World Currency Expansion During the War and in 1919

Abstract

A MONG the evil legacies of the war is a serious derangement of the world's currency and banking. There has been general inflation of credit and currency. The world's banking reserves have been redistributed. In most countries bank loans, deposits, and circulation have increased out of proportion to gold and silver reserves, or in the face of declining reserves, and reserve ratios have accordingly fallen heavily. Several important countries have effectually departed from the gold standard and are experiencing the characteristic effects of an inconvertible currency regime. In no small measure as a result of these currency and banking influences, world prices have risen astonishingly; relations between price levels of different countries have been disrupted and continue unstable; and international exchange is utterly deranged and subject to extreme fluctuations. In turn, international trade and finance have become highly uncertain and speculative. During the war economic and financial policies were determined by military considerations and the probable effects were not always frankly faced. Now hostilities have ceased. It is pertinent to inquire not merely where we stand but whither we are going. How far did these war-time tendencies progress ? Are they continuing ? If not, have they been merely checked, or is good progress being made in regaining a normal status ? In what respect is the post-war normal to differ from the pre-war position ? These questions press for answer, the more because, through exchange rates and price changes, the currency and banking situation is intimately linked with all the problems of labor unrest, international trade, the financing of reconstruction, and the enforcement of the terms of peace. Statistics of central banks and of new government issues here afford valuable evidence. Hence in recent SUPPLEMENTS we have reviewed selected statistics of the Bank of France, the Bank of England, British currency notes, and the federal reserve banks. Here, more briefly, similar data are considered for other leading countries of the world, and tendencies during the war and since Armistice Day I9I8 are summarized. For such a survey recent issues of the Federal Reserve Bulletin contribute illuminating material,' and the weekly summaries of central bank statements published in the London Economist are invaluable. A preliminary word is needed, however, on the precise significance, in this connection, of these statistics of central banks.