The spontaneous driving role of markets, institutions, and technology is taken as axiomatic in many influential accounts of the late nineteenth-century world economy and its financial arrangements.Footnote ¹ Such assumptions have grown so entrenched that there is little recognition of the extent to which the credibility and success of the gold standard (an iconic ‘liberal’ institution, which, in structure, operation, and spread has tended to be viewed as emblematizing the financial integration of the world economy on the eve of the First World War) rested on imperial foundations.Footnote ² It is no surprise, therefore, that, by the early twentieth century, far from rejecting or repudiating imperial relationships, even liberals sought wherever possible to justify and build on them.Footnote ³

Success breeds imitation, and the late nineteenth-century popularity of imperialism coincided with ambitious new powers, such as the United States and Japan, following in Britain’s footsteps to leverage expanded overseas lending to reinforce the use of their gold-based national currencies in international reserves, and to bolster the international position of their national financial centres. Formal and informal colonies once again provided the settings for such projects.Footnote ⁴

It is now widely accepted that Britain did not command a hegemonic position even in the pre-First World War international monetary system.Footnote ⁵ No doubt, by the eve of the First World War, even relatively small arbitrage opportunities sufficed in equilibrium to move short-term funds between the major money markets. Together with the increasing depth and sophistication of the London money market, which made it an unmatched destination for such funds, the ease with which short-term capital flowed also normally enhanced the effectiveness of the London bank rate.Footnote ⁶ Yet these latter developments were, if not ‘after the fact’, certainly at least coincident with the institution of a stable gold exchange standard, to such an extent that it may reasonably be doubted whether either can be satisfactorily invoked as a pure explanation for the other. In the meanwhile, loans from French and German central banks helped tide over liquidity problems in London, and it has even been suggested that France, rather than Britain, may more properly be regarded as the de-facto international lender of last resort.Footnote ⁷ In the early 1900s, besides the financial shocks of the South African war, uncertainties such as the nature and extent of ‘counter-cyclical’ support from other monetary systems (such as Germany) and the destabilizing impact of the mismatch between the USA’s rapidly growing economic muscle and its underdeveloped financial system also heightened ‘leveraging’ risks.Footnote ⁸ Minimizing such risks demanded coordinated support.Footnote ⁹ Effective, sustainable coordination also required credible assessments of future policies and risks.Footnote ¹⁰ Although they had capital-poor borrowers in mind, Flandreau and Zumer’s emphasis on the importance of perceptions of policies and outcomes for investors’ lending decisions is capable of wider application. Hence, as Lindert noted nearly four decades ago, the fact that London was at the head of a vast and financially well-regulated empire was a key factor in its attractiveness as a banking centre.Footnote ¹¹

A ‘virtuous cycle’ of increased monetary leverage (in the form of the gold exchange standard), financial deepening, and trans-border flows of short-term capital, have been at the heart of conventional liberal narratives of late nineteenth-century financial progress and global financial integration. However there appear to be good grounds to suppose that the hidden hand of a deux ex machina may have lain behind this apparently self-sustaining ‘glide path’. It is plausible, a priori, that, even before the First World War, a liberal international financial system was promoted, and that, once established on reasonably secure foundations, at least in extremis, it was supported by imperial financial arrangements, pre-eminently British imperial arrangements centred on London. After the First World War, Britain’s dependence on these arrangements to recover and sustain its financial position in a reconstructed liberal system also became unmistakeably more pronounced.

The remainder of this paper develops these hypotheses. It is organized as follows. The next section begins with a brief account of the British domestic political and economic context lying behind India’s adoption of a nominal gold standard in 1898, and the development of financial arrangements to harness colonial monetary and financial resources to meet London’s requirements. The section that follows discusses the intensification of such arrangements in the First World War, and Britain’s efforts, in the midst of sterling’s post-war travails, to so align monetary affairs in her major colonies as to support and enhance London’s and sterling’s endangered global role. The next two sections explore South Africa's and India's monetary experiences until the mid-1920s against the backdrop.

As the references below show, the arguments of this paper are pre-figured in several studies of imperial relationships and monetary arrangements. There are also pronounced continuities of subject matter and arguments with some writings on British imperialism, notably that on ‘gentlemanly capitalism’ and empire.Footnote ¹² One of the implications of Peter Cain and A. G. Hopkins’ work is that the enduring power and influence of Britain’s finance aristocracy lay in its ability to negotiate fluidities in the political geographies (and topographies) of global finance, as well as in the modalities of power in the international system. However, retrospective scholarship has been noticeably less successful in such negotiations, with the result that imperial and international institutional arrangements continue to be viewed through separate frames in the respective specialized literatures. In consequence, these have drifted so far apart that it seems necessary once again to remind ourselves of the extent to which the two sets of arrangements interpenetrated and implicated each other. Thus, in summing up the paper, the conclusion reflects on the importance of perspectives from the empire for more historically situated analyses of global economic institutions and arrangements.

In defence of gold and sterling

Most historical accounts convey an air of inevitability about the industrial economies’ late nineteenth-century migration to gold.Footnote ¹³ The simultaneous spread of the gold standard and the expansion of the world trading system has tended to support this impression. The move from silver (the inferior metal by value) to gold also accords well with nineteenth-century ideas of human, material, moral, and social progress. Bimetallism was sometimes referred to as ‘double standard’. In its present-day meaning, the term encodes the moral opprobrium that gold-standard advocates directed at bimetallism.

Yet careful observers at mid century, looking beyond national monetary systems to the future shape of an international system, would have had good reasons to regard the French bimetallic system as the stable standard of the future, and perhaps silver as the more probable basis for any future international monetary system based on a single precious metal.Footnote ¹⁴ The gold standard’s career as a global system was rather fortuitously launched by the new, conservative German empire’s move to adopt a gold currency in 1871. Thereafter, as silver prices tumbled, over the next three decades more countries began leaving silver for gold, after abandoning or waiting out prolonged efforts to coordinate a way out of the resulting monetary and price instabilities.

