the
United States
2
to 4
The important rate is of course the
at 90 days secured by these bonds.

% rate for loans

I an honeful that the payments

can be handled without too great a strain on our resources but
it may well bo that our discounts and loans will this time run
over ":500,000,000 and possibly even beyond th t.
You arc about to start a considerable loan carnnaign on

you

side and of course I an anxious to get the best forecast nos-

eible as to the prebable course of your rates.

This seems Particu-

larly important at this season if we have a large movement of cotton because at the present level of rates our bunks may be inclined
to carry bills in portfolio in London and not discount them which
would, of course, imnose additional burdens unon us through locking
up that amount of free funds.
As our Government borrowings increase in volume, I am

much impressed with the importance of exchanging information with
you and your associates and hope that you will feel quite free to
cable us fully of any material change in your market.




-7-

To

Lord Cunliffe.

1C/4/17.

'Ion't you give my wamest regards to Cokayne and roman
and the some to yourself.
Faithfully yours,

Governor.
To

Lord Cunliffe,
Bank of England,
London, E. C., 2,
England.

Bs/vcit.

November 5th, 1917.

Dear Lord Cupliffe:

It war most gratifying to have your cable of congratulations
which roaches me just as t am leaving for a few weeks rest.
I am away,

T

While

are pronosing to write you a little account of our cam-

paign to place this second bond issue and also a sketch of our plans
for the future.

Veantime,

I have taken the liberty of sen,iing you

a confidential message through Lord Reading which I am sure you will
understard.

Will you permit me to intrude in a very personal matter to
say that I sincerely hone that by no possibility you will contemplate
retiring at the end of your present term.

If this war continues,

there will be many important things to be done in which your fine institution and ours will have interests in common.

Your many friends

on this side would deeply regret any change which wo..ld deprive us of

the advantages of your friendship and understanding of our affairs.
With warmest personal regaitds, believe me,
Faithfully yours,

Lord Cunliffe,
Care Bank of England,
London, W. C., England.

BS"C"
Dictated by governor Strong but
signed after his departure.



Form 2903
CLASS OF SERVICE DESIRED
Full Rate

Halrl "Deferred
Cable Letter

Week End Letter

-ark an X opposite
*Ice desired;

OTHER.
BLECIFIAMFULL RATES.
it..4 AT WILL BE

WEST
CAB

NEWCOMB CARLTON. PRESIDENT

GEORGE W. E. ATKINS, FIRST VICE-PRESIDENT

Send the following Cablegram, subject to the terms
on back hereof, which are hereby agreed to




UNION
RAM
Dec. 2%, 1q17.

:,ord Cunliffe,

Bank of %gland
London.

Warmest Christmas greetings to you and your associates.
Strong.
Charge

BSi"f^'

Benjamjn Strorr,
Federal Reserve Bank,
15 Nassau Street.

January 21, 1910.

My dear Lord Cunliffe:

I have taken the liberty of giving a note of introduction addressed to you, to any friend, Mr. John T. Pratt,

who is sailing for France this week.

Mr. Pratt is a well-known New Yorker, the son of
Mr. Charles Pratt whom you doubtless know as one time conSince the outbreak of

nected with the Standard Oil Company.

the war he has been engaged in some important work in the Department 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 appreciated.
V.ith kindest remembrances for the New Year, and

thanking you in advance, I beg to remain
Sincerely yours,

Rt. Honorable Lord Cunliffe,
Bank of England,
London, England.




B... /ILO







July 23, 1918.

tilt dear 1,ord Cunliffe:

It is >3 pleasure to receive your kind note of June 22nd,
which reacher.

ro jut ae I

fvr

utmko

ax: the,

country.

i:ore are some points in connection with the Act of 1844,
at least 4i: now appli'd to modern Waking acid flhrnos,
L.ight bc dealt Lith tu
which I vonuld unit'

pram to 110

IL is a y. v7 big subject and one upon

AP4itUrb to commit with diffidence, us r. child mit,,7t

fool totiml its mother.
That I &dmiro aly..In; your oys%om oo gmntly lo the v...almo

frou. nor

efficacy of tradition rA,

ceptp/.inated and inflexible

statutes.

T Aril

hop

to

arsmAtoga ef thaem feu uus%3 of rom.eation

by giving some spocial thought to your letter, and will write you fully in the
course of
Anything that I said you may be used without reserve, for it

will oe eased upon our oum experiences of the past four years under our now
system, somo points of which I firmly believe might be adopted by your bank
witsout ix../olv!ng any loss of tradition to the Dank of %gland, and, possibly,
without rldical change of lair.

It is a great pleasure to hear from you

and I only with that

I might have an opportunity to discuss this particular matter in person,

correspondenco being a very unsatisfactory wey of expressing one'r ideas on




2

Lord Cunliffo

7:23:18

You are most kind to send me a copy of your photograph
through rr. Hamlin, imiliah has not yot reached me, but I shall
prize it

very highly;

and to show you that I am not unappreciative, I in sending

you a copy of my own photograph, which I ;.

With warmest regards, I

h

ami,

7,incorely yours,

Rt. Honorable Lord Cunliffe,
Headley Court,
Epson, England.

BS:GB




better one.

t
Woods Hole,' Mass.,
August 10, 1918.

Dear Lord Cunliffe:

You must not think that I have overlooked your kind letter of
June 22d.

In fact, I have been m work preparing notes for a memorandum

which I hope to send you in the course of about a week.

In the meantime,

I am reciprocating your courtesy 'y sending you, under separate cover,
one of my photographs and am looking forward to having one of yours,

through

Hamlin, as you were good enough to advise me.

We are now quite busy getting ready for our next Liberty Loan,
vhich will be offered on September 28th, and will probably be for a very
large amount, possibly $6,000,000,000.

The country's enthusiasm for the

war, and its great interest in what our men are doing in France leads us
to believe that a loan, even of that great size, will be successfully
placed.

With warmest regards, I bag to remain,
Faithfully yours,

The Right Honorable Lord Cunliffe,
Headley Court,
Epsom, England,

BS.? SB







,V/d/(Y

,ba1,7




FEDERAL RESERVE BANK

OF NEW YORK

FEDERAL :-ESERVE BANK OF NEW YORK_

2

Lord Cunliffe

8.12.18.

Under the law, as originally passed, it was understood by many,

follows:

'and, possibly,

contemplated certainly
although not by the law that these

40

notes should ordinarily be issued against the security of bills and commercial

paper and that each reserve bank should maintain a gold reserve in its banking
department, in addition to the pledged collateral, equal to 40,. of the amount

of notes actually issued and outstanding.

Certain provisions in the Act,

which permitted the substitulAon of gold as collateral, in place of commercial

paper or bills withdrawn, afforded opportunity for the reserve banks, when they
were first organised, to make the note issue the means of gathering in the
floating supply of gold and of impounding the large imports of gold which took
place in the early years of the war.

Without, therefore, any true expansion

of "assets" currency, the reserve banks, during the first two and one half

years of their existence, built up an immense reserve of gold, simply by
issuing notes upon the security of gold as opportunity afforded.

These

issues were made in variouE ways, 'nut, generally, in direct exchange for gold

deposited with the reserve banks or purchased from those importing it from
abroad.

Various amendments to

Federal Reserve Act facilitated this

operation, the last amendment, in 1:=, doing away with all requirements
that national banks carry reserves in their own vaults and providing that only
deposit balances carried with the reserve banks should thereafter count as reserve.

The amount of reserves to be carried on deposit was increased by the

new law, and, in consequence, the gold reserves of the member banks were at

once very largely transferred to the reserve banks, whose notes are now used
as till money by those banks, although for National Banks) they do not count
as reserve.

Through these operations was laid the foundation of the present

strength of the reserve ban-s, which has enabled them to meet the demands of
our war financing with such ease.

Commencing in April, 1917, the reserve system began to feel the
strain of the financial operations of the Government, as well as the demands




FEDERAL RESERVE BANK OF NEW YORK..

3

Lord Cunliffe

8.12.13.

for currency, caused by rapidly advancing prices for labor and commodities.

While the gold reserves of the twelve reserve banks have been built up
to nearly i2,000,000,000, being two-thirds of the country's gold supply,

at the same time note issues hevs expanded to $1,955,000,000 and loans, dis-

counts and bills purchased to J,541,000,000.

In connection with this parwo

graph, I am transmitting a series of statements of the Federal reserve banes,
which will exhibit the growth of these various accounts from the commencement
of the system until the present tire.
out in marked contrast

This expansion of note issu ©s stands

locurrences during our Vivi' War.

Due to various

causes, in part to ignorance of sound principles of finance and to failure

promptly to levy taxes, and to the timidity of the country resulting from the
shock of civil war, our Treanury was led to issue the so-called "green-backs."

Hardly six months had paused before our Government, and practically all of the
banks of the country had suspended specie payment and from that time until
long after the oonclusior of the war, gold commanded a premium, at one time
equal to 180:, measured by the val a of our paper money or deposit balances.
Our green-backs have never been retired and are still legal tender:

The

contrast tith prevent conditions is too striking to be passed without comment.

'oe have never had a premium on gold since the war started in 1914;

there her been no lack of currency for commercial needs and we have continued
to ship gold to creditor nations, while only in recent months have such ship-

ments been subject t

necessary Government regulations.

Gold is still paid

out by our banks to their depositors if demanded and the only legal restrictions upon gold transactions are those imposed by the export embargo which
seeks to regulate and control the loss of our gold banking reserves in harmony
with our war reauirenients aid those of oLr Allies.

This statement is mode at some length in order to emphasise the point

which is so obvious in our currency situation; namely, that the infusion of this



FEDERAL RESERVE BANK OF NEW YORK...

4

Lord Cunliffe

8.12.18.

largs smountof circulating media into our banking system and into trade channels under the stimulus of rising prices and expanding loans and deposits,
is most unlikely to result in an irredeemable currency situation, because the
general contraction of business and credit succeeding the conclusion of the war

will automatically bring about a contraction of the currency circulation, and
the gold redemption fund is unquestionably adequate, unless the war should last
many years.

The note if:-sue has expanded as business demanded, and has been an

important instrument in effecting an accumulation of gold reserves.

As to your situation, I can not help but feel that a different and
not quits as sound a policy has, of necessity, been pursued.

Your currency

notes now appear to have taken a permanent place in the nation's note circulation, and, doubtless, occupy an important place in the cash reserves of the
joint stock and ravings banks.

The gold reserve maintained against them is

trifling compared to that maintained by the Bank of 4ngland in its Issue Depart-

ment, or that maintained by the reserve banks (now roughly 60 ) against combined
note and deposit liabilities.

The fact that the currency notes are secured by

interest bearing bonds, together with a deposit balance at bank and a small
gold reserve, is an explicit recognition by your Government of the urgent need
for prompt retirement of this circulation, 1/2t the question arises, will its

retirement automatically take place and how will the progress of its retirement
be governed!

It seems that this will largely depend upon the policy of your

Government in dealing with the obligations by which the currency notes are
secured.

The notes should not be retired more rapidly than the reserve condition

of your banks, the activity of your business, and the decline in the price level
will permit.

No refunding scheme for the sale of interest bearing bonds to the pubr

lie will replace in the pockets of your people, in merchants' tills, e-,d in bank re-

serves, currency which is nor required to meet demands for commercial and banking purposes.




?Iren the substitution of a balance at the Bank for the

FEDERAL RESERVE BANK OF NEW YORK

5

Lord Ounliffe

8.12.10

Government's obligations now securing the notes will be no more than a gubstitutien of one form of obligation for another form of obligation.

The

real problem will be to provide automatic retirement for these notes when
and as rapidly as their circulation is no longer required.

I an inclined to

think that the modification of your Bank Act, suggested in "B" following,

might well be combined with a plan by which the currenc> nctee would be assumed
and gradually retired by the Bank of 3ngland, or, possibly, its own notes sub,
stituted at the proper time, and the issues merged.
Unless human nature in England is quite different from human nature
in this country, the currency notes will be a menace so long as they are in
circulation.

The demand for cheap money' by ignorant people can easily be

focused upon the Government printing press, twit the conversion of the currency
notes into bank notes, with provision for automatic retirement, should antici-

pate and avoid the development.
B.

THE BANK OF ENGLAND NOTE ISSUE:

Under "A" i have roughly de-

scribed the operation of the note i511118 of the Federal reserve banks.

In

elaboration of that Isatement, it should be explained that under the law as now
emended, the note issues of the Federal reserve banks are almost, if not quite
fully, assets currency as are the notes of the Bank of France.

All of the assets

of the reserve banks are charged by law with a prior pledge to the note holders,
before other creditors can be paid, so that the physical segregation of
and gold with the Federal Keserve Agent, which is the equivalent of the establish-

ment of an Issue Department similar to that of the Bank of England, is more a
formality than a reality.

When the period of post-war liquidation

accompanied by declining prices for commodities and labor, unless the nation's
banking reserves are disturbed by heavy gold exports, it may be expected that
the liquidation of loans and deposits of the banks generally, and, in consequence, tie loan:: of the Federal reserve banks, will gradually bring about a re-

duction of deposits and note issues without disturbance to either business or



It may be a justifiable comr,lent upon the maintenance of the issue doFEDERAL RESERVE BANK OF NEW YORK__

partment of the Bank of &ngland in its present form, that its note issue was incapable of expansion like ours, to meet the needs of the war, and, had it been
capable of such expansion, doubtless some of the serious currency difficulties
of 1914, which resulted in the issue of the currency notes, would have been
avoided.

Since the outbreak of the war, the Federal Reserve Rank of New York

has aimed to keep in stock unissotee of various denominatione of no less than
$500,010,000 and the total of unissued notes parried in reserve by all the reserve

banks has been kept at about ;1,000,000,000.

The protection afforded to our

banking system by the assurance which knowledge of that fact gives to bankers
and business men has been of unaistakable value.

No such stock of notes held by

the Bank of gngland would have had similar effect upon sentiment as the ank has
ne means of putting them into circulation.
Later experience with our own system, if the war continues, risy require

a modification of these views, but, up to the present time, I believe th,t our
experience justifies a greater faith in the note issue plan of our Federal Reserve Etcy than in t',e plan of a separate department of issue without power of es-

pension, required by your Act of 1844.
the Bank of :'rligland, if operating under

Realizing, further, that the position of
law comparable to ours, would require

fortification by a great addition to its gold reserve, leads to question
C.

ARE ENLISH BA'S'KS OVila-LENDING ON TRgIR RSSTRYES?

During a

visit to England in 1914, I recall stating to some cif your bankers that it appeared
to me, and I believed to other American bankers, that the :,inglish banks as a whole

were over-trading on their gold reserves.

If the comments under paragraph "b" are

justified and the Bank of gngland should he given the power in future te expand
its note issue, then, in my opinion, no such change

law would be safe without

a greater store of gold, either in the central bank, or in the joint stock banks.




FEDERAL RESERVE BANK OF NEW YORK

7

Lord Unnliffe

8.12.13.

We have always been a nation ofstatutory minimum reserves;

gngland has never

imposed statutorl reserve restrictions upon its banks, and i should say that the
410

consequences of these dnrergant policies are, in the case of Anerican bankers,
too great a reliance upon reserves and too little upon good banking, and, in
the case of

flglish bankers, too great a reliance upon good banking and too

little upon reserves.

We have been over-supelied with reserve money, but our

banks have not kept as liquid as the if;nglish banks.

Your banking institutions

have done too large a busivass upon too slender agold reserve.
While I mm opposed no -Lea principle of independent vault reserves and

of statutory reserve requiremees, it is, possibly, fair to state, in the
light of our war experience, that the griglimh banks have not fortified teeir

central bank as much as they might, and, in order to build up the gold reserve
of the Bank of england, it might be prudent to induce or require them to suffic-

iently reduce their credits so as to enable the Bank of England to accumulate a
greater general gold reserve and this would seem to be an essential requirement
if the present restrictions of the Act of 1344 surrounding note issues are to
be removed.
D.

DEPOSITED RElinRVn.5 VS INDIV16UAL BANK RES-,IITES:

Since our

National Bank Aet was adopted in 1863, and until the Federal Reserve Act was
recently amended, all national banks in the United States had been required to
keep a considerable reserve in their cemel vaults and had been permitted to carry

a portion of their reserve on deposit winh other banks.

