Bulletin Newsletter from the EABH

bulletin Newsletter from the EABH

2/2012

European Association for Banking and Financial History e.V. Editorial EABH But 2012 is not only remarkable for the anniversary of the your contributions that have helped shape the bulle rec to also but cooperation, fruitful this only not HQMR\WKHZLGHYDULHW\RIEDQNLQJDQG¿QDQFLDOKLVWRU\FROODWH ne as well as partners and members our of contributions various the cooperation ever since 1999. Throughout all these years Dr. Jel thank to moment this take to like would I 1998. in started ¿QGLQJVDWµ3XEOLF3ROLFLHVDQGWKH'LUHFWLRQRI)LQDQFLDO)O the organisational committee proudly invited three ‘newbies’ kindlyhosted theby Todaythe of volume 30th the present to proud are we On this occasion, the RIWKH%RDUGRI0DQDJHPHQWSDUWLFXODUO\DV+XJR%l *UHHQDQG+DUROG-DPHVKDYHDORQJDQGZHOOHVWDEOLVKHGFRQQH 3URIHVVRU+DUROG-DPHVZDVZDUPO\ZHOFRPHGDVWKHQHZ&KDLURIWKH$FD IRXQGLQJGD\VEDFNLQ+HZDVMRLQHGRQWKH%RDUGRI *HUPDQ\¶LQWKLVHGLWLRQDQDUWLFOHDERXWWKHEDQN $FFRUGLQJO\ZHDUHYHU\KDSS\WRSUHVHQW+DUROG-DPHV¶µ:UHVWOLQJZ successful release of our RILQWHUHVWIUHHEDQNLQJLQFRQWH[WRIFXUUHQW¿QDQFLDOFKDOOHQJ MHYREULQJLQJWRJHWKHUH[SHUWVIURPWKURXJKRXWWKHZRUOGWR LQDXJXUDWHGE\WKH¿UVWZRUNVKRSKRVWHGE\ Development of Islamic Finance conference the First, 2012: November in accomplished cessfully Last but not least, we are proud to report to our readers on 0XVHXPRIWKH LQWURGXFHVSROLWLFDOYLHZVDQGVWUDWHJLHVDIWHUWKH WRQHZUHVHDUFKIRUH[DPSOHE\\RXQJVFKRODU0DULXV&RQVWDQWLQ$SRVWR the But volume. corresponding a in published recently been have NLQGO\SURYLGHGE\/RUQD:LOOLDPVIURPWKH Yoursfaithfully 0HUU\&KULVWPDVDQGDSURVSHURXVDQGKLVWRULFWRDOORI\RX newresearch, books and eventsin 2013. :HYHU\PXFKKRSHWKDW\RXHQMR\UHDGLQJRXUWKEXOOHWLQD RQPDQ\GLIIHUHQWOHYHOV$IWHUDVXFFHVVIXOBank of England of Bank DeutscheBank this year.this *UHHN'HIDXOW1HZVRQDUFKLYHVIRUWKLVYROX eiving your papers and research material, because i because material, research and papers your eiving tin into the research platform that it has become t HUZKRVHOHWWHUVGXULQJWKHWLPHVRIWKH7KLUG5HLF Q]LJHUKDVEHHQFRQQHFWHGZLWK EABH bulletinEABH 6FKRODUV¶:RUNVKRSLQ%RUGHDX[LQ0DUFK EABH bulletin our editor Damir Jelic for the very successful very the for Jelic Damir editor our two further 0DQDJHPHQWE\DUFKLYLVW(GZLQ*UHHQZKLOH RZV¶ School for Business and Economics on23 November 2012. DQG$VKRN.DSRRUSUHVHQWLQJWKH0RQHWDU\ to to join our academic forces, presenting their GLQWKHVHYROXPHV:HKRSHWRFRQWLQXH GLVFXVVWKHKLVWRULFDOUHOHYDQFHDQGIXWXUH QGZHORRNIRUZDUGWREULQJLQJ\RXH[FLWLQJ HV6HFRQGZHDUHSURXGWRDQQRXQFHWKH ic has made considerable effort to collect EABH devoted reader may also look forward look also may reader devoted Business in between Cultures – the – Cultures between in Business FWLRQWR , our biannual publication, which we which publication,biannual our , w researchers so that today we can we today that so researchers w LWKWKH$QJHO*HRUJ6ROPVVHQDQG EABH ’s annual conference, which was which conference, annual ’s : : it has been a historical year for DLHRU&DWKHULQH%UHJLDQQLZKR EABH FounderDeputy& Chairman projects, both of which suc Europe GHPLF&RXQFLO%RWK(GZLQ . ger as the new Chairman EABH ZKLFKZDVRI¿FLDOO\ Manfred PohlManfred ever since its in Sara PHDUH oday. t is is t K Contents

New research 2 James 2 Apostoaie 11 Brégianni 21 Costache/Manea 32 George 38 Smolo 46 Archives news 51 Book trailers 66 Conference report 70 EABH noticeboard 77 Removing the dust 78

Front page illustration - Deutsche Bundesbank - Archives Published by the European Association for Banking and Financial History (EABH) e.V. ISSN Key title: Bulletin (European Association Banking and Financial History) Editor: Damir Jelic Assistant Editors: Carmen Hofmann, Tanja Röhr Language Editor: Verity Gale

The European Association for Banking and Financial History (EABH) e.V. Geleitsstrasse 14 D-60599 Frankfurt am Main [email protected] Tel: 0049 69 97 20 33 09 Fax: 0049 69 97 20 33 08 www.eabh.info Wrestling with the Angel: Georg Solmssen and Germany 1

Georg Solmssen’s story offers a unique insight had a powerful and deeply personal way of ex- on the tragedy of German Jewish integration. pressing the predicament of what he saw as a He was a perfect exemplar of one conserva- doomed “aristocratic commercial culture.” tive path of assimilation for the German-Jewish Today Solmssen is perhaps best known as the

New research New commercial elite, and he seemed a classic rep- author of a moving and prophetic letter of 9th resentative of the small group later dismissed April 1933, which is chillingly prescient, not only by Chaim Waizmann as “ Kaiserjuden ”. 2 He about the ultimate goals of the Hitler move- fully embraced a sense of patriotism that he in- ment, but also about the character of German herited from his family. One of the most power- support for the Nazis. It is now very frequently ful reasons for Solmssen for being proud to be quoted in accounts of the gathering war against German was what he saw as a uniquely Ger- the Jews. man tradition of toleration and assimilation. In In that letter, addressed to the chairman of the consequence, before 1933 he refused to think supervisory board of Deutsche Bank und Dis- that Nazi anti-Semitism could be in any way conto-Gesellschaft, Franz Urbigm Solmssen threatening and instead held it to be a mere ab- wrote: “The exclusion of Jews from state ser- surdity; after Hitler’s seizure of power, in private vice, which has now been accomplished through letters he was profoundly prescient about how legislation, raises the question of what conse- Germans, both Nazis and non-Nazis, would quences this measure - which was accepted as handle the new ideology; but in public he con- self-evident by the educated classes - will bring tinued to be proudly patriotic. Solmssen also for the private sector. I fear that we are only at the beginning of a conscious and planned development, which is aimed at the indiscriminate economic and moral destruction of all members of the Jewish race living in Germany. The complete passivity of the classes which do not belong to the National Socialist Party, the lack of any feeling of solidarity on the part of those who have up to now worked in business shoulder to shoulder with Jewish colleagues, the ever more evident pressure to draw personal advantages from the free positions created by the purges, the silence about the shame and humiliation imposed on those who although innocent see their honour and existence destroyed from one day to the next: all this is evidence of a position so hopeless that it would be wrong not to confront facts straightforwardly, or to make them appear harmless. In any case, those af- fected have apparently been abandoned by those who were professionally close to them, and they have the right to think of themselves. They should no longer let the enterprise to +HDG RI¿FH RI 'LVFRQWR*HVHOOVFKDIW LQ %HUOLQ 8QWHU den Linden, around 1900 2 which they have devoted their lives determine years later, he was given power of attorney their actions - unless that enterprise treats them (Prokura ) and in 1869, on the eve of the Fran- with the same loyalty that it expected of them. FR3UXVVLDQZDUDQGRI*HUPDQXQL¿FDWLRQKH Among our colleagues too, the question of soli- became a partner of the bank. darity has been raised. My impression was that The Disconto-Gesellschaft was a more old- this suggestion met only a luke-warm response fashioned bank than the great universal banks in the board of management (perhaps because founded in the 1870s, the Deutsche and the of its non-homogenous composition); and that Dresdner. It resembled more a French-style research New if it were to be realized it would take the form banque d’affaires , based on a partnership rath- of a gesture rather than complete resistance, er than a board of management, and it also had and as a result would be doomed to failure. I a strong family element (like the traditional pri- recognize that in the decisive deliberations, dif- vate banking world of the Rothschilds and Ble- ferences will be made between different mem- ichröders). Banking in this tradition was a highly bers of the board of management who happen personal affair. Adolph was heavily involved in to be on the list of proscription. But I have the LQGXVWULDO¿QDQFHDQGSOD\HGDFUXFLDOUROHLQ feeling that although I am viewed as someone WKH¿QDQFLQJRIWKH*RWWKDUGUDLOZD\DQGDOVR whose activity is thought of positively, and al- of the Gelsenkirchen coal company. Although though I may be honored as the representative he ceased to be a partner of the bank in 1888, of a now seventy year long tradition, I too will be he remained very close to the dynamic gen- abandoned once my inclusion in a “cleansing eral manager of Gelsenkirchen, Emil Kirdorf, action” is demanded by the appropriate outside a relationship which his son Georg continued. authorities. [...] 3 And he remained a member of the Supervisory Georg Solmssen came from a notable German- Board of the Disconto-Gesellschaft. Georg Sol- Jewish banking dynasty. Born in Berlin on 7 mssen later praised the combination of “written- th August 1869, he was the son of one of the pioneers of German banking. His father Adolph Salomonsohn came from a long line of rabbis. Adolph was born as Abraham Salomonsohn in ,QRZURFáDZ LQ WKH SURYLQFH RI 3RVHQ LQ where his father was a merchant, but he studied in one of the new Prussian reform schools (Gymnasium) rather than in a Talmudic school, and went into the state’s judicial service rather than into business before becoming a lawyer in Ratibor. David Hansemann, the founder in RIZKDWZRXOGEHFRPHWKH¿UVWRIDQHZ model of German universal bank devoted to LQGXVWULDO ¿QDQFH WKH 'LVFRQWR*HVHOOVFKDIW tried repeatedly to bring Salomonsohn into the new bank. Eventually in 1863, after being hu- miliated by a Prussian judge with a slur about Salomonsohn’s family, he agreed, and became a Syndikus (or independent manager) of the bank. Hansemann commented that “the state’s VWUDLWMDFNHWZDVWRRFRQ¿QLQJIRU\RX´ 4 Three Adolph Salomonsohn. ©Deutsche Bank AG, Histor- isches Institut 3 ness” [ Schriftlichkeit ] with the collegial principle, vus Adolphus (perhaps coincidentally, Adolph’s and saw in it the expression of an “aristocratic patron, David Hansemann, also named his son business culture.” 5 Adolph’s nephew Arthur Adolph). On 2nd April 1900, Georg was bap- Salomonsohn (1859-1930) also came from tized as a Protestant, and on 10th August of the ,QRZURFáDZ , and in 1895 became a partner of same year changed his last name from Salo- the Disconto-Gesellschaft. Like his uncle, he monsohn to Solmssen. Since at this time he also worked particularly with the heavy industry also left the civil service and joined the family

New research New of the Rhine-Ruhr. bank, the Disconto-Gesellschaft, it is probably Georg Adolf Salomonsohn (Solmssen) followed safe to assume that there was no major friction the same course as his father. He imbibed the with his father or cousin about this shift of reli- traditions of banking with his mother’s milk, JLRXVDI¿OLDWLRQ,QKHPDUULHG*LXOLHWWD VLQFHKLV¿UVW\HDUVZHUHVSHQWLQKLVIDWKHU¶V (“Etta”) Aselmeyer, the daughter of a prosper- apartment in the Disconto building (until the ous Protestant cotton spinner and banker, Karl rebuilding of the bank drove the partners out or Carlo Aselmeyer, who came from a German of the bank headquarters). Eventually Georg family that had been in Naples since the Napo- studied law and entered the Prussian civil ser- leonic period. vice, which he imagined corresponded best to Georg Solmssen was a very correct man, who his own view of life, based as it was on regu- came across as “fresh and modern”; 7 but he larity and discipline. For the Prussian adminis- was also a very private man, who at least in his tration, he worked on a study of American law surviving letters (which are not highly personal) relating to building credit (and in particular with and in a large number of public speeches and the protection of the interests of workers in the addresses never spoke about belief. Of course case of a builder’s bankruptcy), which involved this does not necessarily mean that he had no an eighteen month visit to the United States. religious faith, but it does not seem as if either The project also provided the basis for a doctor- Judaism or Protestantism left a deep mark on al dissertation in law; and Salomonsohn’s work him. If any side of Prussian Protestantism had LQÀXHQFHG3UXVVLDQDQG*HUPDQOHJLVODWLRQRQ an impact, it was the idea of religion in the ser- EXLOGLQJ¿QDQFH 6 vice of the state. His deeply engrained work Salomonsohn went further on the path to as- ethic was a fundamentally secularized ver- similation than his father, who while remaining sion of Max Weber’s concept of the Protestant D-HZKDGFKDQJHGKLV¿UVWQDPHWRVRPHWKLQJ drive. The only biblical citation that appears in more German and more Protestant that recalled his published works – or for that matter in his the seventeenth century Protestant hero Gusta- surviving correspondence - is in the introduction to the two volume collection of his essays SXEOLVKHG LQ YHU\ GLI¿FXOW FLUFXPVWDQFHV LQ 1934 under the Nazi dictatorship. It is a verse from the book of Genesis (that was beautifully set to music by Johann Christian and Johann Sebastian Bach, and is the theme of a moving picture by Rembrandt in the Berlin Staatsgal- erie), when Jacob says to the mysterious and SRZHUIXO DQRQ\PRXV ¿JXUH ZKR KDV ZUHVWOHG with him and who turns out to be the angel of God: “I will not let thee go, except thou bless me.” The angel then replies: “ Thy name shall Mauerstreet with arch. ©Deutsche Bank AG, Histor- isches Institut 4 be called no more Jacob, but Israel: for as a private economy so that foreign creditors would prince hast thou power with God and with men, lend more. The international economy was a and hast prevailed. ” 8 The angel’s message is tool which Germans could use to enrich them- undoubtedly about civic responsibility and pa- selves, since “we are dependent on the world’s triotism. Solmssen wanted to use this biblical credit.” 9 demand for divine blessing as a statement of Goldschmidt and Solmssen are actually busi- the individual’s relationship not with God but ness types who would be recognized quite eas- with the Fatherland. “Only following the prin- LO\DWWKHEHJLQQLQJRIWKHWZHQW\¿UVWFHQWXU\ research New ciple of unconditional loyalty to the Fatherland Goldschmidt the advocate of untrammelled can give the German the strength to deal with markets, the logic of the stock exchange, and the vicissitudes with which he and his family will global integration; and Solmssen the advocate have to deal .” Solmssen wanted to be blessed of different national traditions of capitalism, or by Germany, not by God: and Germany, in the what might now be called the “Rhineland capi- end, rejected him. talism” model. By the end of the 1920s, and the time of the Solmssen made little secret of his contempt merger of Disconto and Deutsche Bank, Sol- for Goldschmidt and his methods as nouveau. PVVHQ KDG EHFRPH WKH PDMRU ¿JXUH RQ RQH He too delivered a long and political speech side of a debate about how banks should func- at the 1928 Cologne Bankers’ Meeting, but it tion and how bankers should behave. Two con- was about his much more focused concern on WUDVWLQJ ¿JXUHV KDG HPHUJHG LQ WKH SRODUL]HG ways of improving the supply of credit to Ger- debate about banking practice as the incarna- man agriculture. In the 1930 bankers’ meeting tions of different concepts of the proper activ- he gave a semi-philosophical overview of the ity of a banker. Jakob Goldschmidt was the future of globalization: “If the world economy GDVKLQJDQGHQWUHSUHQHXULDO¿JXUHEHKLQGWKH spectacular expansion of the Darmstädter- und Nationalbank (Danat Bank), and was master of the stock exchange. Goldschmidt believed that his enthusiastic public stances on major political issues enhanced his business reputation. His most important presentation came during a General Meeting of the bank association (Cen- tralverband des deutschen Bank- und Banki- ergewerbes) in Cologne in 1928, in which he GHOLYHUHGDÀDPER\DQWDQGSHUVXDVLYHGHIHQFH of capitalism as a system. Not only did he point RXWWKHEHQH¿WVRIKRUL]RQWDOPHUJHUV VXFKDV those he had conducted with such brilliance); KHFODLPHGWKDWD³UXWKOHVVQHVVLQWHQVL¿FDWLRQ of work” was the way of the future. Socialism had failed - and only private initiative could in- FUHDVHSURVSHULW\³7KHSULYDWHTXHVWIRUSUR¿W is the main driver of economic activity and will lead with the rise of the individual to a higher stage of development of human cooperation.” *HUPDQ\QHHGHGWRUHVWRUHFRQ¿GHQFHLQWKH Arthur Salomonsohn (1859-1931), ©Deutsche Bank AG, Historisches Institut

