Page images
PDF
EPUB

Those who have been following German banking developments during the past two decades are not likely to forget the crisis of 1901, and the vigorous denunciation of the German banks' participation in industrial concerns. But the severe commercial depression of this period was succeeded by great expansion of foreign trade, by the erection of new factories, and, especially, by increase of output. There was no break in the association of bank and industry. The future of the German banking system will depend upon the industrial development of Germany and her economic position in the world. In determining this position, the final issue of the war will, of course, be an all-important factor. But Germany's policy of 'peaceful penetration' constitutes a chapter sui generis in the recent history of commerce; and, if we are to combat this policy, as exerted from the financial side, it is essential to see the German bank as an expression of the national mind, as part of a system which recognises no sharp lines of division between industry, finance, and politics. Just as, after the 1901 crisis, there was a growing demand for money in Germany, due partly to the effort to intensify large-scale production, and partly to competition for raw material, so after the present war we know that her industry will require credit in an easily accessible form. In self-defence our own banks will be compelled to take measures to protect our industry from a system which, before the war, was threatening our commercial citadel.

The report (dated May 1918) of the Committee on Bank Amalgamations in England, shows no real consideration of the question, How will these large financial combines affect financial conditions overseas and our commercial expansion as a whole? The war, and the facts which it has brought to light, in regard to the influence of Germany's Grossbankentum on worldpolitics and international trade, should produce some effect on English banking development. It is worthy of note that in France, where German 'penetration,' industrial and commercial, has been of a most insidious character, the charge is now being levelled against the French banks that they refused to give adequate support to the national trade and industry, especially to new

ventures. M. Albin Huart, in his brilliant essay, 'L'Organisation du Crédit en France' (1913, pp. 232–3), while strongly defending the French system as a whole, yet declares that only at her peril can France close her eyes to Germany's ' politique bancaire.' French exporters, he says, have been at a great disadvantage, as compared with their German competitors, because they have not been supported by credit facilities backed up by a vigorous national spirit. These factors have made the German bank abroad l'organe de la pénétration du commerce et des produits allemands dans les régions les plus reculées.'

Some of our leading banking publications have long realised that greater enterprise on the part of British banks would have resulted in more attention to the financial needs of manufacturers. So far back as February 1900, the 'Journal of the Institute of Bankers,' while laying stress on making security the first consideration, was equally emphatic in declaring that there are many ways quite consistent with sound banking, by which the increase of our export trade can be encouraged.'

6

A study of Germany's banking system would seem to suggest the following points as worthy of consideration by English bankers. (1) More specialised attention should be given to the foreign exchange department. Such a department should be an important adjunct of every great English banking house; and officials should be specially trained to deal with this business and with international finance generally, because branches of foreign banks, working exchange operations almost as a special preserve, attract other profitable business which our banks lose. (2) In Germany young men enter upon a banking career in the full conviction that there is ahead of them a wide scope of activity of national significance. The big banks in Germany, however false their ideals from a cosmopolitan point of view, produce big men. In the sphere of international finance the Riessers, Gwinners and Havensteins show a mastery to which special study has contributed as much as natural gifts. (3) Closer co-operation between the banks of the British Empire would be a step in the direction of counteracting foreign competition, and would react favourably on the Empire's international

trade as a whole. The recent German amalgamations are not a precautionary measure to face the ordeal of war, but a continuation of the process of economic organisation to deal with post-bellum conditions. Only a strong united front will enable us to meet German competition. (4) For about half a century Germany has shown more skill than any other European country in turning to advantage what is called Kreditpolitik, and particularly in using the London market to give effect to this policy. German bankers are now devoting more attention than ever to devise means for restoring the national finances and expanding the export trade. If the Deutsche, Dresdner and Disconto are to be allowed to continue operations in London after the war, and to be reinforced by the Darmstädter-such is the rumour in the City-we shall have the four renowned D's permanently fastened on the heart of British finance; and they may be confidently expected to work harder than ever, not only to exploit all opportunities which the London money-market will afford them, but to promote German interests along national lines.' The proposed five-years' embargo is not likely to create any fresh notion on the part of the German banker concerning the meaning of this expression.