Gold, it is conventionally argued, commanded an unstoppable advantage and momentum because it promised greater price and exchange stability than silver, closer integration with the world’s financial centres, and, consequently, cheaper capital from abroad.Footnote ¹⁵ But there is no shortage of evidence that the world moved to gold ‘unwillingly’ from the 1870s, at least partly for fear that it would tie domestic and international monetary conditions too closely, and lead to higher or more volatile interest rates. Teleological accounts of nineteenth-century financial development risk collapsing into a single presumed ‘good’, here the gold standard, with all the ‘good policies’ of countries adopting it. But, as Flandreau and Zumer note, ‘good policies’, such as reductions in public debt, were often a side effect of growth. Their finding – that capital flows responded positively to reforms that strengthened national financial systems to better withstand an integrating global economy – also underlines the importance of moving beyond retrospective ‘gold standard determinism’ to disentangle the logics, genealogies, and trajectories of similar institutional and economic policies in different national contexts.Footnote ¹⁶

Even in imperial Germany, for all the associations between gold and national greatness, leading bankers were not convinced of the virtues of gold. For example, Gerson Bleichröder, Berlin’s leading banker, Bismarck’s financial agent and adviser, and the business associate and sometime confidant of James Rothschild, was a ‘consistent bimetallist’, who did not allow enthusiasm for the German Empire to cloud his economic judgement. Bleichröder counselled Bismarck against the gold standard because it would tie Germany to the London money market, raise interest rates, and increase industrial costs.Footnote ¹⁷

Support for silver and bimetallism revived or intensified monetary controversies fuelled by the 1880s slump and set the stage for a spate of enquiry commissions and international conferences. In the US, they also inspired Frank Baum’s memorable 1900 children’s classic, The wonderful wizard of Oz.Footnote ¹⁸ The bimetallist campaign was vigorous even in gold-standard Britain, where its adherents included Alfred Marshall, a founding father of orthodox neo-classical economics.

There were two principal currents of currency opinion in late nineteenth-century Britain. On the one hand, the demand to stabilize silver prices through international agreement came mainly from industrial and agricultural interests, encountering growing competition in home and foreign markets. Proponents of London’s emerging financial services industry, on the other hand, opposed any changes that might interfere with their operations and profits.Footnote ¹⁹ The debate lasted many years and the main arguments were rehearsed at various late nineteenth-century enquiries into economic and monetary conditions.Footnote ²⁰ By 1895, the Bimetallic League’s campaign for a bimetallic sterling had grown powerful enough for advocates of gold to establish a Gold Standard Defence Association. As Cain and Hopkins observe, bimetallism would not have ‘surfaced as an issue at the national level had there not been elements within the square mile who were dissatisfied with gold’. Thus, as late as the 1890s, even for its advocates in Britain let alone elsewhere, the gold standard was not a foregone conclusion.Footnote ²¹

With a wider battle thus in train, Indian currency problems became a decisive front for both bimetallists and gold supporters in Britain. The latter stepped up their advocacy of a gold standard for India, in the knowledge that its adoption in the colony would seriously cripple the bimetallist cause in Britain.Footnote ²²

It is not necessary to rehearse Indian currency problems of the day at any length here.Footnote ²³ Suffice to note that, in 1893, the imperial government controversially closed Indian silver mints to free coinage, as a response to inflationary pressures brought on by falling silver prices and lax monetary management. Four days after the Indian action, the US President convened a special session of Congress to repeal the Sherman Act. Retrospective accounts of this decision illustrate how, even when not explicit, teleological readings of the history of the gold standard can occlude the global, yet multi-tiered, political context and stage on which the late nineteenth-century battles over monetary standards were fought. For example, although it decisively forced President Cleveland’s hand, the closure of Indian mints finds no mention in Hugh Rockoff’s reconstruction, nearly a century later, of the events leading to the repeal of the Sherman Act.Footnote ²⁴ The resulting slide in silver prices and the value of the silver rupee intensified anxieties about Indian budgets and the competitiveness of British exports to India. For the next four years, Indian monetary conditions became a handy lever in the hands of those agitating to put Britain on a bimetallic standard and restore the international competitiveness of its industries.

Arguments to resolve Indian currency problems by stabilizing the rupee on gold foundered on many fears, one such being that India’s propensity for precious metals might undermine the gold standard globally.Footnote ²⁵ But, for a brief period in the 1890s, such fears took a back seat to the more immediate threat of bimetallism, and in 1898 the Indian rupee was nominally stabilized on the gold standard. Intended at least in part to scotch the bimetallic campaign in Britain before it snowballed to threaten the gold standard and the City of London’s principal financial interests, this move represented a crucial episode in the troubled history of the pre-1914 gold standard.Footnote ²⁶

Soon after India was placed on gold standard, fears about the effects of gold flows to India resurfaced in the context of the South African war. The causes of this war have been debated since J. A. Hobson’s early writings on the subject,Footnote ²⁷ and this debate is impossible to summarize here. One may note, however, alongside a cautionary warning about the dangers of reducing complex historical events to simple, mono-causal explanations, that gold has remained at the heart of this debate, including for those who dismiss its role in the war. Hobsbawm largely follows Hobson in suggesting that ‘whatever the ideology, the motive for the Boer War was gold’.Footnote ²⁸ Even with regard to gold, two motives have been advanced: stabilizing the gold mining industry’s working conditions, particularly labour supply, and ensuring London’s control over mining and marketing South African gold, which carry different implications for the roles of the actors involved.Footnote ²⁹ Even Van-Helten, who argues that gold did not matter, notes the growth of German influence in South African commerce and the stabilizing role of South African gold in the London market.Footnote ³⁰

