The League of Nations

A Study in Co-operation

TnE Bank of International Settlements has been described as a " financial League of Nations." There is, it is true, no official connexion between the Bank and the League. The parallel, nevertheless, is closer than might at first appear, for the circumstances in which the Bank was suggested arc not unlike those which gave their opportunity to the statesmen who founded the League of Nations.

Both the Bank and the League, in the first place, are instruments with a double purpose. The League was first founded partly with the object, which remains the sole object in the eyes of some Powers, of maintaining the arrange- ments made under the Peace Treaties. But it was intended by those who saw further into the future as the instrument of collaboration between nations for purposes too big to be attained by each nation working separately, and for the avoidance of such disputes as have in the past led to war. The Bank also has two purposes. It is to serve, in the first place, as an agent for the transfer and mobilization of the sums paid by Germany in reparations, and by other countries on account of their external debts, without disturbing unduly the money markets of the world. It appears, however, from the hopes expressed in the Experts' Report, that they had a very much wider purpose in mind, namely, to secure co-operation in the monetary policy of Central Banks, both by means of economies in use of gold, and by assistance in carrying out their credit policies.

In the second place, the formation of the Bank, as of the League, was preceded by a situation in which the Central Banks had been forced to co-operate for the solution of urgent problems. The first public action in this field after the War was that of the Bank of England in allowing Austria to anticipate the loan which was made to her under the auspices of the League of Nations. This service was repeated for various countries first by a group of Central Banks in the more powerful countries, and later by almost all countries which were on the gold standard. It is interesting to note that this first co-operation arose under the auspices of the League, thus providing one more instance of the indirect benefit which the League confers by helping to create the machinery of international co-operation.

This co-operation was continued in the hope of being able to co-ordinate the monetary policy of the various banks, but the various agreements have been too vague to secure what was desired, and evasion has been frequent. The recent withdrawals of gold, by the Bank of France and the Reichsbank from the Bank of England, for instance, did not technically contravene the understanding at which the bankers had arrived, but their effect was none the less certain. The gold situation has also become more serious, owing to there being to-day more countries than before the War on the gold standard, and to the tendency, even of countries which are only on a goId exchange standard, to accumulate gold reserves as a means of strengthening their position. The normal pre- War flow of gold into circulation has been disturbed both by this and by other circumstances, and co-operation has become more and more urgently necessary.

This urgency provides the third parallel between the circumstances of the foundation of the League and that of the Bank. Just as in 1919 the international situation was felt to require special machinery for its administration, so the occasion of the " commercialization " of reparations and the stringency in the gold situation were together found to require a special instrument if the crises of the next few years were to be forestalled and efficiently dealt with. The advantages of a bank over ordinary financial diplomacy for this purpose are admirably summarized by Mr. Paul Einzig in his book, The Bank for International Settlements*, which gives as good a review of the situation as it is possible to procure at the moment. They are worth quoting in full, and it is interesting to notice how closely they correspond to the advantages of using the League of Nations machinery

* The Bank for Iniernational Settlements- By Paul Einzig. (Mac.miilan. 7s. 6d.)

over ordinary diplomacy for the solution of the problems of international administration. The list is as follows

(1) It places co-operation on a systematic basis.

(2) It provides a central administrative organization.. . (3) It facilitates personal intercourse of central bankers. . (4) It will help to establish discipline among central banks. . ; To_ accept the iuling of the Bank is less humiliating than to submit .to the decision of individual Central Banks or groups of Central Banks.

' (5) It wfil render the movement more efficient. Much waste of time in the arrangement of credits, &c., can be avoided. -

(6) It may result in the restriction of the scramble for gold.

(7) It will tend to increase the number of countries on a gold basis. Being excluded from participating in the share capital of the Bank will be a stigma of inferiority, and for this reason every Central Bank will be anxious to qualify for admission.

(8) It will facilitate the exchange of statistical and other information.

Save for No. 6, every advantage here cited can be exactly matched by the advantages conferred by the League, and even No. 6 has its parallels.

One further advantage may be added, in which also the parallel with the League is very close. The principles of central banking have recently been the subject of much study (cf. Central Banks, by C. H. Kisch, C.B., and W. A. Elkin. [ReviSed editiOn.] MacMillan, 18s.), and the dis- turbance which was occasioned to orthodox banking practice by the War has been followed by a very strong reaction towards orthodoxy, as represented by the traditional practice of the Bank of England, on the part not only of those nations whose monetary policy was previously determined on those lines, but also of nations which had formerly suffered from the evils of a badly managed currency. The establishment of a powerful institution whose function it is to eliminate irregularity cannot but tend to the improvement of inter- national morality in this matter, even independently of its direct action. Just as the existence - of the Opium Com- mission at Geneva has stimulated the independent zeal of Governments, so the Bank may be expected to stimulate the vigilance of Central Banks, and thus encourage this move- ment, upon which the economic health of the nations ulti- mately depends.

, _Into the possible dangers of the Bank, both in the political and financial sphere, we have not space to enter here. They are fully dealt with by Mr. Einzig in his book referred to above. The specific danger to London, which has been much emphasized in some quarters, was dealt with by Sir Josiah Stamp in his letter to the Times of November 9th last. It is sufficient to quote two statements :— " If the civilized world could not during the next decade find a way of securing the stable purchasing power of gold, and if gold i

continued to rise in value on the scale of the last few years, Great Britain stood to suffer more than the other chief economic powers."

" The problem of stabilizing the value of gold in its effect on prices was international. . No one European country could do this by- itself. . . ."

If these statements are true, Great Britain's reasons for • supporting the Bank are obvious, and it would be difficult to shoiv that they are not true.

Finally, the suggestion of the Bank by the Experts Com- mittee is one of the most interesting instances of the methods introduced by the League. Mr. Alfred Zimmern recently in the Political Quarterly described the functioning of com- mittees of experts under pressure of public opinion as one of the great political inventions of the age. Under these con- ditions they are able, according to him, to lay aside pro- fessiorial jealousies and. achieve results which they could never achieve under normal conditions. From this point of view the conditions. of Paris were just right Public interest had - been sufficiently aroused to demand urgently some decisive action. And the experts in question, usually as conservative a body of men as could be found, arrived of their own accord at an invention at which any' radical might have hesitated. Nor' could any" radical have brought it to acceptance. " The. weight of expert agreement," another of Mr. Zfinmern's phrases, secured its acceptance where political agitation must hive failed. •Thii is the very method of Geneva, and the Elimkitieliiirovides tar its continuance in the financial

sphere. The omen at leisi iiigoodone.. A. M. W.