POLITICAL AND FINANCIAL FACTORS.
for this co-operation between the Central Banks, and
because the influence is one which must necessarily affect the outlook for 1928, I will very briefly, and as simply as possible, explain the nature of this co-operat ion. At the beginning of the year it soon became evident that our Money Market had still to withstand the after-effects of the coal stoppage, and in the early part of the year when the American and other exchanges should have been moving in our favour the tendency was adverie. By the month of April, however, conditions had begun to improve a little, and the Bank Rate was lowered from 5 to 41 per cent. Moreover, conditions suggested the likelihood of a further reduction to 4 per cent. Within a week or two, however, the outlook was completely changed by developments connected with French financial policy. It was discovered that, partly in connexion with the tactics pursued by the Poineari- Ministry in the latter part of 1926, and partly in connexion with foreign speculations in the franc, the Bank of France had become the holders of enormous foreign balances. So large were those balances in this country that the Bank of France unexpectedly decided to repay to the Bank of England an amount of £33,000,000, whereas such repayment was to have been spread over a few years. Not only, however, was this repayment made, but it was soon discovered that the Bank of France still had huge balances both here and in New York, and was disposed to make purchases of gold irrespective of the position of the exchange. The position was, in fact, an extraordinary one, for by reason of such purchases of gold made possible by the balances in question it was quite conceivable that the Bank of France might seriously disturb monetary conditions both in New York and in London, notwithstanding the fact that both to the United States and this country France was enormously indebted in connexion with War obligations. The most serious point of all, however, was that in making such gold purchases, the French authorities were acting contrary to all the usages of the Gold Standard countries, and their policy, if persisted in, was likely to occasion a veritable war in Bank Rates and a kind of wholly unnecessary scramble for gold.
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