Apart from underlining the role of gold more directly, Marks and Trapido also interestingly locate the war in the context of British imperial policy, and the prevailing climate of ‘international political and economic uncertainty’.Footnote ³¹ Hobson’s theory of a financial oligarchy driving Britain to war has also found some support from Robert Turrell.Footnote ³² More recently, Russell Ally has emphasized the ‘circumstantial evidence’ for the Rand gold fields having become an integral part of the imperial economic system by 1899.Footnote ³³

The South African war was, however, a financial disaster for Britain in the short term. Its direct costs alone reportedly amounted in 1902 to 14% of Britain’s national income.Footnote ³⁴ The war resulted in a sharp increase in public debt, a portion of which had to be raised in the United States because of tight monetary conditions in London and Britain’s need to make up for the shortfall in South African gold supply. In fact, for some historians, the South African war marks the beginning of the shift of financial power from Britain to the United States.Footnote ³⁵

London could also no longer afford a gold standard in India. Plans to establish a gold mint in India were postponed indefinitely and, in 1901, India’s gold standard reserve was transferred to London. There, its gold holdings (£2.5 million out of a total of £3.5 million) were sold and invested in British public stock. By late 1902, sterling securities made up nearly £3.5 million of a total reserve of £3.75 million.Footnote ³⁶

The years preceding the First World War were marked by a rapid expansion of world trade and capital flows, but they also witnessed a ‘frenzied quest for gold’, reflecting what has been described as a process of ‘monetary rearmament’ and ongoing shifts in international trading relations.Footnote ³⁷ With Britain’s financial pre-eminence appearing increasingly less stable and assured, London’s financial establishment drew the colonies more closely into its financial and monetary embrace. Through a combination of direct financing, shipping, insurance, and banking arrangements, London had already ensured that South Africa and Australia marketed their gold in London and were tied to sterling. The time had now arrived to draw India firmly into this new ‘imperial matrix’.Footnote ³⁸

India is well known as a key protagonist of the multilateral payments system centred on London. It was critical to Britain’s pre-war financial position, because India’s burgeoning trade surplus with the rest of the world, and its deficit with Britain, enabled Britain to finance its trade deficits with the rest of the world and continue investing abroad.Footnote ³⁹ As India’s net surplus tripled to £57 million between 1898 and 1914, Britain felt increasingly compelled to improvise ways of remitting it to the colony without recourse to potentially deflationary exports of gold.

The solution to this problem lay close at hand. Britain encouraged India to accumulate sterling balances in London and use token silver currency internally, rather than insisting on payment for its exports in gold. Until 1900, only the Indian government’s UK obligations were financed by sterling purchases in London. In subsequent years, sterling purchases in London were expanded and transformed into an instrument for financing Indian trade.Footnote ⁴⁰ The details of this elaborate mechanism, and the introduction and popularization of token silver currency in India, need not concern us here.Footnote ⁴¹ Suffice to note that Whitehall and City officials so operated the size, timing, and price of their intervention that exchange banks could remit funds to India more profitably by purchasing India ‘council bills’ (encashable in rupees in India) against sterling deposited in the Secretary of State for India’s account at the Bank of England than by shipping gold bullion from Egypt or London.

This procedure did not merely help to centralize gold stocks in London. The funds resulting from the sale of council bills were also lent to City finance houses, or placed as interest-free deposits at the Bank of England. Such placements were often substantial and widely regarded as a steadying influence on the London money market. By 1912, the Indian gold standard reserve, representing seignorage profits from token currency, had also risen to nearly £16 million, or more than half the Bank of England’s gold reserve. Nearly all of this was held in sterling securities.Footnote ⁴² In the 1907 crisis, when the London bank rate climbed to 7% and the Bank of England’s gold reserves slumped from £29 million to £18 million within two months, gold holdings in another Indian reserve (known as the paper currency reserve, which provided backing for India’s currency) were also replaced with sterling securities.Footnote ⁴³

Council bills normally sufficed to regulate gold flows into India from Egypt and London, but they could not stop gold flowing in from Australia. Hence, the Secretary of State began selling ‘telegraphic transfers’ to exchange banks, likewise against sterling deposited at the Bank of England. This was done at a price low enough to dissuade them from intercepting Australian gold bound for London at Colombo, for consignment to India.Footnote ⁴⁴

We know little as yet about the ways in which council bills and telegraphic transfers may have reshaped the social and spatial geographies of Indian trade and trade financing, and its monetary system. The centralization of trade financing may have contributed to diverting Indian exports into imperial networks emanating from London, and influenced patterns of specialization, production, and consumption in India.Footnote ⁴⁵ The new arrangements also hastened the decline of indigenous financing networks, whose decentralized operations were unsuited to the requirements of a colonial state interested not merely in financing exports and monetizing the export surplus (both of which Indian bankers did with renowned efficiency) but also in the smooth remittance of the surplus to London, at first to settle India’s sterling obligations, and later also to stabilize monetary conditions there. Council bills and telegraphic transfers were available only to a select few London-based exchange banks, with a handful of branches in the main port cities in India and linked to a London-centred financial, shipping, and insurance network. (Telegraphic transfers, for instance, required access to information about prices and interest rates in four markets, and in freight rates, at minimum, in two ports.) They centralized the Indian monetary system, and tied it to institutions and conditions in the London market.Footnote ⁴⁶

