Thomas Tooke

Gold Backing of the Currency before and After the first world war in the United States

In Gold vs monetary base on May 19, 2012 at 6:22 pm

As Kemmerer wrote in 1920 there were some difficulties in computing accurately the change is Gold backing between 1913 and 1919.


Let us now turn to the Untied States, the country that is supposed to have absorbed the larger part of the gold lost by the belligerent countries of Europe. Unfortunately a change made some time ago in the form of compiling the bank figures published by the Comptroller of the currency makes it no longer possible to tell how much gold is held by reporting banks in their own vaults. This fact together with  complete reorganization of our legal reserve requirements, brought about by the establishment and development of the federal reserve system, renders a comparison of the exact percentages of gold reserve held in the United States before the war and now, impracticable. Some idea of our changed position since June, 1914, however, may be found by comparing for that date and the present the ratios of our stock of monetary gold to the total amount of money in circulation and to total individual deposits in national banks. These figures have been previously given, and need only be summarized here.

Our stock of monetary gold on July 1st, 1914, was equivalent to 55.3 per cent of our total monetary circulation, and on June 1st, 1920, it was equivalent to 43.6 per cent. On the  former date it was equivalent to 29.7 per cent of our national bank deposits (exclusive of bankers´balance), and on December 31st, 1919, the stock of monetary gold, less that held by the federal reserve system as reserve against federal reserve notes, was equivalent to only 14.1 per cent of the national bank deposits. Ultimate cash reserves, against deposits in commercial banks, declined from an average of 11.7 per cent in 1914 to 6.6 per cent in 1919.

Our Gold position is thus far below that of pre-war times and we have been losing gold on a net balance almost continually since May, 1919 our net loss for the period January 1st, 1919, to June 10th, 1920, having been in round numbers $386 millions. To us however more than to any other country, belligerent Europe ultimately will look for the replenishment of her gold in order to return to a specie basis.



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