1STRONG MEN AND STRONG'S MENCentral Bank Cooperation in the Interwar 1920s

The Norman-Strong Partnership

Interwar cooperation was markedly hierarchical. Economic power and centrality in international finance were paramount in determining the core of the hierarchy: Britain and the United States. Given the centrality of Britain and the United States, and their currencies, sterling and the dollar, Montagu Norman, governor of the Bank of England, and Benjamin Strong, governor of the New York Fed, were the linchpins of the central banking community during the decade. Although the First World War and the interwar period marked sterling's twilight years, the United States and the dollar were only commencing their rise;²⁴ together, they decided the central bank hierarchy.

Lord Montagu Collet Norman, “the Alchemist,” was deputy governor of the Bank of England in 1917 and governor of the Bank of England from 1920 until 1944.²⁵ For Norman, the return to the gold standard was tied to “London's leadership of the world's financial and monetary affairs.” He was troubled by the shift of economic power toward New York. The growth of the working class's political power through the vote also put new pressures on central banks’ activities. In charge of Britain's financial position in the interwar years and during the Second World War, he was a man of extraordinary power, the most influential central banker in the world: his speeches could sway markets. Norman came from an old and respected banking dynasty. He was also an infamously difficult, peculiar, and troubled man, whose mercurial ways led to regular nervous breakdowns that often brought about decisive consequences for the British and global economy.²⁶

The New York Fed, led by its governor, Benjamin Strong, was the only entity that Norman saw as an equal. Liaquat Ahamed describes Strong as a “man of action” who “represented a new generation in America” that wanted to bring its power to bear in world monetary affairs.²⁷ He was known for his take-charge attitude and was admired within private financial circles for his dominant personality and aptitude for addressing practical problems. He was well connected in New York, having spent his career at the Bankers Trust, a “bankers’ bank” that worked alongside J. P. Morgan during the rescue of the Panic of 1907. Strong briefly served as the Bankers Trust president in 1914 before taking up the position of governor of the New York Fed.

As an architect of the Federal Reserve system alongside key US bankers, Strong was not one to wait around for orders.²⁸ Although isolated from the goings-on on the continent, his personal charm and shrewdness in financial matters won him many friends among central bankers internationally. But he was also physically weak, frequently very ill, and regularly could not travel. This did not stop him from seeking out and developing personal connections, which he believed were deeply important for cooperation to maintain financial stability.

Norman and Strong shared an internationalist outlook. They also insisted, as Émile Moreau, governor of the Bank of France after 1926, recounts, on the absolute independence of central banks vis-à-vis the state and believed that central banks “should be master of the money markets.”²⁹ For Norman, Britain's interests aligned with those of the international financial system. Central bank cooperation was “a doctrine and a program, a prescription of how things should be.”³⁰ He was more interested in international than domestic affairs, often, as his associates suggest, to the point of neglecting the Bank's role in London.³¹ Strong was particularly interested in European reconstruction and committed to “internationalism.” He was an Anglophile who believed that Anglo-American cooperation was fundamental to postwar reconstruction, but he did not weigh the American national interest less than the interests of the international system.

Strong first traveled to Europe as the new governor of the New York Fed in 1916, where he met with Walter Cunliffe, then governor of the Bank of England, and Norman, then deputy governor. During this trip, the Bank of England and the New York Fed opened reciprocal accounts, which were crucial for cooperation between the two banks.³² From then, Norman and Strong stayed in touch frequently, formally and informally. They regularly sought one another's counsel and kept each other up on their correspondence with other foreign central bank leaders, their policy positions, and their plans. Their personal relationship was uniquely intimate: they often went on vacation together, kept each other informed of their home lives, spent some Christmases together, and even arranged for their mothers to meet.

Together, Norman and Strong transformed interwar cooperation and central bank autonomy into a formal agenda, and their close ties within private banking and financial circles allowed them to mobilize private funding that often made up large parts of international central bank credits and loans. They developed and routinized practices of operating in secret, to insulate central banks from political pressures and governmental interference. Central bank autonomy also became a preferred practice, as Norman and Strong avoided engaging with governments or even central bankers who were under political and governmental influence. This vision was put down by Norman in a 1921 manifesto detailing central banking principles:

1. Autonomy and freedom from political control are desirable for all Central and Reserve Banks.

2. Subject to conformity with the above clause a policy of continuous cooperation is desirable among Central and Reserve Banks.³³

Central bank cooperation was often exclusive to independent central bankers; important discussions and meetings often excluded bankers Norman or Strong saw as tied to their governments or that they did not like or trust. As the main hubs of the central banking world, they dealt with several central bank counterparts all over the world, but primarily in Europe and Japan.

