American Bankers and the Economic Tactics of Peace: 1919

Abstract

THE Federal Reserve Act of 1913 and World War I revolutionized American international bankingz. The act provided the United States with the machinery for international banking. The war, by creating the demand for goods and the credit to pay for them, forced the very rapid growth of that machinery. By the end of the war, American bankers had secured the foundation of an American-foreign banking system and made the dollar, which had been of small consequence abroad, only slightly less important to the international economy than the pound. During this period, close cooperation between the bankers, the Federal Reserve System, and the treasury department resulted in foreign economic policies which fostered shortand long-term foreign loans. This significant development for the American economy was an integral part of the wartime experience. Backed by their government and its loans to the Allies, American bankers gained influence and perspective which they had lacked in their prewar days as borrowers on the international accounts. Whether they servcd in the treasury, the Federal Reserve Banks, or remained with their banks, their wartime experience sharpened their sense of their advantages and responsibilities as world creditors.' After 1917 and the American entry into the war, the growth of the federal debt was the principal factor in developing America's creditor position. Through loans to the Allies, the American government provided the dollar exchange which permitted the development of a tremendously favorable balance of trade. The national debt jumped from $1.23 billion in 1916 to $12.5 billion in 1918, and in 1919 the amount doubled. While the net outflow of government funds abroad increased from none in 1916 to $4 bil-