Most of our State

laws still require State institutions to carry reserves in their own vaults,
(which may, however, in most States, consiee of the notes of the Federal reserve
banks) and still permit a portion to be carried on deposit with other banks,
which, in most States, include the Federal reserve banks.
were undoubtedly a source of veakness in a country where branch banking was not

permitted or encouraged and resulted in our reserve being scattered among 20,000




FEDERAL RESERVE BANK OF NEW YORK

8

Lord Cunliffe

8.12.18

or more banking institutions. 7.:Jhas finally been corrected by the recent
amendments to the Federal Reserve Act so that now, as stated above, the Federal reserve banks carry reserves of nearly $2,000,000,000 of gold, available to all the principal banking institutions of the country.
bank

Over 8,000

and trust companies, including practically all the large ones, are new

members of the system.

There has recently, I understand, been a strong MOTO',

:sent in &ngland looking to the carrying of independent cash reserves by the
joint stock banks.

This, I believe, would be less objectionable with you

than in this country, owing to the mall number of commercial banks in
England;

but, on the other hand, it might retard the process of recoupera.

tion from the war strain by the Bank of Ingland4 which should be promoted
before any measures of that character are applied to your commercial banks.
In general, I think that our reserve law, and, in consequence, our reserve
position, is to-day such stronger than that of the Bank of England and of

English banks generally and that your situation would be largely corrected
by some bank liquidation which would enable the Bank of England to maintain
larger gold holdings.
E.

DOMESTIC EXCHANGES:

At the time of their establishment,

the Federal reserve banks faced difficult, and what appeared to be insur-

mountable obstacles, in overcoming the objections of the banks of the country
to a proper regulation and control of the domestic exchanges.

There are

probably 30,000 banks and bankers in the United States, large and small,
upon whom checks are drawn daily, many being sent to all parts of the country
for various settlements.

The collection of thAle checks and the adjust-

ment of the resulting balances were long subject to no fixed rule as to cost
or as to time of collection and settlement and, in consequence, many con-

fusions and dangers arose, which it was the function of the reserve oyoen
to cure.

This has at last been well started and I refer to the matter only

in order to comment upon the operation of your magnificent London Clearing



FEDERAL RESERVE BANK OF NEW YORK

Lord Cunliffe

9

8.12.1?

House and the simple and effective methods by which your collections and
exchanges are effected.

The only modification of present practice

might be suggested is possibly the establishment of a more uniform plan for
settlements between Anglish and Scotch banks so that they might be more
promptly effected and, possibly, at less cost.
F.

No department of .riglien banking has

THA LONDON BILL 'ARK T:

so influenced the development of banking in this country as has the example
of your bill market.

In every advance in this new line of American banking

your own practices and traditions have been searched and examined for a
better understanding of bow this business should be conducted and, I believe,
notably in this respect Aftlish banking leads the world and should continue
undisturbed, by regulation or restrixtion.
O.

Wig OVERDRAFT ACCOUNT:

In our National bank Act and in the

larger number of our State banking laws, provisions are now contained, most
rigorous in character, which prohibit overdrafts by depositors in banks.
In the case of the Federal lay, this is so strict that if intention can be
proved, the depositor can

visited with severe penalties.

In some States

to intentionally overdraw a bank account is a misdemeanor, punishable by imprisonment.

This is in distinct contrast with the practice of many of the

Anglish joint stock banks, which regularly grant credit to their customers on
current account or overdraft.

I firmly believe that this is a bad and danger-

ous oustom and might well be dealt with by statutory prohibition.

A ban% of

all institutions, should know when it may count upon the repayment of indebtedrness owing to it.

Furthermore, a loan of that character, which may run in-

definitely, in time takes on the nature of a capital fund in the mind of the
borrower and gradually merges into his business investment.

hile I fully

understand the CUTS which is taken by some of your bankers tosafeguard this
method of extending credit, I can not but believe that the proper regulation of
the relations between a bank and its customers can be better effected by the




FEDERAL RESERVE BANK OF NEW YORK_..lo

Lord Curliffe

6.12.15.

employment of a bill or a note, rather. than by reliance upon an inscribed ascount.
4IL

H.

RATA FIXING:

The Federal reserve Act provides that the directors

of Federal reserve banks shall fix the rates of discount for the various classes
of leans which they make, the rates so fixed being subject to review and determination by the Federal Reserve Board.
asking similar types of loans.

These rates must apply to all borrowers

The language of the statute is somewhat ambigu-

MIS as to whether the Federal Reserve Board has the power to initiate a rate.

That question has never been definitely determined, and I doubt if need for
such a determination is likely to arise.

This is a marked defect, however,

in the regional bank plan, as uniformity of rates can not well be brought about, and the influence of the central bank rate is to some extent impaired.
The influence of the rate of the Bank of Angland is so pronounced,

in fact so much nom pronounced than the rates of the Federal reserve banks,
which are so various as to different types of loans and differ rather widely between the different reserve banks, that I doubt if comparison can be made between
the practices of the two institutions.

I should hope, hoov

of your own money market, that no development would take place which would have

the effect of altering the stability and uniformity of rates now so well governed
and controlled by the Bank of Zngland.
1.

THE PAYMENT OF INTERLST TO DEPOSITORS:

Federal reserve banks

are neither authorised nor expressly prohibited by law in the matter of allowing
interest on balances.

As a natter of practice, and in view of our interpretation

of the law, it has been generally considered that we were without power to allow
any interest on deposits.

It would nullify other provisions of the la

quire us to pay all surplus income over our 6. dividend and the maintenance of
our surplus at

to the Government.

If interest were allowed, there roun,

in fact, be little or no surplus income, in which event the profits payable to

the GoverumeA, in lieu of franchise and all other taxes, would never arise.




FEDERAL RESERVE BANK OF NEW YORK__.0

Lord .':uriliffe

On the other hand, keen competition for business among our commercial banks end
10

trust companies, and the advance in the general level of interest rates, ocsasioned by the war, have led to the precLice in some parts of the country of
paying interest upon active checking abc:)uhts far beyond what banking prudence
Conditions governing this matter in Zngland have been somewhat dif-

warrants.
ferent.

The payment of high rates of interest has at times been effective in

attracting and retaining balances from abroad, and, frequently, in protecting
your market against heavy discounts of foreign: paper.

1xperierice in this country

has led us to believe that no mere subtle influence exists for the promotion of
n)

unsound banking than the competition which takes the form of allowing high rates
for deposits.

Whether brought about by the influence of the Bank of dIngland

or of your Clearing House, or, possibly, by statute, it hem seemed to me that
some regulation of the rates of interest allowed on balances by the English
banks, as well as the return by the Bank of 6ngland to its former policies in
that respect, will be required at the conclusion of the war.
J.

SlCURITY INVBSTMENTB:

The unprecedented decline in security

values since the outbreak of the war, including bonds of the highest grade, has
been a convincing argument to many American bankers that they have pursued a
hazardous policy when they have invested a considerable proportion of their deposits in long time securities.

Some of our smaller country banks have suffered

such serious shrinkages in their surplus or "rest" funds, through the decline
in the market value of their investments, that it will take many years, even
in some cases with suspension of dividend payments, to restore these accounts to
a proper proportion of capital.

The war has likewise resulted in a large ac-

cumulation of Government securities by the itnglish banks;

probably larger in

proportion than are the holdings of Government bonds by American banks.

An

understanding between your Government and the bankers looking to a liquidation of
these holdings is greatly to be desired and doubtless is already receiving consideration.



FEDERAL RESERVE BANK OF NEW YORK....

K.

The e o_
Ilr

8.12.12.

Lord Cuniiffs

VIMPETITIO" BETwIEN THe MIR& BANK AND ITS DAPOSITOAS:

provisions of the Federal Reserve Act at first led many American

bankers to conclude that the Federal reserve banks, with their iemenme resources and power, woulc'. become dangerous competitors, in varioee lines of

banking, with the very institutions which were to be the owner*, of the capital

etock, and, (outside of the Treasure) the sole depositors in the new institutions.
The feeling referred to was a parlous ebsteele to our development ie. the larger
cities, at one time, and wee held by officers of merry of the larger banks.

It

has been our effort from the outset to overcome this impression and, with the
exception of our 'Redondo dealings in the open market in the purchase of bills,
we are not in competition with out own stockholders and depositors in any department of banking.

This has not always been the case with the Eank of englaed and it

is a fair question to ask whether, if the joint stock banks are to be required
to help build up the reserves of the Bank, as suggested in paragraph "C",
and, possibly, are to be expected to maintain larger balances at the Bank,
it may not be important to consider to what extent direct competition between
the Bank of gngland and its own cliental; should

:a avoided.

An in-

telligent discussion of this subject would necessitate an examination of the

accounts of the Bank of 1ngland sue* could only be made by an officer of the
Bank.

The Rnglish Banking System has rested upon the Bank of england us upon

a rock foundation.

That foundation does not depend upon any legal require-

ment as to the maintenance If reserver with the Bank of gngland, u in the
ease of the Federal Reserve System, but tradition, the desire for mutual self-

protection and the magnificent unity of the British banking system has preserved
the Bank'e position unimpaired up to the present time.

No small part of this

is due to an illustrious record of successful and conservative manageNent by
the directors of the Peink;

but the question is now likely to arise, unlese our

information here is misleading, as to whether this gond will and tradition can



FEDERAL RESERVE BANK OF NEW YORK. ........




Lord Cunliffe

alwaee be relied unen
8. 12. 18.

monte referred to BANKth
in A
L.

practically !Ol. of o

under various limitat

only he effected betw

been a natural and ef

to amalganate and ;fe

and reducing over-com

in the United States.

incorporated banks of
savines banks.

Amal

statutory limitation,

in the nmmber of inst
ficult for new banks

where branch banking

immense siss which ha

pair the influence of
question.

Aside fro

supervision, security

danger in the develop

mining of the supremac

only meaeured by its r

stability which its p
wnrld.

In reading t
have expressed relate
war times rather than

quired, hovever, to ad

FEDERAL RESERVE BANK OF NEW YORK_...14...

Lard Cunliffe

8.12.18.

out of this war must take into account that the period of readjustment suclliceeding the conclusion of the war will, possibly, bring a greater strain and
present more novel problems in banking and finance than even those which
arose at the time of the outbreak and now confront us during the continuance
of the war.

In this respect the Federal Reserve System has had a distinct

advantage, because we wore embarking upon a new and untried enterprise, in

which defects were expected and which could only be discovered through
The amendment of a law approved by the President as recently as

perience.

December 13, 1913, naturally has not encountered such opposition as would be
aroused by changes proposed in the fundamental banking law of your country,
adopted in 1844.

Unfortunately the literature in relation to the Federal Reserve
System and its development is most limited.

managing the system have had little time to spare for the preparation of
critical works which would be of value to you and your associates in the
problems which you are now considering.

I am, however, sending you, under

separate cover, the following documents:
1.

The Federal Reserve Act, as it originally became law
December 13, 1913.

2.

All subsequent amendments to the act, as tabulated.

3.

A bill now pending in the Senate and House proposing
further amendments to the Act, known as the Phelan
Bill, the passage of which is still uncertain.

4.

A digest of the Act, prepared by Honorable C. S.
Hamlin, Member of the Federal reserve Board.

5.

The A. B. C. of the Federal Reserve System, a recent
publication by Z. W. Kemmerer, Professor of
Economies at Princeton university.

6.

All the regulations established by the Federal noserve Board which are now in effect.

7.

All of the annual reports to Congress made by the
Federal Reserve Board, which include statements
of all twelve of the Federal reserve banks.


http://fraser.stlouisfed.org/
8.
Federal Reserve Bank of St. Louis

series of statements referred to in Paragraph "A"

Those who h

FEDERAL RESERVE BANK OF NEW YORK__ is

Lord Cunliffe

8.12.18.

In conclusion, permit me to say that in no part of the world has the

Ilksh banking system a greater numb:r of friends and admirers than are to be
found in thks country;

the best evidence of which is the extent to which our

own recent banking reforms have been influenced by a study of your methods.
Possibly also it may not be out of place in closing this letter to
reaffirm tho statement which I made to you in London in 1916, to the effect that
a close alliance between the Bank of 2;ngland and the Federal Reserve System,

for which, fortunately, the foundation has now been laid, should afford protection to the banking system. of our two countries of a value that can not be
over-estimated.

Ath assurance of my esteem, and wishing you every success in your
task, I beg to remain,
Faithfully yours,

Right Honorable Lord Cunliffe,
Headley Court,
Speen, England.

BS.MSB




September ZO, 1.18.

My dear Lord Cunliffe:

Your letter of September 1st has just reached me, and I hope
that by now the photograph has also arrived.

It was sent under separate

registered cover, which, possibly, accounts for its apparent loss.

Registered mail is not always as rapid as regular mall, but if by now
the picture has not arrived, will you not please advise me, and I will
start another copy on the way.

Governor Hamlin sent me your photograph finally, and I now
adorns my room, so I am hopeful that mine may safely arrive also.
I hope that the committee on currency and foreign exchange
will permit me an opportunity to read the full text copy of its report.

The matters you are dealing with are of the greatest Interest to me
ns you must realize, and I only wish that we had opportunity to discuss them in person.

Correspondence is so exceedingly unsatisfactory,

particularly when the mails arc so slow.
your makinc;* us another visit?

Is there any possibility of

I can promise you a royal welcome

from the many friends you have on this side.
With warmest regards, believe me,
Cordially,

The Right Honorable Lord Cunliffe,
Headley Court,
Epsom, England.

BS/M3B




1

k-

December 3, 1918.
SS'

My dear Lord Ounliffe:

Your confiderAialraiarer-of October zCth reached me some time ago
and shortly afterwards the interim report, which I have read with very great
It covers matters of such great importance that I shall not attempt
interest.
to send you comments that are very much in my mind about it until I have time
to write you more fully than is possible at the moment.

I am indeed glad that that picture reached you, and hope that it
will serve as a souvonier of an association which I shall always cherish most
highly.
My respect and admiration for the great institution over which you
presided during almost the entire war period, and particularly of your own
administration of its affairs, are absolutely unbounded.
justified itself, and my sole mental reservation having to do with financial r
construction is largely resolved by the conservative and constructive characte
of the splendid report which you have now submitted.
You are doubtless experiencing the same difficulties that we are in
combating the relaxation of all classes and the desire to immediately resume
normal habits of business and private life. Our Government still requires
many billions and we will have difficulty in raising the funds without undue
expansion unless our Government makes a very tempting offer in the terms of
its next loan.

Nothing would be so helpful to me just now as opportunity for a
visit and discussion with you, not only in relation to these immediate matters,
but another and more important matter which I am sure is as much in your mind
as it is in mine.

My visit to England in 1916 was definitely inspired by a desire to
undertake the establishment of relations with the Bank at a time when such
negotiations might have been least expected. I believed then, as I believe no
that the world's future very largely depends upon the character of the understandings between your people and ours, whether, in fact, they are formal and
aovernmental, or simply social and sympathetic.

Now that the war is over - and won, to permit these two great nation
to drift apart simply because of ancient and out-worn antagonisms, or, worse,
ecause of commercial rivalry, would be a calamity of the first order.
Stupid
d selfishness would be largely to blame.
There are many of us in this coun
o are hoping that the peace conference may be the instrument for eliminating
e underlying causes of international commercial rivalry which will be a mena
happy relationships in the future.




Sheet No. 2

12/2/18.

Lori Ounliffe
04%,4

r
suiTosed
At least the banker7-- iiipf the two'dountries, who are sometimes
somewhat wider
to be endowed with more than average Intelligence and to have
duty to form partnervision than other classes of business mciik!should make it their
In
and promote discord.
ships and promote good feeling rather than stanth,apart
still have duties of
this matter, it may be that your great institution and ours
importance ahead of us.

expressions of
7ith many thanks for your kind letter and the personal
warmly reciprocate, I
regard which I shall always cherish, and which I just as
beg to remain,
iaithfully your friend,

The Right Honorable Lord Cunliffo,
Headley Jourt,
Ersom. England.

BS/M3B







Sheleff.

Lord Cunliffe

No. 2

2.5.19.

in France, and particularly in the Central Powers.

're have still immense

banking reserves untouched and after the period of liquidation and paying
debts, Which seems now to be ahead of us, our banking system will be fully
capable of assistance to the world in reconstruction matters if it is prudently
handled.

"by can't 7ngliehmen realise that if this problem is approcchad in

a friendly and cooperative spirit they ae the one nation in the world to Which
credit will be freely given here, because, after all, it is the 7,nglish busi-

nessmen end hanker that we trust.
If men of the Holden type were willing to admit the necessity of the
surrender of some pert of the business of Lombard Street to New York at the
present time;

would make the surrender grcefully and generously;

all be batter off.

re would

Americen banking would he sounder and English banking

would be able to draw on resources in this country with greet freedom.
Don't trouble to answer this letter.

