. lord cunliffe, the bank of england ’ s governor, had a certain reputation. as the bank ’ s own official history puts it, ‘ cunliffe in his prime was an aggressive character, who enjoyed a game of bluff, even when he lost it. he evidently had the advantage of knowing his own mind, perhaps not a very difficult mind to know ’. strong had been warned by private bankers that cunliffe was ‘ mentally very slow to act ’. and in their first meeting, cunliffe – no doubt deliberately – left strong unclear whether he was annoyed with him ( for failing to forewarn him of his visit and ‘ stirring up ’ the local bankers with his speech about business moving to new york ), or merely ‘ joshing ’. despite this typically ambivalent british welcome, strong rapidly developed a good understanding with cunliffe. his bond with montagu norman, then an assistant to the deputy governor sir brien cokayne and later its longest - serving governor, proved closer still. both sides quickly concluded that providing each other with access to their domestic markets would help ensure the orderly recycling of the other ’ s foreign reserves. such arrangements had three key advantages. first, each could commit to provide the other with a safe, reliable and confidential service based on the best independent intelligence about trends in their respective markets, untainted by commercial motives. second, as the owners of the dominant reserve currencies of the day, each understood the need of the other to maintain ‘ exchange stability ’, ensuring that potential borrowing or lending needs were met, but in a way that did not ‘ antagonise ’ the policy goals of the other. and, third, such arrangements could help protect financial instability, by reducing the reliance on the increasingly strained system of physical gold movements, and providing a channel that could be used even if private banking linkages were impaired. between 23 and 30 march 1916, strong and norman drew up a confidential ‘ memorandum of conversations ’ setting out a framework in which the two central banks would provide each other with mutual accounts, undertake to purchase bills on the other ’ s behalf in local markets, to ‘ earmark ’ gold for one another, and ‘ the bank of england 1891 - 1944 ’ by r s sayers, page 66. britain briefly experienced concerns about policy antagonism itself when its attempts to borrow in dollar markets using short term treasury bills were forcefully censured by the federal reserve board in

late 1916. all speeches are available online at www. bankofengland. co. uk / speeches exchange information ‘ respecting credit matters and financial conditions ’. the framework could not be implemented while the us remained neutral in the war, and the federal reserve act prevented the provision of accounts to a foreign power. but within little more than a year, both obstacles had been removed. the bank ’ s court of directors ratified the agreement in may 1917 – and the accounts were opened shortly afterwards. in the years that followed, strong and norman used these financial foundations to build a much broader conception of central bank co - operation, summarised in their 1921 ‘ general principles of central banking ’. many of those principles, including the merits of operational independence for central banks, the need for appropriate supervision of financial institutions, and the importance of balancing national and international interests in the development of policy, show extraordinary foresight and remain highly relevant today. days present : correspondent banking services at the bank of england today much has changed since those days, of course. world war 1 brought about a profound shift in the balance of global financial power, setting the us dollar on its ascent to top slot. strong and norman ’ s beloved gold standard ended ignominiously in the great depression. and even its post - world war 2 successor – the bretton woods system of fixed exchange rates – is long gone. yet despite all that change the three key benefits of financial co - operation identified by strong and norman remain at least as relevant today as they did a century ago : - first, more central banks than ever before value the safe, confidential, reliable access to overseas reserve currencies, assets and payments offered by their peers. safe – because central banks are free from insolvency in their domestic currency, are rigorously focused on minimising operational risk, and settle all payments in central bank money. confidential – because central banks treat the information they receive with the greatest discretion, and are not subject to commercial incentives or conflicts of interest. and reliable – because central banks understand the policy priorities of their peers, and stand ready to provide the highest level of continuity of service. today the bank of england provides banking services to over 150 central banks and international financial institutions around the world – ten times more than in 1917. those services include sterling payments, call and term deposits, and custody of securities and gold. the bank ’ s gold repository remains the most active central bank service in the world, reflecting the united kingdom