As important wartime allies and economic partners, French central bankers should have been much closer to Norman and Strong. Britain was France's “principal ally,” and France relied greatly on Britain for its military security; but relations between the Bank of England and the Bank of France were less friendly, and this chilly relationship was exacerbated by difficulties at the purely personal level in the 1920s between Norman and Moreau, who assumed the French governorship in 1926.³⁴

Despite deep political ties with Britain and the United States, cooperation with the Bank of France was influenced by who governed it and not only material economic and political considerations. During Strong's first European visit, he met Governor Georges Pallain, but his efforts to establish reciprocal services between their banks failed, and again with Georges Robineau. Strong believed that Norman “will be an earnest advocate of the Bank of England arrangement,” “while in Paris [Strong] had not felt, for various reasons, willing to develop the matter with Monsieur Pallain.” His new friends in England regarded “Pallain here as being a little difficult to deal with.” He was advised by Cunliffe that the Bank of France is “distrustful, do not cooperate.”³⁵ Regular cooperative relations between the Bank of France and the New York Fed were not secured until Moreau assumed the governorship in 1926, but at the same time, Norman's close ties with Schacht in Germany generated increasing mistrust in Norman among the French.³⁶ These interpersonal squabbles had important governance ramifications. Norman kept France far outside of the core as he viewed the Bank of France as “hopeless.”³⁷

Norman and Strong sought to keep central bank discussions informal where possible and limited participation to only a few trusted and friendly counterparts. Soon after Genoa, Norman found that any official meeting would succumb to “too many political stumbling-blocks and too little goodwill in many quarters” and should come down to a “half-way house in the shape of a small, private and informal meeting.”³⁸ Strong similarly believed that central banks’ objectives were best achieved “without subjecting them to a formal agreement.”³⁹ Many central bank meetings in the 1920s were informal and “without publicity and without commitments,” narrowing attendance to a handful of individuals, finding “some reason for the dividing line between the sheep who were invited and the goats who were not.”⁴⁰ Strong and Norman's personal relationships with their various counterparts determined the hierarchy. The largest beneficiaries were Germany and Japan, who Norman and Strong respectively actively brought into their circles.

Following correspondence from Strong, who suggested that such a meeting could be “simply a fortuitous ‘happenchance,’” they could invite only their friends and include Schacht at the Reichsbank, even though Germany was not “of a free gold market” then. And indeed, if they did not “have a meeting but just [happened] to meet, then there would be no difficulty in drawing the line,” as any official central bank meeting would need to include more leaders and would have to be publicized and on the record.⁴¹

By the mid-1920s, while Hjalmar Schacht's rehabilitated Reichsbank had gained increased international weight, the Bank of France adopted a more combative approach with its foreign counterparts, as Norman's “crusade for cooperation among central banks did not include” it.⁴² Norman limited close cooperation to his friends, Strong and Schacht, occasionally Moll in Sweden, Vissering in the Netherlands, and Inoue Junnosuke and Eigo Fukai in Japan. There was no mention of including Georges Robineau or any French representative in these private gatherings.

These plans took a while to develop because, as Norman explained, in “some European countries a growing sentiment of nationality [had] increased the difficulties of financial or any other cooperation,” and the “question of the German reparations [was] now a worse muddle.”⁴³ This meeting eventually took place in July 1927 in Long Island. It was a secret gathering of only Strong, Norman, Schact, and Charles Rist, standing in for Moreau to represent the Bank of France; the French were only brought in later, as Strong developed closer ties with Moreau. The meeting was not publicized, and the bankers traveled under aliases. No official record was kept, and it is reported that talks were shaped by the “accidents of personalities and personal relationships”; Norman spent most of his time with Strong and did not engage with Rist.⁴⁴

Norman, Schacht, and the Golddiskontbank

Schacht's ascendence to the Reichsbank presidency was surprising, as he was relatively unknown in central banking circles at the time. He was better known in Berlin's banking communities but was distrusted by many “for his questionable financial dealings.”⁴⁷ He later came to be known as “The Old Wizard,”⁴⁸ “Hitler's Banker,”⁴⁹ or the economic dictator of interwar Germany, although this is not the version of Schacht we meet in this book.⁵⁰ He was an arrogant figure, perceived as out of tune with the Germany for which he spoke—weak and defeated—a circumstance that his predecessor, Havenstein, better embodied.

Norman and Schacht developed a very close and trusting relationship. They shared many personal and social similarities. Schacht looked the part of a Prussian banker; his understanding of the world outside Germany, along with his fluency in English, proved invaluable. Schacht shared Norman's elitist sense of superiority and was contemptuous of “the masses—of ‘vulgar’ democracy—and of the classes—to them, equally vulgar plutocracy.”⁵¹ Like Norman, he was a peculiar person, and few understood him. Norman was difficult to work with and picky in his likes and dislikes. One central banker said that Norman “picked people who were congenial to him, & blind to talents of those not congenial.”⁵² Schacht was skilled in finding people abroad who would help him strengthen his position at home. He had a knack for moving with the times. Both men were extremely private. Norman was regarded as a man of mystery.⁵³ As for Schacht, as his secretary described, “What did he do? He sat in his dark room, which smelled of old cleaning rags, and he smoked. Did he read letters? No. And he dictated no letters. But he phoned a lot all over the world, about domestic and foreign currency. Then he smoked some more. We didn’t eat much. He usually left late and took public transport to go home. That was all.”⁵⁴

Even before they met, they admired one another. Norman was eager to befriend Schacht and was eager for him to step into his new role. Schacht recalls that Norman met him at the train station on his very first, and infamous, visit to London on December 31, 1923. When Norman made plans for them to meet at the Bank the follow morning, Schacht said, “But Mr. Governor, tomorrow is New Year's Day. Surely you won’t be going to the Bank tomorrow?”