I em just now indulging in a

clean up of mail, with nothing much else to do, and this is the next best
thing to having that chat of Which I really feel a great need.
with warmest regards, I om,
Sincerely yours,

The Right Honorable Lord Cunliffe,
Headley Court,
Tpsom, Tngland.

BS.!/SB

P. S.

You have undoubtedly already heard of the mnny complimentary things which




Lip' Sheet ro. 3

Lord Cunliffil

7:...Q.4760001

2.5.19.

Cll.

have been said in this country about theAreport of the committee of which
you ere chairmen.

If there are any more extended remarks or exhibits in

connection with this report which can be furnished to me privately anl in
confidence, I would




great

appreciate it.




Vank of (Ifitstith




Caith of (EN IlanA




PRIVATT & CONWIDENTIAL.

Further consideration leads to the conclusion

Clause 6.

s.




d
that 77/10, . pe
s

ounce should be substituted throughout

s d

for 77/9 and for the following reasons s
d
(1) 77/101, is the Statutory British rint nrice for

veld (i.e. the bullion value of gold), and corresponds
exactly to the United States price of y16-604(151,

While there appears to be no price in tle United
s d

States corresponding to 77/9.
(2) It is the

raininura price which the Rani: of England

receives for gold.

(3) While the Bank of 7n-land is bound to purchase
s d

(assayed and annrovod) gold at 77/9, it is only able to
do so if there are no ()Vier buyers at that nrice or at

a higher price and, in practice, only for limited
quantities:

a hifller price has frequently been paid.

(4) The accepted par of Fixehanif,13 - viz. 4.866564 -

is based upon the above bullion values of Mold of
d

s

77/10; , and 016.604651 for 'gland and the United Itate
respectively.
s d

(5) The right to take gold here at 77/9 would permit
the Federal Reserve Bank of New York to rake a profit
from shipment (excludinr expenses) even at the par of
flxchange - a prospect wl,ich can never be intended.

The fact is not overlooked that the figure of
a d

77/9 per ounce was su-ested by the Deputzr Governor in
a letter to you dated June lrth 1916, on the understanding that the correspondin,T price could be fixed
on your side, but as there ..,s in fact no corresponding

price in the United States our prelininary calculation
cannot be adopted.

Indeed on further consideration

we think that even if there were a corresponding price
in the United States, it would be :ere correct to take
the Statutory Vint price in both places, and we have
therefore little hesitation in now putting forward an
amended




4111.

It would seer that this would be the second
charge to be levied on the say e gold, if said gold were

IP

returned after be-i n:? set aside, rather than shipped.

The effect would tend to force shipment, which is
hardly the object of proposed arranTement.

Althou-h

the charge would be trade by the Assay Office and doUbt-

less against te wish of the Federal Reserve Bank of
Ilew York, it is hoped that arrangements nay have been
node to abrogate it (as is sur:-ested) and the sentence
is therefere anitted in the --,resent draft.

In view, however, of the first ehn,ree of 50e

'Which apparently cannot be avoided, it would seam that
it would suit the Bank of England to earn ark eagles
instead of bars.
The reraininp alterations which are sue rested

ray be considered as verbal, or for the sake of
clearness.

I sI all look forward to hearing fron you,

after you have had tine to consider the revised TTemoraniml,

whether you have any further modifications or additions to

su7est.
A note has been TAade that papers rust be

sent to you later for conpletion in connection with the opening
of the Account here;

also, your sumestion as to necessity of

fixing a code for use between the Bank of Tngland and your rank
has attention and I will return to those details when the
arrangerents proposed have reached a rore or less final stage
of discussion.




I al y :,

Yours faithfully,

Governor.

IPMORANWIT OP MARGIT 1016

redrafted in accordnnce with letter from The Were). Reserve
Benk of New York: dated January 18th, 1017, end further amended
by The Bank of rneland.

The following points confidentially tend tentatively agreed

upon for subnissien and retifiention by the respective institutionn,

with a view to beine put into operation after the conclusion of the

WertThe releral 2enerve renk of New York to act for itself

1.

and for such of the other eleven (11) Pederel Reserve Benks as
join the eceount.
ACCOUNTS.

2.

The Federal Reserve Bank of New York to

maintain nn eceount with the nank of Fnglnnd end vice versa.
The ec-ounts respectively to be kept free of charges

3.

end oorrnission - except as regards sotual out-of-pocket expenses.

BINS.

4.

The Bank of rnglnnd to eurchnse, as and when so

requested, prime sterling bills for aceount of the Federal
7.eserve Bank of New Yort, for the payment of which, at meturfty,

the Punk of Rneland will be responsible.

These bills to be such

es are believed to arise out of actual connerciel transactions,
to have no more than ninety (c))) days to run, exclusive of dive

of grnoe, mnd to bear the sii7nntrre of two or more responsible
711n flelerrl ReIerve !lank of

partiPa.

rev' York, Likewise, to

prrohase prim dollar bills of a similpr neture for account of
the Peril of rngland, and to be responsible for their paylent at
maturity.

Such bills to be nt the absolute disposal of the

institution for whose account the purchese is nnde in either
case.

(a) The Federal 'reserve Benk of New York would prefer that




bills purehesed for its account by the Bank of !!v and
should

Ovoid consist so far as possible of those bearing the
narles of kierioan drawers, or endorsers, so long as
this recrire-yent does not involve the acceptance of
other than Ilrino bills whieh are eligib/e for disoount

st the Bank of rnoland, and n similar policy woule be
pursued by the Federal reserve Bank of rew Yorl in
nurehnninp bills bearing the names of English drawers,
or endorsers, for the Rank of England, should it be
possible to do so.

(b) It is expected that purchases Of bills by either institution for the other will be at the emrrent market rates.
5.

INTnoTT.

When balances with the Pant of England

cannot be invested in bills, the s000unt of the Federal Reserve
flank of IftW York may be dealt with on an interest basis, at

rates to be agreed upon.
As the Federal Reserve flank of Neu York is not authorised
by lel, to allow interest on balances, balances at thee credit of

the Rank of Pngland, if they are to earn interest, must be
invested in bills.
6.

GOLD.

Subject to Clause 10 an

as below stated, the

debtor institution will, at the request of the creditor institution end so far an it conveniently can, set aside and earmark
rold on a bullion basis representing belanoes due.

such gold to

be clearly identified se to ownership.
(a) The Rank of PnI7land to earmark and set aside refined gold

bars for the Federal Reserve Rank of New York, when so

requested, end &arra its aceount at the rate of

77 shillims 10 pence nor Pnglieh standard ounce.
eleven..twelfthe fine, or

(b) When standard gold bars are not available, the Bank of

England to earnark end set nside eagles frr account of
the New York Bank at their bullion value, at that rate
of 77/10

per ounce, for the equivalent of the r-v:lish

standard of fineness, or
(o) The Rank of England to earrInrk nod set aside sovereigns



at

10

et their bullion value, at the rite of 77/10;, per ounce.
(d) Gold bsrs, or gold coin, so earmarked but not shipped, to
41)

be taken by the Pnnk of Rtrland (if returned to the
credit of the New York Banl.) at the same value at whioh

they were earnerked in the first instnnoe.

(e) It should be understood that the Federal Reserve rank of
Vew York emn.lot require the Bark of England to earmark

eagles nt bullion value in order to twort the .

n.!1,:!

realise the profit between the bullion value and face
value of American coin.

The right tr determine in the

event of shipment whether Amerienn coins shall be
shipped or not to rest with the Rank of Pngland.
The Federal Reserve Bank of New York to eermftrk end set

aside gold for the Bea of "aginnd when no requested nnd charge
its nocount on the following hosts(f) TZefined gold bars at the r' to of $18.804651 per United

Statue etanderd ounce of geld nine-tenths fine, plus
the Agony Office ohnrge of 500 per $1,000 in value if

nnd when incurred, or
(c) Sovereigns at their bullion value of $18604651 for each
ounce of gold of the United States standard, nine-tenths
fine, or

(h) Parles at their bullion vrlue of a8604651 per ounce.
(1) Gold bore, or Fold ooin, so earmnrl.ed but not shipped, to

be taken by the Pedern1 Reserve Rank (if returned to
the credit of the Pre lk of Pngland) at the ewe value at

which they were earmexted in the firet instance,
exeluding the Assny Office ohnrge nbove-mentioned whioh
will be borle by the Rank of Pngln.nd.

(j) It should be understood that the Bnnk of England cannot




require the Federal Reserve Rank of New York to

soverlims

oarinri-

at bullion value in order to inport the- and

realize the profit betwoon the bullic
value of English coin.

value and face

The right to determine, in the
event

event of shipment, whether rnglish coins shall be
'hipped or not to rest wit" the federal. Reserve Ben/
rf Vew Yon).
7.

Subject to Clnusen 6 and 10, the debtor inetitvtion to

ship gold to the creditor institution, on request, at the cost
and risk or the creditor institrtio:l.

(there gold is chipped

to the other and not at the

by one institution or its awn to

sad

request of tho other, such shipment to be at the risk
exvIense of the shipping inst.l_tution.)
8.

Gold bars earmarko,, or shipped by oither institution

to the ot"her must be suitable for ooiningl, purposes, alloy tr be

de for any vari-otions in gold

copper, and an allowance

oontents above or below the standards specified above.
9.

other

The earmarkine and shipment of the gold coins of o:ly

nation riny

be undertaken upon the heels of the value of

the fine gold contained in such coins, with deduction of an
allow/14e- to cover the cost of conversion into gold bare of

Vnglisp or
10.

American

standard respentively.

The intention of the arrangements is that all trane-

actions in gel.'? (o her than earlarked gold) between the two

institutions shall be, voluntary and upon exactly equal terms es
to oath.
11.

INPORMATIOV.

It

is

expected that

information will

be

exehanged by eorrfsspondnnee res7,eeting *Milt ,latters and

finaneial conditions.
DURATION.

The arrangerient to be enbjeet to cancella-

tion by either institution,

trfrvinetions

in Whole

or in part, excePt es to

in prooesse on notice t/y letter or cable;

beinv und ere to od that any unl Iquidated balance either

be settled in gold if so agreed.
justify

it

way may

If eirenmetalor-s require or

oa-nonoinu, operations before the conclusion of the War,

a suggestion to thot effect =wty be ma-le by either institution.
13.

It is hoped th"t the Federal reserve nen' of flew Yon]

will eventually reach en arrangement on similar lines with the



Rank

Prnt of Prmnoe, to

http://fraser.stlouisfed.org/
prorrees.
Federal Reserve Bank of St. Louis

end negotiPtionr am stresdy in




RIVATI1 & CONFIDENTIAL

Bank of England, London, E. C.

(2)

Clause 6.

Further consideration leads to the conclusion that
d

s

77/10i-per ounce should.be substituted throughout
s d
for 77/9 and for the following reasons -

it




a

(1)

77/10,i- is the 3tatutory British 'lint price for gold

(i.e. the bullion value of gold), and corresponds
exactly to the United States price of .18.604651,

while there appears to be no price in the United States
s d
corresponding to 77/9.
(2)

It is the minimum price which the Bank of England receives for gold.

(3)

While the Bank of Angland is bound to purchase (assayed
s d

and approved) gold at 77/9, it is only able to do so if
there are no other buyers at that price or at a higher
price and, in practice, only for limited quantities:
a higher price has frequently been paid.
(4)

The accepted par cr.: exchange - viz. 4.866564 - is based
s
d
upon the above bullion values of gold of 77/10 and
018.604651 for 1:1Lgland and the United States, respectively.

s d
(5)

The right to take gold here at 77/9 would permit the
Federal Reserve Bank of New York to make a profit from
shipment (excluding expenses) even at the par of exchange - a prospect which can never be intended.
s d
The fact is not overlooked that the figure of 77/9

per ounce was suggested by the Deputy Governor in a
letter to you dated June 15th, 1916, on the understanding that the corresponding price could be fixed
on your side, but as there is in fact no corresponding
price in the United States our preliminary calculations
cannot be adopted.

Indeed on further consideration

we think that even if there were a corresponding price
in the United States, it would be more correct to take
the Statutory Mint price in both places, and we have
therefore little hesitation in now putting forward an
amended figure.

(3)

Nor is it desired to hide the fact that at the price of
d
77/101 per ounce the Bank of England may be realising an apparent
s d
(say) 77/9.
profit on such gold as may have been purchased at

3ut

this apparent profit which ignores the cost of interest on gold
during minting is no more than the minimum which the Bank of England
is by statutory right entitled to retain, and would in no sense be
retained at the cost of the Federal ReservI; Bank of New York.

Clauses6, 7. 8, 9, 10.

It 13 felt that the earmarking of gold

and the shipment of gold, except as regards gold already
earmarked, should in all cases be voluntary - a view which
has already been expressed to you in correspondence.

Clause 6 (e) and (I).

The following sentences are among your
eg I :

suggestions -

gold coins which are

the limit of tolerance not to be earmarked

abraded below
or shipped if

other gold or coin is available".

These coins would be reckoned as "bullion" rather
than as "coins":

it is therefore suggested that these two

sentences may be omitted, as their object is hardly clear.

(i)

The following sentence is among your suggestions "If gold bars are returned they may be subject to a
further Assay Office charge for remelting amounting
to one dollar p, r thousand ounces, which is the
existing charge.

The iederal.Reserve Bank of New

York, however, will endeavour to have this charge
abrogated by the Assay Office and if successful will
imaediately notify the Bank of England".

Itwould seem that this would be the second charge to be levied
On the same gold, if Baia gold were returned after being set aside,
rather than shipped.

The effect would tend to force shipment, which

is hardly the object of proposed arrangement.

Although the charge

would be made by the assay Office and doubtless against the wish of
the Federal Reserve Bank of New York, it is hoped that arrangements
may have been made to abrogate it (as is suggested) and the sentence
is therefore omitted in the present draft.







(4)

In view, however, o

the first charge of 50p5 which

Form 2006

WEST
CAB
ceivedet

9111419 1:16TWAV&8111ti Stt"g4

D.17P1s.

t\

't;ra2V

/lo

R71NY FB 20

EPSOM APR 8 1917
STRONG

1660 FILEe a /

A70-74,

LENVFN (COLO)

WARMEST THANKS AND

A HEARTY WELCOME TO OUR

SPLEL.LID NEW ALLY WHOSE COOPERATION

MEANS :1YCH TO

CUNL I FFE




5A1\,1

Ls.

Ss







BAM: OF EITGLAITD,

B. C.

PRIVATE AND CMIDE72IAL
21st June, 1917.

The Governor,
Federal Reserve Bank of New York,
TTew York.

i r

:

I beg to acknowledge the receipt of your cablean to-day advising
the bank that the sum of ,',52,400,000. has been paid to !Ir. F. A. Vandorlip

at the 77ational City Bank, for which I thank you:

I assume that a clerical

or telegraphic error has been made and that the actual sun paid was

52,500,000.

"Zith reference to the cable sent you on the 5th instant, you will

of course realize that both the quotation at which Commercial Pills could be

bought and the rate at which the bank would be prepared to borrow your money
are liable to variation.

Should you at any time think of releasing part

of the ;;old earmarked with a view to employing it at interest here, on receipt

P a cable from you we shall be happy to send you further quotations.
I am,




Yours faithfully,
(Signed) Cunliffe
Governor.

inanh

if

(1410anb

London, E.C.2.
12th July, 1917.

My dear Mr. Strong.

T was of course greatly struck and delighted
at the immense sv.ccess of your Liberty Loan, and very
anxious to learn something riore than can be gleane0 fro-1

the newspapers as to how you did it.

I am therefore very grateful to you for taking
up sorry., of your valuable time in giving me such interesting

and graphic details of the arrangements for the issue and
I congratulate you most warmly on the magnificent result
of your efforts.

I can see too, if only by the rapid decline in
money rates on your side, that you have been most successful
in getting the proceeds of the loan distributed - a task
which must be infinitely greater in your vast country than
here.

I cannot, help feeling that nov you have sheen what

your Country can do in the matter of raising loans, there is
practically no limit to the amount of money you will be able
to raise, because, unlike our case, all the money will 7.(3

spent in your own country and will merely go round in a
circle.



01 r

O

Our own financial position gets no easier, in
fact the outflow of our gold has reached such alarming
proportions since rw- return here as to make me very
uneasy.

