Pur Autre Vie

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Friday, May 17, 2013

Keynes and the BIS

Yesterday Krugman blogged about the inflation hawkishness of the Bank for International Settlements (BIS).    As some commenters noted, he passed up a good opportunity to title his blog post "Faulty Basel" or "Basel, Faulty" (Krugman, above all other commentators, loves wordplay).  Anyway it put me in mind of this, from John Maynard Keynes:  Fighting for Freedom (by Robert Skidelsky):

There was a last-minute Keynes explosion over the Bank for International Settlements.  Set up as a club for central bankers in Basle, Switzerland in 1930, it had maintained contacts with both sides during the war:  it had accepted the transfer of Czech gold to Germany, it had a German director, and Emil Pühl, deputy president of the Reichsbank, was a frequent visitor to Basle.  A resolution proposed by Keilhau of Norway and supported by other Europeans demanded its immediate liquidation.  The Americans and British had agreed to support a milder version recommending eventual liquidation, but at a meeting of Commission III on 18 July, the American representative Luxford put forward a resolution making membership of the BIS and IMF incompatible.  This passed over British and Dutch objections.  Keynes heard about it that evening, and it put him into a towering rage.  He stormed into Morgenthau's room, accused the Americans of double-crossing the British, and said that unless the American resolution was withdrawn he would quit the conference.  Mrs Morgenthau, who was present, reported Keynes as 'quivering, he was so excited about it'.  Morgenthau quietened him down, and Keynes left with a promise to send him a a new resolution next morning.  The eventual agreement was to call for liquidation of the BIS 'at the earliest possible moment'.  This moment never arrived, and the BIS continues to this day.  Keynes's intervention probably saved it.  He thought that the American action was part of a US Treasury sub-plot to discredit New York bankers opposed to the IMF who had had associations with the BIS.  Kept in existence, the BIS revived in the late 1940s as a centre for intra-European financial co-operation when the IMF was dormant.
 History is pretty weird.

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