5 is to survive, it will necessarily need to enter Lower Silesia a slide presentation showed the a new era of mutual consideration and of the directors of Deutsche Bank including Solmssen reconciliation of divergent interests. Such an and Wassermann, with the heading “How they approach does not necessarily mean the denial swindle, how they manipulate.” 11 of national individuality, and does not mean that Many banks reacted to January 1933 by an- the future belongs to a political Esperanto, or ticipating party and government measures that borders produced by historical and racial and started to purge Jewish employees and

New research New differences will disappear.” 10 directors in what has been termed “anticipa- In the aftermath of the banking crisis and the tory obedience”. On 1 April 1933, the political subsequent credit collapse, Germany’s eco- pressure on Jewish bankers, and on banks in nomic situation deteriorated further. In the midst general, mounted as a SA-organized boycott of of the political radicalization of 1932, the ques- Jewish-owned shops and businesses began. tion of the Nazi party’s anti-Semitism became Solmssen’s colleagues at Deutsche Bank tried terrifyingly acute. Banks were attacked as be- to force him out of the Executive Board. That ing Jewish. A list put out by an organization was the context of the remarkable letter of 9 of the chemical industry ( Verein zur Wahrung th April. Even after the extraordinary events der Interessen der Chemischen Industrie ) listed RIWKH¿UVWZHHNRI$SULO6ROPVVHQDSSDUHQWO\ banks that were “directed or managed by Jews” was reluctant to draw the full consequences of included the Disconto-Gesellschaft (but not the his criticism of the cowardice of his colleagues Deutsche Bank: they seemed to see the two in Deutsche Bank, and to make a public state- banks as still separate); while in Hirschberg in ment about the dangers confronting German banking. On the contrary: at a meeting of the executive committee of the Centralverband on 8 April, Solmssen announced rather laconi- cally that “The banking business uncondition- ally supports the government.” 12 It is probable that Solmssen thought that any public controversy with the party or the government would be counter-productive and would only unleash new waves of anti-Semitic outrages. One part of Solmssen’s extraordinary attempt to defend himself against the Nazi onslaught was the publication of a collection of his essays and speeches with the title “Politik und Wirtschaft” (Politics and Business ). The publisher was the HPLQHQW VFLHQWL¿F KRXVH 'XQFNHU +XPEORW Solmssen tried to use this compilation of his political addresses, as well as of his interventions on behalf of agricultural modernization, to show his complete commitment to the national cause. He explained his intentions very clearly in a letter to Urbig: “My goal will be attained if a broad public realizes that there are non-Aryans who day and night knew no other thought than that of Germany, and have tried to serve that Georg Solmssen around 1920. ©Deutsche Bank AG, Historisches Institut 6 ideal even though their most basic right to exist But extraordinarily, even while he was living is being attacked.” 13 mostly in Switzerland, he continued to press Solmssen’s political plan was underlined in a SROLFLHV WKDW ZRXOG EHQH¿W *HUPDQ\ ,Q WKH preface that made much of the new national course of a visit to South Africa in early 1936, mood. Solmssen began with a depiction of the he conducted high level negotiations, including political fragmentation and weaknesses of the with General Smuts as well as with mining in- Weimar Republic. The bourgeoisie had failed, dustrialists, in which he suggested an expan- and would be superseded by the “dynamic forc- sion of trade in which Germany would secure research New es of the nation.” There then followed a pae- access to raw materials. He was delighted by an to the National Socialist “revolution” which the positive reception of these ideas by Ger- EURXJKW³WKHXQL¿FDWLRQRIWKH9RON´DQGZKLFK mans in South Africa, including the German ZRXOG³UHTXLUHVDFUL¿FHVRIHYHU\RQH´ Minister, Emil Wiehl. On 22nd May 1934, in another passionate and In December 1936 he gave an address to the dramatic letter he asked Urbig to be allowed to prestigious Royal Institute of International Af- resign from the Executive Board of Deutsche fairs (Chatham House) in London, in which he Bank with effect from the end of that month be- underlined Germany’s legitimate claim on colo- cause he had suffered too much. “The new and QLHVDVZHOODVVHWWLQJRXWWKHVSHFL¿FVRIKLV ever stronger defamation and economic attack plan to increase both British and German trade on all so-called non-Aryans, that meets no op- with South Africa. 16 It was a highly patriotic position, has wounded me too deep psycholog- presentation, which blamed Germany’s predic- ically for me to be able to carry out the duties ament on the unjust terms of the 1919 peace of a member of the board of management with treaty; but it contained no reference, positive or pleasure and with the attention needed for a negative, to Adolf Hitler or the Nazi party. prosperous outcome.” 14 Solmssen thus left the While Solmssen was negotiating in South Afri- executive board of Deutsche Bank. ca, the campaign rolled on to exclude him from From his departure in May 1934, Solmssen more and more of the positions in German busi- spent a great deal of his time in Switzerland, ness life that he cherished so much. The chief both in the Engadin, where he had always executive of the giant electrical company AEG, liked to vacation, and in Zurich. Eventually, Hermann Bücher, let him know that the former he bought a small farm in Horgen near Zurich, German Economics Minister Kurt Schmitt who which he used as a demonstration of the prac- was to take the chairmanship of the AEG su- tice of some of his theories of agricultural im- pervisory board had demanded his exclusion provement. On 7th August 1934, the German from the board of a formerly Jewish-owned Foreign Exchange Authority ( Reichsstelle für business, Ludwig Loewe, which AEG had taken Devisenbewirtschaftung ) allowed Solmssen a over and on whose board both the former own- dual residency, in Berlin and in Switzerland. er and Solmssen were participating. The sup- In 1935, Urbig asked him why he did not leave port of Schacht seemed initially to have brought Germany. He wrote another angry and pas- no result, 17 but eventually Solmssen stayed in sionate letter: “To act in this way would be to his position until 1938. 18 OHDYHWKH¿HOGIUHHWRWKHVDWLVIDFWLRQRIWKRVH Solmssen found developments in Germany, but who see our presence as a constant rebuke. also in his former bank, deeply distasteful. But My wife, my children and I are German. Our in the growing political radicalization, the move Germanness, acquired and tested over gen- that stirred him most in 1937 was the decision erations, can and must not be taken away by of Deutsche Bank to drop the name of the Dis- anyone.” 15 conto-Gesellschaft and revert to a simple (and

7 more German) name. Solmssen interpreted and the Nazi seizure of power – had eroded the the move as “burying” his old bank, the Discon- old world of the “commercial aristocracy”: “We to-Gesellschaft, and the better business prac- have since 1918 been forced to do many things tice for which it had stood. Again he expressed which according to others was necessary from his profound disenchantment. 19 the point of view of the state, but went against Soon after Deutsche Bank formally forgot the our personal conviction.” 21 Eventually, on 15 Disconto-Gesellschaft, Solmssen’s position in August 1938, the Berlin Chamber of Industry New research New the Deutsche Bank became problematic. The DQG &RPPHUFH LVVXHG WKH DSSURSULDWH FHUWL¿ - GLI¿FXOWLHV IROORZHG ODUJHO\ IURP QHZ JRYHUQ - cation that Deutsche Bank was recognized as PHQWLQLWLDWLYHVDVVRFLDWHGZLWKWKHLQWHQVL¿FD - a “non-Jewish business in the meaning of the tion of the Nazi war on the Jews. On 4th Janu- law”. 22 DU\DGHFUHHGH¿QHG³-HZLVKEXVLQHVV´ In early 1938, Solmssen’s second son Ulrich, IRUWKH¿UVWWLPH VXFKDEXVLQHVVZDVLQ-HZ - who had studied chemistry at MIT already in ish ownership or was “dominated” by one Jew- 1932 and then went on to obtain a PhD and ish partner or member of the executive board, then work at Zurich University, had moved to or a quarter of the members of the supervisory the United States, where he worked for the board. The Berlin Chamber of Commerce and Swiss company Hoffman-LaRoche. The ties the Private Banking Group ( Wirtschaftsgruppe with Germany were being broken: Georg Sol- Privates Bankgewerbe ) then sent an inquiry mssen’s son Harald (Harold), who had worked (on 24 January 1938) asking whether Deutsche for a time in Deutsche Bank, also went to the Bank was a “Jewish business”. The problem United States. And in early 1938, Georg Sol- was that at the determining date, 1 January mssen’s Berlin apartment in the Alsenstrasse in 1938, Georg Solmssen was a member of the Berlin was sequestrated in order to make place supervisory board. Consequently, there were for a giant hall designed by Albert Speer: the au- extensive discussions with the Berlin Cham- thorities required that it was cleared by October ber of Industry and Commerce. Deutsche Bank 1938. At the end of May, the police authorities pointed out that Solmssen had moved abroad in Berlin-Steglitz refused to allow Solmssen a in 1937, and had in practice taken no part in the foreign visa; and Solmssen now had no alterna- supervisory board, and that it would have been tive except to emigrate and abandon the claim needlessly expensive to hold a special meeting to dual residence. By late 1938, this had be- to remove Solmssen. It was this controversy come a hugely expensive process, as the Ger- WKDW SURPSWHG WKH ¿QDO EUHDFK EHWZHHQ WKH man authorities tried to use the economic per- Deutsche Bank and Solmssen. On 21st Febru- secution of Jews as a revenue raising device. ary 1938, Urbig told Solmssen that the direc- Solmssen had to pay 300,000 RM in order to tors of Deutsche Bank would not support the secure the release of his German property (in renewal of his term on the supervisory board. addition to 730,000 RM 5HLFKVÀXFKWVWHXHU , the Solmssen again protested against this “scan- punitive tax on capital export that had been in- dalous end to a 75 year association of three troduced in 1931 but elevated as an instrument generations of my family, who have given all of persecution after 1933, and 70,000 Juden- their energy and strength and are now wiped vermögensabgabe , the levy exacted after the away as if they had never been.” 20 pogrom of November 9/10, 1938). 23 He asked Urbig’s reply is fascinating. He documents the the Deutsche Bank to pay a part through an ad- shared assumption of the two men that all devel- vance on his salary. In 1939, Arthur Salomon- opments since the abdication of the Kaiser – the sohn’s former property in Inselstrasse 20/22 revolution, the creation of the Weimar Republic, was taken over from Salomonsohn’s sons, who

8 had emigrated to the U.S. by the Zehlendorf tax culture. His grandchildren remembered the RI¿FH DV SD\PHQW IRU WKH SXQLWLYH HPLJUDWLRQ passion of his warnings in the 1950s. It was taxes imposed on Jews, and was taken by the his sensitivity to the issue of the internal corrup- Reich Chancellery with the intention as a resi- WLRQRIPRGHUQODUJHVFDOH¿QDQFLDOLQVWLWXWLRQV dence for Hitler. Hitler’s personal doctor, The- that made him so quick to realize what was at odor Morell, bought Georg Solmssen’s house stake – and what the likely outcome would be at Inselstrasse Nr. 24 after the Deutsche Bank – when the Nazis started their anti-Semitic of- KDGIDLOHGWR¿QGDQLQGXVWULDOLVWLQWHUHVWHGLQD fensive against German business life. He knew research New purchase of the villa. He insured himself with a too much about what motivated individual con- declaration that he had not bought the property duct in the business world, and he drew fright- from a Jew, since it was sold by Solmssen’s eningly realistic and disillusioned conclusions. non-Jewish wife. Propaganda Minister Joseph His strictures about the importance of business Goebbels had already taken over Oskar Schlit- morality looked ludicrously anachronistic in the ter’s house in the same street in 1936. 24 late 1920s and early 1930s, a throwback to the The transfer of Solmssen’s pension was antiquated business culture of the nineteenth blocked by the German currency authorities FHQWXU\%XWPD\EHDIWHUDQRWKHU¿QDQFLDOFUL - from the beginning of 1940. Solmssen protest- VLVWKDWKDGLWVURRWVLQ¿QDQFLDOPLVGHPHDQRU ed frequently, adding to one of his letters a cita- WKHUHÀHFWLRQVRI*HRUJ6ROPVVHQDUHUHOHYDQW tion from Schacht’s replacement as Economics IRUWKHWZHQW\¿UVWFHQWXU\ Minister, Walther Funk, from 1930, praising a Harold James speech of Solmssen. The German authorities Princeton University prevaricated until 23rd February 1942, when an DUELWUDWLRQFRPPLWWHHSURYLGHGD¿QDOFRQ¿UPD - tion of the decision to suspend pension payments. Solmssen remained in the semi-rural tranquility of his farm in Horgen, and in August 1944 the parish council voted to accept him and Giulietta as Swiss citizens. In the interim, in 1939, he had also been granted citizenship of Liechtenstein. 25 *HRUJ6ROPVVHQEXLOWKLVOLIHDURXQGD¿UPEH - lief in some well-established principles that derived from the world of the classical European liberal tradition. He appeared as a relic of the nineteenth century, out of place in both the un- scrupulous commercial culture of the 1920s and the intense politicization of life in the 1930s. Property was an intrinsic element in human dignity. And property was threatened not only by state action, but by speculation, corruption, fraud, and bad business practice. He intensely and passionately believed that Germany’s political disaster was the result of external circumstances, in particular the Versailles Treaty, but also of the excesses of an immoral commercial Cover of the edition of Georg Solmssen's letters. ©Deut- sche Bank AG, Historisches Institut 9 Endnotes

1 I should like to thank Martin Müller and Jonathan Bank- und Bankiergewerbes; Bank-Archiv 32/13, Steinberg as well as the anonymous referees for p. 251. See also Keith Ulrich, Aufstieg und Fall very helpful comments on this essay. der Privatbankiers: Die wirtschaftliche Bedeutung 2 Peter Pulzer, Jews and the German state : the von 1918 bis 1938 , Frankfurt: Fritz Knapp, 1998, political history of a minority, 1848-1933 , Oxford: p. 256. Blackwell, 1992, p. 201. The term Kaiserjuden is 13 HADB, P1/14, 29 December 1933, Georg Solms- used rather variously: some consider it a descrip- sen to Franz Urbig, tion only of a narrow group of persons such as Al- 14 HADB, P1/14, Solmssen to Franz Urbig, 22 May New research New bert Ballin, James Simon and Max Warburg who 1934. were very close to Wilhelm II and met him regu- 15 HADB, NL3/53, Georg Solmssen to Franz Urbig, larly on social occasions; others consider a looser 17 September 1935. and wider group of “second order” Kaiserjuden , 16 Georg Solmssen, “A Plan for German Industrial such as Solmssen and Franz von Mendelssohn, Expansion. Address delivered at the Royal Insti- whose relations with the Emperor were much tute of International Affairs on the 17th Decem- more distant. See Jacob Toury, Die politischen ber, 1936,” in: International Affairs , Vol. 16. Nr. 2, Orientierungen der Juden in Deutschland; von 1937, S. 222-244. 221-239. Jena bis Weimar , T übingen: Mohr Siebeck, 1966, 17 HADB, P3455, Aktennotiz Georg Solmssens, 21 p. 239; Werner E. Mosse, “Wilhelm II and the Kai- July 1936. serjuden,” in (eds.) Jehuda Reinharz and Walter 18 Peter Hayes, „State Involvement and Corporate Schatzberg, The Jewish response to German cul- Responsibility in the Holocaust,” in (eds.) Michael ture : from the enlightenment to the Second World Berenbaum, Abraham J. Peck, The Holocaust and War , Hanover, NH : Published for Clark University history: the known, the unknown, the disputed and by University Press of New England, 1985, p. 171. the reexamined , Bloomington: Indiana University 3 Historical Archive Deutsche Bank (HADB), P1/14, Press, 1998, pp. 201-201. Georg Solmssen to Franz Urbig, 9 April 1933; the 19 HADB, NL3/53, Georg Solmssen to Franz Urbig, letter is quoted in Harold James, „Die Deutsche 02 October 1937. Bank und die Diktatur 1933-1945,“ in Lothar Gall 20 HADB, P1/14, Georg Solmssen to Franz Urbig, 7 et al., Die Deutsche Bank 1870-199 5, Munich: March 1938 C.H. Beck, 1995, pp. 337-338; Saul Friedländer, 21 HADB, P1/14, Franz Urbig to Georg Solmssen, 11 Nazi Germany and the Jews: Vol. I: The Years of March 1938; see also Gerald D. Feldman, “Polti- Persecution 1933-1939 , New York: Harper Collins, sche Kultur und Wirtschaft in der Weimarer Zeit: 1997, p. 33; Lothar Gall, Der Bankier Hermann Unternehmer auf dem Weg in die Katastrophe,” in: Josef Abs : eine Biographie , Munich: C.H. Beck, Zeitschrift für Unternehmensgeschichte , 43. Jg., 2004, p. 38; Martin Münzel, Die jüdischen Mitglie- 1998, H. 1, S. 17. der der deutschen Wirtschaftselite 1927-1955. 22 BAB, R 8119 F, P24021 15 August 1938, Industrie- Verdrängung – Emigration – Rückkehr , Paderborn XQG+DQGHOVNDPPHU]X%HUOLQFHUWL¿FDWH 2006. 23 See Hanspeter Lussy and Rodrigo López, Liech- 4 Georg Solmssen, Beiträge zur Deutschen Politik tensteinische Finanzbeziehungen zur Zeit des Na- und Wirtschaft 1930-1933: Gesammelte Aufsätze tionalsozialismu s, Vaduz, Zürich: Chronos, 2005, und Vortrage, Berlin, 1934, p. xlviii. Vol. 1, p. 188. 5 Solmssen, Beiträge , p. xxi. 24 Christine Fischer-Defoy, “ Schwanenwerder im 6 See Georg Salomonsohn, Der Gesetzliche Schutz Nationalsozialismus. Ein Inselrundgang,” Aktives der Baugläubiger in den Vereinigten Staaten im Museum: Faschismus und Widerstand Berlin, Mit- Nord-Amerika. Ein Beitrag zu den Entwürfen ei- gliederrundbrief Nr. 62, Januar 2010, pp. 4-11. nes Reichsgesetzes betreffend die Sicherung der 25 Lussy and López, Liechtensteinische Finanzbe- Bauforderungen und eines Preußischen Ausfüh- ziehungen, p.188. rungsgesetzes, Berlin: Carl Heymann, 1900. 7 See Felix Pinner, Deutsche Wirtschaftsführer , Berlin, 1925, p. 188. 8 Solmssen, Beiträge, p. xv; Genesis, Ch. 32, verse 27; see also HADB, P1/14, Georg Solmssen to Friedrich Dreyse, 9 June 1938. 9 Verhandlun gen des VII. Allgemeinen Deutschen Bankiertages zu Köln am Rhein am 9., 10., und 11. September 1928, Berlin/Leipzig: de Gruyter, 1928, pp. 135, 141, 146, 149-50. 10 Solmssen, Beiträge , Vol. II, p. 520. 11 Werner Mosse, Jews in the German economy : the German-Jewish economic élite 1820-1935, Oxford: Oxford University Press, 1987, p. 331. 12 Bundesarchiv Berlin (BAB), P21665, 8 April 1933 Ausschuss of Centralverband des Deutschen