A. D. McLAREN.

Art. 6. THE CURRENCY NOTE IN RELATION ΤΟ BANKING AND THE EXCHANGES.

1. First Interim Report of the Committee on Currency and Foreign Exchanges after the War. 1918. [Cd 9182.] 2. Reports of the Committee on National Expenditure. First and Second Reports, 1917, Nos 151, 167; First Report, 1918, No. 23.

3. The Federal Reserve Board Acts: Amending Act No. 25. 65th Congress (June 21, 1917).

4. Speech delivered by Senator Owen, Feb. 25, 1918, on introducing a Bill amending the Federal Reserve Act so as to establish a Federal Reserve Foreign Bank. 1918. 5. Memorandum explaining the desirability of supplementing the existing laws in Greece relating to the Forced Currency and to the Exchanges by adapting thereto that portion of the United States Federal Reserve Act relating to their Banking System. Ionian Bank, London, 1917. 6. Gold and Man-Power; and The Dragoumis Act, 1910, versus the Peel Act, 1844. Being speeches delivered by Falconer Larkworthy, C.O.R., at the Annual General Meetings of the Ionian Bank in 1917 and 1918.

7. Die Entwerthung des Geldes. By Rudolf Dalberg. Berlin: Puttkamer and Mühlbrecht, 1918.

8. Die Entwerthung der deutschen Valuta im Weltkrieg. By D. W. Bloch. Basel: Finckle, 1918.

DURING the present war England has passed from a metallic to a paper currency. The process of substitution has been so imperceptible and so frictionless that we are only now becoming conscious of the change, although it was practically accomplished before the end of the year 1916. And we are as yet without any clear consciousness of its significance.

Generally speaking, every war of modern times, that is, since the invention of paper money, has produced a similar revolution, and quite naturally. But it is remarkable that a State so identified as Great Britain has been with a metallic currency and with the gold standard should have made the transition to a paper currency with so little protest and should have adapted itself to a comparatively strange currency habit with such ease or such indifference. Still more remarkable is it that the Vol. 231.-No. 458,

H

change was not, in its inception, either desired or designed. We have stumbled upon a paper currency as blindly as we have stumbled upon an Empire; and even in the process of the change we have held up our hands and protested our allegiance to the pound sterling. That too without the slightest suspicion on our part of selfdeception or inconsistency. The explanation of such incongruity lies in the fact that events, the economic experiences and necessities of the moment, have shaped and determined our policy. We have been led on, step by step. As each new situation arose, it has been defined; and its problem has been solved solely by practical needs and without regard to theory or symmetry of policy.

At the outbreak of the war a tremor of nervousness ran round the whole earth. This nervousness evinced itself, as it always does, in a tendency to hoard. Currency media began to disappear, and men rushed to draw their talents from the bank and wrapped them in a napkin. In the five days preceding the 1st of August 1914 the Bank of England paid out 27 millions to help to meet the rush; and on that day its balance stood at 17 millions with no abatement of the demand. The Bank, therefore, appealed to the Government, and the Government met the appeal by passing the Bank Note and Currency Act, authorising the issue of Currency Notes and the suspension of the Bank Act. In order to apply the provisions of the Act to the needs of the moment, a scheme was evolved for assisting the banks throughout the United Kingdom. Under the terms of that scheme the Bank of England undertook on behalf of the Government to advance to these various banks amounts of Currency Notes up to the extent of 20 per cent. of their deposit liabilities.

It is almost a literal fact that the issue which resulted was an issue of Currency Notes pure and simple, and that the Bank Act itself was never really suspended. For, although at the outset (on Aug. 7-8) Bank of England notes to the extent of 3,043,000l. were issued, it was simply due to the physical impossibility of printing and despatching Currency Notes in sufficient quantities to meet the instant need. These Bank notes were used simply as substitutes for the Currency Notes; and within three days, as soon as the available stock of the latter

« PreviousContinue »