I look tack ith the greatest possible pleasure
to my visit to America and to the really extraordinary
kindness and friendship sheen to me by you all.
Hoping that your well earned rest in Denver

may refresh you and that I may have the pleasure of seeing
you here before long.
I OM,

Yours very sincerely,

BENJAMIN STRONG,
4100, MONTVIEVT BOULEVARD
DENVER,
COLORADO.




,

NK OF ENGLAND. LONDON, E.G.

27th October, 017,
Pear Mr, Strong,

Thank you very much for your note of the 4th
October and your interesting personal letter of the same date.

You certainly are leaving no stone unturned to
make a success of your new Loan, and I have not the faintest doubt
that it will be a triumph.

You understand the art of pushing things

much better in your country than we do here.

All you tell me about

your plans for avoiding the temporary locking up of money (which is
the real danger in these large loans) is particularly interesting
to me. and I am much obliged for the prosoectus of the Loan which
you enclose.

The right to allot up to one-half the amount of any

over-subscription is an ingenious and to me quite a novel idea.

Your offer to lend freely at 31% for the purpose of carrying Liberty
Loan Bonds is a bold step which ought to helm a good deal in getting
the Loan subscribed.

We have been much interested in your various
t0. grams about money rates &c. and are most anxious to reciprocate
freely in the natter of such information, but to tell the truth
there is very little to be said just now from this side.

We have

for the time being settled down into a sort of humdram state with
little to ruffle the surface of our money market.

The new National

War Bonds create hardly any disPlacament of cash, as the money goes
round continuously and is disbursed by the Government as fast as it
is collected.

If only these Bonds could be placed in sufficient

daily quantity to meet the needs of the Goverment there would be
no necessity for further heroic measures.

It is true that at the

beginning of Pecember Government will have to pay out some 50 million
sterling for interest on loans, but probably a fair proportion of
this amount will be invested in War Bonds and the balance does not
frighten me.




I am, huuever, somewhat apprehensive that the issues of

War




9

et War Bonds may not suff1ce firsr daily requirements.

A canpaign to

push them, through the "War Savings Corrdtteen, was inaugurated the

"other day, as you will probably have heard, by a. big Meeting in the
Albert Hall, and I sincerely hope that it may prove successful, but
it is easier to work up enthusiasm for a special operation than to
keep it alive for a continuous effort.
The amountoftheshort debt (Treasury Bills and

"Ways and Means" advances) is of course pretty heavy, but if the War
Bonds care for the daily expenditure we might hope for a reduction
in the short debt when the Revenue receipts become heavier in
February to April, and in that case I do not see why the internal
situation should derand any s-ecial measures or occasion any disturbance in the money market meanwhile.
The external situation is far from pleasant.

It is true that, thanks to your splendid co-operation, the American
position is no longer the bugbear that it used to be, but we continue
to inDort from nost of the world while our exports are greatly
restricted, and, as a result, not only are the exchanges in a pretty
bad state but we have been compelled to part with some gold to meet
liabilities.

I was interested to see that you have checked
the flow of gold from America ald am only sorry that so mach had gone
already to Spain and other places.

I did rey best to interfere with

such shipments as far as I was able to do so at this end, as I knew
they were contrary to your wishes, but unfortunately I was not in a
position to prevent them.

If you had been willing or conpelled to part

with more gold to

India for vireliases

there, the

plan suggested in

oul-

telegram of the 18th instant should have suited you and us very well,
and I was at first somewhat disappointed at your reply.

But having

now heard from Mr.K.eynes that you are arranging to finance your Indian

Purchases in silver, I can only congratulate you on your decision for

I am, as you know, in cordial symathy with your desire to economise
gold as far as possible.

Of course in so far as you may pay them in

silver which you buy in the market from your own or Mexican or other



Mines




Mines, the advantage to the Allies as a whole will not be very great
as you will be competing with India herself and incidentally ourselves
gird others for those supplies.

But I gather from M

may utilise some of your large silver reserves for this purpose.

This

seems to me a most excellent plan and one which I have long hoped
might be adopted.

Silver is just as useful to Ind

is not as useful to you, while it is difficult to believe that a more
favourable opportunity will recur fbr cutting the loss (as measured in
gold) on some of your silver reserves.

While writing this I have opened your Bank's
cheering telegram saying that your new loan may. reach

51000,000,000!

I am delighted to hear it is such a success and am only awaiting the
first result before telegraphing congratulations.
I sincerely hope you are keeping well and will
not overwork yourself again.

Cokayne and Nornan both join me in kindest
regards.

Yours sincerely,

Benjamin Strong, Esq.







COPY
28th Nov 17
Bank of England
Dear Mr. Strong
I
.m indeed sorry to learn from your letter of 5th inst. that the
huge amount of work that you have had to do in connection with your gigantic
loan has been too great a strain and that you have been compelled to take a

rest.

lthough I have seen Lord Reading several times he has not so far given
me your message and I must remind him of it on his return from Paris and in
the mean time I think you most cordi,lly for the very kind expression of
your confidence and can assure you that the fact of ceasing to be Governor
of this Bank will not in any way interfere ,iith the very happy and cordial
relations which exist between the two Banks.
On the other hand I hope it may strengthen[?] them as I would propose
taking another trip to your side at the end of April as soon as my time
is up here that is if you can find me useful employments for a few weeks.
It will be strange to find oneself one of the unemployed after 4/5 years
of fairly strenuous work but there ill be many compensations not the least
of which will be the chance of peeing you all again.

Hoping to hear soon of your complete recovery




Yours very truly
[signed] Cunliffe

COPY
411.

Private + Confidential

5th J.,ny 19

Headley Court, Epsom.

10

Dear Mr. Strong

Your letter of
3rd Dec reached me some days since but lat
not been quite in my usual health and having in one way or L..nother a good
deal on hand I have been more than usually lazy over my correstondence.
I wish I still had some of your vitality + keenness but the fact is
I am growing old and begin to feel it.
It is probably that same old age creeping on that makes me pessimistic
und anxious as to the future but I am indeed nervous as to the outcome of all
this enormous credit inflation fld huge floating debt.
I Lm convinced you are right and that there is little to fear if our
two nations pull together and share as maybe the finance of the world but I
am forever meeting that green eyed monster jealousy wandering around and I
fear trouble.
If I am not mistaken there are signs that all is not well even in
Banking circles but I do trust that as yet it has not reached the Bank of
11 and everything during the next 5/10 years depends on our being
England.
able to;trade and finance together as friendly competitors certainly[?) but
without nasty jealousy and I do pray that I ,m wrong and that there are no
signs of the latter.
Trusting that we may meet again before very long.

Yours truly
[signed) Cunliffe

Mr. Benjamin Strong

[Stamped(' Filing Dept. Mar. 5 1919 Federal Reserve BIlk







Atr-2,-e_t_i_ic..
/r/V14, 744
C-(4,44: Ga

PYr

/31s-

/--e

cire-24.
ez-4-17 Airt7
4elyiet--y Cos-g-1

4,e,/e.

A/(4 oef..

'4444-11":y

14.17,/}4.0.6a

/4.4
401/1.1.4;04

k71,1;t,

e.cir

r-co

k;

liL1,'. 1/;

%Gt-O.

ee.41.% 11.1 /7'1,4 11/17-LZ
14.

/64.416

Atit:ar-p-

1-,:-/-1

"tc
,ItG01,4-fi-z4-0
Vor_cos_3

fl.
4e-e- Ace.c

44-

f

iti-44;4

dee°2`4

zfe.<4.0-s.

G4e-tif



ee-)04--/e-441.

Vault of 641410
11:010011,EC

2

9th February, 1918.

My dear Mr.Strong,

Many thanks for your letter of the
21st ultimo, and I shall he delighted to welcome your
f2iend, Mr. John T.Pratt, and do anything for him that

is possible, but I expect he has so many friends
already on this side that he will need for nothing.

However I shall he very pleased to
see Mr.Pratt and hear the news of you and all my many
friends in the States./

Hoping to see you myself before
very lone,

Yours very sincerely,

BPTJAMITT STRONG, ESQ.,

FEDERAL RESERVE HPTY Or NEW YORK
NEW YORK,



U.S.A.

PRIVATE AND CONFIDENTIAL

C

C

Headley Court
Epsom
22nd June 1918

P

Dear Mr. strong
The Government have appointed me Chairman of a Committee on Currency
and Foreign Exchanges including in the reference any matters connected with
the Bank of England or other Banks that it might be desirable to reconstruct.
We have already examined many witnesses but though there has been
considerable discussion in the newspapers and some rather pressing demands
for the repeal of the Act of 1844, I must say that as yet no evidence has
been placed before us that would go far to prove that any very drastic alterations
are imperative. On the contrary, almost all those in favour of great and farreaching reforms have broken down under examination and though some reforms are
no doubt needed, yet I believe it to be the opinion of the Committee that the
old Bank Act of 1844 has stood the strain fairly well.
Of course, as you are very fully aware, a certain amount of licence
has been taken at times, and even perhaps rules and regulations broken, but
that has little to do with the Act of 1844 which every one harps on; and, in
my opinion, the alterations will have to be made in some of the fetters that
have from time to time been imposed on the Bank.
Now as you are the great authority on your side I should very much
value your views and suggestions for I know what a keen interest you take in
our Banking propositions and have little doubt but that you have noted several
of our imperfections or faults.
Anything you may tell me I will, if you wish it, regard in the
strictest confidence but, of course, if I might use your name it would add
greatly to its importance.
Hoping for many good and important suggestions
Believe me
Yours very truly
(signed)

CUNLIF7E

I fear you never asked me for my photograph but any way I sent you one by Mr.
Hamlin as a little memento of all your goodness to me last year.




C




4Ge444-z-s-

fre0,7fra <04_

..e-a

Aro--s.egeo,

5Z--/-4, A
frf-s-4ve

/1-4

14Z

/7-1dAesz.

"40 G4,11 1 CSC

APCI-4-G4 GIA L

/.

1-4;0-cie

4- A-

La/4-7-14-a6*4 A/aZ

#44. leiaa

ig-414-

/r-te-41-

4 /44
u 9 40/4-e.", Peki.
it4efttia,

4-40//x-J,7,4-

tow

/4,4.

Aesc44,

1u4c, AL, l

Li

rge-ix-sj
47:1-4

.4.Ac
his1Z-410-4/,4;7-g--:!

Offer-4-il i

frf-L4-

9.4~.

*-00-ile-e-

A-z-

Aitpc4Lr.7"-ry
:-""4

fr$ hor,/tede5-kuele-4-

LI%

/14 owe .1
Digitized -.(;C
for FRASER


4.

af he;
" l o g.4

.-)e-r.,

CURRENCY AND FOREIGN EXCHANGES',:,

-

FIRST INTERIM REPORT
OF THE

COMMITTEE ON CURRENCY AND FOREIGN

EXCHANGES AFTER THE WAR

Presented to Parliament by Command of His Majesty.

LONDON:

PUBLISHED BY HIS MAJESTY'S STATIONERY OFFICE.
To be purchased through any Bookseller or directly from

H.M. STATIONERY OFFICE at the following addresses:
IMPERIAL HOUSE, KINGSWAY, LONDON, W.C.2, and 28. ABINGDON STREET, LONDON, S.W.1;
37, PETER STREET, MANCHESTER; 1, ST. ANDREW'S CRESCENT, CARDIFF;
23, FORTH STREET, EDINBURGH ;
Or from E. PONSONBY, LTD., 116, GRAFTON STREET, DUBLIN.
1918.

[Cd. 9182.]

Price 2d. Net.










4

confronted with an increase of interest charges, if not with actual difficulty in renewing loans, and with
the prospect of falling prices, tended to press their goods on a weak market. The result was a decline in
general prices in the home market which, by checking imports and stimulating exports, corrected tip
adverse trade balance which was the primary cause of the difficulty.
6. When apart from a foreign drain of gold, credit at home threatened to become unduly expanded, the
old currency system tended to restrain the expansion and to prevent the consequent rise in domestic prices
which ultimately causes such a drain. The expansion of credit, by forcing up prices, involves an increased
demand for legal tender currency both from the banks in order to maintain their normal proportion
of cash to liabilities and from the general public for the payment of wages and for retail transactions.
In this case also the demand for such currency fell upon the reserve of the Bank of England, and the Bank
was thereupon obliged to raise its rate of discount in order to prevent the fall in the proportion of that reserve
to its liabilities. The same chain of consequences as we have just described followed and speculative trade
activity was similarly restrained. There was therefore an automatic machinery by which the volume of
purchasing power in this country was continuously adjusted to world prices of commodities in general..

Domestic prices were automatically regulated so as to prevent excessive imports; and the creation of .banking
credit was so controlled that banking could be safely permitted a freedom from State interference which
would not have been possible under a less rigid currency system.
7. Under these arrangements this country was provided with a complete and effective gold standard.
The essence of such a standard is that notes must always stand at absolute parity with gold coins of
equivalent face value, and that both notes and gold coins stand at absolute parity with gold bullion. When
these conditions are fulfilled, the foreign exchange rates with all countries possessing an effective gold
standard are maintained at or within the gold specie points.
CHANGES WHICH HAVE AFFECTED THE GOLD STANDARD DURING' THE WAR.

It will be observed that the fall in a number of the foreign exchanges below the old export specie
points which has taken place since the early part of 1915* is not by itself a proof that the gold standard has
broken down or ceased to be effective. During the present war the depredations of enemy submarines, high
8.

freights, and the refusal of the Government to extend State insurance to gold cargoes have greatly

increased the cost of sending gold abroad. The actual export specie point has, therefore, moved a long way
from its old position. In view of our enormous demands for imports, coupled with the check on our exports
due to the war, it was natural that our exchanges with neutrals should move towards the export specie point.
Consequently, the fall in the export specie point would by itself account for a large fall in our exchange rates.
Such a fall must have taken place in the circumstances, even though all the conditions of an effective gold
standard had been fully maintained.
9. The course of the war has, however, brought influences into play in consequence of which the
gold standard has ceased to be effective. In view of the crisis which arose upon the outbreak of war
it was considered necessary, not merely to authorise the suspension of the Act of 1844, but also to empower
the Treasury to issue currency notes for one pound and for ten shillings as legal tender throughout the
United Kingdom. Under the powers given by the Currency and Bank Notes Act, 1914, the Treasury undertook to issue such notes through the Bank of England to bankers, as and when required, up to a maximum
limit not exceeding for any bank 20 per cent. of its liabilities on current and deposit accounts. The
amount of notes issued to each bank was to be treated as an advance bearing interest at the current bank rate.
10.

It is not likely that the internal demand for legal tender currency which was anticipated at

the beginning of August,. 1914, would by itself have necessitated extensive recourse to these provisions.
But the credits created by the Bank of England in favour of its depositors under the arrangements by
which the Bank undertook to discount approved bills of exchange and other measures taken about the
same time for the protection of credit caused a large increase in the deposits of the Bank. Further, the

need of the Government for funds wherewith to finance the war in excess of the amounts raised by
taxation and by loans from the public has made necessary the creation of credits in their favour with the

Bank of England. Thus, the total amount of the Bank's deposits increased from, approximately, £56,000,000
in July, 1914, to £273,000,000 on the 28th July, 1915, and, though a considerable reduction has since been
effected, they now (15th August) stand as high as £171,870,000. The balances created by these operations
passing by means of payments to contractors and others to the joint stock banks have formed the foundation of a great growth of their deposits which have also been swelled by the creation of credits in connection
with the subscriptions to the various War Loans.t Under the operation of these causes the total deposits

of the banks of the United Kingdom (other than the Bank of England) increased from £1,070,681,000
on the 31st December, 1913, to £1,742,902,000 on the 31st December, 1917.
11. The greatly increased volume of bank deposits, representing a corresponding increase of purchasing power and, therefore, leading in conjunction with other causes to a great rise of prices, has brought

In the abnormal circumstances at the outbreak of war the neutral exchanges moved temporarily in our favour owing to the
remittance home of liquid balances from foreign countries and the withdrawal of foreign credits.