10 The Credit Cycle and the Business Cycle: Evidence from Ten States from Europe

This paper deals with an important topic in the In this context, the study is aimed at perform- current context that is the presence and impact ing an econometric analysis of the credit cycle of cyclical behaviour in the economic variables. and business cycle from an individual (each cy-

When referring to business cycles, economists cle taken separately), as well as a comparative research New generally describe them as changes in the (involving both cycles) perspective, with a fo- economic activity that varies from a long term cus on ten economies from the area of Central, growth trend. Also, some patterns of cyclical Eastern and South-Eastern Europe, with the QDWXUHZHUHLGHQWL¿HGLQWKHFUHGLWJURZWKSURF - purpose of understanding their behaviour and ess, which economists described as cyclical the impact of the interactions between them. ÀXFWXDWLRQV DORQJDWLPHOLQH RIWKHEDQNOHQG - In order to achieve this objective, this study is ing process, i.e. the credit cycle. According to structured into two important parts, thus delin- the economic specialised literature, there is a eating the two strategic objectives: a) on the widespread view that credit institutions, through one hand, we plan to analyse the short-term their lending capacity, play a very important (from one trimester to the other) causality rela- role in promoting long-term economic growth. tions between the credit cycle and the business In many papers researchers test for correlation F\FOHLQRUGHUWRXQGHUVWDQGZKLFKF\FOHLQÀX - between bank credit and measures of economic ences the other; b) on the other hand, we want activity (which in most cases is the GDP). This to investigate the nature of the relations which research paper aims at performing an econo- appear between the frequency at the level of metric analysis of the credit cycle and business the business and credit cycles within a bigger cycle on ten economies from Europe, with the time period. purpose of describing their characteristics, un- The structure of the study is as follows: chapter derstanding their behaviour and the impact of 2 captures a brief overview of the economic lit- the comovement of these cycles. HUDWXUHRQWKHPDLQ¿QGLQJVRQWKHFUHGLWF\FOH from our point of view, chapter 3 presents the 1. Introduction data and methodology used in the study, chap- 7KH ¿QDQFLDO FULVLV WULJJHUHG LQ EURXJKW ter 4 and 5 presents the results of the empirical back to the centre of academic debates (and study regarding the short-term dynamic interac- not only) variables such as monetary aggre- tion and the medium-term relations between the JDWHVRUFUHGLWÀXFWXDWLRQVDQGWKHLUPDFURHFR - business cycle and the credit cycle and chapter QRPLF LPSRUWDQFH LQ WKH DPSOL¿FDWLRQ SURSD - VXPPDULVHVWKHPDLQ¿QGLQJV gation and even generation of severe shocks during calm periods, as well as during times of 2. A brief literature review ¿QDQFLDO WXUPRLO +HQFH WKH DQDO\VLV DQG XQ - When we speak of a cyclic phenomenon, we derstanding of the credit cycle or leverage cycle usually refer to a sequence of events that re- and its connections with the business cycles is peats in time. As far as business cycles are extremely interesting, especially during these concerned, they refer to sequences of eco- times of distress for academic circles as well QRPLFERRPVDQGUHFHVVLRQVWKDWDUHVSHFL¿F as for decision makers, who are still striving to to the market economy. As for credit cycles, the ¿QGDSHUWLQHQWDQVZHUWRWKHFXUUHQW¿QDQFLDO European Banking Federation describes them turbulences. DVWKRVHF\FOLFÀXFWXDWLRQVRIEDQNFUHGLWLQJLQ

11 time, which may facilitate the accumulation of Kiyotaki-Moore model, argues that the credit systemic risks. cycle enhances the effects of the business cy- The studies focusing on credit cycles managed cle. This theory, proposed by the economists to sketch some reference models and a couple Kiyotaki and Moore [9], relies on the fact that, in of them were even centralised in an analysis many cases, the quantity of money that exists under the signatures of Aikman, Haldane and on paper and that the credit markets have to Nelson [1]. According to this study, the cyclic deal with is much bigger than the actual quan- New research New QDWXUHRI¿QDQFLDOYDULDEOHVLVDIIHFWHGE\YDUL - tity of cash that circulates between businesses ous microeconomic frictions with unavoidable DQG FRQVXPHUV LQ UHDO OLIH 7KLV DPSOL¿HV WKH ¿QDO FRQVHTXHQFHV RQ UHDO HFRQRP\ %DVHG effects of variations that may be caused by the on these frictions, the three economists clas- business cycle. sify economic cycles [1], delineating them as Another model, developed by Minsky [12], is follows: informational asymmetry between known as the Hypothesis of Financial Instabil- creditors and borrowers with impact on credit- ity. This argues that, in the case of credit cy- ing terms ([3], [8]), or the lack of coordination FOHVEXVLQHVVHQWUHSUHQHXUV¿QGLWHDVLHUDQG between creditors [6]. cheaper to obtain credits when the economy Gorton and He [6] argue that the interaction be- grows. Eventually, they accumulate debts that tween banks as concerns the intensity of the DUHPXFKELJJHUWKDQWKHLUSUR¿WVDQGWKLVGH - production of costly information generates en- termines them not to take the risk of continuing dogenous credit cycles. At a macroeconomic to invest in capital expenses. This leads to a level, the relative banking performance of com- decrease in the demand for relevant products mercial and industrial credits is an autonomous DQGVHUYLFHVLQ¿HOGVVXFKDVFRQVWUXFWLRQVDQG VRXUFHRIPDFURHFRQRPLFÀXFWXDWLRQV$OVRLW this may, in its turn, lead to turbulences of eco- has been observed that relative banking per- nomic cycles. formance is a price-based risk factor for banks, After studying the credit cycles and the busi- DVZHOODVIRUQRQ¿QDQFLDO¿UPV ness cycles in twelve developed economies be- Many of the economic theories that constitute longing to the OECD, Haldane [1] notices that a the basis of credit cycles connect this phenom- FUHGLWF\FOHKDVDUHJXODULW\WKDWLVZHOOGH¿QHG enon with business cycles, which affect world at an empirical level, has been functioning for economy. Some economists go even further RYHU D FHQWXU\ QRZ DQG KDV EHHQ LQÀXHQFHG and argue that the credit cycle is the main fac- not only by the business cycle, but also by oth- tor and the driving force of a business cycle. HU IDFWRUV VXFK DV ¿QDQFLDO OLEHUDOLVDWLRQ DQG Amongst them, we should mention the Austrian competition. In addition, its analysis shows that and post-Keynesian scholars. Mises, one of the while the amplitude of a credit cycle is twice most reputed representatives of the Austrian the amplitude of the GDP, the frequency of the School of economic thought, mentioned that FUHGLWF\FOHLV¿YHWLPHVELJJHUWKDQWKDWRIWKH the expansion of credits and deposits without business cycle. WKH FRQWULEXWLRQ RI VDYLQJV ¿GXFLDU\ PHDQV At the same time, there are opinions that a DVDUHVXOWRIWKHIUDFWLRQDOUHVHUYHFRHI¿FLHQW credit cycle has its own relative trajectory, dif- and directed by a central bank, generates a cy- ferent from that of the business cycle as far as clic and uncontrolled growth of the money sup- synchronicity and amplitude are concerned. ply, with direct effect on the business cycle. $FWXDOO\ WKH UHFHQW ¿QDQFLDO FULVLV KDV VKRZQ The interference between business cycles and WKDWWKH¿QDQFLDOV\VWHPLWVHOILVOLNHO\WRJHQ - credit cycles has been long debated by econo- erate instability through the booms of endog- mists. A theory, known under the name of the enous credits, with direct effects on the busi-

12 ness cycle. The relation between the credit order to take into consideration the level of in- cycle and the business cycle has never been ÀDWLRQE\XVLQJWKH*'3GHÀDWRU so tight before. Its complexity imposes the cali- bration and implementation of new capital and Table 1. Data and corresponding sources used liquidity requirements. in econometric analysis This study starts from the considerations of the European Banking Federation, mentioned in a study conducted in November 2010 [5] research New on 11 European states (Great Britain, Finland, France, Germany, Austria, Spain, Ireland, Italy, the Netherlands, Portugal and Greece) plus the United States. According to this study, the credit cycles are generally independent from the business cycles, at least in terms of synchronicity Before using the data sets in the analysis, we and amplitude. Nevertheless, the amplitude of intend to examine their seasonal nature. The the credit cycle decreased in most analysed graphical representation of the data sets con- economies from the second half of 1990, thus cerning the real GDP shows that seasonality involving the alignment of monetary creation to occurs in all states that are the object of this the real economy through the crediting proc- study. ess. Our study was conducted on a sample ,Q$QQH[WKH¿JXUHVKRZVWKHHYROXWLRQRIWKH of countries from Central, Eastern and South- GDP for each quarter (green line) and the aver- Eastern Europe over the period 2002-2012 (10 age of the observations, also for each quarter states) and can be considered a pioneer from a KRUL]RQWDOUHGOLQH 6LJQL¿FDQWGLIIHUHQFHVEH - geographic perspective of the data sample and tween the quarterly averages can be noticed DUHVHDUFKZRUNPHDQWWRFRPSOHWHDQGFRQ¿UP primarily in Bulgaria, Hungary, Latvia, Romania the results obtained by the European Banking and Slovenia. In these states, the time set corre- Federation’s Economic and Monetary Affairs sponding to the real GDP presents an accentu- Committee (EMAC). ated seasonality. In the other states (the Czech Republic, Estonia, Lithuania, Poland and Slo- 3. Data and methodology used vakia), the quarterly averages corresponding to In this analysis we have used sets of data with the real GDP are in immediate proximity. a quarterly frequency of the real GDP and of the As concerns the data set corresponding to the total volume of credits given to the non-banking total volume of non-governmental credits, we private sector by the credit institutions from the cannot state that they are of a seasonal nature ten countries from Central Europe (Poland, the in any of the analysed states. In order to verify Czech Republic, Hungary, Slovakia and Slov- this hypothesis we analysed the graphical rep- enia), Eastern Europe (Estonia, Latvia, Lithua- resentation of the quarterly averages. nia) and South-Eastern Europe (Bulgaria and According to graphical representations (which 5RPDQLD 7KH UHIHUHQFH SHULRG LV ¿UVW for reasons of space we didn’t incorporated TXDUWHU ± ¿UVW TXDUWHU RU 4 in this study), we can state with certainty that 4 :H PXVW PHQWLRQ WKH IDFW WKDW ZH WKHUHDUHQRVLJQL¿FDQWGLIIHUHQFHVEHWZHHQWKH GLG QRW ¿QG GDWD FRQFHUQLQJ WKH WRWDO YROXPH averages of the observations for each quarter; of credits for all countries involved in the study thus, we can conclude that the data set corre- (see Table 1). As concerns the total volume of sponding to the total volume of credits given credits in each state, this has been updated in by credit institutions to the private sector is not

13 characterised by seasonality. According to EBF [5], which conducted a study Given the fact that the data set corresponding on 12 states (UK, Finland, USA, France, Ger- to the real GDP presents a strong seasonal many, Austria, Spain, Ireland, Italy, the Neth- nature, we will deseasonalise the time sets by erlands, Portugal and Greece), the crediting using a seasonal adjustment methodology also activity of the banks is generally positively cor- HPSOR\HGE\(XURVWDW 6WDWLVWLFDO2I¿FHRIWKH related with indicators that describe economic European Commission) in its analyses (the Tra- activity, such as the real GDP, when larger time

New research New mo/Seats methodology). periods are involved. Thus, the hypothesis often mentioned in the literature, according to Fig. 1. Dynamics of the logarithmised data set which the credit institutions play an important in the ten states role in economy, promoting long-term economic JURZWKLVFRQ¿UPHG:HZLOOFRQWLQXHE\DQD - lysing whether this hypothesis is also valid for our selected ten states from Central Europe, Eastern Europe and South-Eastern Europe. As we may notice after a simple analysis of the matrix of correlations between economic growth (given by the real GDP) and credit expansion, their evolution is almost coordinated (the de- Given the fact that the sets do not present gree of interdependence between the two vari- negative (or zero values) and the fact that the ables is high). Given the fact that almost all cor- econometric analysis is normally conducted relation indices (except for that of Estonia, but with logarithmic sets, we have passed to the the results can be distorted by the very reduced logarithmisation of the data sets corresponding time frame of the data set used) have values to the two variables, facilitating the interpreta- RYHU VHH¿JXUH ZHPD\VWDWHWKDWWKHUH tion of the results. Figure 1 graphically portrays is a strong connection between the evolution of the evolution of these data. the business cycle and of the credit cycle on the territory of the analysed states from Cen- tral Europe, Eastern Europe and South-Eastern 4. Results of the analysis on the short- Europe. term dynamic interaction between the business cycle and the credit cycle Fig. 2. Short-term correlation between the real GDP and credit expansion over the 2002-2012 In this part of our analysis we will verify wheth- period er there is a relation of causality between the credit cycle and the business cycle in the ten states. The analysis will focus especially on the short-term (from one quarter to the other) dynamic interaction between the business cycle and the credit cycle. In other words, we plan to examine whether the short-term turbulences that may occur in the credit cycle and business We will continue with an analysis of cross-cor- cycle are related, without taking into considera- relations between the two variables: economic tion the medium-term trend of the two variables growth (lpib_sa) and credit expansion (lrcr). (this will be analysed in the second part of the 7KH FURVVFRUUHODWLRQ FRHI¿FLHQWV VHH $QQH[ work).

14 2) show the temporal relation between the busi- strictions, the extended results of the ADF tests ness cycle and the credit cycle during the refer- without a constant and of the PP tests (with and ence period 2002-2012. without a constant) have not presented herein, $FFRUGLQJWRWKH¿JXUHVLQ$QQH[VLQFHWKH but they can be put at the reader’s disposal at YDOXHRIWKHFURVVFRUUHODWLRQFRHI¿FLHQWIRUODJ the latter’s request). OHDG ¿UVWURZ LV ELJ DQG SRVLWLYH RYHU and coincides with the previously analysed co- Table 2. Results of the ADF test (with a con- HI¿FLHQWRIWKHFRUUHODWLRQPDWUL[ IRUPRVWDQD - stant) concerning the stationarity of the data research New lysed states (except Estonia), we may state that sets there is a pro-cyclic movement between the two YDULDEOHV,IWKLVFRHI¿FLHQWKDGEHHQQHJDWLYH (as in the case of Estonia) the movement between the two variables would have been counter-cyclic. As concerns Estonia, since the biggest (absolute) value of the cross-correlation FRHI¿FLHQWV RI LVDWDQXPEHURQODJV this means that the GDP variable lags in relation to the variable Credits with four quarters. To conclude, the results of the cross-correlation DQDO\VLVFRQ¿UPWKHKLJKLQWHUGHSHQGHQFHEH - As we may notice, the data sets have different tween the business cycle and the credit cycle in orders of integration at the level of the states. the case of the ten states from Central Europe, To conclude, we may say that at a level of rel- Eastern Europe and South-Eastern Europe. evance of ten per cent, for the two analysed Another analysis that may show us if the causal- variables, the order of integration is 1 or the set ity relations between the two cycles are unidi- is I(1) for six states (the Czech Republic, Hun- rectional or bidirectional is the Granger analysis gary, Poland, Romania, Slovakia and Slove- of causality. At the same time, we will be able to nia), while the order of integration is 2 or the set test whether a certain variable (either economic is I(2) for four states (Bulgaria, Estonia, Latvia growth or credit volume) can be treated as en- and Lithuania). dogenous or exogenous. A very important as- Given the fact that we are dealing with non-sta- pect with regard to the Granger test of causality tionary data sets (see table 2), we will use the consists in the fact that, if it is applied on non- procedure elaborated by Toda and Yamamoto stationary data sets, the results can be incon- [15] to test the Granger-type causality. There clusive (a stochastic process is stationary if its are, of course, other procedures which can be average and covariance are constant in time, applied in order to determine the Granger-type which means that they oscillate around a cer- causality for I(p) data sets (see, for example tain value). For these reasons, we determined [11]). Consequently, the main steps that we will the level of stationarity by using the Augmented follow for implementing the T-Y procedure are: Dickey-Fuller (ADF) [4] [14] and Phillips-Perron 1. We will determine the maximum value (PP) [13] tests for the variables used. of the order of integration of all the data sets; in ,Q WDEOH ZH ¿QG WKH UHVXOWV RI WKH$') WHVW our case, this value is one (1) or two (2); with a constant, and the accuracy of the results 2. We will establish the VAR models at ZDVFRQ¿UPHGE\WKH$')WHVWZLWKRXWDFRQ - the level of the raw data sets (between the two stant and the PP test with a constant and with- variables) and we will determine the maximum out a constant (for reasons regarding space re- value (p) of the lag for each VAR model.

