Dear Bryan,
Thank for the confirmation. Economics is not my strong point.
The UK suspended gold payments on September 21, 1931. In the Finance
Act, 1932, an Exchange Equalization Fund (or Exchange Equalization
Account) was established for "checking undue fluctuations in the
exchange value of sterling".
(According to The Times, Friday, June 17, 1932, the bill received
royal assent on June 16)
On September 25, 1936 a tripartite agreement was signed between the
UK, US and France on Monetary Stabilization.
These are various sources which explain how it worked and some with
historical background information.
Bank of England
"The EEA was established in 1932 to provide a fund which could be used
for "checking undue fluctuations in the exchange value of sterling"
(Section 24 of the Finance Act 1932). Any United Kingdom Government
intervention in the foreign exchange market would therefore be
conducted through the EEA."
http://www.bankofengland.co.uk/mfsd/reserves/introduction.htm
Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
Extract ? more information in the article.
"The voluntary suspension of the gold standard and depreciation in
exchange value of a currency under a MANAGED CURRENCY program may be
classified as a primary form of exchange restriction. In 1931, this
policy was inaugurated by the United Kingdom and the STERLING AREA as
a means of reversing the deflationary effects of gold outflows and
promoting lower export prices of goods to stimulate a more favorable
INTERNATIONAL BALANCE OF PAYMENTS. The EXCHANGE EQUALIZATION FUND was
established in 1932 as a means of assuring desired levels in the
exchange value of the pound sterling. Such stabilization funds,
established by other countries subsequently, did not supplant the
foreign exchange markets, but operated in them as manipulative forces."
http://www.eagletraders.com/advice/securities/exchange_restictions.htm
Again from the same source,
"Suspension of gold payments is an extraordinary procedure for
protecting gold reserves or temporarily stimulating export trade and
may be initiated as a defensive measure without inflationary intent.
England's suspension of gold payments on September 21, 1931, was
designed in furtherance of these ends. Another major purpose of
England's suspension of gold payments was to experiment with MANAGED
CURRENCY, a policy of releasing the currency unit from the anchor of a
fixed gold price, and allowing the currency unit to seek lower levels
in the foreign exchange markets, protected against sharp or sudden
fluctuations by operations of the EXCHANGE EQUALIZATION FUND."
http://www.eagletraders.com/advice/securities/inflation.htm
Glossary of terms
"Exchange equalization fund
The unit within a government or central bank that manages a pegged
exchange rate. It manages reserves of foreign currencies, which it
uses to buy and sell domestic currency as needed to keep the exchange
rate within specified bounds."
http://www-personal.umich.edu/~alandear/glossary/e.html
Article on economics
Extract ? more information in the article
"The new variety of the gold exchange standard as it developed in the
years between the first and the second World Wars may be called the
flexible gold exchange standard or, for the sake of simplicity, the
flexible standard. Under this system the Central Bank or the Foreign
Exchange Equalization Account (or whatever the name of the equivalent
governmental institution may be) freely exchanges the
money-substitutes which are the country's national legal tender either
against gold or against foreign exchange, and vice versa. The ratio at
which these exchange deals are transacted is not invariably fixed, but
subject to changes. The parity is flexible, as people say. This
flexibility, however, is almost always a downward flexibility. The
authorities used their power to lower the equivalence of the national
currency in terms of gold and of those foreign currencies whose
equivalence against gold did not drop; they never ventured to raise
it. If the parity against another nation's currency was raised, the
change was only the consummation of a drop that had occurred in that
other currency's equivalence (in terms of gold or of other nations'
currencies which had remained unchanged). Its aim was to bring the
appraisal of this definite foreign currency into agreement with the
appraisal of gold and the currencies of other foreign nations."
http://www.mises.org/humanaction/chap31sec3.asp
Economics article by Keith Bain, Dept. of Economics, University of East London,
"Sterling left the Gold Standard in 1930 and occasional violent
fluctuations in the exchange rate followed. The British Exchange
Equalization Account was set up to smooth them out and to try to
neutralize the effects of short-term capital movements on the domestic
money supply. The Sterling Area countries pegged their currencies to
the fluctuating pound. Many countries sought to devalue their
currencies as a means of protecting their domestic industries and
counteracting unemployment. Countries were following 'beggar thy
neighbour' policies of competitive devaluation. France and a few
others remained on the Gold Standard (these countries were known as
`the gold bloc'). France used import quotas instead of devaluation to
overcome its payments deficits; Germany used exchange controls (see
Appendix B). The major convertible currencies were sterling, the US
dollar and the French franc. Finally France was forced to devalue. A
tri-partite declaration between the UK, France and the USA allowed
France to devalue without retaliation. The declaration was also
adhered to by four other countries during a short period of informal
international co-operation."
http://homepages.uel.ac.uk/K.Bain/IMS.pdf
Full text of the tripartite agreement of UK, US and France.
http://www.gold.org/value/reserve_asset/history/monetary_history/vol3/1936sept25.html
Declaration by the United States, the United Kingdom, and France
effected by simultaneous announcements at Washington, London, and
Paris September 25, 1936
http://www.yale.edu/lawweb/avalon/intdip/usmulti/usmu001.htm
Papers on the UK events of September 1931 and subsequent events. It
mainly relates to the Gold Standard. This is the first page. Documents
are sourced.
http://www.gold.org/value/reserve_asset/history/monetary_history/vol3/1931jun.html
This is the index
http://www.gold.org/value/reserve_asset/history/monetary_history/vol3/
On amazon.com use this search phrase to see references to "exchange
equalization fund". In particular,
English History 1914-1945 (The Oxford History of England) by A. J. P.
Taylor Page, 337. I?m sure you have this book in your library.
Elusive Stability : Essays in the History of International Finance,
1919-1939 (Studies in Macroeconomic History) by Barry Eichengreen,
Page 16
I hope this answers your question. If it does not, or the answer is
unclear, then please ask for clarification of this research before
rating the answer. I shall respond to the clarification request as
soon as I receive it.
Thank you
answerfinder
Search strategy
"exchange equalization" AND "united kingdom" OR UK AND 1931..1940
://www.google.com/search?hl=en&ie=UTF-8&q=%22exchange+equalization%22+AND+%22united+kingdom%22+OR+UK+AND+1931..1940
"exchange equalization account"
://www.google.com/search?hl=en&lr=&ie=UTF-8&q=%22exchange+equalization+account%22
"exchange equalization fund"
://www.google.com/search?hl=en&lr=&ie=UTF-8&q=%22exchange+equalization+fund%22
You ask if can I read your mind? No, definitely not. I?ve never been
good at that sort of thing. The only person I know that can read
minds, is my wife. Then again, I think most woman have that ability. |
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