I' This process has had results of such far-reaching importance that it may be useful to set out in detail the manner in which
it operates. Suppose, for example, that in a given week the Government require £10,000,000 over and above the receipts from
taxation and loans from the public. They apply for an advance from the Bank of England, which by a book entry places the

amount required to the credit of Public Deposits in the same way as any other banker credits the account of a customer
when he grants him temporary accommodation. The amount is then paid out to contractors and other Government
creditors, and passes, when the cheques are cleared, to the credit of their bankers in the books of the Bank of England-in
other words is transferred from Public to " Other " Deposits, the effect of the whole transaction thus being to increase by

£10,000,000 the purchasing power in the hands of the public in the form of deposits in the Joint Stock Banks and the bankers'
cash at the Bank of England by the same amount. The bankers' liabilities to depositors having thus increased by £10,000,000
and their cash reserves by an equal amount, their proportion of cash to liabilities (which was normally before the war something
under 20 per cent.) is improved, with the result that they are in a position to make advances to their customers to an amount
equal to four or five times the sum added to their cash reserves, or, in the absence >f demand for such accommodation, to
increase their investments by the difference between the cash received and the proportion they require to hold against the
increase of their deposit liabilities. Since the outbreak of war it is the second procedure which has in the main been followed,
the surplus cash having been used to subscribe- for Treasury Bills and other Government securities. The money so subscribed
has again been spent by the Government and returned in the winner above described to the bankers' cash balances, the process
being repeated again.aud again until each £10,000,000 originally advanced by the Bank of England has created new deposits
representing new purchasing power to several times that amount. Before the war these processes, if continued; compelled the
Bank of England, as explained in paragraph 6, to raise its rate of discount, but, as indicated below, the unlimited issue of
Currency Notes has now removed this check upon the continued expansion of credit.




5

about a corresponding demand for legal tender currency which could not have been satisfied under the
460ringent provisions of the Act of 1844. Contractors are obliged to draw cheques against their accounts
rder to discharge their wages bill-itself enhanced on account of the rise of prices. It is to provide
t is currency that the continually growing issues of Currency Notes have been made. The Banks instead
of obtaining notes by way of advance under the arrangements described in paragraph 9 were able to pay for
them outright by the transfer of the amount from their balances at the Bank of England to the credit of the
Currency Note Account and the circulation of the notes continued to increase. The Government subsequently, by substituting their own securities for the cash balance so transferred to their credit, borrow
that balance. In effect, the banks are in a position at will to convert their balances at the Bank of
England enhanced in the manner indicated above into legal tender currency without causing notes to be
drawn, as they would have been under the pre-war system, from the banking reserve of the Bank of England,
and compelling the Bank to apply the normal safeguards against excessive expansion of credit.

thus continually being issued, not, as formerly, against gold, but
Plainly, given the necessity for the creation of bank credits in favour
of the Government for the purpose of financing war expenditure, these issues could not be avoided.
If they had not been made, the banks would have been unable to obtain legal tender with which to meet

Fresh legal tender currency

is

agaiiist Government securities.

cheques drawn for cash on their customers' accounts. The unlimited issue of currency notes in exchange
for credits at the Bank of England is at once a consequence and an essential condition of the methods which
the Government have found necessary to adopt in order to meet their war expenditure.
12. The effect of these causes upon the amount of legal tender money (other than subsidiary coin)
in bank reserves and in circulation in the -United Kingdom are shown in the following paragraph.
13. The amounts on the 30th June, 1914, may be estimated as follows :...
...
...
...
£18,450,000 ...
Fiduciary Issue of the Bank of England ...
...
...
Bank of England Notes issued against gold coin or bullion ...
£38,476,000
Estimated amount of gold coin held by Banks (excluding gold coin held in the Issue
...
Department of the Bank of England) and in public circulation ...
... £123,000,000
Grand total

...

:-

The corresponding figures on the 10th July, 1918, as nearly as they can be estimated, were
Fiduciary Issue of the Bank of England ...
£18,450,000
Currency Notes not covered by gold
£230,412,000

Total Fiduciary Issues ...

...

Bank of England Notes issued against coin and bullion ...
Currency Notes covered by gold ...
...
...
...
:
Estimated amount of gold coin held by Banks (excluding gold coin held by Issue
Department. of Bank of England), say
...
...
...
...
...
...

Grand total

...

£248,862,000
£65,368,000
...
£28,500,000
£40,000,000
£382,730,000

There is also a certain amount of gold coin still in the hands of the public which ought to be added to
the last-mentioned figure, but the amount is unknown.

14. As Bank of England notes and currency notes are both payable at the Bank of England in gold
coin on demand this large issue of new notes, associated, as it is, with abnormally high prices and unfavour-

able exchanges, must have led under normal conditions to a rapid depletion, threatening ultimately the
complete exhaustion, of the Bank's gold holdings. Consequently, unless the Bank had been prepared to see
all its gold drained away, the discount rate must have been raised to a much higher level, the creation of
banking credit (including that required by the Government) would have been checked, prices would have
fallen and a large portion of the surplus notes must have come back for cancellation. In this way an effective
gold standard would have been maintained in spite of the heavy issue of notes. But during the war conditions
have not been normal. The public are content to employ currency notes for internal purposes, and, notwithstanding adverse exchanges, war conditions interpose effective practical obstacles against the export of
gold. Moreover, the legal prohibition of the melting of gold coin, and the fact that the importation of gold

bullion is reserved to the Bank of England, and that dealings in it are limited have severed the link which
formerly existed between the values of coin and of uncoined gold. It is not possible to judge to what extent
legal tender currency may in fact be depreciated in terms of bullion. But it is practically certain that there
has been some depreciation, and to this extent therefore the gold standard has ceased to be effective.
RESTORATION OF CONDITIONS NECESSARY TO THE MAINTENANCE OF THE GOLD STANDARD RECOMMENDED.

15. We shall not attempt now to lay down the precise measures that should be adopted to deal with
the situation immediately after the war. These will depend upon a variety of conditions which cannot be
foreseen, in, particular the general movements of world prices and the currency policy adopted by other
countries. But it will be clear that the conditions necessary to the maintenance of an effective gold standard
in this country no longer exist, and it is imperative that they should be restored without delay. After the
war our gold holdings will no longer be protected by the submarine danger, and it will not be possible
indefinitely to continue to support the exchanges with foreign countries by borrowing abroad. 'Unless the
machinery which long experience has shown to be the only effective remedy for an adverse balance of trade
and an undue growth of credit is once more brought into play, there will be very grave danger of a credit
expansion in this country and a foreign drain of gold which might jeopardise the convertibility of our note
issue and the international trade position of the country. The uncertainty of the monetary situation will
handicap our industry, our position as an international financial centre will suffer and our general commercial
status in the eyes of the world will be lowered. We are glad to find that there was no difference of opinion 1
among the witnesses who appeared before us as to the vital importance of these matters.
The notes issued by Scottish and Irish banks which have been made legal tender during the war have not been included in the
foregoing figures. Strictly the amount (about £5,000,000) by which these issues exceed the amount of gold and currency notes held
by those banks should be added to the figures of the present fiduciary issues given above.
18643




A3

,

6
CESSATION OF GOVERNMENT BORROWINGS.

16. If a sound monetary position is to be re-established and the gold standard to be effectively ma
tqined, it is in our judgment essential that Government borrowings should cease at the earliest possir
moment after the war. A. large part of the credit expansion arises, as we have shown, from the fact that
the expenditure of the Government during the war has exceeded the amounts which they have been able to
raise by taxation or by loans from the actual savings of the people. They have been obliged therefore to
obtain money through the creation of credits by the Bank of England and by the Joint Stock Banks, with the
result that the growth of purchasing power has exceeded that of purchasable goods and services. As we
have already shown, the continuous issue of uncovered currency notes is inevitable in such circumstances.
This credit expansion (which is necessarily accompanied by an evergrowing foreign indebtedness) cannot
continue after the war without seriously threatening our gold reserves and, indeed, our national solvency.
17. A primary condition of the restoration of a sound credit position is the repayment of a large
portion of theme enormous amount of Government securities now held by the Banks. It is essential, that

as soon as possible the State should not only live within its income but should begin to reduce its

indebtedness. We accordingly recommend that at the earliest possible moment an adequate sinking fund
should be provided out of revenue, so that there may be a regular annual reduction of capital liabilities.
more especially those which constitute the floating debt. We should remark that it is of the utmost importance that such repayment of debt should not be offset by fresh borrowings for capital expenditure. We are
aware that immediately after the war there will be strong pressure for capital expenditure by the State in
many forms for reconstruction purposes. But it is essential to the restoration of an effective gold standard
that the money for such expenditure should not be provided by the creation of new credit, and that, in so far
as such expenditure is undertaken at all, it shiyuld be undertaken with great caution. The necessity of
providing for our indispensable supplies of food and raw materials from abroad and for arrears of repairs to
manufacturing plant and the transport system at home will limit the savings available for new capital
expenditure for a considerable period. This caution is particularly applicable to far-reaching programmes of
housing and other development schemes.
The shortage of real capital must be made good by genuine savings.

It cannot be met by the creation
of fresh purchasing power in the form of bank advances to the Government or to manufacturers under
Government guarantee or otherwise, and any resort to such expedients can only aggravate the evil and
retard, possibly for generations, the recovery of the country from the losses sustained during the war.
USE OF BANK OF ENGLAND DISCOUNT RATE.

18.

Under an effective gold standard all export demands for gold must be freely met. A further

essential condition of the restoration and maintenance of such a standard is therefore that some machinery
shall exist to check foreign drains when they threaten to deplete the gold reserves. The recognised
machinery for this purpose is the Bank of England discount rate. Whenever before the war the Bank's
reserves were being depleted, the rate of discount was raised. This, as we have already explained, by
reacting upon the rates for money generally, acted as a 'check which operated in two ways. On the one

hand, raised money rates tended directly to attract gold to this country or to keep here gold that might
have left. On the other hand, by lessening the demands for loans for business purposes, they tended to
check expenditure and so to lower prices in this country, with the result that imports were discouraged
and exports encouraged, and the exchanges thereby turned in our favour. Unless this two-fold check
is kept in working order the whole currency system will be imperilled. To maintain the connection between
a gold drain and a rise in the rate of discount is essential to the safety of the reserves. When the exchanges
are adverse and gold is being drawn away, it is essential that the rate of discount in this country should
be raised relatively to the rates ruling in other countries. Whether this will actually be necessary immediately after the war depends on whether prices in this country are then substantially higher than gold
prices throughout the world. It seems probable that at present they are on the whole higher, but, if credit
expansion elsewhere continues to be rapid, it is possible that this may eventually not be so.
CONTINUANCE OF DIFFERENTIAL RATES FOR HOME AND FOREIGN MONEY NOT RECOMMENDED.

19. It has been argued before us that during the period of reconstruction and perhaps for many
years afterwards it will be possible and desirable, even though the exchanges are adverse, to keep money
for home industry substantially cheaper in this country than it is abroad and yet retain an effective gold
standard by continuing the present practice of differentiating between home money and foreign money.
It is held that relatively low rates should be offered for home money and charged on domestic loans, while
gold is at the same time prevented from going abroad by the offer of high rates for foreign money. In
our judgment, so soon as the present obstacles in the way of international intercourse are removed, any
attempt to maintain this differentiation must break down because it would be impracticable to prevent people
from borrowing at the low home rate and contriving in one way or another to re-lend at the high foreign
rate. This could only be prevented, if at all, by the maintenance of such stringent restrictions upon the
freedom of investment after the war as would, in our opinion, be most detrimental to the financial and
industrial recovery of this country. Even, however, if differentiation, as a post-war policy, were practicable, it would not, in our judgment, be desirable. For the low home rate, by fostering large loans and
,o keeping up prices would continue to encourage imports and discourage exports; so that, even though the
high rate offered for foreign money prevented gold from being drawn abroad, it would only do this at the
cost of piling up an ever-growing debt from Englishmen to foreigners. It would be necessary at the
same time to continue to pay for our essential imports of raw materials by borrowing in the United States
and elsewhere, instead of by increasing our exports, thus imposing further burdens of foreign debt. This
process could not continue indefinitely, and must sooner or later lead to a collapse. We are, therefore, of
opinion that the need for making money dear in the face of adverse exchanges cannot, and should not.
be evaded by resort to differential rates.
LEGAL LIMITATION OF NOTE ISSUE NECESSARY.

20. The foregoing argument has a close connection with the general question of the legal control of the
note issue. It has been urged in some quarters that in order to make possible the provision of a liberal

supply of money at low rates during the period of reconstruction further new currency notes should be




them created, with the object of enabling banks to make large loans to industry without the risk of finding themIt is plain that a policy
elves
elves short of cash to meet the requirements of the public for legal tender money.
this kind is incompatible with the maintenance of an effective gold standard. If it is adopted there will
no check upon tne outflow of gold. Adverse exchanges will not be corrected either directly or indirectly
through a modification in the general level of commodity prices in this country. On the contrary, as the
issue of extra notes stimulates the conditions which tend to produce an advance of prices, they will become
steadily more and more adverse. Hence the processes making for the withdrawal of our gold will continue
and no counteracting force will be set in motion. In the result the gold standard will be threatened with
destruction through the loss of all our gold.
21. The device of making money cheap by the continued issue of new notes is thus altogether incompatible with the maintenance of a gold standard. Such a policy can only lead in the end to an inconvertible
paper currency and a collapse of the foreign exchanges, with consequences to the whole commercial fabric
of the country which we will not attempt to describe. This result may be postponed for a time by restrictions
on the export of gold and by borrowing abroad. But the continuance of such a policy after the war can

r-

only render the remedial measures which would ultimately be inevitable more painful and protracted.
No doubt it would be possible for the Bank of England, with the help of the Joint Stock Banks, without
any legal restriction on the Note Issue, to keep the rate of discount sufficiently high to check loans, keep
down prices, and stop the demand for further notes. But it is very undesirable to place the whole responsibility upon the discretion of the banks, subject as they will be to very great pressure in a matter of this
kind. If they know that they can get notes freely, the temptation to adopt a lax loan policy will be very
great. In order, therefore, to ensure that this is not done, and the gold standard thereby endangered, it is,
in our judgment, imperative that the issue of fiduciary notes shall be, as soon as practicable, once more
j
limited by law, and that the present arrangements under which deposits at the Bank of England may be
exchanged for legal tender currency without affecting the reserve of the Banking Department shall be
terminated at the earliest possible moment. Additional demands for legal tender currency otherwise than
' in exchange for gold should be met from the reserves of the Bank of England and not by the Treasury, so
that the necessary checks upon an undue issue may be brought regulally into play. Subject to the
transitional arrangements as regards currency notes which we propose in paragraphs 43 to 46, and to any
special arrangements in regard to Scotland and Ireland which we may have to propose when we come to
deal with the questions affecting those parts of the United Kingdom, we recommend that the Note Issue
(except as regards existing private issues) should be entirely in the hands of the Bank of England ; the
notes should be payable in gold in London only, and should be legal tender throughout the United Kingdom.
MACHINERY FOR THE CONTROL OF THE NOTE ISSUE.

22.

So far we have addressed ourselves to the principles upon which the retention and main-

tenance of an effective gold standard depend. We have now to consider the particular machinery in regard
to the control of the Note Issue by which the observance of these principles can most effectively be secured,
and what modification (if any) may be desirable or permissible in the system in force before the war.
23. We would in the first place observe that, while the obligation to pay both Bank of England notes
and currency notes in gold on demand should, in our judgment, be maintained, it is not necessary for the

maintenance of an effective gold standard, nor do we think it desirable, that there should be an early
resumption of the internal circulation of gold coin. For the present at any rate we think that it will be
more economical that gold should be held in a central reserve as a backing for notes in circulation. We do

not think that any legislation on this subject will be required. People have by now become fully accustomed
to the use of notes, and it is probable that (except for the limited requirements of persons proposing to travel
abroad) they will continue to circulate instead of gold coin much as they do at present. Informal action
on the part of the banks may be expected to accomplish all that is required. If necessary, however, the
circulation of gold coin could be prevented by making the notes convertible at the discretion of the Bank

of England either into such coin or into bar gold, though for our own part we should prefer to maintain
the right of the noteholder to receive payment in gold coin and to trust to the informal steps suggested above
to prevent gold from flowing into internal circulation.
24. Secondly, while it is a necessary condition of an effective gold standard that the import of gold
should be free from all restrictions, it is not necessary to allow gold coin or bullion obtained otherwise than
from the Bank of England to be exported. In view of the fact that it is convenient that the Bank of England
should have cognizance of all gold exports, we think it desirable that the export of gold coin or bullion should

be subject to the condition that such coin or bullion has been obtained from the Bank for the purpose.

Manufactured gold should be deemed to be bullion unless it is in the form of articles containing a prescribed

fashion value (say of 10 per cent.). The Bank should be under obligation to supply gold for export in
exchange for its notes. These conditions will be sufficient to enable parity to be maintained between
currency and bullion, since importers of gold will be free to sell it either in the market or to the Bank of
England.