15 3. We will ensure that all the VAR mod- Table 3 is just a centralised form of presentation HOV DUH ZHOOVSHFL¿HG DFFXUDWH WKDW WKHUH LV of the results of the tests and analyses conduct- no serial correlation at the level of the residues ed using the Granger causality test in Eviews. and that the estimated models are dynamically A graphical form of the relations of interdepend- stable; ence between the two cycles (the business cy- 4. Subsequently, for the selected VAR cle and the credit cycle) for the economies of models we will add an additional lag (the one the ten states from Central Europe, Eastern Eu- New research New LGHQWL¿HGLQVWDJH IRUHDFKYDULDEOHLQHDFK rope and South-Eastern Europe is presented in equation; ¿JXUH 7KHUHIRUH WKH FUHGLW F\FOH FDQ EH D 5. In the end, we will test the existence ‘leader’, as well as a ‘follower’ in its relation with of the Granger-type causality. We should also the business cycle, outlining thus the complex- mention the fact that we did not include coef- ity of the mechanics of economic development. ¿FLHQWVIRUWKH³H[WUD´ODJZKHQZHDSSOLHGWKH According to the results corresponding to the :DOGWHVWWKHH[WUDODJZDVXVHGRQO\WR¿[WKH Granger tests, we may notice that there is no asymptote. relation of unidirectional causality (of the Grang- er type) from the crediting activity towards the Table 3. Test of the Granger-type causality be- economic activity or the other way around in tween the economic and crediting activity the analysed economies from Central Europe, Eastern Europe and South-Eastern Europe. In addition, even within a group of states belong- ing to the same geographical area (Central Eu- rope, Eastern Europe and South-Eastern Eu- rope), no relations of causality of the same kind (from the GDP towards the Credit or the other ZD\DURXQG ZHUHLGHQWL¿HG$QRWKHUVWXG\WKH one conducted by the European Banking Fed- eration in 2011, noticed the complete lack of any relation of the type lag-lead between the Fig. 3. Graphical representation for the results economic activity and the crediting activity in of the Granger-type causality tests between the states such as Italy, Portugal or the Nether- business cycle and the credit cycle lands (for the period 1980-2010). Returning to the results centralised in table 3, ZH PD\ QRWLFH WKDW LQ WKH HFRQRPLHV RI ¿YH states (Slovakia, Slovenia, Estonia, Lithuania, Bulgaria), the real GDP was the variable which LQÀXHQFHGLQDGHFLVLYHPDQQHUWKHFUHGLWF\ - cle, in the sense that a growth of economic activity was immediately followed (even in the next quarter) by an increase in the volume of credits granted (credit expansion). In the Czech Republic there was even a feedback from the crediting activity for the economic activity. Thus, the economic growth registered at a certain point leads in the next quarter to an expansion of the crediting activity which, in its turn, deter-

16 mines a bigger growth of the real GDP in the 5. Results of the analysis of the medium- near future. term relations between the business cycle and However, relations of unidirectional causality the credit cycle of Granger-type from the crediting activity towards the economic activity were registered in This part of the article is aimed at analysing the the economies of four states (Poland, Hungary, relations between the frequencies at the level of /DWYLD DQG 5RPDQLD 8QOLNH WKH ¿UVW UHODWLRQ the business cycle and the credit cycle for each where the effect of an increase in the real GDP of the ten states from Central Europe, Eastern research New was felt in the volume of credits during the fol- Europe and South-Eastern Europe. For these lowing quarter, this time credit expansion trans- purposes, we will extract the cyclic components fers to the real GDP with a lag of two quarters from the data sets taken into consideration (the (the effect is not immediate). In these states, real GDP and the total volume of credits given the higher level of indebtedness of the banking by the banking system to the non-governmen- system boosted the economic activity and the tal sector) and we will analyse them. The cyclic business cycle. component of a data set captures oscillations To conclude, the analysis performed on the for periods longer than one year at a macroeco- short-term dynamics (from one quarter to the nomic level and oscillations that last a couple of other) of the relation between the business cy- GD\VDWWKHOHYHORIWKH¿QDQFLDOPDUNHWV cle and the credit cycle in the ten states from 7KH PRVW IUHTXHQWO\ XVHG ¿OWHUV IRU REWDLQLQJ Central Europe, Eastern Europe and South- the cyclic component from a data set are the Eastern Europe did not identify a relation of %D[WHU.LQJ >@ ¿OWHU DQG WKH +RGULFN3UHVFRWW unidirectional causality between the two cycles. >@¿OWHU,QRXUFDVHZHZLOOXVHGXULQJD¿UVW 7KLV UHVXOW LV LQ DJUHHPHQW ZLWK WKH ¿QGLQJV VWDJH WKH ¿OWHU SURSRVHG E\ %D[WHU DQG .LQJ mentioned in the study conducted by EBF [5] with a frequency of 0.5 years, that is two quar- on 11 European states plus the United States. ters (we choose a small number of frequen- This report showed that, in the case of the cies due to the reduced temporal character of economies of Germany, Spain, France, USA, the data sets). The accuracy of the data will Finland and Ireland, the real GDP is the one EHVXEVHTXHQWO\YHUL¿HGE\XVLQJWKH+RGULFN which ‘guides’ the credit cycle; a bidirectional 3UHVFRWW¿OWHU UHODWLRQEHWZHHQWKHWZRF\FOHVZDVLGHQWL¿HG The business cycle from each country is actu- in states such as Great Britain and Austria. ally the deviation of the real GDP from its long- 7KH ¿QGLQJV REWDLQHG DUH DOVR FRQ¿UPHG E\ WHUPWUHQG7KHFUHGLWJDSLVTXDQWL¿HGLQSHU the analysis conducted by Levine and Zervos cents from the total volume of credits given by [10], although they used a cross-sectional ap- the banking system. After the extraction of the proach with regard to the relation between bank cyclic component from the economic and cred- crediting and the real GDP on a panel of states iting activity for each of the ten states by us- (according to this study, the economies with a LQJWKH%D[WHU.LQJ %. ¿OWHUZLWKDIUHTXHQF\ bigger Credit/GDP ratio tend to be character- of two quarters, the data were centralised and ised by faster economic growth rhythms in the their graphical representation is presented in long run). Obviously, there are also other fac- ¿JXUH tors which affect the credit cycle or the business 7KXVLQ¿JXUHZHPD\REVHUYHWKHG\QDPLFV cycle, but studying them is not the key focus of of the cyclic components from the two analysed WKLVVFLHQWL¿FZRUN variables: the economic activity (represented, in our case, by the real GDP) and the crediting activity (the total volume of credits given by the

17 banking system from each state to the private Fig. 5. Extreme values in the amplitude of the sector). Consequently, we may identify the two business cycle and of the credit cycle in the ten cycles: the business cycle and the credit cycle. analysed states from Central Europe, Eastern The positioning of the business cycle above the Europe and South-Eastern Europe line representing the null value (which means that the output gap takes positive values) sug- gests that the economic activity had a period of

New research New sustained growth and exceeded the long-term trend a while ago. Consequently, the economic activity is in a stage of expansion. On the other hand, the positive values of the In the previous chapter we studied the way in credit gap suggest that the crediting activity went which the two variables are correlated in the through an expansion stage which exceeded its short-term; we will continue with the analysis long-term trend; this means that there was an of the matrix of correlations between the two increased availability of credits in the economy. cycles for a longer time period (see Figure 6). Unlike the business cycle, the credit cycle has a We notice the existence of a strong connec- higher volatility in time in most analysed cases tion (bigger than 0.7) between the two cycles (except for Hungary, Slovakia, and Slovenia; for IRU¿YHFRXQWULHVIURPWKHVDPSOHUHVSHFWLYHO\ Estonia we do not have enough data with re- for Poland, Hungary, Romania, the Czech Re- gard to the crediting activity in order to be able public and Latvia; it is worth mentioning that, to draw a pertinent conclusion). Also, according as concerns these countries, the credit cycle is WR¿JXUHWKHFUHGLWF\FOHKDVDELJJHUDPSOL - the one which ‘guides’ the business cycle in the tude rate in comparison with the business cycle short-term (according to the results in table 3). in all the analysed countries (except for Esto- nia, for which the data set is much reduced). Fig. 6. Correlation of the credit cycle and business cycle over the period 2002-2012 Fig. 4. Dynamics of the business cycle and of the credit cycle in the ten states analysed from Central Europe, Eastern Europe and South- (DVWHUQ(XURSH XVLQJWKH%.¿OWHU

In order to verify the accuracy of the data, we XVHG WKH +RGULFN3UHVFRWW +3 ¿OWHU IRU WKH extraction of the cyclic component (for reasons of space restriction we didn’t incorporated the ¿JXUHKHUH $FFRUGLQJWRWKHJUDSKLFDOUHSUH - sentation, the previously mentioned results are FRQ¿UPHG To conclude, after conducting this analysis with a focus on the relations between the frequencies at the level of the business cycle and the frequencies at the level of the credit cycle for each of the ten states from Central Europe, Eastern Europe and South-Eastern Europe, we

18 emphasise once again the following aspects: a) for the economic activity. sometimes the credit cycle seems to be inde- In the second part of the study, we analysed the pendent from the business cycle, manifesting relations which appear between the frequen- an amplitude and a synchronicity that is differ- cies at the level of the business cycle and of the ent from and superior to that of business cycle credit cycle for each of the ten states from Cen- in all the analysed countries (except for Esto- tral Europe, Eastern Europe and South-Eastern nia); b) the volatility of the credit cycle is much Europe. For these purposes, we extracted and bigger than that of the business cycle in most analysed the cyclic components from the data research New analysed cases (except for Hungary, Slovakia sets taken into consideration (the real GDP and DQG6ORYHQLD F DVDZKROHWKHFRHI¿FLHQWRI the total volume of credits given by the banking the correlation matrix between the two cycles system to the non-governmental sector). The LVVPDOOHUWKDQWKHFRHI¿FLHQWRIVKRUWWHUPIULF - results have shown that sometimes the credit tions; however, in the case of states such as cycle seems to be independent from the busi- Poland, Hungary or Romania, its quantum sug- ness cycle, manifesting an amplitude, a syn- gests that the movement of the two cycles is chronicity and a volatility that is different from interdependent (with the credit cycle ‘guiding’ and superior to that of business cycle in all the the business cycle). analysed countries (except for Estonia as concerns the amplitude and except for Hungary, Slovakia and Slovenia as concerns the volatil- 6. Conclusions ity). In the case of states such as Poland and ,QWKH¿UVWSDUWRIRXUDQDO\VLVZHIRFXVHGRQ Hungary we may notice a movement in the same the short-term relation of causality between rhythm of the two cycles, which may involve an the credit cycle and the business cycle in ten alignment of credit expansion to the needs of states from Central Europe, Eastern Europe WKHUHDOHFRQRP\ VWDWHPHQWFRQ¿UPHGE\WKH and South-Eastern Europe over the period KLJK YDOXH RI WKH FRUUHODWLRQ FRHI¿FLHQWV IURP 2002-2012. In other words, we analysed the in- the two countries, of 0.97, respectively 0.92). At terferences between the turbulences that occur the level of the whole data sample, the simple at the level of the credit cycle and of the busi- FRHI¿FLHQWRIFRUUHODWLRQEHWZHHQWKHWZRDQD - ness cycle from one quarter to the other, with- O\VHG F\FOHV LV VPDOOHU WKDQ WKH FRHI¿FLHQW RI out taking into consideration the medium-term short-term frictions; in the case of states such WUHQG RI WKH WZR YDULDEOHV 7KH ¿QGLQJV KDYH as Poland, Hungary or Romania, the Czech shown us that we cannot speak of a relation of Republic and Latvia, the credit cycle is the one unidirectional causality between the two cycles which 'guides', within a smaller timeframe, the (not even if we separate them into geographi- business cycle. cal regions) in the ten states from Central Eu- The results obtained in this analysis are in ge- rope, Eastern Europe and South-Eastern Eu- QHUH LQ KDUPRQ\ ZLWK WKH ¿QGLQJV RI DQRWKHU URSHLQWKHHFRQRPLHVRI¿YHVWDWHV 6ORYDNLD study conducted by European Banking Fed- Slovenia, Estonia, Lithuania and Bulgaria), the eration [5] on 11 European states (Great Brit- real GDP was the variable which ‘guided’ the ain, Finland, France, Germany, Austria, Spain, credit cycle, whereas in the case of four other Ireland, Italy, the Netherlands, Portugal and states (Poland, Hungary, Latvia and Romania), *UHHFH SOXVWKH8QLWHG6WDWHVDQGFRQ¿UPDW Granger-type causality relations were regis- the same time the results obtained by Levine tered from the crediting activity towards the and Zervos [10]. economic activity; in the Czech Republic, there was even a feedback from the crediting activity

19 Constantin-Marius Apostoaie Stanislav Percic $OH[DQGUX,RDQ&X]D8QLYHUVLW\RI,DúL Iasi, Romania [email protected] New research New

References

1 Aikman, D., Haldane, A.G, Nelson, B. (2011), Roots in Autoregressive Moving Average Models “Curbing the Credit Cycle”, speech held at the of Unknown Order,” Biometrika, vol. 71, pp. 599- Columbia University Center on Capitalism and 607. Society Annual Conference “Microfoundations for 15 Toda, H.Y., Yamamoto, T. (1995), “Statistical infer- Modern Macroeconomics” in New York on Novem- ences in vector autoregressions with possibly inte- ber 2010 (Revised March 2011). grated processes”, Journal of Econometrics, vol. 2 Baxter, M., King R.G. (1999), “Measuring Busi- 66, pp. 225-50. ness Cycles: Approximate Band-Pass Filters For Economic Time Series,” Review of Economics and Statistics, vol. 81(4), pp. 575-593. 3 Bernanke, B, Gertler, M., Gilchrist, S (1996), “The )LQDQFLDO $FFHOHUDWRU DQG WKH )OLJKW WR 4XDOLW\´ The Review of Economics and Statistics, vol. 78(1), pp 1-15. 4 Dickey, D.A., Fuller, W.A. (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root,” Journal of the American Statistical Association, vol. 74, pp. 427-431. 5 European Banking Federation (2011), “Credit Cy- cles and their Role for Macro-Prudential Policy Eu- ropean Banking”, available at http://www.ebf-fbe. eu/uploads/28%20Nov-2011-EMAC.pdf 6 Gorton, G., He, P (2008), “Bank Credit Cycles”, Review of Economic Studies, vol. 75(4), pp 1181- 1214, Blackwell Publishing. 7 Hodrick, R.J., Prescott, E.C. (1997), “Postwar U.S. Business Cycles: An Empirical Investigation,” Journal of Money, Credit, and Banking, vol. 29, pp. 1-16. 8 Holmstrom, B., Tirole, J. (1997), “Financial Inter- mediation, Loanable Funds, and the Real Sector”, 4XDUWHUO\-RXUQDORI(FRQRPLFVYROSS 691. 9 Kiyotaki, N., Moore, J (1997), “Credit Cycles”, Journal of Political Economy vol. 105(2). 10 Levine, R., Zervos, S., (1998), “Stock Markets, Banks, and Economic Growth”, American Eco- nomic Review, vol. 88, pp. 537-558. 11 Lütkepohl, H. (2007), “Econometric Analysis with Vector Autoregressive Models”, EUI Working Pa- pers, 2007/2011. 12 Minsky, H.P. (1992), “The Financial Instability Hy- pothesis”, Economics Working Paper Archive, vol. 74, Levy Economics Institute. 13 Phillips, P.C.B., Perron, P. (1988), “Testing for a Unit Root in Time Series Regression,” Biometrika, vol. 75, pp. 335-346. 14 Said, E., Dickey, D.A. (1984), “Testing for Unit

20 After the 1932 Greek Default: Political Views and Strategies in a Period of increasing Economic Protectionism (1932-1936)

