America's Chance of Holding World Purse-Strings[323]
Since the outbreak of the war New York has assumed a position of leadership in international banking. Will this position be permanent or will its duration be limited practically to the period of the war? Is the mantle of world financial leadership about to pass from London to New York, as it passed after the Napoleonic Wars from Amsterdam to London? These are questions which many are asking, but which no one can answer positively, because so much depends upon those incalculable items—the duration of the war and the financial strength of the belligerents at its close....
At the end of 1913 our provincial banking system was overhauled by the Federal Reserve Act, and put in shape to meet the needs of our growing trade, both domestic and foreign. By this act American commercial paper, which previously had been essentially local paper, was given an opportunity to assume a national, or even international, character, through the provisions for bank acceptances, rediscount, and "open market operations." An open discount market began to develop on American soil; and slowly, but surely, short-time paper of an international character and standing began to appear....
By the beginning of 1914, therefore, it may be said, that the way was opened for our financial metropolis, New York, to play an increasingly important rôle in the international money market, and that there was already a movement in that direction.
To this movement the European war gave a strong impetus, and to-day New York clearly holds the premier position in the field of international finance, although at a time when national finance in the leading countries of Europe has assumed proportions never before dreamed of. The European exchange markets have been demoralized, and specie payments among the belligerent countries of Europe have become little more than a name. On the other hand, "dollar exchange" is now quoted in the principal cities of Latin America, the Orient, and Australia; and the American trade with those sections, which was formerly financed chiefly through London, is now being financed directly, and in dollars....
The United States has brought back home from a billion to two billion dollars' worth of the six billion dollars' worth of its securities estimated to have been held abroad, and is preparing to take more, either by purchase or as security for loans. It has loaned upwards of a billion dollars to the belligerent countries, and has had a net importation of gold during the year just closed greater than that of any five years of its history. Our banks are carrying heavy surplus reserves, those of the New York Clearing House banks alone on December 31 having amounted to $143,000,000, and the gold reserve against net liabilities of the twelve federal reserve banks on December 23 having amounted to 86 per cent.; and this, at a time when the large gold reserves of the European banks are strained to the breaking point by the tremendous liabilities placed upon them.
Our export trade has reached unprecedented heights, and for the year 1915 was approximately equal to twice that of 1906....
This war is likely to leave her [England] still with a secure position, a great and loyal colonial empire, an efficient banking system, and the control of the seas. Her position as a creditor nation will lie greatly weakened, and she may even become a heavy debtor nation, but her foreign trade connections have been so long and so well established that it does not seem likely that they will be permanently impaired in any large degree by the readjustments necessitated by the war. If she disposes of her Latin-American and Asiatic investments to the United States she will doubtless greatly weaken her trade position in those countries, but the present evidence is that these will be about the last foreign investments she will dispose of.
So far we have not made great progress in securing Europe's Latin-American trade. Europe discontinued financing Latin America at the same time that she discontinued her normal trading with Latin America. For us to take her place it became necessary for us to loan before we could sell and buy. But loaning to European belligerents and selling war supplies offered larger immediate profits; and so our chief efforts have been turned eastward rather than southward. An analysis of our large export trade of last year shows that much of it was of a very abnormal character, and gives promise of being but temporary. The following figures comparing the exports of a few selected commodities for the ten months ended October, 1915, with those for the same period of 1914 will make this point clear:
| Ten Months Ended Oct. 31 | ||
| Commodities. | 1914. | 1915. |
| Breadstuffs | $212,025,814 | $461,074,547 |
| Iron and steel and mfrs. thereof, incl. wire | 109,232,270 | 294,822,223 |
| Meat products | 110,180,785 | 214,212,955 |
| Animals (notable horses and mules) | 6,668,121 | 107,201,175 |
| Explosives | 6,439,693 | 103,527,382 |
| Cars, carriages, etc. | 36,844,923 | 117,366,359 |
| Leather and mfrs. thereof | 47,123,910 | 135,847,788 |