We may cite two examples.
In 1925, the Coffee Institute of Brazil sought to obtain a loan from New York in order to build storage facilities for coffee. Since these warehouses were intended to withdraw part of the coffee crop from the world market in order to prevent a fall in prices, the State Department advised against a loan that would have supported a monopolistic maneuver unfavorable to American consumers. London then provided the necessary funds.
In 1925, the Franco-German potash cartel was also denied certain funds. An American firm affiliated with the cartel was nevertheless able to supply part of the desired sums, while the remainder was borrowed in sterling in London.
The return of sterling to the gold standard in 1925
If there is a measure that clearly demonstrates Great Britain’s determination to counter the growing American influence in international financial operations during the 1920s, it is the return to the gold standard at the prewar parity, decided on May 13, 1925. It is worth noting, moreover, that more than two years elapsed after the Genoa Conference before London officially resumed its position as a “gold center.” At the end of the war, the inconvertible pound was able, for a large number of countries, to resume its traditional role as an international currency. This fact tends to show that many holders of sterling, even outside the Commonwealth, attached greater importance to the pound and to the services of the City of London than to gold itself. However, in order to check the attractive power of the dollar, always convertible into gold, it was necessary for sterling to offer the same advantage. Finally, to demonstrate clearly that nothing had changed from before the war, the government adopted the same gold definition as in 1817 (Winston Churchill was then Chancellor of the Exchequer).
There is one event that appears to have played a decisive role, while at the same time confirming the rivalry between sterling and the dollar during this period. The Federal Reserve Board, the governing body of the United States central banking system, made its views known on German monetary reform following the publication of the Dawes Report in 1924.
“The Dawes Report provides for the establishment of a German note-issuing system on a gold basis, but leaves open the possibility of founding it on sterling, and it cannot be denied that there is a strong likelihood that this second solution may be adopted. If, in this way, the German currency were linked to sterling, England, upon returning to an unrestricted gold basis, would have to meet not only her own needs but also those of Germany. It is evident, therefore, that if Germany adopts a sterling exchange standard, the world would have to expect a prolonged period of instability, the outcome of which would be impossible to foresee. On the other hand, adoption of a gold basis (that is, the dollar) would hasten the return to world stability.”
The comment was not well received in the City of London, judging by the article published in the Westminster Bank Review in June 1924. Despite the depreciation it had been experiencing for some time, sterling had managed to hold its ground against the dollar, and London remained an international financial center at least as important as before the war. Yet the Dawes Report opened new prospects. The potential link between the dollar and the gold mark, between the credit resources of the United States on the one hand and German enterprises and world trade on the other, presented a prospect difficult to contemplate without concern while sterling remained depreciated on the world exchange markets. To speak plainly, a depreciated pound would be eliminated from international financial relations by the two major gold currencies, the dollar and the mark. If Britain wished to defend itself, sterling had to be linked to gold, whether it wished it or not.