“That doesn’t matter, I want to have a talk with you as soon as possible and I shall expect you at eleven. I do hope we shall become friends,” was Norman's reply.⁵⁵ While many at the Bank of England were put off by Schacht's vanity, Norman “went out of his way to cultivate him for the good points he might possess and blind himself to the rest” and “saw largely what he wanted to see” in him.⁵⁶ Their personal trust that had emerged before they had even met, and rapidly grew, played a central role in determining the fortunes of the Germany economy. They talked frankly to one another about their positions and financial needs, which facilitated extensive cooperation between them.

In fact, Schacht broached his idea of establishing a new Credit Bank in addition to the Reichsbank during their first encounter, which he proposed would be funded with capital “of two hundred million marks in foreign currency, half of which should be raised in Germany. The remaining half [Schacht] should like to borrow from the Bank of England.” This bold proposition left Norman perplexed but struck by the clarity and logic of Schacht's proposals.

While discussing the French banking syndicate, Schacht solicited Norman's opinion for his plans to create a separate central bank—the Golddiskontbank—in the Rhineland. The success of this scheme depended on the support of other central banks. Norman opposed the French scheme as it “reeked of politics” and was pleased to learn that Schacht was also opposed to any project which sought to “restrict [the Reichsbank's] supreme power in matters of currency.”⁵⁷

Everything about Norman and Schacht's very first interaction spoke to Norman's vision for central bank autonomy, a shared opposition to French political projects, and a mutual admiration and desire to be friends. Norman's personal ties with Schacht allowed Schacht access to monetary assistance that Havenstein could not. When Schacht left London, he had secured a three-year loan from Norman of $25 million for his new bank. Schacht's new bank would “push francs out of Germania.” Even more, this bank, funded by British capital, could issue banknotes in sterling, a right that had been rolled back in Scotland and Northern Ireland.⁵⁸

Norman and Schacht's immediate connection and personal cooperation in 1924 set the precedent for extensive personal cooperation between the two central bank leaders all through their tenures. Norman praised Schacht for his Gold Bank plan publicly and to Strong.⁵⁹ He went on to say that foreign support, from central banks and not public officials, was essential, and if such a scheme came into effect “it would be a grand thing from every point of view for [Strong] to co-operate” and to keep this idea entirely to himself until then.⁶⁰

Such openness to cooperation had not been extended to Schacht's predecessor. Norman's belief “that a gradual revision of the more punitive provisions of Versailles was essential if the European peace was to be maintained” strengthened his relationship with Schacht.⁶¹ This same shared view had not made him more sympathetic to Havenstein. Norman vouched for Schacht, writing to Strong that Schacht “seems to know the whole situation from A to Z and to have, temporarily, more control of it than I believe possible: he is acting more resolutely than his predecessor Havenstein.” Strong's perceptions of Havenstein had also discouraged extensive credit assistance from the Fed to the Reichsbank to navigate hyperinflation and reparations.

Strong and Norman's contact with the Reichsbank and Havenstein had begun late in 1921. Under Havenstein, the Reichsbank had demonstrated a tendency toward being entangled in domestic politics, which brought into question his affinity for politics and politicians. Norman was adamant to limit his interactions with German authorities regarding German stabilization to himself and Havenstein but was concerned that the Reichsbank's lack of independence would affect its position and capacity domestically and its foreign interactions. Norman wished to see Havenstein strengthen the Reichsbank's position vis-à-vis the government as “a Central Bank which is so much dominated by its own Government as to have no independence or initiation and even no right of protest is not in a fair position and therefore cannot play its part either within its own country or, still more, alongside other Central Banks. That is for instance the present position of the Bank of France, and we all lose by it.”⁶²

Strong wrote that Havenstein “presents a sad picture of an old man heartbroken and disappointed and apparently helpless in the face of events. I have been told that he is a most reliable and conscientious banker, but that he has lost his prestige in Germany because of the failure of the Reichsbank to withstand the pressure of political domination.”⁶³

Concerns around Havenstein's inability to withstand political pressure on the Reichsbank were shared within the Fed that the “Reichsbank is said to be somewhat discredited in Germany because it has yielded to political influence” and it was therefore unwise “to enter into close reciprocal relations with the Reichsbank such as we have with some of the other foreign banks.” Dealings with the Reichsbank would be best done through formal agreement, not extending Fed credit in furthering and continuing “the present reparations muddle.”⁶⁴

Strong and Norman believed that friendly relations with Havenstein were important to creating cooperative working relationships. Strong had attempted to reach out to Havenstein, with little success. As he wrote to Norman, his efforts were “simply a friend pursuit … with the idea of cheering him up and indicating that we are really friendly, that we want to do something, and indicating something of the technique involved in developing these relationships.”⁶⁵ These relationships did not always emerge automatically, especially where personal similarities and backgrounds did not align; as Strong noted, there was a technique to developing these ties.

