New-York tribune., 1919-03-21
Peg Removed
From Sterling
Exchange Here
Rate Drops When British
Government Tells Morgan
& Co. to Abandon Control
Wall Street Is Stirred
Banking and Market Circles
Regard Action as Far
reaching in Its Effect

International trade and finance we're
freed yesterday from what perhaps was
the most important restriction that had
been preventing the restoration of nor
NAL conditions when the British gov
ernment cabled J. P. Morgan & Co., it's
fiscal agents here, to withdraw their
support from the sterling exchange
market
An official announcement made at
noon by Morgan G. Co. said: 1--WE have
received instructions from the British
government to suspend purchases of
sterling exchange for government ac-
count"
j. P. Morgan amplifed the official
statement by saying: "I presume this
governments are taking designed to
permit business to resume its normal
course"
Announcement Stirs Wall Street
The announcement created a sensa-
tion in Wall Street. The drastic action
OF the British government, while the
details are still lacking, was viewed in
international banking circles as the
most important development in inter
national finance since the United States
announced its intention of making di-
rect credit advances to the Allied gov
ernments in 1917.
Sterling exchange rates broke sharp
ly on the news and half an hour after
the announcement by the Morgan firm
sterling cables were quoted at S4.65
bid, offered at $4.75. Later some bust
ness was done in cable transfers on
basis of S4.73 to the pound sterling.
The closing quotation for this form of
remittance was $4:71h, compared with
S4.I612 the preceding day, representing
a depreciation of s cents in the pound
Transactions in demand sterling or
mail remittances in British money
stopped completely owing to the un-
settlement in the market.
Suspension of the purchase of ster-
ling exchange here for the British gov
ernment account means the removal
OF the peg" in sterling that had ex-
listed for more than three years, or
since early in January, 1915. During
that period the emergency machinery
OF the British government operated to
keep the value of sterling cables from
falling below $476 ZIG.
How Sterling Was Stabilized
Under the arrangement between the
British Treasury and their fiscal agents
here, the Morgan firm was provided
with funds for the purchase of sterling
at the peg price. The market conse-
gin above that figure. Sterilization of
sterling was made imperative after the
sensational decline in the rate in Sep
tember, 1915, when the New York mar
ket was flooded with sterling bills as
result of the huge adverse trade
balance rolled up against Great Brit
ain because of that country'e large war
purchases here. At that time sterling
broke to $3.50, the market becoming
completely demoralized. Successful or
ganlzatlon and operation of the stabil-
ization machinery soon, however, cor
rected the situation.
While lacking essential details which
would afford a clear understanding of
the new and important development in
the sterling exchange .rket, leading
bankers in the Wall Street district took
the view that the withdrawal of sup
port by the British government was in
timately connected with the severe
break IN French exchange on Monday,
per cent as quoted in terms of the
American dollar. This belief was
strengthened when advices from Wash
lngton stated that British and French
commercial interests had formulated a
pool for purchasing in the United
States commodities they require in re-
construction. 1t was stated in this con-
nectlon that the pooling of purchases
means that only the basic materials in
raw form, to a large extent, will be
permitted to enter those countries. and
that American industries might not
ished products in France, England or
Italy.
Believe Agreement Reached
The opinion was expressed by a rep
resentative banker that an agreement
has ,,;. been reached between the principal
Allied nations at the Paris peace con-
ference to bring about as quickly as
practtiicable restoration of normal
conditions in international trade rela.
tions between the different countries
The statement was made on hiph
authority that purchases for British
government account in this market will