The Indian currency system after 1900 has come to be called the gold exchange standard, and there is no shortage of evidence to implicate it in other imperial financial agendas. Around the same time that India’s new currency system was improvised, another power in the midst of a strong imperialist surge, the United States, tried, with various degrees of success, to institute a dollar-based gold exchange standard in the Philippines, Puerto Rico, Mexico, Panama, Cuba, China, and the Dominican Republic.Footnote ⁴⁷ The leading promoter of the gold standard in the United States was Charles A. Conant, who anticipated Keynes’ technical defence of the system by some years.Footnote ⁴⁸ As a practising economist, Conant spoke the language of science and ‘mutual benefit’. But, in his other roles, Conant was the main protagonist of the emerging US corporate order, a vigorous advocate of US overseas expansion to provide outlets for capital, and a promoter of a dollar-based gold exchange standard, which he presented as a vital American necessity in a world of rival gold-based currency blocs.Footnote ⁴⁹

Nor was the US alone in this endeavour. Thanks perhaps to its liminal standing in the hierarchies of international power, the imperial aspects of the gold standard are more clearly discernible for Japan. From the outset, war and imperialism were deeply implicated in Japan’s adherence to the gold standard. According to Mark Metzler, Japan’s successful efforts to promote a gold exchange standard and incorporate Korea into its sphere of monetary control laid a ‘foundation … [for] Japanese advance into Northeast Asia’. Beyond Japan too, for Metzler, the gold exchange standard was ‘a question of empire’. Though the imperial politics in which it was implicated passed without evident notice in London, the post-1900 extension of gold exchange standards divided the ‘gold-standard world … internally into sub-blocs’ or ‘monetary spheres of influence’, based on the national currencies of the pre-First World War imperial powers.Footnote ⁵⁰ Thus, notwithstanding liberal claims to the contrary, a gold exchange standard based on the national currency may be regarded as an essential ingredient of global power in the early twentieth century.Footnote ⁵¹

Sterling and empire, 1914–1926

The First World War threw British external finances into a crisis that was only overcome with sterling’s abandonment of its link to gold in 1931. The immediate wartime challenge was to mobilize and concentrate gold in London, in order to finance the war effort and support the raising of loans in New York.Footnote ⁵² Consequently, Britain imposed informal restrictions on free wartime movements of gold, without however formally abandoning sterling convertibility, and strove to mobilize every available ounce of gold in the empire.

Commandeering Australian gold did not prove too difficult for the mother country.Footnote ⁵³ However, with Afrikaner opinion ranged strongly against Britain, the August 1914 agreement giving the Bank of England control over South African gold had to be negotiated and presented as a business agreement with gold producers. In return for miners agreeing to sell their output exclusively to the Bank at the official price of 77s 9d (or £3 17s 9d) per standard ounce, the latter offered them an interest-free advance of 97% of the value of the gold, with the balance paid once the gold was landed in London. Britain thwarted at least one mining company’s efforts to ship gold to New York in 1915, and this agreement seems to have survived the War, despite the possibility of higher prices in New York. British plans to commandeer South African gold in the event of the agreement breaking down therefore remained on paper.Footnote ⁵⁴

Indian gold imports, too, were severely restricted. With silver also in short supply and inflationary expectations driving the Indian public towards metallic money, these restrictions threatened India’s monetary stability and its ability to mobilize men and materials for war.Footnote ⁵⁵ The danger of monetary collapse in India was seen by some as more damaging to the imperial interest than a German landing in Norfolk. The situation was managed using imperial resources – mainly limited shipments of Australian gold – until Britain negotiated a deal to ship surplus US silver to India.Footnote ⁵⁶

During the War, American loans and an informal embargo on gold exports helped sterling to remain on the gold standard. American loans dried up after the War, and the unofficial gold embargo could not be prolonged indefinitely. Britain’s move to lift the embargo in March 1919 led to capital flight and, within days, to sterling’s collapse. Controls had to be hastily re-imposed at the end of March, and sterling remained off the gold standard until 1925.

In the early 1920s, a return to the gold standard appeared as an elusive prospect for sterling. For instance, the pound had depreciated below $3 in February 1920, or by nearly 40% on its pre-war parity. But it was evident to all that restoring the pre-war status of London and sterling depended on the latter returning to gold. To influential policy-makers, it also appeared self-evident that sterling’s restoration would not be credible or complete until it returned to its pre-war parity with gold. Besides help from the United States, the goal of restoring sterling to the pre-war parity without unmanageable strains on the British economy depended on cooperation from South Africa and India, as knowledgeable contemporaries well understood but later historians have largely overlooked.Footnote ⁵⁷ As a British colony, India could be forced to play its assigned role, whereas American cooperation was harder to achieve. The price of success in strapping South African policies to its own needs in the early 1920s was Britain’s visibly diminished influence in the dominion by the middle of the decade.

The macroeconomic relationships that Britain sought to forge with different segments of a fragmented global economy during these years cannot be described here.Footnote ⁵⁸ It is sufficient to note that Britain sought a relatively painless and stable return to gold through an inflation of world prices promoted by rising overseas lending by the United States.Footnote ⁵⁹ But it was also concerned to ensure that imperial financial arrangements did not break down because of sterling’s instability, the strength and stability of the US dollar, and New York’s growth as a financial centre.

This was a tightrope. On the one hand, US lending was essential to sterling’s recovery. On the other hand, more energetic US external financial policies might attract the self-governing dominions towards New York and the dollar, and hurt Britain’s future financial prospects, which depended on the major colonies continuing to use London institutions and sterling for their external transactions. Thus, the road to restoring London’s future as a global financial centre ran through Canberra, Pretoria, and Delhi, as much as through New York. Britain was determined that Australia, South Africa, and India should not return to gold before sterling, or gravitate towards New York and the dollar.