Norman similarly found value in “bringing about a more intimate and sympathetic relationship between the various banks of issue than has heretofore existed, or been possible.” He regarded such relationships “as depending upon personal acquaintance, understanding, mutual respect and confidence, than upon the here formal understandings that can be arrived at my correspondence.”⁶⁶ But he did not hold the same admiration for Havenstein as he did Schacht, and Havenstein did not share Norman's elitism, nor his prestige and autonomy.

For Schacht, any assistance from an individual or institution with the authority and prestige of the Bank of England would foster increased support for Germany and himself. In the years that followed, Schacht wrote that his “relations with Norman developed into a genuine friendship…. For all [Norman's] characteristic mellowness and outward calm he was a man of great personal determination and tenacity of purpose.”⁶⁷ Norman was even named godfather to Schacht's third grandchild, who was given the names Norman Hjalmar.

The Dawes Loan

With time, extensive correspondence, and frequent personal visits by Norman, Strong, and Schacht, strengthened their relationships and enabled more and more extensive interpersonal cooperation. Their early communication illustrates the delicate nature of developing these relations and the need to not antagonize preexisting relations. Strong held that “inaugurating” these correspondences was best done when opportunities arise naturally; these objectives are best achieved without making them the “subject of formal agreement.”⁶⁸

The power that these men enjoyed, their relative immunity from any sort of accountability, and the turbulent nature of the times made these rare friendships potentially extremely valuable. Their personal ties, with each other and with private bankers, central banks’ primary stakeholders at the time, were vital for Strong and Norman to mobilize private finance for central banks’ lending. These ties proved crucial to bringing about more cooperation between Schacht and the US bankers J. P. Morgan Jr. and Thomas Lamont, which was facilitated by close relationships with Norman.

The reparations disagreements with Germany at the Paris Conference in 1919 had got thrown off again in Genoa in 1922. It was then proposed in 1923 that an Experts’ Committee of international experts and Allied politicians be appointed to reexamine Germany's reparations. While Norman was consulted on their decisions, he declined to serve on the committee because “Central Bankers should be left outside international quarrels,” and politics would make things very difficult. This “guaranteed him a free hand.”⁶⁹ The Dawes Loan was a political arrangement designed to resolve the reparations “muddle,” including the stabilization of the German mark.

Although key central bankers were not committee members, they along with commercial bankers in the United States influenced “the frantic negotiations that preceded the flotation of the Dawes Loan.”⁷⁰ Throughout 1924, they cooperated closely over temporary solutions through short-term credits to manage gold flows and stabilize currencies. J. P. Morgan, who was “on almost as close terms with Norman as Strong himself” had already discussed with Norman the idea of an international loan to address the reparations issue.

Schacht was frustrated with the committee for its “policy of delay” over arranging “credit for the final stabilization of German currency.”⁷¹ With long-drawn-out negotiations and political obstacles predominantly from the French government, the Golddiskontbank helped manage the mark and the expansion of German exports. Norman saw it as a “last chance” to prevent an outright collapse of the German economy that could not wait for the Experts’ deliberations.⁷² When Norman reported his plan with Schacht to establish the Golddiskontbank, the Committee approved “an advance of £5 million to the Reichsbank” to assist with its establishment, which was critical for maintaining currency stability in Germany before the final Dawes Loan.⁷³

Andrew Boyle suggests that Norman “depended to a greater extent than any modern central banker on the cooperation of individuals” to navigate political obstacles.⁷⁴ Initially, he and Strong disagreed and debated for a long time over their currency's role in the Dawes Plan with Norman reminding Strong that sterling was “very much the exchange of Europe, so far as the dollar is concerned,” and so the mark should be based in sterling.⁷⁵ Strong pointed out that if Germany was to return to a gold-valued currency, it ought to hold all credits in New York “because it is the gold market” and the credit burden on London could impede its return to par.⁷⁶ Schacht found himself somewhere in the middle.⁷⁷ But their regular correspondence and shared trust enabled Norman, Morgan (on Strong's behalf), and Schacht to engineer this arrangement in Germany in a way that would later facilitate England's return to gold and put pressure on Norman “to commit himself to an early ‘return,’ and it is not inconceivable that he had indicated as much to Schacht.”⁷⁸

The final negotiations between Norman, Morgan, and Schacht were “neither prolonged nor difficult.” However, political, and public opposition to lend money to Germany put pressure on governments to stop this arrangement; “in Paris the bankers were especially balky.”⁷⁹ So, Morgan and Lamont negotiated with the wavering French government, threatening not to float loans to France if they did not cooperate. Norman rounded up British banks to underwrite the London tranche, despite political pressures from the prime minister against the loan.⁸⁰ Privately, Norman, Strong, and Schacht, supported by commercial banks, overcame political disputes against the Dawes Plan to float a loan to Germany in October 1924.

