America's Money Machine

242 PART III/DEBACLE OF AN IDEA
Despite the audacity and violence of this assault, the actual threat to
Federal Reserve solvency came from another quarter-from old and until
recently indigent friends, and from one ancient ally-the French Republic.
Europe had made an astounding recovery from the depression and
despair of 1947, which had brought on the Marshall Plan. How much of
this recovery was due to the dollars distributed so freely, and how much
to innate European vitality, and indeed how much to the restoration of
morale which was, even more than the dollars, the chieffruit ofAmerican
concern and goodwill, all are matters for debate. In Germany, for instance,
where following defeat the mark had depreciated to the point
where the cigarette had become the preferred medium of exchange, the
restoration of a sound currency had had an electric effect. Overnight,
shop windows that had been empty· were filled, streets that had been
deserted now swarmed with traffic; suddenly new buildings were rising
on every hand and the air was filled with the sound of the hammer and
the steam shovel. Men who had been aimlessly walking the streets seeking
work or food were now employed and fed. Overnight the universal look
of apathy was turned to joy and expectation. 3
The German currency reform had occurred in June, 1948, before the
impact of U. S. economic aid. The year before, as we have noted, the
British attempt to restore the pound sterling had collapsed, with consequences
felt throughout Europe. On September 18, 1949, the pound was
devalued to a parity of $2.80 with the dollar.* The pound continued to
be a feeble currency, however, and in 1961, the United Kingdom was
compelled to borrow $900 million from the United Statesand European
countries. When this loan could not be repaid, the government was
forced to borrow $1 1/2 billion from the International Monetary Fund
and to obtain an additional $1/2 billion stand-by credit.t
In France, monetary instability continued until 1958, with the value of
the franc subjected to successive alterations. In 1945, following the liberation
from German control, the franc had been revalued at 119.1 to the
dollar; in 1948, the rate was reduced to 214.39 to the dollar; in 1949
reduction was made to 329.8; in 1949, to 350, and in 1957 to 420 to the
dollar. 4
*Since the dollar had itself been devalued in 1934, the new pound represented $1.654
in terms of the 1914 dollar, compared with the parity at that time of $4.867.
tIn November, 1964, a further crisis occurred, compelling a spectacular, overnight rescue,
led by the New York Federal Reserve Bank, in which 11 countries provided short-term
credits totaling $3 billion.