25. Thirdly, in view of the withdrawal of gold from circulation, it is, we think, desirable that the gold
reserves of the country should be held by one central institution, and we recommend therefore that all banks

should transfer any gold now hel& by them to the Bank of England, except such small amounts as they
may require to keep for the convenience of travellers.
In our opinion, the prohibition against the melting of gold coin should for the present be maintained.

26. We have carefully considered various proposals that have been laid before us as regards the

basis upon which the fiduciary note issue should in future be fixed. It has been urged that the raising of
the discount rate by the Bank of England may be delayed too long to check effectively an undue expansion of
credit, and that under the rigid restrictions of the Act of 1844 a famine of legal tender money might ensue.
Crises of this nature necessitating the suspension of the Act arose in 1847, 1857, and 1866, and on the first
two occasions notes were actually issued by the Bank in excess of the maximum authorised by law. On
this ground mainly it has been urged tliat these rigid restrictions ought to be transformed into something
more elastic. To this end the following principal proposals, either separately or in combination, have been
put before us by various witnesses :epartment of the Bank of England should be amalgamated ;
tes, instead of being required to be covered £ for £ by gold, should










I

9

to be temporarily suspended on certain rare and exceptional occa
irears of the Act's this conclusion.experience of working the syste
ion, invalidate operation when We recommend, therefore, t
king Departments of the Bank of England should be maintained
continue to be published in its present form.

MODIFICATION OF PROVISIONS OF ACT OF 1844 IN RESPECT OF ISSUE OF EM

33. This conclusion, however, has not prevented us from consi
modifying the Act of 1844 as to make provision for the issue of em
difficulty. It might, no doubt, be sufficient to leave matters as the
possibility of the law having to be broken, subject to indemnity from
share the objections which have been expressed in many quarters to th
opinion that the provisions of Section 3 of the Currency and Bank No

of England may, with the consent of the Treasury, temporarily issue no
be continued in force. It should be provided by statute that Parliam
any action taken by the Treasury under this provision by means of a T
before both Houses. The statute should also provide that any profits
be surrendered by the Bank to the Exchequer. It will, of course, be n

raised to, and maintained at, a figure sufficiently high to secure th

excess issue.

34. In connection with these emergency arrangements we have c
which shoilld be held by the joint stock banks quite apart from their no

As we do not contemplate a resumption of the internal circulation o
served by their accumulating gold which can be more effectively em
maintaining the exchanges and supporting the note issue. We have co
be required to hold a certain proportion of their deposits in the form
dated Government Securities, which, in the event of a crisis, mig
England and form the basis of an issue of emergency currency, if req
that such reserves should be held, we have come to the conclusion tha
any legal regulation of the matter. Our attention has, however, bee
of Bankers have recommended that banks should in future be requi
in the form of Appendix I. to this Report showing the average of the
month. We entirely concur in this recommendation and we suggest t
amplified by the addition after " money at call and at short notice " of

maturing within 12 months." If this is done, we think that the consequ
to secure the object whicb we have in view.

AMOUNT OF FIDUCIARY NOTE ISSUE AND GOLD

Having come to the conclusion that the amount of the fiduci
said in paragraph 33, be fixed by law at some definite amount, we h
fiduciary issue ought to be.
Assuming the restoration of an effective gold standard, and given t
practice and the customs of the public as regards the use of currency,
(other than subsidiary coin) which can be kept in circulation, includin
35.

and the Banking Department of the Bank of England, will determin
currency becomes redundant, the rate of discount will fall, and prices
exchange for gold for export and the volume of the currency will be r
hand, the supply of currency falls below current requirements, the rate
gold will be imported and new notes taken out in exchange for it.
36. -Under the arrangements which we contemplate virtually the w
the country will be held in a central reserve at the Bank of England ; a
in which we are using the term, will consist (apart from the subsidiar
consider) in part of fiduciary notes and, as regards the balance, of notes
circulation-being automatically determined, it will follow that the high
issue the lower will be the amount of the covered issue and, conseque
vice versa, while, if the fiduciary issue were fixed at a figure which
requirements of the country for legal tender currency, the covered issue
would disappear altogether. It is clear, therefore, that the amount of
a figure low enough to make sure, not merely that there will always be s
always be a covered issue of sufficiently substantial amount to secure tha
the central reserve never falls so low as to give rise to apprehension as
37.

If the post-war requirements proved to be no larger than

£180,000,000, exclusive of subsidiary coin, as shown in paragraph 13)
issue of £249,000,000 would have to be reduced by £69,000,000 befo
central reserve at all. Evenoupon the supposition that the policy of su
that reserve is completely successful, in order to have a central gold re
issue would have to be reduced to £80,000,000 and, even so, we shou
country than before the war.
38. The pre-war requirements, however, had relation to the level
conventional standards in regard to banking reserves, and the habits

amounts of money which they carried in their pockets and kept in t
instruments in place of cash. It is probable that after the war world
not permanently, at a greatly enhanced level, and that the banks ma
higher standard for their holdings of legal tender money. Furthermor
of legal tender money which may take place though the extended use O
instruments may be more than offset by the fact that a larger share o
enjoyed by the wage-earning classes who are the chief users of legal te

10

tend to increase the amount of legal tender money which the country will, consistently with the maintenance
,

of a gold standard, be able to retain in bank reserves and general circulation to a point much above the

pre-war figure, but the precise amount of the increase can only be determined by experience.
39. Until such experience has been gained it would in our opinion be dangerous to seek to lay dat
any precise figure for the fiduciary issue. The adoption of an unnecessarily low figure would result in the
accumulation of a gold reserve of larger dimensions than is strictly necessary for the protection of the gold
standard and the security of our national credit-a luxury which we shall be ill able to afford in the difficult
times which are ahead-:--while the adoption of too high a figure would destroy the gold standard altogether.
40. It, therefore, seems desirable to approach the problem from the other end, and to attempt
to fix tentatively the amount which we should like to see held in gold in the central reserve,. leaving
the ultimate dimensions of the fiduciary issue to be settled as the result of experience at the amount of

fiduciary notes which can be kept in circulation-in banking reserves (including the Banking Reserve of the
Bank of England), and in the pockets of the people-without causing the central gold reserve to fall appreciably below the amount so fixed.
41. The pre-war gold reserves were about £38,500,000 in the Bank of England and an amount
estimated at £123,000,000 in the banks and in the pockets of the people. If the actual circulation of gold
coin ceases and the whole of the gold is concentrated in the central institution, some economy is permissible
in view of its increased mobility. On the other hand the aggregate amount of currency required will
undoubtedly be larger. We accordingly recommend that the amount to be aimed at in the first instance
as the normal minimum amount of the central gold reserve should be £150,000,000, and that, until this
amount has been reached and maintained concurrently with a satisfactory foreign exchange position for a
period of at least a year, the policy of reducing the uncovered note issue as and when opportunity offers should
be consistently followed. In view of the economic' conditions which are likely to follow the restoration of
peace, it will be necessary to apply this policy with extreme caution and without undue rigidity. When
the exchanges are working normally on the basis of a minimum reserve of £150,000,000 the position should

again be reviewed in the light of the dimensions of the fiduciary issue as it then exists.
REDUCTION OF PRESENT CURRENCY NOTE ISSUE DURING INTERIM PERIOD.

42. If these arrangements are adopted, there will be an interim period beginning after the completion
of demobilisation during which it is probable that the present issue of Currency Notes will have to be
gradually reduced until experience has shown what amount of fiduciary notes can be kept in circulation
consistently with the maintenance of this reserve. It was suggested to us in evidence that, until that amount
has been ascertained, steps should be taken as soon as possible after the war to reduce the uncovered issue
at the rate of not less than 3 per cent. per annum of the outstanding amount, and that, subject to arrangements for meeting a temporary emergency, the issue in any period of six months or one year should not
be allowed to exceed the amount outstanding in the preceding similar period. We think that it would be
highly desirable to aim at a steady and continuous reduction, but we are disposed to doubt whether it will

be found to be practicable to work to any precise rule. We confine ourselves therefore to the general recommendation of policy indicated above. We entirely concur, however, in the suggestion that, when reductions
have taken place, the actual maximum fiduciary circulation in any year should become the legal maximum
for the following year, subject only to the emergency arrangements proposed in paragraph 33.
TRANSITIONAL ARRANGEMENTS PENDING REPLACEMENT OF CURRENCY NOTE ISSUE BY A BANK
OF ENGLAND ISSUE.

43. It remains for us to consider how and when the present issue of Currency Notes is to be replaced
by the Bank of England issue. There would be some awkwardness in transferring the issue to the Bank
of England before the future dimensions of the fiduciary issue have been ascertained. We, therefore,
recommend that during the transitional period the issue should remain a Government issue, but that such
post-war expansion (if any) as may take place should be covered, not by the investment of the proceeds
of the new Notes in Government securities, as at present, but by taking Bank of England Notes from the
Bank and holding them in the Currency Note reserve, and that, as and when opportunity arises for providing
cover for the existing fiduciary portion of the issue, the same procedure should be followed. The effect of
this arrangement would be that the demands for new currency would operate in the normal way to reduce
the reserve in the Banking Department at the Bank of England, which would have to be restored by raising
money rates and encouraging gold imports.
44. We should thus in course of time have the Currency Note issue covered partly by the £28,500,000
of gold at present held and partly by Bank of England notes covered by gold in the Issue Department of
the Bank of England ; the balance, forming the fiduciary part of the issue properly so-called, being covered
by Government securities as at present. During the transition stage the greater part at any rate of the
demand for gold for export will fall upon the Bank of England, since currency notes are not likely td
be presented to any large extent for actual payment in gold, but will be paid in by the banks which collect
them to the credit of their accounts with the Bank of England, the balances thereby created being used
when necessary to draw gold from the Bank of England for export in the ordinary way. We accordingly
think that it will be desirable that Bank of England notes should likewise be substituted in the currency
note reserve, either immediately after the war or from time to time by instalmants, for the £28,500,000 gold
now held by that reserve, so that when the time is ripe for the final transfer the whole of the gold reserve
may be in the hands of the Bank.
45. When the fiduciary portion of the issue has been reduced to the amount which experience shows
to be consistent with the maintenance of a gold reserve of £150,000,000 in the Issue Department of the Bank,

the outstanding Currency Notes should be retired and Bank of England notes of low denomination substituted,

the Bank of England fiduciary issue being simultaneously increased by an amount equal to the then
issue of Currency Notes covered by Government securities. As the Bank of England notes held in the
Currency Note reserve and the gold against them would already appear in the Bank return, the only effect
on that return of the ultimate merger would be to add to the total Bank of England issue the amount of
the fiduciary portion of the Currency Note issue as ultimately ascertained, and to add the same amount
of Government securities to the securities in the Issue Department.




11

46.

The settlement as between the Treasury and the Bank would take the form of the Treasury

handing over to the Bank in exchange for a like amount of Currency Notes withdrawn by the Bank from
&illation the Bank of England notes held for the Currency Note account, and in respect of the remainder
o
e Currency Notes withdrawn Government securities. These securities should be either Ways and Means
advances, or Treasury Bills and other marketable securities being part of the ordinary Public Debt, and
should be taken at current market value. In so far as any of the assets of the currency note redemption
account at the time of transfer might not come within these categories they should be retained by the
Treasury and other securities substituted. The Bank of England notes of small denomination would be
issued by the Bank in place of the currency notes withdrawn from circulation, partly in substitution for
the Bank of England notes returned to them from the Currency Note Reserve (which would be already
covered by gold in the Issue Department), and partly in respect of the Bank's new fiduciary issue based on
the transferred securities. The profits of the increased fiduciary issue would be payable by the Bank to the
Exchequer.

SUMMARY OF CONCLUSIONS.

Our main conclusions may be briefly summarised as follows :Before the war the country possessed a complete and effective gold standard. The provisions of the
Bank Act, 1844, operated automatically to correct unfavourable exchanges and to check undue expansions
of credit. (Paras. 2 to 7.)
During the war the conditions necessary to the maintenance of that standard have ceased to exist.
The main cause has been the growth of credit due to Government borrowing from the Bank of England
and other banks for war needs.
The unlimited issue of Currency Notes has been both an inevitable
consequence and a necessary condition of this growth of credit. (Paras. 8 to 14.)
In our opinion it is imperative that after the war the conditions necessary to the maintenance of an
effective gold standard should be restored without delay. Unless the machinery which long experience
has shown to be the only effective remedy for an adverse balance of trade and an undue growth of credit
is once more brought into play, there will be grave danger of a progressive credit expansion which will
47.

result in a foreign drain of gold menacing the convertibility of our note issue and so jeopardising the

international trade position of the country. (Para. 15.)
The pre-requisites for the restoration of an effective gold standard are :possible after the war. We recommend that
(a) The cessation of Government borrowing as soon
at the earliest possible moment an adequate sinking fund should be provided out of revenue,
so that there may be a regular annual reduction of capital liabilities, more especially those
which constitute the floating debt. (Paras. 16 and 17.)
(b) The recognised machinery, namely,- the raising and making effective of the Bank of England

discount rate, which before the war operated to check a foreign drain of gold and the

speculative expansion of credit in this country, must be kept in working order. This necessity
cannot, and should not, be evaded by any attempt to continue differential rates for home and
foreign money after the war. (Paras. 18 and 19.)
(c) The issue of fiduciary notes should, as soon as practicable, once more be limited by law, and the

present arrangements under which deposits at the Bank of England may be exchanged for
legal tender currency without 'affecting the reserve of the Banking Department should be
terminated at the earliest possible moment. Subject to transitional arrangements as regards
Currency Notes and to any special arrangements in regard to Scotland and Ireland which
we may have to propose when we come to deal with the questions affecting those parts of the

United Kingdom, we recommend that the Note Issue (except as regards existing private issues)
should be entirely in the hands of the Bank of England. The Notes should be payable in
London only and should be legal tender throughout the United Kingdom. (Paras. 20 and 21.)
As regards the control of the Note Issue, we make the following observations :(1) While the obligation to pay both Bank of England Notes and Currency Notes in gold on demand
should be maintained, it is not necessary or desirable that there should be any early resumption
of the internal circulation of gold coin. (Para. 23.)

(2) While the import of gold should be free from all restrictions, it is convenient that the Bank
of England should have cognizance of all gold exports and we recommend that the export

of gold coin oil bullion should be subject to the condition that such coin and bullion has been
obtained from the Bank for the purpose. The Bank should be under obligation to supply
gold for export in exchange for its notes. (Para. 24.)
(3) In view of the withdrawal of gold from circulation we recommend that the gold reserves of the

country should be held by one central institution and that all banks should transfer any
gold now held by them to the Bank of England. (Para. 25.)

Having carefully considered the various proposals which have been placed before us as regards the basis

of the fiduciary note issue (paras. 26 to 31), we recommend that the principle of the Bank Charter Act,

1844, should be maintained, namely, that there should be a fixed fiduciary issue beyond which notes should
only be issued in exchange for gold. The separation of the Issue and Banking Departments of the Bank
of England should be maintained, and the Weekly Return should continue to be published in its present
form. (Para. 32.)
We recommend, however, that provision for an emergency be made by the continuance in force, subject

to the stringent safeguards recommended in the body of the Report, of section 3 of the Currency and

(lank Notes Act, 1914, under which the Bank of England may, with the consent of the Treasury, temporarily
issue notes in excess of the legal limit. (Para. 33.)
We advocate the publication by the banks of a monthly statement in a prescribed form. (Para. 34.)

We have come to the conclusion that it is not practicable to fix any precise figure for the fiduciary
Note Issue immediately after the War. (Paras. 35 to 39.)
We think it desirable, therefore, to fix the amount which should be aimed at as the central gold reserve,
leaving the fiduciary issue to be settled ultimately at such amount as can be kept in circulation without
causing the central gold reserve to fall below the amount so fixed. We recommend that the normal minimum




12

of the central gold reserve to be aimed at should be, in the first instance, £150 millions. Until this amount
has been reached and maintained concurrently with a satisfactory foreign exchange position for at least a
year, the policy of cautiously reducing the uncovered Note Issue should be followed. When redut.
have been effected, the actual maximum fiduciary circulation in any year should become the legal maxi
for the following year, subject only to the emergency arrangements previously recommended. When the
exchanges are working normally on the basis of a minimum reserve of £150,000,000, the position should
again be reviewed in the light of the dimensions of the fiduciary issue as it then exists. (Pares. 40 to 42.)
We do not recommend the transfer of the existing Currency Note Issue to the Bank of England until
the future dimensions of the Fiduciary Issue have been ascertained. During the transitional period the
issue should remain a Government issue, but new notes should be issued, not against Government securities,

but against Bank of England Notes, and, furthermore, when opportunity arises for providing cover for
existing uncovered notes, Bank of England Notes should be used for this purpose also. Demands for new
currency would then fall in the normal way on the Banking Department of the Bank of England. (Paras.