Richard Sayers highlights that under Schacht, the reconstituted Reichsbank became “a major star in the central banking firmament.”⁸¹ Schacht frequently appealed to Norman, and his determination and virtuosity in financial matters impressed Norman. While Strong was less infatuated by Schacht, he admired Schacht's handling of the Reichsbank. His friendship with Norman made him a third member of the central banking triumvirate, with Strong. Between 1924 and 1926, Schacht sought to minimize pressures on the gold market in London and transfer that pressure to New York, “which was willing and able to take it.”⁸² Along with strengthening the Reichsbank with the help of the Dawes Loan and credits from American bankers, Schacht was able to gradually ease the credit rationing policy and lower interest rates through the year.⁸³

Schacht benefited greatly from his growing trust and friendliness with Norman, Morgan, and Strong, which facilitated the arrangement of sizable loans and credits to Schacht and the Reichsbank. In many cases, central banks did not need to draw on foreign credits; the availability of a large supply of foreign exchange created “so much confidence in the nation's currency that withdrawals were obviated.”⁸⁴ When these credits were used, it was to “retire some of its short-term debt,” achieving the double purpose of reducing floating debt and increasing the central bank's foreign exchange reserves.⁸⁵ In 1926, following a personal visit to New York, Schacht wrote to Strong, thanking him for his goodwill and friendly conversations: “May people more and more realize how largely personal contact, knowledge and friendship are bound to foster such a development of the good of all[.] I hope we shall continue along these lines on many other occasions to come.”⁸⁶

Norman and Moreau

In 1925, Norman, along with Strong and private bankers in England and New York, discussed the issue of stabilization of the French and Belgian francs. The Bank of France was excluded from these discussions, as French central bankers early in the decade had not established close interpersonal ties with Norman and Strong and because the French franc had not yet been stabilized. Even after the French franc was stabilized in 1926, Bank of France leaders were still excluded from secret meetings and negotiations over currency stabilization elsewhere in Europe. When its new leaders, Émile Moreau and Pierre Quesnay, entered office in 1926, they were only occasionally invited to participate in credit agreements.

Moreau, in Liaquat Ahamed's words, was “a taciturn man” from the French provincial countryside. Although he rose rapidly in the civil service ranks to enter the elite administrative class in France, “he proudly went out of his way to remain” provincial.¹³⁹ When he was appointed as governor in 1926, French public finances were in complete disarray and the franc was on the brink of collapse. Moreau played a crucial role in rescuing the currency and restoring France's public finances. But he had no formal independence from the central government, frequently bowed to the Treasury's demands, and “proved to be unusually adept at bureaucratic infighting.”¹⁴⁰ He clashed with several figures in the Bank of France, in the private banking sector, and across national boundaries. He distrusted Anglo-Saxon banking practices and was suspicious that the Bank of England did not possess all the gold it claimed it did; indeed, he was proved correct in 1931.

Norman and Moreau's mutual distrust was rooted in suspicions in their political goals, preventing them from finding common ground to cooperate. Ivar Rooth, former governor of the Swedish National Bank, observed that Moreau “was [very] unwilling to do anything with foreigners; just a Frenchman—de Gaulle's kind”; “Moreau made a great mistake in imagining an anti-French plot—didn’t understand that [Norman] wanted central [bank] cooperation [and to] keep clear of politics.”¹⁴¹ British monetary and financial authorities found Moreau to be “the greatest obstacle to intelligent international cooperation in monetary policy” and “quite ignorant of modern ideas, full of prejudice and personally difficult.”¹⁴²

Jacques Leon Reuff, a French economist and adviser to the government, noted that there was great distrust of Norman in Paris. “Moreau disliked and distrusted” Norman.¹⁴³ Norman's lack of trust and warmth for the Bank of France emerged from what he saw as “a lack of closeness between” the Bank of France and the New York Fed; Norman was keen to keep New York in with Schacht.¹⁴⁴ Robert Lacour-Gayet recalled that Norman's closeness with Schacht created suspicion among the French in “anything peculiarly English” and exacerbated suspicion between Norman and Moreau.¹⁴⁵ Moreau believed Norman and Schacht saw each other often to “hatch secret plans.”¹⁴⁶

