Foreign Exchange

In Short

This book serves as a clear-eyed manifesto on the urgent need to stabilize the American dollar in international markets. Written in 1919 by a U.S. Senator deeply involved in banking reform, the text identifies why the dollar suffered significant discounts during the war, particularly against neutral currencies like the Spanish peseta. By explaining the hidden factors of trade balances, the author advocates for the creation of a Federal Reserve Foreign Bank. It remains a vital primary source for understanding the transition of American financial power at the close of the First World War.

The Story

The narrative begins by addressing a paradox: even though the United States possessed a massive, favorable balance of trade during the war, the American dollar was significantly devalued in neutral markets. The author identifies that this was not a natural economic failure but a symptom of a broken system. Because the U.S. and its Allies faced an embargo on gold, they were forced to rely on private capital to settle their debts. Private banks and speculators, acting in their own interest, exploited this demand by charging exorbitant, usurious rates for foreign credits. The author illustrates this by looking at Spain, where the American dollar was effectively worth only a fraction of its gold value. This volatility forced the U.S. to pay inflated prices for essential goods, while simultaneously hurting domestic merchants who could no longer easily trade with neutral nations.

The argument progresses to explain the difference between a "favorable balance of trade" and the actual movement of invisible capital. The author demystifies the complex web of remittances, dividends, and loans that influence exchange rates, noting that commodity shipments are only one part of the equation. By detailing how the U.S. government—distracted by the overwhelming demands of war—lacked the specific institutional mechanism to intervene, the author makes a case for why private banks were unable (or unwilling) to fix the issue. Because these institutions handled exchange as a mere commodity for profit, they had no incentive to defend the dollar’s parity.

The arc of the argument concludes with a legislative proposal: the creation of a Federal Reserve Foreign Bank. The author outlines the structure of this institution, which would be governed by experts appointed by the President rather than by private bank directors. The purpose of this bank would be to provide the necessary foreign exchange facilities to serve the public interest, bypass the profiteering of private firms, and provide competitive financing rates similar to those of London’s "Lombard Street." By establishing this bank, the author believes the United States could secure its status as a global financial leader, ensure the success of its emerging merchant marine, and protect the American economy from future speculative shocks. The book concludes with an appeal to the public, asserting that legislative progress is only possible when the business community understands that a stable dollar is essential for a lasting, prosperous peace.

How It Unfolds

The diagnosis of the crisis The author identifies the severe discount of the American dollar in neutral countries, noting that the country is losing enormous wealth due to unfavorable exchange rates. He argues that this is not an inevitable outcome of the war but a result of private interests manipulating the market for profit.

The anatomy of international debt The narrative explains that trade is not merely the exchange of physical commodities, but a complex flow of invisible credits, loans, and interest payments. The author clarifies that when gold is unavailable, nations must rely on credit, and without government oversight, the cost of that credit becomes predatory.

The critique of private banking The author pivots to explain why existing American banks have failed to defend the dollar’s value. He argues that it is not necessarily a sign of malice, but rather that these banks view exchange as a private commodity to be traded for personal gain rather than a national interest to be protected.

The legislative remedy The final section introduces Senate Bill 3928, which proposes a publicly controlled Federal Reserve Foreign Bank. The author details how this entity would function, its capital structure, and how it would provide the stability required to challenge London as the world’s financial center.

The People

The book focuses more on systemic players and institutions than individual characters, yet it highlights three distinct groups whose interests collide.

The Profiteering Bankers are the primary antagonists. These private financiers, operating in cities like New York and London, hold the capital necessary to stabilize the dollar but refuse to do so. Their motivation is the pursuit of "usurious" commissions. The author argues they are not inherently evil, but they are driven by a profit motive that is fundamentally at odds with the public’s need for a stable currency.

The Government Administrators, including figures like the Secretary of the Treasury and the Governor of the Federal Reserve Board, are portrayed as well-meaning but ultimately overwhelmed. The author depicts them as noble civil servants, such as the Assistant Secretary of the Treasury Oscar T. Crosby, who are trying to solve the problem, yet are so burdened by the gargantuan tasks of war management that they cannot give the exchange problem the specialized attention it requires.

The American Importers and Exporters act as the central stakeholders. They are the ones suffering under the weight of the dollar’s discount, forced to pay inflated prices for raw materials and struggling to compete in a world where foreign banking facilities are inadequate. They represent the public interest, waiting for a mechanism that will allow them to conduct business without being drained by middle-men.

In Its Own Voice

Because of war conditions the American dollar is at a serious discount in all of the neutral countries of Europe and throughout the world, notwithstanding the fact that the United States had a favorable balance of trade of over three thousand millions last year, and ten thousand millions since the war began.

The author introduces the central contradiction of the American economy during the height of the Great War.

It is obvious that American commerce and Allied commerce and Spanish commerce is being subjected in this way to a serious injury with compensatory benefits to the Spanish and American bankers who are selling credits in Spain.

The author identifies the winners and losers of the existing exchange system, pinning the blame on private banking practices.

What It's Really About

At its core, the book is an argument for the necessity of government-led financial architecture. The author challenges the notion that "the market" left to its own devices will naturally serve the interests of a nation. He posits that in a modern, interconnected world, the stability of a nation’s currency is a public utility—like a road or a port—that must be managed by a disinterested, expert-led public institution. The book asks profound questions about the limits of patriotism in private banking and whether a nation can truly claim to be a global power if it lacks the institutional capacity to protect the value of its own money.

Why Read It Today

Readers interested in the history of the Federal Reserve or the transition of the U.S. from a debtor to a creditor nation will find this essential reading. It offers a rare, ground-level view of how policymakers thought about global influence in the early 20th century. The book feels like a direct, urgent lecture; its prose is accessible, though it demands that the reader pay close attention to the mechanics of balance sheets and currency conversions.

Modern readers should be prepared for the author’s period-specific, unapologetic nationalism, as he views the international landscape as a binary competition between the Allies and their enemies. While the specific economic arguments are grounded in the 1919 context of gold embargoes and war debts, the underlying tension—the conflict between private profit and national economic sovereignty—remains strikingly current. It is a slim volume, yet it provides a dense, uncompromising look at the machinery of power. Those who enjoy economic history that connects high-level theory to concrete, lobby-room political action will appreciate the author’s attempt to bridge the gap between abstract finance and the common merchant’s struggle. You will walk away with a clearer understanding of how the international dollar became the global standard.