This was easier said than done, even in Australia, where there was no great hostility towards Britain. Sterling’s long and uncertain float was causing disquiet by 1923. With the former gold-standard-based currency mechanism inoperative, monetary expansion became a discretionary affair, which led to disagreements between the Commonwealth Bank, the Commonwealth government, and various groups of producers and exporters. After waiting three years for Britain’s lead, Australia began independently to ponder its policy options. By 1923, there was sizeable support for a return to gold ahead of Britain. But the dominion arrived at a firm decision to return to gold only in early 1925. By now sterling too was within striking distance of its old gold parity and, while differences remained over details such as timing and American financial assistance, the Australian initiative spurred London into action. Thus, within weeks of Canberra’s decision, the British government decided to restore sterling to the gold standard. The two countries returned to the gold standard together in April 1925.Footnote ⁶⁰

In contrast, the impact of Britain’s wartime and post-war problems caused bitter resentment in South Africa and India. Deeply contentious, monetary politics here reverberated with demands for greater monetary sovereignty. Given the strength of feeling that London had managed South Africa’s wartime and post-war monetary affairs in its own interests, this came to signify a gold standard with a negligible role for sterling.

India and South Africa shared some features, but there was little similarity between their monetary experiences. India was a colony, over whose monetary affairs Whitehall and the Bank of England always kept firm control. It thus came as no surprise that Britain managed to have its own way in India, despite nationalist opposition. In South Africa, by contrast, Britain could only count on its rapidly diminishing political and financial influence, and events here took a rather different and more difficult course.

Conflict and compromise in South Africa

Britain’s abandonment of gold in March 1919 led naturally enough to a rise in the sterling price of gold, and necessitated a review of the August 1914 agreement. South African gold producers were now reluctant to commit their output to the London market but they agreed in the end to consign their output to the Bank of England, in return for licenses to re-export the metal to more profitable centres.Footnote ⁶¹ This arrangement suited the Bank of England, since London’s status as the principal gold market would enhance its competitiveness as a foreign exchange market, now growing rapidly on the back of currency fluctuations.

This July 1919 agreement suited the producers as long as sterling was falling but, once it bottomed out and began to appreciate, the nominal sterling price of gold began to fall. In the background of wartime and post-war wage and cost escalations, lower sterling prices intensified the industry’s profitability crisis.Footnote ⁶² The pressure to reduce costs forced a reduction in Afrikaner wages and the substitution of cheaper African labour, provoking strikes and riots. In turn, this necessitated a reorganization of the industry.Footnote ⁶³

Although the industry’s cost and profitability crisis was still in the future, by 1920 gold producers were already chafing at the Bank of England’s restrictions on their ability to ship gold directly to the most profitable markets.Footnote ⁶⁴ With the Afrikaner Nationalist Party attacking the July agreement as a sell-out to imperial interests, and the industry heading towards a crisis, the Union government began to distance itself from this arrangement.

The absence of a gold refinery and mint was a major reason for South Africa’s dependence on London, and their immediate establishment now became an important plank of nationalist agitation. Britain did its best to oppose such plans. The Bank of England even considered severing its traditional ties with London gold refiners and erecting its own refinery to process South African gold on a no-profit basis, as a means to ensure that the dominion’s output was brought to London.Footnote ⁶⁵ But a local refinery and mint were now powerful symbols of Afrikaner nationalism, and growing agitation forced the South African government to establish a refinery in 1921. Two years later, a mint was also established in Pretoria, albeit as a branch of the Royal Mint.

No longer dependent on London to refine and assay their gold, South African producers clamoured to export their output directly to the best markets. Earlier, direct shipments of gold to India had been restricted but, with India often now outbidding New York and London, direct shipments commenced in August 1923.Footnote ⁶⁶ Gradually, over the following years, the July agreement became irrelevant and was abandoned in 1926. With sterling now back on gold, London also had little use for this agreement. In return for burying the July agreement, London sought a commitment from South African gold producers to provide regular and timely information about gold movements. Smoother relations with gold producers would also strengthen London’s chances of ensuring that the South African gold mining industry continued to be financed and managed as far as possible through London, and that South African banks and financial institutions used London for all their major transactions. Strengthening links between London and the South African mining industry had never been as important since Ernest Oppenheimer, founder of the Anglo-American Corporation, mobilized American funds to exploit the Witwatersrand gold fields in 1917.Footnote ⁶⁷ In the event, London succeeded in maintaining a crucial role in South African gold mining finance during the interwar years.Footnote ⁶⁸

Preserving British influence over South African monetary affairs was another challenge. Sterling’s post-March 1919 depreciation meant a depreciating South African pound. The resulting inflationary pressures fuelled discontent and led, in 1919, to a monetary conference that recommended a gold currency and a central bank as essential steps towards South Africa’s eventual monetary unification.Footnote ⁶⁹

A central bank accorded with the Bank of England’s own current priorities. Apart from promoting central banks as a key element of its financial plans for post-war Europe, the Bank of England also regarded them as an essential means of refining its control over monetary affairs in colonies, where existing forms of control by London-based commercial banks or Whitehall departments had become controversial. In short, the Bank of England’s main aim in establishing ‘autonomous’ and friendly central banks was to ‘de-politicize’ monetary policies, at a time of expanding democracy in Europe and growing national consciousness within the empire, and to take them out of the purview of popularly elected or nationalistically inclined governments.Footnote ⁷⁰

The Bank of England was thus well prepared to guide the creation of the South African Reserve Bank (SARB) in 1921 and keep it under close watch. A precondition for effective Bank of England influence over central banks was the latter being in private, joint-stock ownership and functioning independently of the government. These became crucial Bank of England principles in guiding the establishment of central banks. The Bank of England’s influence was also exercised through key functionaries. Thus, the founding governor of the SARB, W. H. Clegg, was a former Bank of England official, and Montagu Norman’s personal nominee for the position.Footnote ⁷¹ The centralization of South African banking resources in London under its watchful eyes also strengthened the Bank of England’s influence.Footnote ⁷² Central banks would become a double-edged weapon in several countries, often acting as sponsors and instruments of monetary nationalism, but in 1921 this danger still lay in the future.

