Suspension of the Gold Standard
TOWARDS the end of August it was hoped that, as a result of the change of government and of the drastic measures taken for balancing the budget, the pound might be saved. Early in September it was realized, however, that the authorities were fighting a losing battle. It was known that day after day the second credit of £80,000,000 had had to be drawn upon heavily in order to prevent a depreciation of sterling below gold export point. It was also realized that the authorities could not allow the gold reserve to decline below £130,000,000, because that amount just covered the Franco-American credits. Thus the exchange had to be kept at all costs above gold export point, in spite of the persistent pressure caused by the outflow of foreign funds. During August and September the pressure was aggravated by bear speculation in sterling on a large scale. Considering that the limit of the possible losses on selling short sterling was
only a fraction of I per cent, while the extent of the speculative profit was estimated at at least 25 per cent, speculators had every inducement to operate against sterling.