43 and 44.)
When the fiduciary portion of the issue has been reduced to an amount which experience shows to be

consistent with the maintenance of a central gold reserve of £150 millions, the outstanding Currency
Notes should be retired and replaced by Bank of England Notes of low denomination in accordance with
the detailed procedure which we describe. (Paras. 45 and 46.)
We have the honour to be,
My Lords and Sir,
Your obedient Servants,
(Signed)
CUNLIFFE (Chairman).
C. S. ADDIS.
R. -E. BECKETT.
JOHN BRADBURY.
G. C. CASSELS.
GASPARD FARRER.
HERBERT C. GIBBS.

W. H. N. GOSCHEN.
INCHCAPE.

R. W. JEANS.

A. C. PIGOU.
GEO. F. STEWART.
W. WALLACE.
G. C. UPCOTT (Secretary).
15th August, 1918.
APPENDIX I.
PROPOSED MONTHLY STATEMENT TO BE PUBLISHED BY BANKS.

Statement of the average figures of the weekly Balance Sheets during the month of
Capital :-

LIABILITIES.

Cash :-

(1) Coin, Bank and Currency

Registered £
Subscribed £
Paid up

Notes, and Balances with
the Bank of England (2) Balances with London Clearing Agents and with other
Banks, Bankers or Banking Companies in the
United Kingdom -£
(3) Items in transit -£

Reserve Fund
Current, Deposit, and other Accounts

Acceptances Endorsements,

Guarantees
obligations
Notes in Circulati




19

ASSETS.

and

other

Money at Call and at 8hortiNotice
British Bills of Exchange -

-

Foreign Bills, Foreign Bank Bills and
Domiciled Bills
Balances abroad

-

-

-

-

Investments :(1) Securities of, or guaranteed by, British
Government and Colonial
Securities,
British

(2) Indian

-

-

Government
Corporation

Stocks, British Railway Debenture
and Preference Stocks
(3) Other Investments
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 -

-

-

Printed under the authority of His Majesty's Stationery Office
By DARLING AND SON, LIMITED, BACON STREET,' E.2.

-

-

-

FEDERAL RESERVE BANK

OF NEW YORK
DUPIICITE

Woods HDLI, CaJo.,
August 11, 1913.
LI1

,;4..r Lord Cunliffe:
.no no following remarks,

kf..1

which I an sending in response y.,) four

.c-,e of Juno 22, 1913, I trust will be road by you and by

Llass rith the full understanding that in no respect should

bi

taaon ac criticism where they appeer to ba such, but rather as evidencing
a dc-::ire to answer your inquiry rrith the frankness which is reqtdred in

should

order tLat this letter may be of servioe, and with the candor %
e...7actorize the suggestions of a friend.

honored

I need not tell you ;err greatly

feel in being asked to aid in such an important and colliplicatcd

matter au that upon which you are just now engaged.
The Federal Reserve Systen, while ambodying the results of inquiries
coni.;:etA in all the modern banking countries, is, nevertheless, more largely
mo:f.eled in its fundamentals upon English banking experience and tradition
t1;-;1 upon those of any other nation.

Its most important variati, from

the British syetem consist in our haing twelve regional central teaks, instead of ono, with branches, and in these banks having the power to

cir-

culating notes, secured by their assets, instead of solely against gold.

I

an submitting below some comments which seem to be justified in

vie,., of our four years experience under the new Federal Reserve Act, but I

--ot confining these suggestions to the scope of the inquiry augg.ited by
let'.er.

Twelve headings will be dealt with somewhat in t:

o:der of

their importance, discussing first our own experience, and, later, commenting upon certain aspects of your position in the sass of eaoh heading:
£.

TH72 CURRZNCY NOTE ISSUES OF THE BRITISH GOVF.FLIP!ENT:

The

history of the note issues of the Federal reserve banks may be summarized as



FEDERAL RESERVE BANK OF NEW YORK..



2

Lord Cunliffe

8.12.19.




FEDERAL RESERVE BANK OF NEW YORK.

4

Lord Cunliffs

8.12.18.

large anountof circulating media into our banking system and into trade chan111

nels under the stimulus of rising prices and expanding loans and deposits,
is most unlikely to result in an irredeemable currency situation, because the
general contraction of business and credit succeeding the conclusion of the war
will automatically bring about a contraction of the currency circulation, and

the gold redemption fund is unquestionably adequate, unless the war mould last
many years.

The note issue has expanded as business demanded, and has been an

important instrument in effecting an accumulation of gold reserves.

As to your situation, I can not help but feel that
not quite as sound a policy has, of necessity, been pursued.

different and
Your currency

notes now appear to have taken a permanent place in the nation's note circulation, and, doubtless, occupy en important place in the cash reserves of the
joint stock and savings banks.

The gold reserve maintained against them is

trifling, compared to that maintained by the Bank of England in its Issue Depart-

ment, or that maintained by the reserve banks (now roughly 60j) against combined
note and deposit liabilities.

The fact that the currency notes are secured by

interest bearing bonds, together with a deposit balance at bank and a small
gold reserve, is an explicit recognition by your Government of the urgent need
for prompt retirement of this circulation,

'c,1.4-t,

the question arises, will its

retire.ment automatically take place and how will the progress of its retirement
be governed?

It seems that this will largely depend upon the policy of your

Government in dealing with the obligations by which the currency notes are
secured.

The notes should not be retired more rapidly than the reserve condition

of your banks, the activity of your business, and the decline in the price level
will permit.

No refunding scheme for the sale of interest bearing bonds to the putr

lio will replace in the pockets of your people, in merchants' tills, and in bank reserves, currency which is now required to meet demands for commercial and banking purposes.




even the substitution of a balance at the Bank for the

FEDERAL RESERVE BANK OF NEW YORK.



5

Lord Gunliffe

8.12.10

FEDERAL RESERVE BANK OF NEW YORK_

6

Lord Cunliffe

8.12.18.

eanking conditions.

It may be a juetifiatle covIent upon the maintenance of the issue donartment of the Bank of i,nEland in its present form, that its note Jesus' was in-

capable of expansion like ours, to meet the needs of the war, and, had it been
capable of such expansion, doubtless some of the serious currency difficulties
of 1914, which resulted in the issue of the currency notes, would have boon
avoidad.

since the outbreak of the war, the Federal Reserve Bank of New York

has aimed to keep in stock uniss146tes of various denominations of no less than
$500,0.-.1,000 and the total of unissued notesrrie:1'.n reserve by all the reserve
banks has been kept at about 01.000,000,000.

The protection afforded to our

banking system by the assurance which knowledge of that fact gives to bankers
and busireoe men has been of unmistakable value.

No sueh stock of notes held by

the Bank of England would have had similar effect upon sentiment as the BlAnk has
no means of putting them into circulation.

Later experience with our own system, if the war continues, may require
a modification of these views, but, up to the present time, I believe thrt our
experience justifies a greater faith in the note issue plan of our Federal Reserve Acc than in the plan of a separate department of issue without power of expension, required by your Act of 1844.

Realising, further, that the position of

the Dank of .:ngland, if operating under a law comparable to ours, would require

fortification by a great addition to its gold reserve, leads to question
C.

ARE ELLISH BANKS MAT-LENDING ON MIR RESFRYEST

During a

visit to England in 1914, I recall stating to some of your bankers that it appeared
to me, and I believed to other American bankers, that the English banks as a whole
- were over-trading on their gold reserves.

If the comments under paragraph "B" are

justified and the Bank of England should be given the power in future to expand
its note issue, then, in my opinion, no such change of law would be safe without
a greater store of gold, either in the central bank, or in the joint stook hanks.



FEDERAL ..-SERVE BANK OF NEW YORK_



7

Lord Cuuliffe

8.12.18.

FEDERAL RESERVE BANK OF NEW YORK.

8

Lord Cunliffe

8.12.18

or more banking institutions. 7r:i.has finally been corrected by the recent
amendments to the Federal Reserve Act so that now, as stated above, the Fed .

oral roLorve banks carry reserves of nearly 42,000,000,000 of gold, available to .11 the principal banking institutions of the country.

Over 8,000

banko and trust companies, including practically all the large ones, are now
members of the system.

There has recently, I understand, been a strong move -

meat in England looking to the carrying of independent cash reserves by the
joint stock banks.

This, I believe, would be less objectionable with you

than in this country, owing to the small number of commercial banks in
England;

but, on the other hand, it might retard the process of recouperap

tion from the war strain by the Bank of England, which should be promoted
before any measures of that character are applied-to your commercial banks.In general, I think that our reserve law, and, in consequence, our reserve
position, is to-day much stronger than that of the Bank of England and of
English banks generally and that your situation would be largely corrected
by some bank liquidation which would enable the Bank of England to maintain
larger gold holdings.
E.

DOMESTIC EXCHANGES:

At the time of their establishment,

the Federal reserve banks faced difficult, and what appeared to be insurmountable obstacles, in overcoming the objections of the banks of the country
to a proper regulation and control of the domestic exchanges.

There are

probably 30,000 banks and bankers in the United States, large and small,
upon whom checks are drawn daily, many being sent to all parts of the country
for various settlements.

The collection of th3se checks and the adjust-

ment of the resulting balances were long subject to no fixed rule as to cost
or as to time of collection and settlement and, in consequence, many confusions and dangers arose, which it was the function of the reserve system
to ours.

This has at last been well started and I refer to the matter only

in order to comment upon the operation of your magnificent London Clearing



FEDERAL RESERVE BANK OF NEW YORK_



9

Lord Cunliffe

8.12.18

FEDERAL RESERVE BANK OF NEW YORK._10

Lord Curliffe

8.12.18.

employ ant of a bill or a note, ratherlthan by reliance upon an inscribed ancount.
H.

RATE FIXING:

The Federal Reserve Act provides that the directors

of Federal reserve banks shall fix the rates of discount for the various olaesec
of locale which they leaks, the rates so fixed being subject to review and determi-

nation by the Federal Reserve Board.

These rates must apply to all borrowers

mating similar types of loans.

The language of the statute

ous so to whether the Federal Reserve Board has the power to initiate a rate.
That question hag never been definitely determined, and I doubt if need for
such a determination is likely to arise.

This is

in the regional bank plan, as uniformity of rates can not well be brought about, and the influence of the central bank rate ie to some extent impaired.
The influence of the rate of the Bank of England is so pronounced,
in fact so much more pronounced than the rates of the Federal reserve banks,
which are so various as to different types of loans and differ rather widely be-

twen the different reserve banks, that I doubt if comparison can be made between
the practices of the two institutions.

I should hope, hoover, in the interest

of your own money market, that no development would take place which would have
the offoot of altering the stability and uniformity of rates now so well governed
and controlled by the Bank of England.
I.

TH3 PAYMENT OF INTEREST TO DEPOBITORS:v Federal reserve banks

are neither authorised nor expressly prohibited by law in the matter of allowing
interest on balances.

As a matter of practice, and in view of our interpretation

of the law, it has been generally considered that we were without power to allow
any iliteregt on deposits.

It would nullify other provisions of the law which re-

quire us to pay all surplus income over our 6A dividend and the maintenance of
our surplus at 40% to the Government.

If interest were all

in fact, be little or no surplus income, in which event the profits payable to
the Government, in lieu of franchise and all other taxes, would never arise.



FEDERAL RESERVE BANK OF NEW YORK

11

Lord Alnliffe

8.12.18.

Oa the other hand, keen competition for business auong our °commercial banks and
trust coillpaniee, and the advance in the general level of interest rates, oc-

onsio.led by the war, have led to the practice in some parts of the country of

ing prudence

somewhat dif

effective in
prateoting

in this country
promotion of

ing high rates

f -J:ngland

to are that

4:Inglish

policies in

n security

st grads, has
pursued a
of Lheir de-

s have suffered

the decline

ars, even

se accounts to

a large Lclarger in

nks.

An

liquidation of

ceiving con-




FEDERAL RESERVE BANK OF NEW YORK__

K.

12

8.12.10.

Lord Cunliffe

COMPETITION BET

EN TH4 C';1:4TRAL DAM AND IT3 DEPOSITOASs

The brood provieions of the Federal Reserve Act at first led many Ammricon
bankers to conclude that the Federal reserve banks, with their immonma resources and power, would become dangerous competitors, in various linos of
banking, with tho very institutions v'hich wore to be the owners of the capital

stock, and, (outside of the Treasur4 the sole depositors in the new institutions.
The feeling referred to was a serious obotpcle to our development in the larger
cities, at one time, and was held by officers of merry of the larger bulks.

It

has boon our effort from the outset to overcome this impression and, with the
exception of our moderate dealings in the open market in the purchase of bills,
we are not in competition with out own stockholders and depositors in any department of banking.

This has not always been the ease with the Bank of Znglend and it
is a fair question to ask whether, if the joint stock banks are to be required
to help build up the reserves of the Bank, as suggested in paragraph "C",
and, possibly, are to be expected to maintain larger balanoes at the Bank,
it may not be important to consider to what extent direct competition between
the Bank of England and its own cliental; should

:a avoided.

An in-

telligent discussion of this subject would necessitate en examination of the
accounts of the Bank of England suclyas could only be made by en officer of the
Bank.

The English Banking System has rested upon the Bank of England as upon

a rock foundation.

That foundation does not depend upon any legal require-

ment as to the maintenance of reserves with the Bank of England, as in the
cane of the Federal Reserve System, but tradition, the desire for mutual selfprotection and the magnificent unity of the British banking system has preserved
the Bank's position unimpaired ep to the present time.

No small part of t.his

is due to an illustrious record of sucoessful and conservative managunient by
the directors of the Bank;

but the question is now likely to arise, unless our

information here is misleading, as to whether this good will and tradition
can



,

-

FEDERAL RRSEV,VE RANK OF NEW YORK.

Lord Cunliffs

13

B. 12. In.

alva7n be relied upon in tho future and, especially, in view of the develop
mente referred to in the following paragraph.
L.

BANK MALGAMATIONS:

Our National Thnk Act and the laws of

practically all of our States permit the consolidation of banking institutions
under various limitations.

In general, however, these ooneolidatione can

only be effected between institutions in the sere municipality.

This has

been a natural and effective curb upon the ever-development of any tendency
to amalgamate and possibly has had the effect of curbing loose banking methods
and reducing over-competition.
in the United States.

But we are in a way over-stocked with banks

There are no less than one hundred end thirty-seven

incorporated banks of deposit in the City of New York, exclusive of the mutual
savinvi banks.

Amalgamations of banks in Sngland,. however, proceed without

statutory limitation, and, in recent yearn, have resulted in a great reduction
in the number of institutions and, consequently, haveleade it inoreasingly
fioult for new banks to be organised.

This is always tho ease in a country

where branch banking becomes highly developed.

The creation of banks of the

immense size which have resulted from recent amalgamations, nay somewhat imp-

pair the influence of the Bank of Tngland, which should be maintained beyond
question.

Aside from all questions of economy of management, efficiency of

eupervision, security, maintenance of competition, eta., I believe the greatest
danger in the development of these analgamations lies in the possible under.
mining of the supremacy of the Bank of England, the importance of which is not
only moaaured by its relations with the great banks of London, but by the
stability which its prestige has afforded to the blinking eystans of the whole
world.

In reading the above you may be led to conclude that the views I
have expreoped relate more particularly to banking practices in Fnrland in
war times rather than under penes conditions.

The changes which are re-

'quired, however, to adjust banking affairs to the unexampled situations arising



FEDERAL RESERVE BANK OF NEW YORK,.. 14

Lord Cunliffe

8.12.13.

out of this war must take into account that the period of readjustment succeeding the conclusion of the war will, possibly, bring a greater strain and
present more novel problems in bunking and finance than even those which
arose at the time of the outbreak and now confront us during the continuance
of the war.

In this roapect the Federal Reserve System has had a distinct

advantage, because we wore embarking upon a now and unried enterprise, in
which defeats were expected and which could only be discovered through exThe amendment of a law approved by the President as rooently as

perionoo.

December 23, 1913, naturally has not encountered such opposition as would be
aroused by changes proposed in the fundamental banking law of your country,
adopted in 1844.

Unfortunately the literature in relation to the Federal Reserve
System and its development is most limited.