The immediate danger of monetary nationalism came in the guise of demands for a gold currency. In both South Africa and India, a currency link to an unstable sterling appeared to be a form of political imposition. With monetary affairs looming large in political controversies, the gold standard became more than ever before a symbol of monetary sovereignty in both countries.

A gold currency for South Africa or India, however, represented a serious challenge to sterling’s global status. A stable South African gold currency, at a time when sterling was itself off gold and unstable, would inevitably pull the dominion into the USA’s financial orbit. However, with the international monetary situation still fluid, and gold continuing to command a high premium in several parts of the world, including India, not all South African officials were convinced of the advantages of a lonely ascent to gold. South African gold producers were also wary, since they did not wish to risk the nominal premium on gold that a link with a depreciated sterling still offered.Footnote ⁷³ Henry Strakosch was a London-based mining magnate with extensive South African interests and connections, a practical economist, a monetary diplomat, and a confidant of Montagu Norman. Strakosch played on such doubts to convince politicians and officials that a premature return to the gold standard would only lead to South Africa being denuded of its reserves of the metal. His intervention proved effective and, in 1920, the South African government dismantled all remaining vestiges of its gold standard to introduce an inconvertible paper currency.Footnote ⁷⁴

The new currency soon provoked discontent in South Africa, much of it directed against the two British banks of issue, for whom inconvertible paper money spelled large profits. The monetary system once again became a subject of high politics and the Nationalist Party fought the 1924 elections on a platform that included returning South Africa to the gold standard.

The new Nationalist–Labour coalition government that came to power after the elections did not lose much time in proceeding to fulfil this pledge. Ignoring British and Bank of England experts, which in itself marked a major break with the past, the new government solicited advice from the American economist E. W. Kemmerer, known as the ‘money doctor’ because of his active involvement in currency stabilization plans in the 1920s, especially in Latin America, and G. Vissering, head of the Dutch central bank. For the coalition government, the Kemmerer–Vissering Commission was ‘part of the struggle to achieve greater … monetary independence from Britain’.Footnote ⁷⁵

Vissering was a close friend of Norman and was generally known to favour a gold exchange standard for the colonies. By contrast, officials in London had few expectations from Kemmerer, whose advice to his sovereign clients was to forge closer ties with the United States and Wall Street.Footnote ⁷⁶ With Vissering being unwell for much of his time in South Africa, the final report, though unanimous, was principally Kemmerer’s work. Submitted in January 1925, it recommended South Africa’s return to gold in July the same year.Footnote ⁷⁷

Australian and South African determination to return to gold ahead of Britain if necessary hastened sterling’s own return to gold. The empire’s monetary unity was not the only thing at stake: also in danger was London’s future as a financial centre. As Otto Niemeyer, Controller of Finance at the British Treasury told Winston Churchill, Chancellor of the Exchequer, shortly after the Australian and South African decisions, ‘when Dominions are at par with gold and London is not … [they] deal with U.S. as a centre and don[’]t leave their sterling in London’.Footnote ⁷⁸ Kemmerer generally functioned in close concert with the US administration and his missions were thought to have its support.Footnote ⁷⁹ South Africa’s invitation to Kemmerer and his gold standard recommendation intensified British fears of deeper US financial penetration into her empire.Footnote ⁸⁰ Besides, the spectre of a dominion breaking away from it would hardly have amounted to a strong endorsement for London officials’ efforts to promote sterling as a reserve medium in Central Europe.Footnote ⁸¹

Conflict but no compromise: India

London was vastly more successful in ensuring that India would follow, and not dictate, British policies. Another striking contrast with the cases of Australia and South Africa was that the United States ignored its general scepticism of the gold exchange standard to throw its powerful weight behind Britain’s determination to keep India off the gold standard.

Monetary controversies created more bitterness in India than in any other part of the British Empire. Most parts of the empire shared the belief that British compulsions dictated their prolonged monetary instability, but many policies in Australia or South Africa were framed locally, albeit in the light of constraints arising from Britain’s problems. In India, however, London determined, enforced, and oversaw deflationary monetary policies in the 1920s. Hence, currency policies produced extraordinary controversy, and an automatic gold standard with no role for sterling became a symbol of monetary sovereignty and a major nationalist rallying cry.Footnote ⁸²

The rupee had come off its anchor with gold during the First World War and reverted to a sterling exchange system after the failure of a stabilization attempt in 1920.Footnote ⁸³ Tight monetary policies and a resumption of export growth led to the rupee appreciating to its pre-war parity with sterling of 16d by the end of 1924. But with London authorities in no mood to stabilize the rupee ahead of sterling, it climbed to 18d a year later. With sterling now back on gold, and the path to any further appreciation barred by intense domestic opposition, the decks were at last cleared to stabilize the rupee.

Such was the depth of feeling about monetary issues in India that a royal commission, the second within a dozen years, had to be established to deliberate a justification for future policy.Footnote ⁸⁴ But no sooner was it established than the commission confronted an unexpected challenge. Alarmed by the intensity of opposition to colonial monetary management and the demand for a gold standard, the colonial Indian government attempted to steal its domestic opponents’ robes by itself sponsoring a plan for a gold rupee. The government’s justification echoed nationalist arguments that, while a gold rupee would increase gold flows to India in the short term, by promoting its financial and banking development it would restrain the long-term demand for gold better than any alternative scheme.