I. Crisis as an economic and political challenge ability to establish a zone of gold franc), con- This paper is the preliminary part of a work- sidering the fact that Greece participated in the in-progress, attempting to recreate a regula- Gold-Exchange Standard zone since 1928. WRU\EXWQRWKRPRJHQHRXV¿HOGRISROLWLFDOSHU - The optimist views of the 1920s (James, 1986, research New ceptions and the applied economic models in 324-328) concerning the possible reduced Greece as regards the modernising effort un- LQÀXHQFHRIWKH6WDWHLQWKHHFRQRP\WKHUD - dertaken by the elites from the end of the 1920s tionalisation of markets and the dynamics of to the middle of the 1930s. In this non-linear HQWUHSUHQHXULDO DFWLYLW\ ZHUH QRW VXI¿FLHQW WR economic surface, the Greek crisis of the early block recession as the applied politics focused VSOD\HGDSLYRWDOUROHDVLWGLYHUVL¿HGDQG on monetary stability. This failure was not of ODWHULQWHQVL¿HGWKHSHUFHSWLRQRIWKH6WDWH¶VLQ - course a European exception: in the USA, ‘the tervention in internal market’s regulation. actions of the Hoover Administration and Con- Grosso mondo, crisis can be seen as a nega- gress, which raised taxes in the early 1930s in tive economic conjuncture, as a consequent a futile effort to balance the budget, [but] only of market deformation and as the chronologi- reinforced the collapse of private demand’ cal point leading to a transition of new forms (Eichengreen, 2010, 1). In the second half of of economic organisation (Godelier, 1991). As 1929, the USA central administration made no DUHVSRQVHWRD¿QDQFLDOFULVLVQHZLQYHVWLQJ effective steps to halt the fall in prices and to comportment and strategies have developed, stabilise the banking system. No measures to but this is a long term and consequently labori- restart investment spending were taken until ous process (Le Roy Ladurie, 1978, 429). The 1933, when the implementation of the Keyne- FRQFHSWRIGH¿QLQJWKHFULVLVLVUHIHUUHGWRDV sian New Deal functioned as precursor of the taking a global perception of economic mecha- post-war mixed economy. nisms, described as an effort to recreate a tran- The current recession in Europe forced histo- snational history. In this framework, national rians and economists to analyse, once again, exceptions can be valorised as deformations the evolution of the crises of the past. It is cer- of the local market or as internal structural fail- tain that this historical elaboration not only has ings, but they cannot be considered as singular DVFLHQWL¿FEDVLVEXWLVDOVRUHODWHGWRZKDW, phenomena by historical (or even economic) would grossly call a psychological aspect: eco- research. nomic recovery is expected, as was the case In this perspective, the Greek interwar crisis during the former crises (see White, 1988, p. was a regional facet of the Great Depression, 235-240). The current representation of the developing though special characteristics that Great Depression creates a feeling of security corresponded to the peripheral character of EXWDOVRXQGHUOLQHVWKHFKDOOHQJHVRIWKH¿QDQ - the Greek economy and to its position within cial reproduction (Samman, forthcoming). On the capital market. Consequently, the increas- the other hand, as Eichengreen remarks ‘the ing Greek protectionism of the 1930s follows a analogy with the Great Depression informed general European tendency towards central- the policy response to the crisis more generally’ ised politics, after the failure of liberal monetary (Eichengreen, 2012, p. 290). Consequently, it models (especially after the dissuasion of the is not inaccurate to express the opinion that Gold-Exchange Standard and the French in- the interpretation of the 1930s crisis has also a

21 pragmatic aspect related to the handling of the A not very similar reality seems to be created current situation by the authorities, in Europe by the interwar Gold-Exchange Standard, even and mostly in the USA. Nevertheless, analysing if the currencies’ stabilisation that it secured earlier crises cannot formulate a generalised can be considered as a monetary hegemony model concerning the evolution of economic (Duménil-Levy, 2011). In its interwar phase, and social phenomena, as far as each crisis is this monetary zone was mostly a presupposi- different (see Cassis, 2011). The analysis of an- WLRQ IRU ZLGHU ¿QDQFLDO WUDQVDFWLRQV UHVXOWLQJ New research New terior periods of economic decline can, though, in the transformation of London’s market to a indicate the multiplicity of the directions among centre of international reserves (Eichengreen, which a society can choose so as to assure its 1992, 203). As regards the Great Depression’s continuing existence and development. current analysis via the international monetary Furthermore, historical interpretation associates system’s role, it is not irrelevant to mention that economic mechanisms with social conjuncture, the Greeks economists and most of the pe- in other words it describes the evolution of the riod’s political personnel associated the local crises in a dialectic and multidimensional man- FULVLVZLWKWKHÀXFWXDWLRQRIWKH*ROG([FKDQJH ner, while the mutation of property rights, labour standard and in general with monetary factors activity and exchange rates under the crisis im- (Brégianni, 2012 b). This opinion is based, of pact are evaluated. Under this methodological course, on the Greek experience of the crisis, view, material cultural practices are also exam- where, as we are going to see, the decrease of ined in order to clarify the organisation of the gold based exchange’s reserves in the central economy and the social relations, as well as the bank led to the abandonment of the Standard. cross points between them. This interpretation In fact, major current analysis of the Great De- is in fact not very far from Keynes’ perception pression presents the decrease of exchange that the crises can be further correlated with reserves in the central banks and generally social and psychological factors, as far as the the instability of the Gold-Exchange Standard negative expectations for investments rates are as an important factor of the crisis (Bernake, among the recession’s characteristics. -DPHV RULWIRFXVHVRQWKHLQÀX - In this perspective, an attempted revision of the ence of the banking crisis in its negative evolu- present economic crisis points primarily to the tion (Friedman, Swartz, 1963; cited by Bordo, depression during the last quarter of the nine- Erger, Evans, 2000, 1 447). An opinion not re- WHHQWKQRWRQO\IRULWVSURORQJHGDPSOL¿FDWLRQ ally opposite but rather supplementary, relating but also because of the strong implication of the the Great Depression to structural factors and monetary factor: the nineteenth century system causes pre-existing 1929 as well as to the con- of balance, the expansion of entrepreneurial ac- sequences of the World War I, was expressed tivity, the evolution of the capital market mecha- by the Western-European economists of the nisms (based, of course, on less sophisticated interwar (Henry, 2000, 27-28). With regards to ¿QDQFLDO LQVWUXPHQWV DQG WKH VWDELOLVDWLRQ RI the Greek economic cycles of the period, the LQWHUQDWLRQDO¿QDQFLDOFHQWUHV VHH4XHQQRXsO opinion was expressed that World War I cre- Corre, Cassis, 2011) were created partially ated conditions of spontaneous protectionism and supported by supranational monetary infor the European economies that facilitated the stitutions and especially by the gold standard strengthening of the crisis (Bank of Greece, (see Einaudi, 2001). The nineteenth century 1932). Of course, the contribution of war con- monetary stability is to be comprehended and ditions to the crisis explosion is underlined by explained within the ideological framework of current literature not only in the basis of the economic liberalism (Flandreau, 2000, 25-27). HDUO\ V K\SHULQÀDWLRQ EXW DOVR EHFDXVH

22 of the uncontrolled and antagonistic charac- applied politics. Although it is clear that political ter of the monetary stabilisation’s application discourse and archival material is the canon of (Hautcoeur, 2000). Finally, an interesting point what can be said; a system that regularises the of view is the evaluation of industrial produc- emergence of the verbal conceptions as a real tion, which attaints its peak in June 1929, while event (Foucault, 1969). Under this perspective, throughout the following twelve months manu- a presupposition of historical analysis is the facturing declined globally (Almunia, Bénétrix, critical elaboration of the sources; as regards Eichengreen, O’Rourke, Rua, 2009; cited by Al- WKHLQWHUSUHWDWLRQRIHFRQRPLF¿HOGIRFXVLQJRQ research New len, Moessner, 2010). Furthermore this point of the political aspect as well as to the data evi- view can be correlated with the industrial over- dence can clarify the society’s prospects chal- production, remarked before the Great Depres- lenged by crises and the development of eco- sion and before the current crisis. nomic structures. The annotation of the crisis in historical perspective leads to an analysis incorporating collective II. Protectionism and centralised strategies af- economic processes and institutional aspects, ter the interwar Greek default as well as the investigation of ideological dif- 'XULQJ WKH ¿UVW *UHHN UHSXEOLFDQ UHJLPH WKH ferentiation of applied economic politics. In this administration of Eleftherios Venizelos be- order of ideas, there is no methodological need tween 1928 and 1932 is characterised by politi- to choose between focusing on individuals as cal efforts for the modernisation of the national economic actors, and focusing on the power of economy and the reform of the Greek banking elite groups and communities (Kelly, 2009, 36). system. The monetary stabilisation, the reor- Indeed, the market mechanisms cannot be con- ganisation of the banking sector and the agrari- sidered as a static parameter of national econo- an reform accomplished at the end of the 1920s PLHV)RUWKLVUHDVRQWKHSROLWLFDODQGVFLHQWL¿F are the parameters of the State’s protectionism discourse regarding development, the repre- and determinate its economic role (Mazower, VHQWDWLRQV RI ¿QDQFLDO DQG PRQHWDU\ PHFKD - 1989, p. 237-266), progressively enlarged and nisms, the metonymy of the economic activity is transformed to State interventionism during the to be analysed as well (Brégianni, 2004). Within VXQGHUWKHLQÀXHQFHRIWKH*UHDW'HSUHV - this perspective, I will try to incorporate in my sion. analysis fragments of the public debate that In 1927 the Greek State applied to the League took place after the interwar Greek default. In of Nations for a new international loan, in order a broader outline, the conceptualisation of the WR¿QDQFHWKHUHHVWDEOLVKPHQWRIWKHUHIXJHHV crisis’ mechanisms could lead to an institutional arriving from the former Ottoman Empire and analysis, focusing on the attempt of legitimating the completion of the agrarian reform. Under power, in the Weberian sense of this term. Nev- the intervention of the League of Nations, which ertheless, here I will try to formulate a descrip- GHPDQGHG WKH UDWLRQDOLVDWLRQ RI WKH *UHHN ¿ - tive overview of the national economy’s sectors nancial sector in order to give its accord for the activity based on empirical historical analysis, contraction of the new international loan, the so as to reconstitute the multiples facets of the Greek State stabilised the national currency, a interwar period –via the Greek paradigm- and SROLF\ RI ¿QDQFLDO VWDELOLVDWLRQ ZDV DWWHPSWHG the interaction among the economic compo- and the Greek banking system was modern- nents of reality (Keynes, 1936). As an historical ised with the foundation of the Bank of Greece positivism, the effort to imprint the evolution of as its central axis. The Bank of Greece was economic and political contemporary opinions granted the exclusive privilege to issue ban- regarding the interwar crisis intersects with the knotes and the drachma was tied to the gold-

23 exchange standard, a fact which obliged the third from the stabilisation’s period (1928) up to central Bank to convert its banknotes into gold- February 1932, was of major importance as the based exchange. Under the Gold-Exchange diminution of commercial balance and in gen- Standard, in May 1928 the Bank of Greece set eral the interruption of capital’s input under the the British sterling as the foreign exchange, crisis circumstances made the cover of national with parity rate 1 sterling to 375 drachmas. As EXGJHW¶VGH¿FLWE\WKH%*¶VH[FKDQJHUHVHUYHV a pre-supposition of modernisation, pegging obligatory.

New research New the drachma to the pound sterling, the Greek By January 1932 the Bank of Greece, via its State tended to be integrated to an enlarged Economic and Financial Consultants, respec- monetary zone: monetary stabilisation could tively Kyriakos Varvaressos and M. Finlayson, improve its solvability and ameliorate its po- addressed the Financial Committee of the sition in the international capital market (Bré- League of Nations in order to examine the situ- gianni, 2012). On the other hand, the transfer of ation of the Bank and to proceed in further col- the western-European monetary rationalisation laboration with the Greek side. With the con- LQ *UHHFH OHG WR WKH FUHDWLRQ RI QHZ ¿QDQFLDO ¿UPDWLRQ RI WKH *UHHN JRYHUQPHQW WKH %DQN institutions (Pepelasis-Minoglou, 1997). In ad- of Greece invited one of the members of the dition, it should be mentioned that the Greek League of Nations Financial Committee in EDQNLQJ PRGHUQLVDWLRQ UHÀHFWV WKH UHJXODWRU\ Greece so as to carry out an assessment of the UROH RI WKH VSHFLDOLVHG ±HFRQRPLF DQG ¿QDQ - Greek budget and of the central Bank’s situa- cial- translational committees of the League of tion. At the same time, the Greek Government Nations (Clavin, 2003, 221), a role that created demanded the suspension of the sinking funds parallel interventions in other Balkan countries of the public debt, internal and external, from during the same period. WKH/HDJXHRI1DWLRQVIRUDSHULRGRI¿YH\HDUV This policy of currency stabilisation ended in Greece also demanded a grant of a new inter- April 1932 as the impact of the Great Depres- national loan of 50 million USA dollars, in order sion on the Greek economy increased and the to accomplish its public work’s programme and government abandoned the gold standard. PRUHVSHFL¿FDOO\WKHLUULJDWLRQSURMHFWVLQ0DF - %UpJLDQQL %UpJLDQQL *UHHFH V edonia. SXEOLF¿QDQFHVZHUHGHDOWDVWURQJEORZE\WKH At the end of March 1932, the Financial Com- detachment of the sterling pound in Septem- mittee gave its approval for the suspension of ber 1931, as London was the main source of the sinking funds of the public debt, as well as foreign borrowing that permitted the continued its support for the contraction of a new interna- implementation of the public works programme, tional loan. This loan was granted under the fol- as well as being a basic export market for lowing conditions: the privatisation of the Greek Greece. Despite the determination of the Ven- railways, the reinforcement of Bank of Greece’s izelos’ administration to pursue the liberal poli- independent character, the suspension of the tics of monetary stabilisation, attaching drach- public works, the restriction of public expendi- ma to the USA dollar and legislating a number ture, the restriction and control of the importa- of measures for the protection of national cur- WLRQVLQRUGHUWRDYRLGFDSLWDO¶VRXWÀRZIRUDQ\ rency, the important reduction of the foreign ex- other purpose than the public debt’s service. change reserves at the Bank of Greece and the This last factor was considered as necessary continuous devaluation of the drachma's value by the League of Nations in order to give its against the dollar on the black market made permission for the contraction of a new interna- this target illusionary. The important decrease tional loan. According to the report’s annotation, of the central Bank’s reserves, which fell to one the new loan could lead to the continuation of

24 the rural lands irrigation, resulting in the nation- impact of the Great Depression in Greece, so al debt’s regular service by means of a national we can presume that he considered the Greek production augmentation. It is obvious that the default a result of the global economic reces- Financial Committee suggested a programme of sion. After the default, and up to World War II, national economy shrinkage in order to restore the Greek State proceeded to different phases *UHHFH¶V ¿QDQFLDO DQG PRQHWDU\ VWDELOLVDWLRQ of negotiations with their creditors, concerning $VDODVWSUHFRQGLWLRQIRULWV¿QDQFLDOVXSSRUW the quota of the debt service (Dertilis, 1934, the League of Nations insisted on the closer co- 571). Nevertheless, a priority was the service research New operation with the Bank of Greece’s Financial of the nineteenth century loans contracted in Consultant and, in addition, to the nomination gold exchange and put under the control of of a League of Nation’s specialised Consultant the International Financial Committee in 1898, in the Greek Ministry of Finances, who was go- when Greece re-entered the capital market af- ing to conduct the government in the domains ter the earlier State’s default in 1893 (Brégian- RI¿QDQFLDOSROLF\DQGRIQDWLRQDOEXGJHW$WWKLV ni, 2012b). It is not irrelevant to add here the point, a failed cycle of negotiations between opinion of Professor in Public Finances at the the Greek government and its creditors and the University of Athens P. B. Dertilis, that the en- League of Nations to obtain a new loan began. larged number of international loans contracted The League of Nations’ terms were rejected by the Greek State in the 1920s, provoked a by the Venizelos government (and in particular fake expansion of demand and of consumption, by the Finance Minister, G. Maris) and so, in while the product of the loans was not used for April of the same year, the League of Nations investment purposes but in order to maintain refused to grant a new loan (Mazower, 1991). consumption (Dertilis, 1934). According to Der- On 5 May, 1932, the Greek State declared a tilis, the negotiations with the State’s creditors moratorium on the country's public debt, while were an inadequate measure, as long as the in July the forced conversion of loans contract- adverse conditions of the loans and the fact ed in foreign currencies into drachmas was im- that Greece had already paid more in interests SRVHGE\ODZ,QIDFWWKH*UHHNFDVHYHUL¿HV and capital than the capital it received, render- the argument that the League of Nations’ ability ing the debt odious. to affect European monetary cooperation, in the Analysing how the Greek state tried to deal with negative conjuncture of the Great Depression, the effects of the 1932 default, the major issue was considerably limited (Schuker, 2003, 49-77 to be noted is that the State exercises an ever- %UHJLDQQL LQFUHDVLQJLQÀXHQFHRQWKHQDWLRQDOHFRQRP\ Let’s examine some immediate results of the After the moratorium and the abandonment of GHEW¶V PRUDWRULXP RQ WKH ¿QDQFLDO OHYHO LQ monetary stabilisation, the State strengthened 1931-1932 (i.e. just before the default) the pub- its entrepreneurial role and turned towards the lic debt service covered 31.1 per cent of the productive sectors' restructuring (Brégianni, total State’s expenditure while the following 7KH\DLPHGWRFRQWUROWKHQDWLRQDOÀRZRI year this percentage was decreased to 18.9 capital and attempted to reconstruct the nation- per cent with a descending tendency for the fol- al market. For instance, during the year of the lowing years (Aggelopoulos, 1934, p. 601, Ta- GHIDXOWDVHULHVRIODZVGH¿QHGWKHSURORQJD - ble 1). The Lecturer of Public Finances at the tion of the public works programme, and more time and later Professor in the Law School of VSHFL¿FDOO\WKHFRQVWUXFWLRQRIURDGVDQGODQG the University of Athens, Aggelos Aggelopou- LUULJDWLRQ ZRUNV ,W LV VLJQL¿FDQW WR PHQWLRQ D los, associates the general decline of Greek dateless manuscript note of E. Venizelos where State’s expenditure in the early 1930s with the he mentioned the maintenance of public works