Moreau understood the need “to gain the confidence and, if possible, the friendship” of Strong. “Norman spares nothing in his efforts to flatter him or gain influence over him.”¹⁴⁷ Strong found that the French were “gradually … beginning to think of the Bank of France in terms of independence from Treasury domination.”¹⁴⁸ As the Bank of France grew more powerful, the “development of central bank relations with Norman serving as a hub for European contacts closely linked to Strong in New York was no longer viable” as Moreau's Bank established its own relationship with Strong.¹⁴⁹

Meanwhile, Strong was concerned that his meetings with Moreau would be misinterpreted by Norman and kept them secret. But with time, Strong's friendly relationship with Moreau posed problems for Norman and ultimately to the interests of cooperation.¹⁵⁰ It helped Moreau that Strong knew that in France, Italy, and Belgium, “there is much suspicion as to whether the attitude and arrangements are at all times free of political motives or purposes…. They seem to be afraid of [Norman] and somewhat distrust him.”¹⁵¹

Likewise, Norman did not like the French and distrusted Moreau for his lack of autonomy and independence from the Treasury and from government, expressing that “he would appreciate it if the independence of the bank could be demonstrated not only through its policies but perhaps also by a change in its own statutes and constitution. In any case, he believes that his ‘friends,’ that is Strong and Schacht, if not himself, would like to see such an external demonstration.”¹⁵² Norman and Moreau competed over currency stabilization efforts, seeking to achieve their own strategic aims. Neither was unfettered from politics as they claimed.¹⁵³

As discussed in the opening of this book, the Belgian stabilization was handled privately by Norman, Strong, some colleagues in the Netherlands and Switzerland, and Morgan. Moreau was kept in the dark until later. Norman and Strong's control over the trajectory of the interwar European economy had implications for their counterparts on the continent. Invitations to participate in stabilization loans were extended by Norman, who, in an undiplomatic manner, limited any cooperative efforts to only those who he liked. Attempts to include Moreau on questions that required cooperation were thwarted by mutual mistrust and suspicion.

In Belgium, Fernand Hautain's breach of Strong's trust led to an initial loan agreement between New York and Brussels to collapse. Belgium's fortunes changed only when Louis Franck replaced Hautain. Norman, Strong, Schacht, and Vissering in the Netherlands floated a credit to the National Bank of Belgium.¹⁵⁴ Moreau felt slighted when he later learned of this arrangement and grew even more suspicious of Norman's imperialist agenda, intensifying their rivalry.¹⁵⁵ As Kindleberger highlights the stakes of their squabbles, this rivalry “would be pathetic” were it not to jeopardize the stability of the system as a whole.¹⁵⁶

Polish Stabilization

In Poland, initial de facto stabilization was achieved in 1924, following a period of hyperinflation, akin to that in Germany, Austria, and Hungary. Austria, Hungary, Greece, Bulgaria, Estonia, and Danzig all undertook adjustment and stabilization programs through the League of Nations; Germany had support from Norman and the Dawes Loan. Poland received little external assistance at first. Stabilization this time was short-lived and fell victim to Norman and Moreau's continual feud and an emerging fallout between Norman and Strong.

Bank Polski had received a $10 million credit from Strong at the request of Felix Młynarski, then vice president of the Polish central bank in 1925. The government had received a loan from the private financiers Dillon, Read and Company, who were then the financial agents of the Polish government in the United States. After a period of stability following this loan, ensuring the stabilization of the złoty faced many complications. When this initial attempt was not successful in helping Poland return to parity, Edwin Kemmerer, famously known as a “money doctor,” was commissioned to study the Polish economy. However, before the study began in 1926, and through that year, the złoty continued to fall and any attempt to secure private loans to the government and avoid going the League of Nations had broken down, and such agreement was never reached.¹⁵⁷

Currency stabilization in Poland could be approached in three different ways. Each, however, was unsatisfactory to at least one involved party. First, Poland could go to the League, which the Poles refused to accept. The government tried to avoid Norman (who preferred this route) and the League to acquire a stabilization loan “perhaps because they did not want to be identified with the losing parties of World War 1 that had programs with the League.”¹⁵⁸ By the time of Polish złoty stabilization, policymakers had a better idea of what League loans looked like, in particular, the austerity measures and surveillance, from the Austrian experience.¹⁵⁹ In fact, later in 1925, Jan Ciechanowski, the Polish minister to the United States, approached Strong for support, as well as assistance to “win Governor Norman away from the League of Nations program, which he said was utterly impossible for Poland.”¹⁶⁰ A second option was to expand the Kemmerer mission to include other European banks, although this would have had to be led by the Americans, which Strong was eager to avoid. Indeed, the United States did send financial expert advisers, including Charles Dewey, to follow Kemmerer, which some portray as engineered by the United States to exert financial power over the financial system, which had an air of new dollar imperialism.¹⁶¹ The third option was an entirely American program, which Norman refused to accept.