Fearing that it would mean the end of the international gold standard and unwilling to allow scarce gold to be used for currency experiments in India, British officials were determined to block proposals for a gold rupee. Winston Churchill shot off an alarmed private letter, warning the Secretary of State for India of their dangers.Footnote ⁸⁵ But the Treasury thought better of overt action. As Otto Niemeyer informed Churchill in response to his query about the ‘evil development’ in India, ‘I had already discussed this with Mr Hilton Young [chairman of the Commission and minor Tory politician] and … [we] thought it undesirable for Treasury to give evidence. We don[’]t want the rejection of Indian ideas to be attributed to the … Treasury as this may raise real trouble in India.’Footnote ⁸⁶ The commission would hear the Governor of the Bank of England and others

The task of fighting the Indian gold standard plan now fell to Montagu Norman. He quickly obtained assurances from Hilton-Young and Henry Strakosch, his old confidant, of their determination to mobilize against the plan. The other British members, who made up a majority, were expected to follow their lead, so that from the very outset the gold standard plan stood little chance of being accepted. But there were four Indian members on the commission and, given the depth of feeling in India, even a strong dissenting minority report could be politically damaging. Norman therefore set about mobilizing a formidable body of international opinion against the Indian plan.

Norman’s most important overseas ally for this purpose was Benjamin Strong, Governor of the Federal Reserve Bank of New York. Norman and Strong differed on many things. For example, Strong did not share Norman’s enthusiasm for a global gold exchange standard, which he regarded as a clever British stratagem to control European stabilization programmes and prolong sterling’s international role.Footnote ⁸⁸ Nevertheless, the two central bankers forged a close partnership for stabilizing European economies and restoring European trade. In both their agreements and disagreements, the relationship between the two men more broadly emblematized financial relations between London and New York, and Britain and the United States, in the 1920s.

Strong agreed with Norman that an Indian gold standard would endanger European stabilization and the future of sterling, if not the gold standard. The Indian plan also envisaged selling the government’s enormous stocks of silver. This proposal, Strong feared, would rouse protectionist and isolationist ire in the United States, and would endanger trans-Atlantic economic and financial cooperation.Footnote ⁸⁹ Urged on by Norman, and with the strong backing of the Treasury Secretary, Andrew Mellon, Strong travelled to London as the ‘Fiscal Agent of the Treasury’, at the head of a delegation to oppose an Indian gold standard.

Norman also attempted to mobilize Vissering and H. Schacht, head of the Reichsbank. However, Vissering had to cancel his visit because of the general strike, and Norman lost enthusiasm for Schacht after he expressed support for the Indian gold standard plan. In the end, no suitable dates could be found for his appearance before the commission.Footnote ⁹⁰

Norman took it upon himself to coach Strong, who was undoubtedly London’s trump card. Norman and Strakosch plied Strong with detailed information on the Indian economy and on currency and precious metal markets, gave him copies of confidential internal Bank memoranda and papers by Strakosch, and finally briefed him about the ‘various points in [sic] which [Indian] susceptibilities’ might be aroused.Footnote ⁹¹

Given the opposition that it evoked, and the mobilization that it had provoked, the odds were heavily stacked against an Indian gold standard. However, given the intensity of Indian opposition to any link between the rupee and sterling, the commission felt obliged to propose a gold bullion standard, instead of a gold exchange standard. As quickly became evident, this was only a subterfuge, as London officials were determined to ensure that any system proposed would operate for all practical purposes as a sterling exchange standard.Footnote ⁹² This was further underlined in September 1931, when London decided that the rupee would follow sterling off the gold standard.Footnote ⁹³ In contrast, both Australia and South Africa managed to wrest greater control over their own monetary affairs from London and, whether well-advised or not, attempted to pursue independent monetary policies. Australia ‘peeled away’ from sterling in 1929, while South Africa limped along on the gold standard until the end of 1932.Footnote ⁹⁴

However, neither Norman nor Strong managed to stop a minority report by the prominent Indian businessman member of the Commission, Purushotamdas Thakurdas, who advocated a devalued rupee pegged to gold. Though of little practical relevance, Thakurdas’ report furnished the basis for protracted nationalist opposition to the colonial government’s currency and monetary policies, which lasted through the 1930s. The opposition grew increasingly bitter, as the depression intensified and the colonial authorities did nothing to check Indian peasants’ distress at liquidation of their savings in the form of gold and silver. The precious metals ended up in London, where gold arrivals from India helped ease monetary conditions. By the early 1930s, colonial government officials believed monetary and currency policies were the single biggest obstacle preventing closer political links between the government and Indian businessmen.Footnote ⁹⁵ Isolated, without relevant friends, and on the defensive against intensified nationalist agitation, the colonial government was keen to placate Indian business opinion on monetary matters. Yet vital London interests were involved and, in contrast to Australia and South Africa, London had the last word in India.

Conclusion: beyond the empire

In recent decades, economic historians of the British Empire and historians of the nineteenth- and early twentieth-century global economy have generally pursued different paths. Though perhaps with less vigour than in the 1970s, the former (to whom I shall refer as imperial economic historians) continue to pursue fragmentary agendas that focus on the implications of colonial economic relations for their respective regions of the world. By contrast, the interests and preoccupations of the latter (referred to here as international economic historians) appear mainly to originate in issues of contemporary interest that evoke parallels with the past, or in the opportunity to apply current economic theory and quantitative techniques to historical time periods.Footnote ⁹⁶ Given the liberal premises of mainstream economic theory, it is not surprising that international economic historians rarely display much interest in the political, economic, and institutional processes or arrangements constitutive of empires. Not surprisingly, this divergence is also now close to a point of origin: while historians of the British Empire are drawn largely from graduate departments in history, those of the world economy populate the discipline of economics.