25 as a central pillar of its government politics, in up to 10 million pounds sterling for the years spite of an increase to the national debt. In a prior to 1932, a situation that could aggravate general perspective, the economic interven- XQGHUWKHFULVLVLQÀXHQFH 6XSUHPH(FRQRPLF tions of the State in the 1930s tended to create Council, 1933, 9). To deal with this situation, State monopoles, in the monetary sector, in the Greece also concluded bilateral agreements VWUDWL¿FDWLRQ RI WKH LQWHUQDO PDUNHW DQG LQ WKH for foreign trade, a fact that, according to the organisation of foreign trade. The conceptuali- Supreme Economic Council, constituted a gen-

New research New sation of this type of economic centralisation as eralised practice in Europe and was necessary nationalist capitalism is not recent in Economic as a measure for dealing with the crisis. History. Furthermore, the term State’s capital- Moreover, except for the protectionist interven- ism was in use simultaneously to its application tions' legislative framework, it also stressed the (Steuermann, 1931, 212), so as to describe the creation of various public organisations with central regulation of economic activity. an intermediary function between the State Let’s have a more detailed look at the typology and the national production's sectors, many of State intervention and its historical evolution. RIZKLFKVSHFL¿FDOO\FRQFHUQHGVXSSRUWWRDJ - An index for the reinforcement of the State’s riculture. Concerning the agricultural sector in role in the regularisation of economy was the particular, farming and small agricultural hold- foundation of the national Supreme Economic ings had been the object of State protectionism Council in February 1932, the role of which under the administration of the Liberals since was expected to be the analysis of the national 1929. This was due to a sizeable rural popula- economic activity, the consulting of the Greek tion and an effort also expressed on the level of government in economic policy’s issues, and political discourse to forge a social alliance be- ‘the observation of the cyclic activity of the in- tween the bourgeois and rural classes in order ternational economic activity, in the framework to preserve the ‘social regime’. RIWKHHFRQRPLHVPRQHWDU\DQG¿QDQFLDOLQWHU - On a political level, the abandonment of mon- dependence’. etary stabilisation led to successive govern- As the Supreme Economic Council pointed out PHQWV ¿QDOO\ LQ WKH /LEHUDOV ZHUH VXF - with regards to the monetary regulation of the ceeded to Government by the Popular Party. crisis, Greece's economic policy bordered on This political transition did not change the pro- the highest degree of protectionism: over and tectionist policy, but even extended it. During above the monopolistic management of foreign the years 1933-1935, the greater part of com- exchange, the State prohibited the exportation mercial transactions was carried out on the ba- of foreign currencies for the payment of com- sis of bilateral agreements, especially after the mercial debts contracted abroad and imposed systematisation of the clearing mechanisms in restrictions on the withdrawals from accounts 1935. The reinforcement of the clearing agree- held in Greece. In parallel, the duties levied on ments' system, legislated in July 1935 by the imported goods were increased and tariffs were Panagis Tsaldaris government, represents a imposed. As it was pointed out not only by the new, more centralised conception on the State's economic literature of the period but also by economic role (Supreme Economic Council, the relative organs of the League of Nations, 3VDOLGRSRXORV )RUWKH WKHGH¿FLWRIWKHFRPPHUFLDOEDODQFHKDGVLJ - technocrats in charge of the application of eco- QL¿FDQWO\FRQWULEXWHGWRWKHDSSHDUDQFHRIWKH nomic policy, such a commercial organisation Greek crisis: indeed, this reached 45 per cent was indispensable as long as the other Balkan for the year 1929 and 40 per cent for 1930. In States based the greater part of their exports to UHDOWHUPVWKLVUHSUHVHQWHGDGH¿FLWRIPLOOLRQV bilateral agreements. It is thus evident that in-

26 terventionist politics created new conditions for increase of around 41 percent compared to that the position of Greece and the Balkans in the of 1933-1934 (NBG, 1935). As a consequence international capital market. Nevertheless, the of the protectionist policy, the monetary masse trade balance in this year [1935] still represents ZDV LQFUHDVHG ZKLOH LQÀDWLRQDU\ SUHVVXUHV DGH¿FLWRIELOOLRQVGUDFKPDV (UJDVLD were remarked. The State’s attempt to sustain $VWKH/LEHUDO$'LRPLGLV¿UVW*RYHUQRU the internal market was associated with the of the Bank of Greece, underlined independ- general growth of credits, especially those al- ently of a crisis period or the applied politics, in located by the National Bank: nevertheless, the research New general the Greek exports represented 50 per contracted loans were inferior to the demand. cent of the imports (Diomidis, 1935, p. 1298), Another parameter that had to be taken into while the greater part of exported products was consideration as regards the handling of the submitted to elastic demand. A closer relation crisis was the important decrease of the mi- with Germany was the result of this commer- gratory remittance’s inputs (inter alia Supreme cial policy during the years 1932-1935, as long Economic Council, 1936, 100). as the total of the bilateral agreements’ assets The general protectionist conditions were thus (surpassing 1 billion drachmas) is derived from favourable to the development of the industrial the German exchange trade (Ergasia, 1936, p. sector (table 2), while the objective was to cov- 227). Mostly, the commercial transactions be- er the internal demand in industrial products. tween Germany and Greece involved the ex- ,Q*UHHNLQGXVWU\ZDVVXI¿FLHQWWRFRYHU change of arms for tobacco. 74 per cent of domestic consumption, whereas in 1928 only 58 per cent of the internal de- A recovery? mand was covered by Greek industrial goods Focusing on the general trends of the period, it (National Bank of Greece, 1935). Even if the VKRXOGEHQRWHGWKDWRQWKH¿VFDOOHYHOWKHSUR - industrial output presented an increasing ten- tectionism was followed by the decreasing di- dency during the 1930s, it is well known that rect taxation, at a time when import duties were Greek industry is mainly associated with the imposed on agricultural and industrial products manufacture of agricultural products (Ergasia, (Ergasia, 1936b, 152). Efforts towards the sta- 1938). Nevertheless, the remarked industrial bilisation of the national currency seemed to GHYHORSPHQWZDVDQRWKHUIDFWRUWKDWGLYHUVL¿HG bear fruit as in 1934 the British pound fell to the position of Greece in the international mar- 543 drachmas, compared to an average an- ket: the industrialisation of peripheral countries nual price of 595 drachmas in 1933. In 1935 provoked the protectionist response of the core the average annual value of the British pound as long as Germany, England or Czechoslova- VWRRG ORZHU DW GUDFKPDV 1%* kia tried to reinforce their own industrial sectors, Mitrofanis, 2011, 479). In 1935, an even greater using measures such as the stability of their growth of the Greek economy was observed, currency and the law cost of labour in order to DOPRVW DOO RI WKH VSHFL¿F LQGH[HV KDYLQJ LP - increase competitiveness (Diomidis, 1935 b). proved in comparison to 1934 (Supreme Eco- In the conditions formed by the crisis and the nomic Council, 1936). Public revenues rose by consequent closure of the national economies, 14.7 percent compared to those of 1933, but the stagnation of the merchant marine, which public expenditure also increased in parallel, a did not achieve in increasing ship ownership, is fact proving the State's active entrepreneurial expected (Ergasia, 1938 p. 1164). role, centred mainly on the continuation of pub- The agricultural domain merits closer attention lic works. Thus, the rise in public expenditure and even a retrospective approach: during the IRUWKH¿QDQFLDO\HDUUHSUHVHQWVDQ period under examination Greece was primor-

27 dially a rural country with over 67 per cent of cultural economy in the early 1930s is actually its population in rural areas, according to the a main pillar of centralised economic policy. Re- census of 1928 (Alivizatos, 1939, p. 304), while suming the State’s regulatory interventions in 61.1 per cent of the labour force was occupied order to set up agricultural sector’s structures, in the agricultural domain (Alivizatos, 1939, p. we remark the creation of specialised national 306). As it has already been noted, the rural institutions for the protection of a number of ag- VHFWRUZDVWKH¿HOGRISURWHFWLRQLVW¶VPHDVXUHV ricultural products, the agricultural credit’s pro- New research New application since 1928, as long as the mas- liferation and the expansion of AGB’s network sive dislocation of the refugees in rural areas so as to cover the national territory entirely. Ag- and the agrarian reform were a precondition ricultural credit, mainly directed through short for agrarian change. An effort was made by the term loans, helped rural families to survive dur- Venizelos government in order to increase the ing this period. Half of rural credits were allo- FDSLWDOÀRZGLUHFWHGWRWKHUXUDOVHFWRUDQHI - cated through agricultural products collateral, fort concretised in the foundation of the State’s a fact that demonstrates the centralised char- Agricultural Bank of Greece. In the late 1920s, acter of agricultural development but also the an important extension of cultivated land and research of security for banking investments an augmentation of the yields took place, while (tables 4, 5). On the other hand, the augmenta- a qualitative reorientation of the Greek agricul- tion of the agricultural production was set up by ture was seen: the statistical data demonstrate means of the extension of cultivated lands and a turning point from the cereals monoculture to the yields amelioration (table 6). In addition to products destined for the market, like tobacco. the ‘healing’ attempts targeted at calming the On the other hand, traditional commercialised economic and social situation in the rural areas, products, like currants, show a serious de- this protectionist policy is associated with the crease in production (Bregianni, 2002, 160- general effort to expand the internal production 161). so as to secure the Nation’s autonomy in goods The effort to open up the Greek rural economy vis à vis the instable international market and was naturally interrupted by the recession. In WRUHGXFHWKHGH¿FLWRIWKHWUDGHEDODQFH)URP 1931, the League of Nations documented the all the above we conclude that the agricultural progressively negative impact of the Great De- SROLF\ RI WKH SHULRG WULHG WR GLUHFW FDSLWDO ÀRZ pression on the European rural sector (SdN, to the rural sector and to reorganise the agri- 1931, 9), while this was mostly expressed by a cultural production henceforth oriented to inter- strong cutting of the agricultural products prices nal consumption, keeping at the same time the (Institut International d’Agriculture, 1931, 3). In quota of the commercialised products so as to Greece we remark the decrease of agricultural support the equilibrium of trade balance. The production in terms of volume and value (table development of the internal market was actual- 3). This did not only aggravate everyday life in ly a precondition for the 1930s economic policy, the rural areas, but also had a negative impact as Greece had limited access to international on the balance of exterior trade, at a time when capital after the 1932 default. the internal demand was reducing. At the same In this perspective, two qualitative evolutions time, according to data from ABG, the cultivation can be noted which can elucidate the internal expenses were augmenting, while the monoc- market’s functioning: indeed, in 1935 the statis- ulture did nothing to assist the rural population tical data demonstrates on the one hand the de- to survive. This created an immediate situation FUHDVHRIRI¿FLDOXQHPSOR\PHQWZKLFKUHDFKHV for the State’s intervention with measures such the level of 1930 after an important increase in as taxes relief but the global protection of agri- the maelstrom of the crisis, i.e. the years 1931

28 and 1932 (Supreme Economic Council, 1936, long as the absence of any currency issue after 103). On the other hand, a slight recovery of the GHVFULEHVWKH¿QDQFLDOGLVHTXLOLEULXPDQG bank deposits is remarked. (Supreme Econom- the monetary instability after the detachment ic Council, 1936, 83). The general index of eco- from the Gold Exchange Standard (Brégianni, nomic activity during this period (1932-1935) 2011, 309). demonstrates an economic recovery (Supreme Economic Council, 1935, 5, here: table 5). III. Political and theoretical aspects of protec-

However, these data have been doubted by tionism research New recent research due to uncertain statistical It is obvious that the foundations of the central- methods and the growth of the economic ac- ised economic policy followed by the Popular tivity after the default of 1932 was largely dis- Party had been already laid by the government puted by recent research in Greek Economic of the Liberals, so the change of government History, while a theoretical basis of this scepti- did not signal a rupture in the economic policy's cism can be considered the argument that the main principles. The continuity in the economic partial closing of international capital market for SROLF\ VLPSOHPHQWDWLRQLVDOVRUHÀHFWHGLQWKH Greece during the 1930s and State interven- fact that important personalities among the Lib- tionism afterwards could not have enabled de- erals retained their positions in the administra- velopment. Nevertheless, in terms of GBD, the tion's central core. per head represented an overall increase dur- The archival research and the analysis of po- ing the examined period, a continuous slow in- litical discourse allow the formulation of a gen- crease after 1920 (Kostelenos, Bitzis, 2008, 6, eral hypothesis concerning the adoption of an here: diagram 1). According to macroeconomic enlarged form of protectionism by the Liberals: research, since the middle of the twentieth cen- as it is already mentioned, the political circum- tury the per head GDP development might sug- stances led Venizelos in 1932 to disapprove a gest a slight cyclical behaviour, approximately a Memorandum with its creditors, to declare State 20-year span for every cycle, while the detect- default, and to turn to the development of inter- ed one of 1914-1938 represented an increase nal productive structures. On the other hand, (Kostelenos, Bitzis, 2008, 7). When GDP enters we have to valorise also the individual factor in the analysis, we notice fast economic growth in the matter of handling the crisis. In spite of after 1930, reaching its highest point in 1938 the decision-making, collective processes are (Kostelenos, Bitzis, 2008, 6, here: diagram 2). not out of the question, as at the beginning of Consequently, macroeconomic research does the 1930s, the liberal alternative was already QRWFRQWURYHUWRI¿FLDOGDWDLQDGGLWLRQWKHGLI - weakening in Western Europe. However, based ferent levels of growth represented by the GDP on the study of the Greek example, the scale and the GDP per head are also imprinted in of protectionism is proved, from the regulato- the historical reality, as long as social agita- ry measures of the early 1930s to a planned tion and movements seem to be expanded in economy when the crisis took on a more violent Greece during the years 1935-1936. In this or- form. Moreover, a distinction between protec- der of ideas, the interwar Greek State’s large- tionism and economic autarchy must be point- VFDOH SURWHFWLRQLVP LQ WKH HFRQRPLF ¿HOG FDQ ed out: the principle of Nation’s economic uni- be characterised as a ‘military’ interventionism, ty, which requires the utilisation of all national leading to centralised policies which prevented productive forces for its development, can be market openness without nevertheless amelio- comprehended as a common base for these rating the conditions of every-day life. Indirect systems (Evelpidis, 1938, 193). Nevertheless, and oral sources demonstrate this reality, as protectionism is less expanded in comparison

29 to autarky and it is applied in some economic State and the contraction of bilateral commer- sectors only, while autarky incorporates the en- cial agreements. tire economic activity. It is not dissociate to the purposes of this pa- As the contradiction between liberalism and per to underline the high-levelled public debate protectionism is more than obvious, and as the concerning the conditions of development af- conservative turn of the interwar Greek Repub- ter the 1932 default, a debate framed by the lic can not be dissociated from the application of above-mentioned tendencies of the interwar New research New WKLVVSHFL¿FSROLF\OLEHUDOSHUFHSWLRQVHPHUJHG capitalism but also promoting alternatives of in an effort to rationalise the turning point to the economic organisation. It is to be noted that economic nationalism [sic]: ‘Economic liberal- during the 1930s Greek translations of Euro- ism is the most convenient atmosphere for the pean production on economic and social sci- Greek genius’ declares A. Diomidis, but, he ad- ences were published almost simultaneously to mits ‘the present international rule is that the the originals. Furthermore, the crisis’ conjecture private initiative must be globally yield, in order had already stimulated a blossoming of aca- to be substituted by the collective forms of eco- demic economic thought and the development nomic organisation’ (Diomidis, 1935). Other al- of statistical methods (Kostis, 1986, 20). ternatives also appeared in the public debate, In general terms and simplifying the present supporting the important decrease of the public analysis, we remark that political and social ac- sector and its replacement by private invest- tors implemented various alternatives concern- ments (Bernaris, 1936, 101). ing the crisis interpretation. Even if these led to It is clear that States' antagonism in the interna- the ‘introversion’ of Greek economy, they were tional market forced nations to develop an inter- not dissimilar to parallel European models. nal market but also to clarify the characteristics Nevertheless, the concentration of the econo- of State’s capitalism (Steuermann, 1931, 210). my that was chosen as a solution led to political In Germany, this model led to the rationalisa- centralisation, as the creation of a new social WLRQ RI PRQRSROHV DQG FDUWHOV ¿QDQFHV LQ VR reality in Europe met with the establishment of far that new international loans were contracted authoritarian regimes (Wagner, 2011, 10). with the foreign capital market. A central policy was applied in order to support German indus- IV. Researcher’s perspectives try: the reinforcement of exportation based on In the Greek case, the First Hellenic Republic duties imposition, salaries important decrease was defeated, resulting in the formation of the and high internal prices were among its char- Metaxas government following a vote of con- acteristics (Steuermann, 1931, 211-212). This ¿GHQFH E\ 3DUOLDPHQW ,Q$XJXVW EUDQ - framework is to be taken into consideration dishing the danger of the regime's overthrow, concerning the analysis of the Greek economy Metaxas imposed a dictatorship: Greek author- during the period under examination, not only itarianism had not only a political substratum, because Greece followed the German alterna- but also an economic content. Even if conti- tive of State capitalism, but also because the nuities regarding the earlier economic policies German economic policy alternated the ar- can be located, the planning of the economic rangement of the European capital market and activity by the state mechanisms is considered the position of the periphery’s countries in it. On a central pillar of the public policies during the the other hand, the closer dependence of the dictatorship. The tendency for Nation’s autarky Greek economy and trade from Germany after describes a general outline of economic na- WKHGHIDXOWLVSDUWLDOO\MXVWL¿HGE\WKHSUR - tionalism, mainly characterised by the intensi- tectionist policy followed also by the German ¿FDWLRQ RI WKH 6WDWH¶V HFRQRPLF UROH LQ RUGHU