A version of the second option was adopted, and it reflected the impasse among monetary authorities: a joint loan issue from a handful of European banks, led by the Americans, but with notable influence from Moreau. The effort was disrupted by a series of personal disagreements—an emerging disagreement between Norman and Strong, an illness that forced Strong's absence from the final negotiations, and misunderstandings between Norman and George L. Harrison, then deputy governor of the New York Fed who later succeeded Strong as governor. Indeed, Polish officials capitalized on these disagreements, as Martin argues, and “played foreign banks off one another until a loan with the weakest control provisions was found.”¹⁶² Moreau and private bankers in France were able to sway the outcome and the terms of the final agreement.

By August 1926, the Kemmerer Commission provided hope for a new stabilization attempt. Soon, Poland sought external credits and the Polish central bank governor Młynarski asked Strong to approach Norman to find an alternative. But the stabilization of the Polish złoty was disrupted by a combination of personal preferences, disagreements, and distrust among all the central bankers involved. Młynarski found Norman to be “more sympathetic and friendly than he had been a year ago” but had not moved in his preference that they go through the League. He also found that “Strong was not quite as interested as he had previously been in aiding Polish monetary reform and that he felt that Mr. Strong apparently wished to ‘back off.’” Apparently, Strong had previously agreed to coordinate his and Norman's views, while the Poles would deal directly with Strong. In the end, they dealt directly with both parties whose views “could scarcely be considered coordinated…. Nor were the Poles apparently telling quite the same story to both banks.”¹⁶³

Norman and Strong found that too many central bankers in Poland acted without coordination, sought political influence, and were too suspicious of other people's motives. Initially, Strong was eager to go to the League, while Moreau wanted to take charge in the credit. Norman wanted Młynarski and his bank to go through the League and believed that any credit arrangement should be made with the support of a preliminary expert committee. After all, Germany had now joined the League and sought stronger controls on the loan. Poland was wary of Germany's involvement in any loan, as it was then seeking to reconnect the Polish corridor. Poland could not afford to give Germany any additional leverage in its affairs.¹⁶⁴

During negotiations, a lack of communication and Strong and Norman's misgivings hindered progress. Norman wished to limit cooperation only to central banks and keep politics out. For him, any stabilization credit “would be necessary to go into all the conditions of the program and require all sorts of protections required in a wholly independent credit such as he and Schacht had suggested.” Strong and Harrison preferred to grant development loans “as part of an effective program of stabilization than unconditionally,” which were granted a few months later.¹⁶⁵

Młynarski went to see Strong in 1927, with the goal of securing US cooperation in Poland's stabilization. A rough loan-issue plan was drawn up between Polish and American central banks, and a few private bankers in New York, of $50 million, which would be exercised by a committee of international experts, including an adviser each from the United States, Britain, France, and Switzerland. Strong, who was often ailing, was not present at many meetings with Młynarski and his associates, nor at subsequent central bank gatherings on the continent. Strong's absence had a significant effect on Norman's influence and willingness to cooperate, as Norman did not share the same intimate friendship with Harrison as with Strong. Everyone, even Norman and Schacht, agreed on the need for a loan. Norman, losing interest in the issue, now proposed that Moreau and the Bank of France take on responsibility for the loan “as a way out” of the impasse, and follow Strong's lead. Schacht disagreed “because that would give rather a political aspect to the whole matter.”¹⁶⁶

Eventually, Strong agreed on the proposal with the Fed's limited participation, entrusting Moreau to enlist European partners. Most subsequent discussions were held between Młynarski, Moreau, and Harrison, and only occasionally, Strong. Moreau, still salty about the Belgian credits, opposed Norman's preference to go through the League. He thought the League was disproportionality staffed with Britons and saw it “as little more than a vehicle for extending the Bank of England's interests.”¹⁶⁷ He was advised by the League's secretary general, Joseph Avenol (who was French): “At the moment, efforts are underway to put a stop to the veritable tyranny which the Bank of England exercises over European Banks of Issue.” Avenol and French central bankers saw the League's Financial Committee as “synonymous with the Bank of England.”¹⁶⁸

Strong found himself mediating the strained relations between Moreau and Norman over the stabilization plans in Eastern Europe. In lieu of Strong, who was ill, Harrison went to Europe to discuss Polish assistance with his counterparts. Strong had urged Harrison that “above all … Moreau should not be left with the feeling that things had been arranged with Norman and Schacht before Moreau had had the opportunity to express his views, and that Norman must not get the idea that the conclusion of a stabilization plan for Poland depended on Norman's attitude.”