By bringing new methods and perspectives to bear on historical analysis, international economic historians have undoubtedly helped to enhance our understanding of the functioning of the global economy. But this is perhaps at the price of the ever-present danger that the perspectives, concerns, and methods of international economic history might combine to produce accounts of an elegant past of a global economy, which reinforce the premises and foundations of their underlying models better than they reflect the actual, and very messy, diversity of historical experiences. Even where the imperial origins of the late nineteenth-century liberal world economy are recognized, despite the profusion of scholarly literature offering abundant evidence to the contrary, the empire is sometimes celebrated, without even any irony, as the harbinger of liberalism.Footnote ⁹⁷

The historical study of the gold standard offers an interesting illustration of this danger. Perhaps the most influential document on the pre-war gold standard is the report of the Cunliffe Committee set up in 1918 to furnish a blueprint for Britain’s return to a monetary ‘status quo ante bellum’.Footnote ⁹⁸ The Cunliffe Committee justified this objective, and the deflation of prices and incomes required to accomplish it, by depicting the pre-1914 gold standard as a smooth and efficient system, driven by market signals, centred on the London money market, and undergirding a liberal and largely harmonious international economic system.Footnote ⁹⁹ For a generation of interwar policy-makers the Cunliffe report’s account of how the pre-war gold standard worked held almost canonical status.

From the 1950s, this model underwent revisions at the hands of economists and historians, largely reflecting contemporary preoccupations and interests. Thus A. G. Ford’s account of the functioning of the gold standard in Argentina came against the background of Latin American debates about the impact of the world economy and international economic institutions on their national economies, and more widely on those of the poorer nations of the world.Footnote ¹⁰⁰ Robert Triffin argued the intrinsic instability of the gold exchange standard at a time when the dollar-based gold standard was moving towards instability, and highlighted the role of key currencies in the pre-1914 system.Footnote ¹⁰¹ Barry Eichengreen’s emphasis on credibility and cooperation, more than two decades later, reflected a theme that came to prominence in the 1980s, when major industrial countries began moving towards better macroeconomic coordination to reduce monetary and financial uncertainties.Footnote ¹⁰² Other modifications of the Cunliffe mechanism might be traced to debates about monetary policies, which raged in the 1960s and 1970s.Footnote ¹⁰³

Whatever their proximate origins and their internal differences, all these accounts shared an important feature with the report of the Cunliffe Committee, that is, an amnesia about the imperial dimensions of Britain’s economic, financial, and political power before the First World War. This was encouraged by a set of unsupported assumptions about the pre-war global economy, notably that its structures originated and evolved spontaneously, that its constitution and relationships were determined by pure market incentives, and that its functioning was open and liberal. This amnesia about empire is now nearly universal, even in historical accounts purporting to deal with the political aspects of economic decision-making and institutional development.Footnote ¹⁰⁴

The rift between imperial and global economic history evokes another rift, referred to above, between ‘imperialist’ and internationalist restructuring agendas for pre-war and interwar Britain.Footnote ¹⁰⁵ Britain’s reaffirmation of the gold standard and free trade between 1898 and 1906, and its return to gold in 1925, are usually regarded as victories for the liberal internationalist ideal in Britain’s external economic relations. Counter-posing the two agendas is misleading, however, because neither was coherent, homogenous, or self-contained. It also ignores a significant asymmetry, for the internationalist agenda might subsume the ‘imperialist’ one. In other words, the internationalists did not regard the empire as an alternative to the wider world, but a key resource to promote British power in it. Consequently, the empire was expected to play its part in promoting Britain’s leadership of the pre-1914 gold standard, in assisting the return to gold in 1925, and thereafter in the daunting battle to remain on gold. As Britain’s financial predominance waned, Australian, South African, and Indian resources had to be mobilized to arrest or reverse the trend. The ‘international’ and the ‘imperial’ were thus so intertwined that the biographer of Charles Addis, British financier and a leading proponent (along with Montagu Norman) of interwar Britain’s global financial interests, could rightly remark, without any apparent irony, that Addis was ‘best … understood as a defender of Empire; his weapons were those of the international financier – capital and financial expertise’.Footnote ¹⁰⁶ In the end, Britain’s financial leadership came under threat not only from France and the USA, as is usually asserted, but also from the strain of leaning so heavily on its empire.

Despite the 1920 Genoa resolution, and some investigations under the aegis of the Gold Delegation of the League of Nations, Britain was virtually alone in promoting the gold exchange standard in the interwar world economy. For many contemporaries, therefore, the gold exchange standard was a British ‘fad’, contaminated by imperial associations and practices, which Britain was now attempting to smuggle into Central Europe.Footnote ¹⁰⁷

The work of the Gold Delegation fell victim to such perceptions. Unable to shake off suspicions that its efforts were part of a British conspiracy against France and the USA, the Bank of England was forced to distance itself from the Gold Delegation.Footnote ¹⁰⁸ Nor were dark suspicions about British motives dispelled by the markedly bullionist tenor of its external economic policy discourse in the late–1920s and the early 1930s.Footnote ¹⁰⁹ As a British Treasury official, R. V. Nind Hopkins, remarked in his notes for the Macmillan Committee, the

Similar views were also expressed in public.Footnote ¹¹¹

Imperial and bullionist perceptions were further reinforced by how London reacted to French efforts to convert sterling. London’s reactions would not have surprised the intelligentsia in British colonies, who were used to its mixture of liberal statements and illiberal practice. However, Emile Moreau, governor of the Bank of France between 1926 and 1930, was taken aback by the British response, and reportedly came away from a meeting with Montagu Norman feeling that his attitude was ‘imperialistic’.Footnote ¹¹² Many in Britain’s larger colonies felt likewise, and deprecated the costs that they believed their economies were paying to support sterling as an international currency and London as a global financial centre.

Re-embedding the intertwined financial histories of the imperial and Atlantic worlds into a global context thus helps to clarify the many intersecting processes involving both power, in all its forms, and markets, which shaped global financial relations and institutions during our period. They also reveal the global dimension of the crisis of interwar economic liberalism, for which, in some respects, sterling served as the mascot, while the troubled career of sterling politics offered a narrative and script. Consequently, much of the opposition to it was necessarily neither idiosyncratic nor anti-liberal. Instead it reflected worldwide anxieties about Britain’s weakened financial stature and the diminished credibility both of its troubled currency and of its liberal discourse on global economic policy.