Those who have boon engaged in

managing the system have had little time to spare for the preparation of
critical works which would be of value to you and your associates in the
problems which you are now considering.

I am, however, sending you, under

separate cover, the folliwing documents:




1.

The Federal Reserve Act, as it originally became law /
December 23, 1913.

2.

All subsequent amendments to tho act, as tabulated. /

3.

A bill now pending in the Senate and Rouse proposing
further amendments to the Act, known as the Phelan
Bill, the paesap.,e of which is still uncertain.

4.

A digest of the Act, prepared by Honorable C. S.
Hamlin, Member of the Federal Reserve Board.

5.

The A. B. C. of the Federal Reserve System, a recent
publication by E. W. Kemmerer, Professor of
Economics at Princeton University.

6.

All the regulations established by the Federal Reserve Board which are now in effect.

7.

All of the annual reports to Congress made by the
Federal Reserve Board, which include statements
of all twelve of the Federal reserve banks.

8.

series of statements referred to in Paragraph "A"




United Kingdom.
All Indian and Colonial Banks, Bankers or Banking
Companies with Head Office in the United Kingdom.
MEMORANDUM.
CLASS 4. All Indian and Colonial Banks, Bankers or Banking
Companies with a Branch or Branches in the United
CLASS 3.

Kingdom but with Head Office in India or the Colonies.
CLASS 5. 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 sta ardized form, the position of the
Branch or the Branches in the United iingdom ; the Government to enact
that British Government Securities to t! Rtent of x per cent. of the liabilities

of the Branch or Branches in the U ited 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 he 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
(1) Members of the Institute of Chartered Accountants, cr
(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

be 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.



Form A.

(NAME OF BANK).

BALANCE SHEET as on

19
ASSETS.

LIABILITIES.
Capital :-

£

Cash :-

Coin, Bank and Currency Notes,
and Balances with the Bank
of England .
(2) Balances with London Clearing
Agents and with
Banks. Bankers or Banking
(1)

£

Registered
Subscribed

Companies in
Kingdom .

Paid up
Reserve Fund

(3) Items in transit

Domiciled Bills
Balances abroad .

Acceptances

Endorsiltin
i

,

Guarantees and other

.

Investments :(1)
(2)

obligations

Securities of, or guaranteed by, Brititth Government
Indian and Colonial Government Securities.

British Corporation Stocks. British Railway
Debenture and Preference Stocks .
(3) Other Investments

Notes in Circulation




.

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

Current, Deposit, and other Accounts

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
.

other

the United
.

.

c

Form B.

(NAME OF Bo).
Statement of the average figures of the weekly Balance Sheets during the month of
ASSETS.

LIABILITIES.

Capital :-

19

Cash :-

Coin, Bank and Currency Notes,
and Balances with the Bank
of England .
(2) Balances with London Clearing
Agents
with other
Banks, Bankers or Banking
(1)

Registered
Subscribed

and

Companies in the United

Kingdom .
(3) Items in transit

Paid up
Reserve Fund

Current, Deposit, and other Accounts
Acceptances

Endorsements, Guarantees and other

obligations

.

Notes in Circulation




.

.

.

Money at Call and at Short Notice
British Bills of Exchange
.
Foreign Bills, Foreign Bank Bills and
Domiciled Bills
Balances abroad .
Investments
(1)
(2)

.

:-

Securities of, or guaranteed by, British Government
Indian and Colonial Government Securities,

British Corporation Stocks, British Railway
.
Debenture and Preference Stocks
(3) Other Investments

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 .

(Signed)

4
Headley Court
Epsom
1st September 1918

C

0

p
111,

Dear Mr. Strong
Your letter of 23rd July has reached me but alas as you will
gather from the enclosure the fates have dealt equally humbly with us as
regards photographs.
I had the greatest difficulty in smuggling mine out through
official channels but I will have some more struck off and then impose
on the kindness and good nature of Lord Reading to deliver one to you
on his return to your side.
Your photograph I shall look forward to receiving from you in
person either here or in New York wherever we may first meet.
The Committee on Currency and Foreign Exchanges has just handed
its first interim report to the Lords Commissioners of the Treasury
and the Minister of Reconstruction, and if it is accepted and approved
for publication, I will send you a full text copy through the Foreign
Office as the abridged summary does not always convey the true inward
meaning.
You will note that the Committee share the views you shortly
express in your letter under reply but I am sure you are right
and we should find some opportunity for discussing this most important
matter in person.
With very kindest remembrances to yourself and all those who were
so good to me during my visit to your side.
Believe me,

Yours very sincerely,
(signed) CUNLIFFE

Mr. Benjamin strong





Hr )LEY


pus f
COURT,

11;-f-i,e_4,;if

"C
7-44

/4- fr;04e.

X6f.s.,c,

4

/440-01-1-0-44.04-G-Xl

G1.4GIAACOZ 4,14.0( */

4v;,& 2s-tLe 0-

17$.41 &>Ge.' Ge/A-y
Oes.E4. o'gr
4;4 Ae0

ko-srs-s-04

,11.441-t

ifyls



"At 47-P114-

/C1-16

,kta.

Ap, Ag44.

44-Wc

ts,0444<)

0';e-d / 7 244,27

eic/I-s-it, /44

1-44s44. /44 t^tit-4-

<rx,v.

04

71144.r

A44

lam-

As,7,

fp-vil

$4e#17

44c4-1-1

Ls.

Pr0-y. .4--s4r/-401-14-s-hica-ss.04.

"44.

Ars,,,ir...-04

144,1/4

re-fre-x-e.

n-s-e,X1' 0;s0.s441ie_

/44.17- -

/gAr-4116

Sx-okee-"ro x

/60;

e.7

A44-1-

10*4-4;

hil*: /54.14e

trit;sy.

-1,491!
TELEGRAPHIC ADDRESS.

g4fINI_IFFE.LONDOW

cee....e0W(01/. 9th September 1918
EI'

TE=EPHONE 1,49
1535 AvcNUE

My dear Mr. Strong,

Your letter of 10th Auguet has reached me, and I am looking
forward to receiving the memo on your Federal Reserve Board System,
but a packet of books and pamphlets on the subject

have

just also

reached me, and I ought to be able to get quite well posted.

It is really very good of you to to so much trouble, and'
will most carefully go theoue,h the -carious documents, many of which I
notice i-c.n to 111 returned to you, though the half yearly reeerte I

presume I may keep.
To me, however, any drIOU t of literature and correspondence

is not equal to a few day, together in which to discuss the thing
closely between us in all its bearings, and I hope that I may find an
opportunity of visiting you.
No news as yet as to the lhancellorts attitude on the report

of the Committee on (urrency, so it will not be Published for same time.

Ere this you will have received the long promised photograph
from Mr. Hamlin, but I am afraid yours is lost to me for ever, unless
I can arrange to visit you and get it for myself, which would be the
beet solution.

With very kindewt rementranoeB9
Believe me,

Yours very truly,
Mr. B. Strong.

Wood5Hole, Mass.,



Is

October 25, 1918
Very Private & Confidential

41'

Headley Court,
Epsom.

My dear Mr. Strong:

Your letters of 12th & 27th Aug. also 30th Sept. have
reached me and I also have to thank you for the really speaking
likeness of yourself which I am so glad to receive at last after
so many disappointments.
I certainly need nothing to remind me of you but I
shall always be very proud to point to you as a very great Banker
whom I had the honor to call a personal friend.
I am sorry to tell you that I
can make no headway
the Committee on Currency as the entire attention of everyone is
fixed in the various and changing prospects of the war and no
one in authority seems to bear in mind the financial position
that will have to be faced one day.
4 el,c1s,
True we are obtaining the immediate volowit of war in a
most wonderful way and very cheaply Wit when as Governor of
the Bank I invented the system of having Treasury Bills on "Tap"
and later on advised the Chancellor to adopt the same method
with 5% War Bonds I did not anticipate that he would carry on so
long without funding.
1

You shall most certainly have a copy of the Interim
report of my Committee the same moment that I am permitted to
send you one but I dare not now as I have so far failed to get
it considered and I do not know when, if ever, it is to be published
although it was submitted to the Chancellor and the Minister of
Reconstruction last August.
I have read your letter and suggestions with the very
greatest interest and find all you say most illiminating and
helpful, but indeed I do wish that I could come over and discuss
things personally as a few hours conversation would be more
satisfactory than means of correspondence.
However, for your letter to be of any definite use I
must get the first stage of my Committe's work recorded before
proceeding to discuss it but you cannot have any idea of the
difficulty I have in getting anyone to think of or consider
anything but the immediate or even daily war prospects.
Perhaps I am getting old and nervy--Let us hope so!!!
With renewed thanks for your photograph and the immense
trouble that you are taking to help me.


Mr. Benjamin


Yours very truly,

/s/ Cunliffe

Strong

fr."-

A4:14




17-1/1,4(4-7a-4.0e09idee
HEADLEY COURT,
EPSOM.

r

Aro-<-ai
841,01 40.0

3,e4elker,v feaeicue.",.. s=k-41a

d1-4

Acty

41:le;-L441

04.14-11-*;

..C/te;ri,

14'k°'t

,fit "g4 11-#14

Ne441,4

1-U

geelei

f "yfr~.-e3 /11/-k0410-1-. AY-A'

tee-

-

#4;tee-710-1/7

49,1144 1:16,10/441

e41

of at4t./( edGf,r4,c7

74,-%.

a0 A

4e-A07.;e-

%,*erf47

rrt.e.g4.-Z"

74Ce-s4-44-s. /1/1r-i,7r&

4Atelz-v7

4.

frA /gee,1" I

4 Hu-

,$17

di44,4*s. G17

I ,444.47

/;4-

eate-o-t,
/44. eftr4.4.4.4-w,

744 iv-re-L.

Gee.

hum

k

/et,

.14114,0,s4.

at-c-4.--

4111

Afrrtif

4" A irc,e4..4i

14.
4c4-e

A-

f

Wit.

/44 fP.

7/

_iee--;/
4-d-o-fr-

.44;4" .37c,

ae4k,-

f4%-:!,e feet

4.7

- 11/7/}d-d
"We0-el
C-0-74-7

40

A

k34- d

.4(.4-0!

0%4. AA- .ifseer4..ere" tt-0,z"

frg- fr:14-01




1e-

AGVc40-C4,2--e4--%-c.110-407r.-

dee'
Afic
AL-

ier- ie",11-11.0
1-

LvDei
0410-4^;.+'7

/44

1,14

1407t1-0-fee.'"Allecc

y

deor_e
/-,;Zu4,

/-44_

47.V.

/471iipr-t-pogir7

/fg-c44 /4-so-L

A-44-a 1,-411,4- A0,C
ex/,,zet
lisLve
fe-rs.#1+1 /7-44-,,-f,,,ai As-a

i.,74641.47

u,4.-" -e6*-c

ftc

-

I

4,,44 fru Pool,

eite-.1(-47,
/1C4.

_

Ac-0

/":%
06_

itt

4".e-s-1-

fer

-

fi"e/Z-0
fel- fyi

ye-4-7-p;

324>f

I7

ITELEGRAPHIC ADDRESS.

)

'CUN LI FFE. LON DOW'
TELEPHONE N9

3

s

19Wo-trith://

1535 AVENUE.

YttE"L
(

ovw

4Lutt._

cx_1,
CLt)

49-`11

Loos iu file

11

c-141sL-cal-tZ)
inAL

4f-/441,/

/11



ke-tAY--YertAi

tge-r

/IF

St

.E5

REPORT OF LORD CUNLIFFEIS COMMITTEE,
11/

(Manchester Guardian, Oct. 30, 191g)

The first interim repoyt of the Committee, under the chairmanship of Lord Ounliffe, appointed to investigate the question of currency and foreign exchanges after
the war, was issued Oct, 29 (2g ?). The Committee say that, in their opinion, it is
imperative that after the war the conditions necessary to the maintenance of an effective goirl standard should be es Cored withoat delay. Unless the machinery, which
long experience has shown to be the only effective remedy for an adverse balance of
trade and an undue growth of uredt is once more brought tnto play, there will be
grave danger of a progressive oredit expansion, which will result in a foreign drain
of gold, menacing the convethbliity of our note issue, and, so jeopardising the international trade position of the country. Among the pre-requisities for the restoration of an effective gold standard is the cessation of Government borrowing as
soon as possible after the war, and the Cormodttee recommend that an adequate sinking
fund should be provided out of revenue, so that there may be a regular annual reduction of capital liabilities, especially those which constitute the floating debt.
YThe issue of fiduciary notes should, as soon as practicable, once more be limited by
law, and the present arrangements under which deposits at the Bank of England may be
exchanged for legal tender currency without affecting the reserNe of the Banking Department shuuld be terminated at the earliest possible moment. In regard to the
control of the note issue, the Committee observe that, while the obligation to pay
both Bank of England notes and currency notes in gold on demand should be maintained,
it is not necessary or desirable that there should be an early resumption of the internal circulation of gold coin, and in view of the withdrawal of gold from circulation, they recommend that the gold reserves of the country should be held by one
central institution, and that all banks should transfer any gold now held by them to
the Bank of England.
The Committee recommend that the principle of the Bank Charter Act, 1g44,
should be maintainednamely, that there should be a fixed fiduciary issue beyond
which notes should only be issued in exchange fer. gold. They suggest that the normal minimum of the central gold reserve to be aimed at should be, in the first instance, L 150,000,000. Until this amount has been reached and maintained, concurrently with a satisfactory foreign exchange position for at least a year, the
When
policy of cautiously reducing the uncovered note issue should be followed.
the exchanges are working noomal4 on the basis of a minimum reserve of L 150,000,000 the position should again be reviewed in the light of the dAmensions of the
fiduciary issue as it then exists. The Committee do not recommend thestransfer of
the existing currency nute issne to the Bank of England until the future dimensions
of the fiduciary issue ha'e been ascertained.







HEADLEY COURT,
EPSOM.

,4?.., Ao-

A.._

.eIf

/114C J,2f AKee--,P
b/A-!--- li-e,e- /e-ea-.E-

gt"Z"-Le
t3d

se-e--e.c-e Ox_

AZ--iz-z

A fsic




t




Lord Cunliffe Dies in Lon4on
Twice Governor of the Bank of England
-End Came Suddenly on Way
to Dinner.

LONDON, Ja 6. -Lord Cunliffe, First Baron of Headley, died sudden17Thst night while on his way to a dinner.
Walter Cun liffe had been-

leader in

years.
British financial circles ma
He was born in 1855 and wa made
governor of the Bank of Engin d in
1913.

Lord Cunliffe was in his 65th year,.
He was educated at Harrow and Trinity College. Cambridge. He embarked
early upon a financial career and was

one of the members of the firm

of

Cunliffe Brothers. In 1895 he became
a director of the Bank of FInVland. He

also was a director of the Northeast-

ern Railway Company.
In 1911 Lord Cunliffe became deputy

governor of the Bank of England and
two years later succeeded to the governorship. He served in this capacity

for two years anil was forthwith re-

This was the first tithe in the
history of the organization that a man
had been elected to succeed himself
as governor. In 1914 he was created
the first Baron of Headley.
American bankers met,. Lord Cunliffe in 1915 when he visited this country with Lord Reading to negotiate
the first British war !Gan in America
He was one of Lloyd George's advisers
at the Paris Peace Conference..
elected.

42-actt

)A40%)

O(GLvat4
4_,

itAru

rec

att.(

HEADLEY COURT,

Epsom.

ot.k

a/N
*

v

z



tAa/Vkaxi_,

iNgrap -02
runt I/ fr12,74/9111
-

791-7i6

:740`i

-frryct

cyrutiy 404)
-Ny 71, r/47/7)/

#"7"")

rre9 _Try

-vac

'NP47iV.P1'77%q
527v)

-N'V1)1-4

P

'Vbr/2

7'12),

/5/rt.ipu

wrrrdi

HEADLEY COURT,

02.3'

EPSOM.

Will you forgive a printed letter? I
have been trying to write personally to the
many friends whose sympathy has been such
a help in this time of sorrow and loss ,. but
I begin to realize that it woul take months
to acknowledge all the letters, a though each
one has been gratefully appreciated It
becomes increasingly difficult to write, as

each day brings fresh duties, but I am very
anxious that all who have sent such wonderful tributes to the memory of my husband,
and such kindly sympathy to me and mine,
should know how grateful we are, and that
we thank you with all our hearts.

444

crx>

Jr-fa-14
tAAsimf'

ivrti'Vb


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102