But now, the stabilized French franc allowed France to enjoy a strong economic recovery from the crises it faced between 1923 and 1926 and was one of the strongest currencies in the world. Norman and his associates were disgruntled by the success of French policy, as it had managed to stabilize the franc with little recourse to international assistance and secured a significant write-down of its debts to Britain. While Moreau and his bank were neither “quite big enough to have responsibility forced on” them nor “small enough to afford the luxury of irresponsibility,” they were powerful enough to destabilize and, only with help, act as a stabilizer.¹⁶⁹

Already sensitive about Strong's relationship with Moreau, this intensified a growing dispute between Norman and Strong, which was exacerbated by Norman's irritability and Strong's illness. Strong and Harrison gradually moved to support Moreau's multilateral program, with protections for central banks that gave credit. In fact, they privately met Jean Monnet, on behalf of the Bank of France, who had returned to banking in New York after spending some time in the family cognac business, and Młynarski, in New York to discuss the credit in 1927.¹⁷⁰

On his trip to Europe, Harrison first saw Norman, and from his meeting, believed that Norman was satisfied with the terms of the agreement. Norman largely saw the advantage of stabilization in Poland, with some reservations as to whether reforms would ensure political and financial stability.¹⁷¹ Harrison recalled Norman had previously indicated that he would participate in a credit approved by an expert committee “as long as it had been developed this way.”¹⁷²

Norman, who did not share the same ability to have frank discussions with Harrison as with Strong, did not fully convey that he did not feel as Harrison believed he did. Harrison believed that a deal had been reached. Norman, however, was still eager to have Młynarski and his bank go through the League and was upset at Harrison's move away from this route. He soon realized that an American scheme was going to go on and “chances of League [were] almost nil.”¹⁷³

After speaking with Harrison, Norman wrote about his misgivings of the failure of going to the League to his own Bank of England associates, indicating they might split with New York over this difference in principle.¹⁷⁴ Norman and Schacht renewed their demands to go to the League, which were rejected by Harrison and Moreau.¹⁷⁵ Norman, now upset at the handling of the situation, was no longer willing to appoint an Englishman to such a committee. While he admitted that “it was to the advantage of [all participating banks] for him to be helpful,” Norman “would not say he would be helpful.”¹⁷⁶ If no agreement was going to include the League, Norman wanted the Fed to assume responsibility for the loan; Norman “was not willing to give enough ground to enable an agreement to be reached on the Fed's terms.¹⁷⁷

Norman told Rist, of the Bank of France, that he “would be willing to join in a central bank credit organised by the Federal Reserve, or, if he were to be asked, by another central bank.” But at this time, any such loan could be interpreted as France being Poland's ally.¹⁷⁸ Harrison found Norman to be reneging on his word and pushed him on it and wanted to see a more “favorable and cooperative point of view on [Norman's] part.”¹⁷⁹ Norman believed that all participating bankers, especially himself and Schacht, should limit their participation to an invitation from the Fed. The Fed could then scarcely be unwilling to assume responsibility for the loan, as without Norman and Schacht's support, the program would likely fail. Harrison had felt that Norman's “refusal to aid or [give] advice or even be tacitly in favor of a committee would indicate a lack of desire to cooperate in a constructive way.”¹⁸⁰ Norman made no definitive commitment on the credit or appointing anyone to an expert committee. On the other hand, Harrison found that so far as Moreau was concerned, Harrison “could tell him quite frankly how we all feel.”¹⁸¹

An emerging rift between Norman and his associates at the Fed, heightened by Strong's illness and inability to actively participate in loan negotiations, turned the tables for Norman's influence in Eastern Europe. Harrison turned to Moreau instead, to lead the way, requesting Moreau to approach other banks of issue, except Norman, to participate in the loan. This was the first time that Moreau was given any sense of coresponsibility with the Fed, which aggrieved Norman even more. In June 1927, Moreau, Harrison, Norman, Schacht, and a handful of their European counterparts agreed to float a $20 million annual credit to Poland. Following delays, renewed negotiations with American bankers and the Polish government reached an impasse over the terms of the loan, which was only overcome that October.

At this time, no Fed representatives participated in the final negotiations. Moreau had close contact with private bankers, including Jean Monnet, who were in direct negotiations with the Polish central bank. Like Norman and Strong had done in the past, Moreau used these connections to influence the terms of the agreement, especially as Fed representatives were not involved in these negotiations, to further French political interests in Poland. But he anticipated looser control over the Bank of Poland than the League had had over Germany, Austria, or Hungary.¹⁸²

In the end, Moreau used his position to pursue French political aims, binding borrowers “with military and political ties.” He also successfully secured French control over monitoring these credits and the Bank of France's leading position in mobilizing these international credits.¹⁸³ Moreau ultimately arranged a very short-term credit from several banks of issue with Strong, where Strong requested Moreau that “all interested parties will keep existence of credit strictly secret.” Strong followed up this comment with his “grateful thanks for your splendid cooperation and our congratulations for the way you have handled a most difficult problem.”

In 1928, Moreau similarly disrupted Norman's stabilization plans through the League and organized an international credit to Romania, on his own terms, without involving the League. Norman's bitterness at this blow to his pride and prestige was exacerbated by Moreau's success in achieving France's political ends in the region.¹⁸⁴