WAR AND THE EXCHANGES 1. War and its effect on international exchange.— Exchange operations in the preceding pages have been considered almost entirely from the viewpoint of normal conditions, as it is safe to assume that, with the return of peace, international exchange will re sume its ordinary channels. A brief review, however, of the manner in which the war has affected the ex changes may be interesting as well as instructive.
A prominent New York banker, Mr. Albert Strauss, once referred to foreign exchange as "an economic mechanism automatically making delicate international adjustments." The full significance of this terse definition has never been more fully realized than in those fateful days of early August, 1914, when the mailed fist of war fell and completely par alyzed the credit machinery of the world. The very perfection of the international credit machinery with its vast network of telegraphic nerves radiating from London, New York, Paris, Berlin and other financial ganglia was a factor in its own undoing. Cable com munication was practically cut off by the destruction of some of the cables and by the establishment of cen sorships, and the little news that did succeed in filter ing thru was almost unbelievable, so terrific was its significance.
Events followed each other in rapid succession. Austria declared war on Servia, July 28, and Rus sia, Germany and France began to mobilize. On July 30, the Bank of England rate was raised to four per cent, and on July 31, to eight per cent. On the same day, unable to withstand the flood of conti nental liquidation, the London Stock Exchange closed, and a like course soon followed by the New York Stock Exchange and by every bourse in the world. On August 1, Germany declared war on Russia and the Bank of England rate was raised to ten per cent. On August 3, Germany declared war on France. This was followed by a run on the Bank of England, and on August .5, England de clared war on Germany. Europe was panic-stricken, specie payments were suspended and moratoria were being declared everywhere. For a time all was con
fusion until the energetic and courageous action of the British government, assisted by the remedial meas ures resorted to at other exchange centers, brought some order out of chaos and, to a certain degree, re stored confidence.
During the first week of August the world's finan ciers faced conditions that were absolutely unprece dented and to which the generally accepted remedies or economic theories were inapplicable. Friends of peace, who scoffed at the possibility of a great Euro pean war and the necessity of preparedness, received a rude awakening, as the very international, financial and commercial interests on which they relied so fully to avert this war were the very first to fall victims to its destructive influence. The first week of August, 1914, found the world's business completely paralyzed and it will be interesting to study the various expedi ents used in the endeavor to repair and support the machinery of credit.
The whole subject of foreign exchange since the beginning of the war is most complex and, in this brief review, we have referred only to the more outstanding and evident effects, without attempting to explain all the causes. To do so would require an exhaustive study of the internal conditions of each cotmtry ; largely a matter of conjecture at the present time. It is hoped, however, that sufficient has been said to make the accompanying chart intelligible and assist the reader in realizing the existence of the many mysterious and undisclosed influences proceeding from the economic pressure exerted by the war upon the financial centers of the world.
is a Latin word signi nifying delay. It is an extension of time for the pay ment of debts allowed, under exceptional circum stances, by the government of a country; in other words, it is an extension of the days of grace. Dur ing the Franco-German war of 1870, a French mora tory law was passed extending the maturity of bills for three months.