30 WR IXO¿O WKH REMHFWLYH RI FRPPHUFH EDODQFH¶V effort to reorganise the agricultural cooperative equilibrium (Supreme Economic Council, 1936 movement in a centralised basis (Brégianni, %DQN RI *UHHFH 7KHVH SDUDPHWHUV 2007, 327-351)- were used in the planning of a must be comprehended in the framework of an shortage of market equilibrium imposed by the international economic environment of isolated State, resulting in the creation of State monop- PDUNHWVFKDOOHQJHGE\LPSRUWDQWGLI¿FXOWLHVLQ olies and preventing the markets self-regulation FDSLWDOÀRZDQGWUDGHWUDQVDFWLRQV in the Mediterranean area. It is obvious that Greek interwar authoritarian- In order to connect the analysis of the Greek research New ism can be adhered to the analysis of Mediter- case with the introductive interpretation of cri- ranean dictatorships of the period, even if there sis’s concept, it is to be noted that the regional exist enormous dissimilarities among them: as economic crisis soon turned into a severe po- a principle of the New State [Neon Kratos], the litical crisis. Monetary instability forced Greece target of creating a corporatist State was never to abandon the Gold-Exchange Standard at a achieved. It evokes instead the fascist model. time of economic liberalism’s general weaken- For the Italian Fascist State the corporation ing in Europe, while international institutions as a lateral, linear organisation was the basic were not capable of supporting monetary and economic form, mirroring the structure of the ¿QDQFLDO FRRSHUDWLRQ EHWZHHQ 1DWLRQV 7KH Totalitarian State and being ‘incorporated’ into reinforcement of internal productive structures the dogma of economic nationalism. Corporat- and the progressive centralisation of national ism was a conservative institutional collectivity economy led to political centralisation, while and it can be considered as a major rival of in- the dominant ideology promoted protectionism: dividual’s freedom, not only from an economic very soon this turned to the approval –even by but also from a philosophical point of view (von the moderate liberals- of the State’s interven- Mises, 2009, 68). This type of ersatz collectivi- tionist economic role. ties -in the Greek case expressed mostly by an

Catherine Brégianni Senior Research Fellow Modern Greek History Research Centre of the Academy of Athens Invited Researcher, Fondation de la Maison des Sciences de l’Homme, Paris

31 Banca României (The Bank of Romania) a Project for a Bank of Issue and its Activity as a Commercial Bank 1865 - 1948 1

The Bank of Romania 2KDVSOD\HGDVLJQL¿FDQW der Jackson 6 in Bucharest, who on behalf of role in the history of the Romanian banking sys- some French and English bankers 7, proposed New research New tem, as one of the oldest credit institutions origi- to the Government of the Romanian Principali- nally involved in the business of issuing bank ties the establishment of a bank granted with is- bills. The bank’s position was also determined suing privilege. The bankers represented by the by other particular features, such as: its 100 two aforementioned had already had success percent foreign capital, its cooperation with the in South-Eastern Europe, when in 1863, the Romanian government on some major invest- Imperial Ottoman Bank was established, with ments aimed at the modernisation of the Ro- monopoly powers in the issuing of banknotes in manian economy’s infrastructure, the manner the Ottoman Empire 8. in which its business was closed, and the com- Consequently, on 28 June/10 July 1863, the promise solutions used to keep the employees Council of Ministers accepted the granting of of Jewish origin during World War II. Bank of provisional concession, which was the sub- Romania is also an interesting case study for ject of a Prince Decree issued on the immedi- WKH LQWHUFRQQHFWLRQ EHWZHHQ SROLWLFV DQG ¿ - DWHIROORZLQJGD\ZKLOHWKH¿QDOUHVROXWLRQZDV nance in modern Romania. adopted only in the autumn of 1865 9, when the Council of Ministers requested the approval of Establishment the Prince with regard to the Concession Act for The Bank of Romania’s establishment was the establishment of a Discount and Circulation PDUNHG E\ SROLWLFDO DQG ¿QDQFLDO LQWHUHVWV DW Bank . Approval was granted on 17/29 October a time when the Romanian government was 1865 by Prince Decree, in the absence of the WU\LQJWR¿QGDQLPPHGLDWHVROXWLRQWRWKHHV - vote given by the Legislative Assemblies. For tablishment of the national state framework, legality purposes, the Prince’s Message to the while also attempting to bridge the economic Legislative Assemblies of 5/17 December 1865 and social gap in the context of a chronic lack also referred to the concession of a discount of capital 3. At the same time, after 1856, the DQGFLUFXODWLRQEDQNJUDQWHGWRD KLJKSUR¿OH¿ - Romanian Principalities became a centre of QDQFLDO¿UP 10 . Despite the critics of the opposi- competition for Prussian, Austrian, English and tion, the response of the two Assemblies to the French capital, including a concession for the Prince, dated 16/28 January 1866, approved establishment of bank of issue 4. Being con- the Prince’s Message , which implied accept- fronted with a lack of resources, as well as with ance of the concession, and even more, 'both WKHGLI¿FXOWLHVLQYROYHGLQWKHQHJRWLDWLRQSURF - the Senate and the Assembly showed gratitude ess with the Ottoman Empire and the Guaran- to Prince Cuza for the concession' 11 . Also, a tor Powers, and with a view to establish the na- memo dated 11/23 October 1865 explained the WLRQDO FXUUHQF\DQG WKH ¿UVWFUHGLW LQVWLWXWLRQV exceptional procedure enforced by the Prince as well as a large loan with foreign bankers 5, in as due to 'the repeated recommendations' and 1863, Prince Alexandru Cuza started the nego- 'insistent requirements of the representative of tiations for the establishment of the Bank of Ro- France' 12 . mania. Such negotiations were conducted with $W WKH EHJLQQLQJ RI ERWK WKH RI¿FLDOV LQ Adolphe de Hertz in Vienna and Henry Alexan- Bucharest and the representatives of the Bank

32 of Romania were involved in the preparations ZDVUXOHGE\VL[GLIIHUHQW*RYHUQPHQWVDQG¿ - aimed at starting the bank’s operations. On 30 nancial issues became the pretext for heated January 1866, the Minister of Finance estab- debates between the radical and the conserva- lished the membership of the commission ap- tive liberals; such pretexts included the issu- pointed to verify the bank’s compliance with the ing privilege granted to the Bank of Romania. legal regulations, while in February the 2I¿FLDO The Dimitrie Ghica Government, which came Gazette DQQRXQFHG WKDW WKH %DQN¶V RI¿FHV LQ to power in November 1868, submitted to the Bucharest, Sf. Gheorghe Nou Square, and in Parliament a draft law for the annulment of the research New *DODĠL 6I 1LFRODH 6WUHHW ZHUH RSHQ IRU EXVL - concession granted to the Bank of Romania as ness. The Bank’s Board of Directors comprised SULYLOHJHGEDQNDQGSURSRVHGDQLQGHPQL¿FD - Ion Ghica, who was later on appointed Prime- WLRQIRUWKH³FRPPLVVLRQHUV´ WKHEHQH¿FLDULHV Minister and resigned from his position in the of the concession) in the amount of 600,000 lei. Board, D.A. Halfon and D. R. Baumgartner. The inclusion of this draft law on the agenda of Adolphe de Herz was Director General, while the Assembly of Deputies was featured in the Jack Löbel and H. A. Jackson were running lo- media in a rather unfriendly manner in relation FDORSHUDWLRQVLQ%XFKDUHVWDQG*DODĠLUHVSHF - to those who had been granted concession. tively 13 . In the autumn of 1865, H. A. Jackson While the draft law was under review by the Fi- was replaced by Jack Löbel, who was also ap- nance Commission of the Chamber of Depu- pointed manager of the Imperial Ottoman Bank ties, forces from outside the country started branch in Bucharest 14 . to pressure the Government in Bucharest not to terminate the concession. The most pow- II. The Loss of Issuing Privileges and the Bank erful reaction was that of the French Govern- of Romania’s Reorganisation PHQWZKRVHGLSORPDWLFRI¿FLDOLQ%XFKDUHVWLQ - Meanwhile, on 11/23 February 1866, Al. I. Cuza formed the Ministry of Foreign Affairs that he was forced to abdicate, which resulted in re- would resort to 'all the legal and judicial means sumed protests among political circles and the DVUHJDUGVWKHLQGHPQL¿FDWLRQVGDPDJHVDQG Romanian media regarding the transfer of is- interests to which the Bank’s concessionaries suing rights to a group of foreign bankers. As are entitled' 15 . The Finance Commission ruled a result, the Bank of Romania’s position was the concession granted to the Bank of Romania under increasing threat, in the context of accu- unconstitutional, and recommended that the mulating pressures on the Romanian political Chamber of Deputies should pass the Govern- scene. Between 1866 and 1870, the country ment’s Draft Law, also making a proposal as regards the changing of the amount of indemni- ¿FDWLRQLHIURPOHLWROHL LQ order to avoid any legal actions or claims'. Adol- phe de Hertz in turn accepted the amount of in- GHPQL¿FDWLRQ SURYLGHGWKDWKHZDVJUDQWHGDS - proval to continue the Bank’s operations as an anonymous private company, under the current name - Banca României (Bank of Romania)' 16 . The Law of 19 June/1 July had two immediate consequences: 1. The allocation of the money by the Ministry of Finance for the settlement of 7KH%DQNRI5RPDQLDKDGLWV¿UVW%XFKDUHVWRI¿FHVLQ WKH¿UVWRIWKHIRXULQGHPQL¿FDWLRQSD\RXWVGXH Hillel House, a building which replaced the old Filaret – in December 1869; 2. The approval of a new &ROĠHD,QQ6I*KHRUJKH6TXDUH

33 Bank of Romania Statutes passed by Carol I QRPLFDQG¿QDQFLDOGHSHQGHQF\RQWKHRWKHU on 13/25 November 1869 17 , the second day af- Moreover, the Law concerning the establish- ter he had returned to Romania from his wed- ment of a new monetary system and the manu- ding vacation. The new Statutes provided that facturing of domestic banknotes and coins was 'The Bank of Romania seeks to conduct on its only passed in May 1867. own account as well as to the account of other parties', 'both in Romania and abroad, various III. Examples of business conducted by Bank New research New W\SHV RI ¿QDQFLDO LQGXVWULDO DQG FRPPHUFLDO of Romania operations, including real estate operations, as 7KH%DQNRI5RPDQLDKDGLWV¿UVW%XFKDUHVWRI - well as any type of public works'. The structure ¿FHVLQ+LOOHO+RXVHDEXLOGLQJZKLFKUHSODFHG of English shareholders was the same, while WKH ROG )LODUHW ± &ROĠHD ,QQ 6I *KHRUJKH the group of French shareholders included only Square, 19 at one end of Lipscani Street. News- two persons: Charles Mallet and Casimir Sal- papers in Bucharest regularly published Bank vador. The French shareholders’ withdrawal of Romania’s announcements concerning the was stipulated in the preamble to the Statutes meetings of the Steering Committee in London, of 1869. The respective shareholders 18 were the calling of the Shareholder’s Annual Meeting replaced by two shareholders from Vienna, RUWKHGLVWULEXWLRQRIDQQXDOSUR¿WV7KH%DQN namely Charles de Mayer and Count Eugéne of Romania no longer held issuing privileges, Kinsky. but in the context of the austerity budgets at The project, which involved the establishment the disposal of the Government in Bucharest, of the Bank of Romania as bank of issue, faced it continued its role as a partner for the politi- numerous obstacles caused by domestic and cal decision-makers in the last decades of the international political circumstances, as well as by the fact that the Romanian economy was at the crossroads between marginal Western Eu- ropean economies and the economy of the Ot- toman Empire. But there are more reasons for the failure, besides the aforementioned general considerations: the bankers who were granted the concession presented the surety bond, as VWLSXODWHGLQWKHQRUPDWLYHDFWEXWIDLOHGWRIXO¿O their commitments, which also involved the set- ting-up of initial capital from resources based in London and Paris; the Romanian elite expressed opposition towards the establishment of a foreign-owned bank of issue; although established by English and French investors, the Imperial Ottoman Bank had close links with the Bank of Romania founders, which generated strong feelings of distrust, as the national Romanian state had started its journey to independence, and the establishment of a bank of issue with strong connections with the Otto- man Empire was seen as a trade-off between political dependency on the one hand, and eco- The Bank of Roumania’s share

34 nineteenth century, and was involved, among ing to the minutes of the Meeting in Old Broad others, in the construction of the Bucharest – Street, 151 shareholders were present, which Giurgiu railway 20 , the repayment of the loans accounted for 40,388 shares, i.e. 80 per cent of made by the Romanian Government on the the Bank’s capital. Consequently, the Meeting London market 21 , the tobacco monopoly (1872 was declared 'legally convened' and proceeded – 1879) 22 , and the loan granted to the Ministry under the direction of Viscount Duncannon, of Finance for the establishment of the National Chairman of Bank of Romania’s Steering Com-

Bank of Romania in 1880 23 . mittee in London. John Richard Birdsall Taylor research New – the Secretary of the Steering Committee – IV. From Banca Romaniei (The Bank of Roma- was the secretary of the Shareholders Meeting, nia) to The Bank of Roumania 24 Ltd. ZKLOHWZRRIWKHPRVWVLJQL¿FDQWVKDUHKROGHUV The licence granted to the Bank of Romania - Michael Sullivan and Frederic Farrow - were on 13/25 October 1869 stipulated that the bank appointed as observers 25 . was due to operate for a period of 35 years. The Shareholders Meeting decided on the As a consequence, on 31 December 1903, the Bank’s early dissolution and winding-up, as Bank of Romania was supposed to either cease well as on the transfer of its entire asset base, business or seek another licence for continua- reserve assets included, to “The Bank of Rou- tion of business. Since the Bank’s sharehold- mania Ltd.”, a company established in London ers had no intention of closing down the bank, on 17 April 1903 26 . The bank’s reorganisation but wished to implement some changes in the caused the Bank’s capital to decrease once manner in which the Bank was conducting busi- more to 300,000 pounds sterling, divided into ness, they called an Extraordinary Meeting of 50,000 shares of 6 pounds each 27 . Of the Shareholders in London, Winchester House, aforementioned amount, 260,000 pounds ster- Old Broad Street, on 12 May 1903. Accord- ling, i.e. 6,500,000 lei at the exchange rate of 25 lei per pound sterling were allocated to the Bucharest branch. The fact that most of the Bank’s capital was geared towards the Bucha- rest branch shows the importance of this in the overall business conducted by the Bank.

