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http://hdl.handle.net/2451/26369
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| Title: | The Great Financial Crisis of 1914: What Can We Learn from
Aldrich-Vreeland Emergency Currency? |
| Authors: | L. Silber, William |
| Issue Date: | Oct-2006 |
| Series/Report no.: | FIN-06-009 |
| Abstract: | At the outbreak of World War I, the biggest gold outflow in a generation
posed a doublebarreled threat to American finance: An internal drain of
currency from the banking system and an external drain of gold to
Europe. The Federal Reserve System, newly authorized by Congress on
December 23, 1913, remained on the sidelines during the summer of 1914,
a victim of political and administrative delays. The absence of an
operational central bank encouraged Treasury Secretary William G. McAdoo
to improvise the modern principle of aiming an independent weapon at
each policy target. He employed a form of capital controls to deal with
the external threat, shutting the New York Stock Exchange (NYSE) for
more than four months to prevent Europeans from selling their American
securities and demanding gold in return. And he invoked the emergency
currency provisions of the Aldrich-Vreeland Act to deal with the
internal threat, allowing banks to issue national bank notes, an
important form of currency in pre-Federal Reserve days, without the
normal requirement that the currency be secured by U.S. goverment bonds. |
| URI: | http://hdl.handle.net/2451/26369 |
| Appears in Collections: | Finance Working Papers
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