for debts contracted by its Allies for the purposes of the war. In
fact, England may be said to have shouldered the entire burden
until April 1917, when America joined the Allies. The neutrals
believed in England's financial strength, and they also recognized
that the pound sterling was interchangeable with the dollar on a
basis which, with allowance for the increased cost of freight and
insurance, was approximately equal to pre-war par value. In
other words, since America remained on a real gold basis, and the
English and American exchanges were linked together, England
was for practical purposes also on a gold basis. They therefore
were equally content to leave their rapidly accumulating foreign
credit balances either in England or America, in whichever
country a better rate of interest was obtainable. In order to offer
an inducement for them to select England, the British Govern-
ment authorized the Bank of England on their behalf to pay to
British banks and bankers a specially high rate of interest on
deposits emanating from customers in neutral states (see MONEY
MARKET). Thus neutrals were able to get in England a rate
of interest for their balances substantially higher than they could
have got with equal security in America. They therefore ab-
stained to a great extent from converting their sterling into
dollars, which would have added greatly to the difficulties and
expenses of the London Exchange Committee.
Vast as this operation of " pegging " the sterling exchange in America was, it was only part of a still more ambitious scheme. The object in view was to stabilize at the same time the French, the Russian and the Italian exchanges. With France success might have been possible, although France lacked one of the great essentials for that purpose, i.e. a gold " income." None, or practically none, of the newly mined gold of the world was controlled by France. The Bank of France, however, possessed a very large stock of gold, amounting to 169,351,920 at the beginning of 1915, and the quantity of gold coin circulating in France was larger than in England. The French also had many investments abroad even apart from their holdings of Russian securities; but they were unwilling to make the great sacrifices that were necessary to ensure success. Their taxation was in- finitely lighter than that of England. The logical mind of the Frenchman argued thus: " If we lose the war we are ruined anyway. If we win, then we shall have power to force the defeated enemy to foot our bill down to the last franc. So why worry now?" They certainly did not over-estimate the power of the conqueror to dictate his own terms, but they omitted to take into their calculations the possibility that the defeated nations might be unable to pay what was demanded of them. At any rate they endeavoured to stabilize the French franc largely on money borrowed, first from the British Government and English invest- ors and accepting houses, and later from America. Such an at- tempt was foredoomed to failure, and the wonder is that they were able to keep their rate of exchange as favourable (or as far from unfavourable) as they did for so long a period. The move- ments of the French exchange as well as those of other countries will be seen in the annexed tables.
With Italy it was still more difficult, and the various attempts that were made to prevent a breakdown in that exchange were not very successful; but then Italy was absolutely unable to rely on its own resources, much as it might wish to have done so, and it cannot justly be accused of backwardness in the im- position of taxes. As regards Russia, the attempt might well be described as farcical, since it resulted chiefly in enabling wealthy Russians to remove their money from their own country to places of safety abroad, at the expense of the British Government and the English accepting houses, who gave their unwilling assistance not with the object of making a profit, but because their patriotism was appealed to.
Table E gives the rates of exchange on New York ruling in London at the beginning and the middle of each month from Jan. 1914 to Dec. 1920.
Indian Exchange. In striking contrast to the success that crowned the efforts of the London Exchange Committee in deal- ing with the Anglo-American exchange, was the failure of the Indian Government to maintain the pre-war ratio between the
TABLE E.
 | A table should appear at this position in the text. See Help:Table for formatting instructions. |
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1914
4-8li 4-84!
1915
4'85i 4-84
4-84 4-82-i-
4-80
4-80
4'79{i
4-791
4-79
4-781
4-77
4-771
4-761
4-76J 4-67^
4'68i
t-66| 4-651
1916
4-761
4-76*1 4-761
1917
4-76M 4-761
4-761
1918
4-76f
4-76M
4-7631
4-76*1
4'76*J
do. *
do.
do.
do.
do.
do.
4-76*1 4-76*1
4-76|
4 - 7 6i
4-76*
4-76A
4-76A
4-76J
4'76f
4-765
1919
3-781
4'5of
4'i6i
1920
3-47!
British pound and the Indian rupee that had existed without a break since 1898.
The Anglo-Indian exchange has always been a very difficult one to deal with, and it took five years' hard work (from 1893 to on the part of a particularly well-managed department
of the Indian Government to establish the ratio of 15 rupees to the English sovereign, or is. 4d. per rupee. 'With great difficulty and at vast expense to the Indian taxpayer, this ratio was maintained during the war until Aug. 1917, when the Indian Council in London announced that they would no longer sell Indian exchange under is. sd. per rupee. In April 1918 the rate was raised to is. 6d.; in May 1919 to is. 8d. ; in Sept. of that year to 2s. od.; in Nov. to 2s. ad. and in Dec. 1919 to 25. 4d. In Jan. 1920 the rate was reduced to 23. od., at which rate it was hoped that the exchange might be maintained, but by this time the Indian Government had been forced to come to the con- clusion that the task of controlling the Anglo-Indian exchange was altogether beyond their power, and having spent on their attempts well over 20,000,000 and having caused losses far exceeding this amount to the Anglo-Indian trading community, while achieving no adequate result, they abandoned the attempt to interfere with the natural movements of their exchange.
In the course of their operations they purchased from the United States practically the whole of their accumulated stock of silver, amounting to 200,000,000 ounces. They suspended their weekly offerings of rupee exchange in London, and for a considerable period offered sterling exchange on the Indian markets. But it was to no purpose. The phenomenal rise in prices of com- modities up to the early days of 1920, and their subsequent rapid fall, made their task too heavy for them, and after having reached 2s. gjd. on Feb. 14 1920, the value of the rupee fell away till it touched is. 3d. on March 7 1921.
It must be borne in mind, however, that it is a far simpler task to " peg " an exchange to one which remains on a free gold basis as was that of England before the war, and as that of America still remained than to do so to that of a country whose currency is purely a fiduciary one and is subject to violent fluctuations in countries having a gold standard. In fact, during 1920 the average gold value of the pound note was only 143. 6d. or 27^% discount, equivalent to 43 pence on a is. 4 d. rupee.
Chinese Exchange. From time immemorial the Chinese ex- change has been based on the price of bar silver, and the rate of exchange between Shanghai and England still rises and falls with the market price in London of that metal. It is true that the fluctuations in this exchange have been extraordinarily violent in recent years, but so have the movements in the price of silver. In this connexion it may be said that a large proportion of the supplies of silver that came to the London market during 1919
