The International Bank and the Young Plan (Part II)

September 21, 1929

Report Outline
American Attitude Toward International Bank
European Opinion on Bank Project

The difficulties of the reparation problem are of two kinds, Sir Josiah Stamp asserted in his report of 1925 to the International Chamber of Commerce: (1) the determination of the capacity of the debtor to pay, and (2) the gradual determination of the capacity of the creditors to receive payments. The second determination will seem highly artificial to all creditors so long as questions of capacity to pay remain unsettled, but will take on increasing reality as payments begin to be made, or as preparations for the actual transfer of goods in payment are undertaken. Industries in fields of production that are also fields of the debtor nation's industries will protest against any arrangement that would interfere, or might conceivably be interpreted to interfere, with their own trade prospects. And a government, which insisted upon receiving payments in this manner, as a means of lightening the burdens of its taxpayers, would stand in great need of some other argument to convince influential elements of its public of the desirability of its policy. This, it has been asserted, is precisely where the banking and gold reserve functions of the Bank of International Settlements come in. They have received wide publicity—tending to center public attention upon them to the exclusion of other features of the bank project—and this, it has been surmised, may have been among the principal purposes of their inclusion in the Young plan.

Banking Features as a “Selling Point”

Obviously the industries of Great Britain (and to a less degree those of the United States) are the most intimately concerned in any great and well-organized expansion of German exports. Now England, since its return to the gold standard, has always occupied a more or less precarious position. Many British economists think the return was too rapid and that it sacrificed industrial interests to the interests of the City. Whatever the merits of that controversy may be, it is a fact that the Bank of England and the stability of the pound sterling have frequently during recent months depended upon the actions of American and French banks: American banks, because the generally prosperous conditions here attracted foreign money to the New York Stock Exchange; the Bank of France, because France reversed the British method and stabilized rather below the possibilities indicated by the purchasing power of her currency, and consequently found herself with a large gold reserve considering the low new legal value of the franc. Large quantities of francs, which had fled the country during the fall of the currency, suddenly returned, and the Bank of France saw its foreign holdings—particularly in the London and New York markets—increase by leaps and bounds.

As a consequence of these developments there is a general nervousness in London financial circles over gold shipments and the dependence of the stability of sterling upon foreign markets.

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