V. The Bank of Roumania Limited The systematisation of the city of Bucharest and the construction of the large boulevard which makes the connection between the northern and the southern part of the city has left Bank RI5RXPDQLD/WGZLWKRXWLWVRI¿FHZKLFKZDV relocated to 11 Calea Victoriei. In 1915, Victor 6OăYHVFXFODLPHGWKDW%DQNRI5RXPDQLDZDV among the largest eight banks in Romania 28 . His claim is supported by Bank of Roumania’s share in the National Bank of Romania’s equity (i.e. 2,473). Bank of Roumania continued its operations in Bucharest during World War I, despite German occupation. Even more, Bank The Bank of Romania announces the starting of its ac- of Roumania director Al. Lucasiewicz attended tivity, 1 March 1866

35 the 9/22 December 1916 meeting of the banks During the best part of the interwar period, the which were still active in Bucharest; the meet- %DQNFDUULHGRXWSUR¿WDEOHEXVLQHVVEXWVWDUW - ing was organised at the NBR premises with ing in 1937, the Bank reported losses as a result WKHREMHFWLYHWRSURWHVWDJDLQVW WKHXQMXVWL¿HG of increasing uncollectible accounts receivable. depreciation of /…/ the leu against the other 7KH%DQN¶VKHDGRI¿FHFRYHUHGWKHORVVHVEXW FXUUHQFLHVIRUZKLFKD¿[HGH[FKDQJHUDWHZDV the imminence of war and the inability to keep set by the Higher Command of the Imperial Oc- LQ WRXFK ZLWK WKH /RQGRQ RI¿FH UHQGHUHG WKLV New research New cupation Armies' 29 . practice impossible. As a result, National Bank In the period between the two world wars, of Romania examiners’ reports showed that Bank of Roumania Ltd. established the Roma- in 1943 Bank of Roumania was on the verge nian company “Merces” and participated in the of bankruptcy. But the High Banking Council founding of the Mortgage Institute, where the chose not to declare the bank’s state of insol- Bank held 5,000 shares amounting to 5 mil- vency, as such decision might have been seen lion lei 30 . After the Great Depression, Bank of as inappropriate, considering the fact that the Roumania Ltd. was subject to a review con- bank was one of the oldest banking institutions ducted by the High Banking Council, in accord- LQ5RPDQLDXQDEOHDWWKHWLPHWRUDLVH¿QDQFH ance with the criteria set out in the Law con- IURPWKHKHDGRI¿FHLQ/RQGRQPRUHRYHUWKH cerning the regulation and organisation of the allies - including Great Britain - were then in a banking trade (8 May 1934) 31 . This normative more favourable position than their opponents. act stipulated that the banks incorporated as ,QDGGLWLRQWKHVWDELOLW\RIWKH5RPDQLDQ¿QDQ - anonymous companies must hold capital in the cial market was at stake, and the winding-up minimum amount of 40 billion lei, while Bank RI VXFK D VLJQL¿FDQW EDQNLQJ LQVWLWXWLRQ ZRXOG of Roumania’s capital was only 6.5 million lei, have caused panic among savers, as well as the equivalent of 260,000 pounds sterling at ODFNRIFRQ¿GHQFHLQWKHV\VWHP the exchange rate of 1903. Having regard to its The bank managed to recover as the war came history and the well-established relations with WRDQHQGDQGWKHKHDGRI¿FHLQ/RQGRQZDV WKHLQWHUQDWLRQDO¿QDQFLDOHQYLURQPHQW%DQNRI DEOHWRUHVXPHVXSSRUWHYHQWKHLQÀDWLRQUDWH Roumania Ltd. was licensed by the High Bank- DWWKHWLPHDFWHGDVDGULYHURI¿QDQFLDOUHERXQG ing Council on 7 November 1934, but had to for the Bank. Romania’s political and economic comply with the aforementioned legal provi- situation, together with the manner in which the VLRQVZLWKLQ¿YH\HDUV 32 . monetary reform of August 1947 was conduct- In the period between the two world wars, ed caused Bank of Roumania Limited Board of %DQNRI5RXPDQLD VKHDGRI¿FHLQ/RQGRQZDV Directors to convene in London on 10 Decem- represented, among others, by Sir Herbert Al- ber 1947 to decide the cessation of business in exander Lawrence (1861-1943), President of Romania and the closing down of the branch %DQN RI 5RXPDQLD RI *O\Q 0LOOV &R ± WKH in Bucharest as of 1 January 1948, while also merchant bank, the Anglo-International Bank mandating Arthur E. Salay and Theodor T. Ma- and the Imperial Ottoman Bank 33 ; lt. col. Sir niu for the purposes thereof. The Bank’s liabili- Albert G. Stern, who was also director of Mid- ties to its creditors were settled, less the liabili- land Bank and the Imperial Ottoman Bank; Vis- ties denominated in foreign currencies and old count George Joachim Goschen (1866-1952), lei, as such amounts were frozen at the time; Member of the British Parliament, Governor in the respective liabilities would be settled after India, director of the merchant bank Goschens Banca Chrissoveloni - as agent of Bank of Rou- &XQOLIIHLQWKH&LW\RI/RQGRQDQGWKH,PSHULDO PDQLDKHDGRI¿FHLQ/RQGRQ±UHOHDVHGWKHFRU - Ottoman Bank 34 . responding amounts 35 .

36 Thus, after 82 years, Bank of Romania put an %UvQGXúD&RVWDFKH end to its business in Romania. Withdrawal of Nadia Manea British capital from Romania meant the end of National Bank of Romania · DQHUDFKDUDFWHULVHGE\WKHFRXQWU\¶V ¿QDQFLDO orientation towards Western Europe. New research New

Endnotes

1 The paper presents the views of the authors, wi- 1869 and 25 November/7 December 1869. thout involving or engaging the National Bank of 18 Vincent Buffarini, Frederic Grienninger, Henri Hot- Romania tinguer, Isaac Pereire. 2 Mention should be made that Bank of Romania 19 G.I. Ionescu-Gion, Istoria Bucurescilor, ,DúL ,Editura is different from the National Bank of Romania. Tehnopress, 2003, p. 488. The National Bank of Romania was established in ³0RQLWRUXO ']LDU 2¿FLDOH DO 5RPkQLHL´ 6XQGD\ 1880 and is the central bank of Romania. 15/27 June 1869, p. 644; Thursday, 19 June/1 3 Cf . Bogdan Murgescu, 5RPkQLDúL(XURSD$FX - July1869, p. 1; Friday, 20 June/2 July 1869. mularea decalajelor economice (1500 – 2010) , ³0RQLWRUXO 2I¿FLDOH DO 5RPkQLHL´ :HGQHVGD\ ,DúL3ROLURPS±± 2/15 December 1869, p. 1. &RVWLQ & .LULĠHVFX 6LVWHPXO EăQHVF DO OHXOXL úL ³&XULHUXO¿QDQFLDU´-XQH\HDU9,,QR precursorii lui %XFXUHúWL (GLWXUD (QFLFORSHGLFă 24. 1997, vol. I, p. 264-265. 23 NBR Archive (ABNR), Secretariat, File 2/1880 – &RQVWDQWLQ , %ăLFRLDQX Istoria politicei noastre 1881, f. 34 – 34v, 35 – 36. PRQHWDUHúLD%ăQFLL1DĠLRQDOH %XFXUHúWL&DUWHD 24 The Bank of Roumania Limited is the name men- 5RPkQHDVFăYRO,SDUWHD,S9LF - tioned in all the bank’s documents of incorpora- WRU6OăYHVFX )LQDQĠHOH5RPkQLHLVXE&X]D9RGă , tion. %XFXUHúWL(GLWXUD)XQGDĠLHL&XOWXUDOH0DJD]LQ,V - 25 Report on the Extraordinary Meeting of Bank of toric, vol. 3, 2003, p. 294 – 296, 330. Romania’s Shareholders , Bucharest, 1918 p. 11, 6 See note 7 below. 9. 7 In London: Guillaum Richard Dracke, Jaques Al- 26 National Archives of Romania (ANR), Bucharest exander, Pascoé du Pré Grenfel, Lord Hobart, 2I¿FH Bank of Romania Fonds , File no. 3/1903 – Lachlan Makintosch Rate, Barron Herman Stern; 1948, f. 4. In Paris: Vincent Buffarini, Frederic Grienninger, 27 “The Bank of Roumania, Limited ”, Bucharest, Charles Mallet, Isac Pereire, Casimir Salvador, $UWHOHJUD¿FH6RFHF &RS Henri Hortinguer. 9LFWRU , 6OăYHVFX 0DULOH EăQFL FRPHUFLDOH GLQ 8 Edhem Eldem, A History of the Ottoman Bank , România, %XFXUHúWL,QVWLWXWXOGH$UWH*UD¿FH8QL - Istanbul, 1999, p. 463-464, 82-87. The bank was versalia Iancu Ionescu , 1915, p. 3. established in 1856 under the name of Ottoman &,%ăLFRLDQX op. cit ., vol. III ,S&3ăXQHVFX Bank, and also had two branches in the Roma- M. Tone, N. Manea, ,VWRULD %ăQFLL 1DĠLRQDOH D QLDQ3ULQFLSDOLWLHVLQ*DODĠL DQG%XFKDUHVW României în date , vol. II, p. 151, 219. (1861), the latter headed by H. A. Jackson, one of 30 ABNR, Discount Division, File 24/1940-1945, f. $GROSKHGH+HUW]¶V¿UVWEXVLQHVVSDUWQHUV 805-806. 9 Meanwhile, one of the concession holders - H. A. 31 Law concerning the regulation and organisation of Jackson – was replaced by Jaques Löbel, who the banking trade of 8 Mai 1934 LQ WKH ³2I¿FLDO was appointed manager of the Imperial Ottoman Gazette”, no. 105 of 8 May 1934. Bank branch in Bucharest. 32 ABNR, High Banking Council Fonds , File no. 787. 96OăYHVFX op. cit ., vol. 3, p. 220-221. 33 Percy Arnold, Bancherii din Londra , Atelierele gra- &,%ăLFRLDQX op. cit ., vol. I, p. II, p. 696; G.Zane, ¿FH6RFHF &R6$%XFXUHúWLS6LU+HU - Studii, %XFXUHúWL(GLWXUD(PLQHVFXS bert Alexander Lawrence was an active participant 9LFWRU6OăYHVFX op. cit., vol. 3, p. 149-150. in the war in South Africa as well as in World War 13 Ibidem, p. 208-209. I, as Commander in Chief of the British Forces in 14 Ibidem, p. 189-190. France. &,%ăLFRLDQX op. cit ., I, II, p. 696. 34 Ibidem, p. 102, 53; ABNR, High Banking Council 16 Ibidem , p. 697. Fonds , File no. 787. ³0RQLWRUXO2I¿FLDOHDO5RPkQLHL´6HSWHPEHU 35 ABNR, High Banking Council Fonds , File no. 787.

37 New Dimensions of Micro Finance under NGOs to ensure Sustainable Development through Corporate Social Responsibility under Millennium Development Goals of the UN

Corporate Social Responsibility (CSR) came going basis. Researchers are challenged the into prominence in the mid-1980s.This means world over and particularly in Asia, Africa and

New research New business would, among other things, ensure re- Latin America to take up the CSR-NGO-Micro- VSRQVLELOLW\IRULWVOLNHO\LQÀXHQFHRQVWDNHKROG - credit-theme as the prime theme of investiga- ers, environment and the community at large. WLRQGXULQJWKH¿UVWKDOIRIWKHVWFHQWXU\ It is a proactive approach to bring in holistic growth by containing the ill effects on environ- Introduction: ment on the one hand and bringing in a new deal It is amazing to note that the literature on corpo- in relation to mother earth vis a vis consumers, UDWHVRFLDOUHVSRQVLELOLW\ &65 PLFUR¿QDQFH HPSOR\HHV HQYLURQPHQW EXVLQHVV SUR¿W DQG and NGOs abounds. The advent of the term the like, on the other. The whole issue is exam- CSR can be traced back to the 1970s, but it ined with the help of some empirical data col- became prominent after the mid 1980s. It is lected from a randomly selected international also known by different names like corporate sample study of seven countries, spread over responsibility, corporate conscience, corporate three continents. The major hypothesis of the social performance and the like. CSR means empirical study was to ascertain whether CSR that businesses would monitor and ensure its of businesses adequately empower NGOs with support to rules and regulations of the land PLFUR¿QDQFH7KHJHQHUDOSHUFHSWLRQRI&65 where it operates, maintain ethical standards LVWRSORXJKEDFNSDUWRIWKHSUR¿WVRIFRPSD - and the norms of consciousness. This means nies and businesses for sustainable develop- among others, businesses to ensure respon- ment oriented activities. VLELOLW\ IRU LWV OLNHO\ LQÀXHQFH RQ VWDNHKROGHUV Conscious efforts are required to select only environment, and the community at large. It is a those NGOs with impeccable integrity, to chan- proactive approach to bring in holistic growth by nel the CSR funds for redeployment. These containing the ill effects on environment on the 1*2VPXVWKDYHXQGHUJRQHERWK¿QDQFLDODQG one hand, and bringing in a new deal in relation social audit. NGOs which resort to strong arm to mother earth vis a vis consumers, employ- tactics in effecting recovery may be discriminat- HHVHQYLURQPHQWEXVLQHVVSUR¿WVHWF ed against in channeling the CSR funds. NGOs The theme of CSR is much debated and criti- are to be assessed periodically to review their cised the world over. Proponents of CSR argue credibility. MFIs are to be subjected to strict and that there is a very strong case for CSR. Critics close scrutiny for human rights violations re- argue that CSR distracts from the fundamental lated to micro credit loan processing, sanction, economic role of businesses. Many a critic ar- disbursal and recovery. JXHVWKDWLWLVQRWKLQJPRUHWKDQVXSHU¿FLDOZLQ - Basically good governance is the key word, dow dressing. Another argument is that it is an preamble and post-script for CSR. The start- attempt to pre-empt the role of governments as ing point for any meaningful policy intervention a watchdog over powerful multinational corpo- aimed at the poor is that micro studies are re- rations. However, Corporate Social Responsi- quired to theorise and conceptualise many a ELOLW\KDVEHHQUHGH¿QHGWKURXJKRXWWKH\HDUV hunch and that is possible, among others by Therefore, the theme deserves a great deal of engaging focus group discussions on an on thought in its approach and handling. The views

38 of the corporate executives on NGOs and the est villages of some the selected south Indian deployment of micro credit through them are states of India. Their slogan reads, ‘we are the YHU\LPSRUWDQW+RZHYHUDWOHDVW¿YHSHUFHQW ODVWPLOHFRQQHFWLYLW\LQUXUDO¿QDQFH¶DQGWKH\ of the sample was corporate executives as re- are considered to be an amazing instrument of VSRQGHQWVRIWKH¿HOGVWXG\DQGWRWKDWH[WHQW ¿QDQFLDOLQFOXVLRQRIWKHPDUJLQDOLVHGDQGKLWK - the study has covered that lacuna, though not erto neglected by the organised banking system fully. of the country. Default by a single borrower im-

pairs the eligibility of the group to receive further research New Hypothesis: credit was a great repayment ensuring factor as The major hypothesis of the empirical study well as proper end use of credit. Here come two was to ascertain whether CSR of businesses questions. One is the adequacy of the loan in DGHTXDWHO\HPSRZHU1*2VZLWKPLFUR¿QDQFH relation to the purpose of the loan. The other for ensuring sustainable development. question relate to the credit absorption capacity of the borrower in relation to the marketing ar- 0LFUR)LQDQFH 0DFUR&KDOOHQJHV rangements of the marketable surpluses of the Any discussion on the captioned theme be- borrower. There is a danger of multiple borrow- FRPHV PHDQLQJIXO RQO\ LI PLFUR ¿QDQFH LV ings from different MFIs and even village mon- touched upon at least thematically. As such, an ey lenders in the absence of principles of good effort is made in the following section to familiar- governance in operation. Another related issue ise the readers with MFIs and the challenges of may be of transparency in the operations of the PLFUR¿QDQFHJOREDOO\DQGLQWKH,QGLDQFRQWH[W MFIs particularly pertaining to the interest re- It is worth recalling that there is greater aware- gime. It is not long ago that in any discussion on ness at the international level after the demise inclusion, at least considering the short term, of the Lehman Brothers that the poor are bet- SUR¿WDELOLW\DQGVRFLDOMXVWLFHFRXOGQRWFR±H[ - WHUFUHGLWULVNVWKDQWKHKLJKÀ\HUV7KLVLVRQH ist unless conscious policy interventions are RI WKH DWWUDFWLRQV RI PLFUR ¿QDQFH WKH OHQG - DIIHFWHGE\¿VFDODQGPRQHWDU\SROLF\PDNHUV ing of tiny sums to those who are at the bottom ,WPXVWEHUHPHPEHUHGWKDWIRU¿QDQFLDOLQFOX - of the economic pyramid. The sums involved sion, adequate preparations are required both may be around as little as USD 50. They range DWWKHEHQH¿FLDU\DQGSROLF\PDNHUVOHYHOVVR from farmers in rural areas, to shop keepers, that the erstwhile bitter experiences of the cha- artisans as well as very small businesses. The otic rush for receiving the payments of wages of beauty is that MFIs reach those areas through NREGP at the bank branches are not repeated! NGOs where banks shy away from on account ,WLVZRUWKUHFDOOLQJWKDWPLFUR¿QDQFHKDVUDS - of connectivity problems, high risk and transac- idly grown in many countries in the recent past. tion costs. There is a word of caution that too There are some 30 million clients of MFIs in PXFKFRPPHUFLDOLVPPD\UXLQPLFUR¿QDQFH India (as of 2010). India is one of the biggest Taking a clue from the foregoing warning, it may PDUNHWVRIPLFUR¿QDQFHLQWKHZRUOGWRGD\%XW be worth recalling the recent developments in in India a new breed of MFIs has come to stay WKH,QGLDQPLFUR¿QDQFHPDUNHW:LWKDQHVWL - QDPHO\SURSUR¿WPLFUR¿QDQFHOHQGHUV7KH\ mated USD 6000million lent to some 27 million have annoyed both the NGO sector and the DFWLYHERUURZHUVWKH,QGLDQPLFUR¿QDQFHEXVL - government alike. In Andhra Pradesh state of ness has entered the mainstream. It is no more ,QGLDZLWKWKHODUJHVWQXPEHURIPLFUR¿QDQFH D IULQJH ¿QDQFLDO DFWLYLW\ E\ DQ\ LPDJLQDWLRQ borrowers, local politicians have halted the MFIs calling for acts of good governance in place. through an executive order of the government. MFIs have been very active even in the remot- It is a truism that the poor often use micro loans

39 to pay off far more expensive loans contracted questionnaires form each of these countries. from village money lenders. In Bangladesh the ,Q DGGLWLRQ DURXQG ZKR ¿OOHG LQ TXHVWLRQ - MFIs can charge only a maximum of 27 per cent naires came from other countries like Pakistan, as annual interest on micro loans. It seems the Bangladesh, Nepal, Sri Lanka, PNG, Singa- Indian authorities are also planning to cap mi- pore, Philippines, etc. But the number of such FUR¿QDQFHLQWHUHVWUDWHV,WPD\EHZRUWKZKLOH TXHVWLRQQDLUHVZDVOHVVWKDQ¿YHIURPDQ\RQH to permit MFIs to take deposits and to augment country. For the purpose of data collection, the

New research New the introduction of the proposed unique identity calendar year 2009- 2010, (July 2009 to June number (UIN) (Aadhaar) to all as it may help 2010) was considered as the study period, to track the clients overall indebtedness, credit ZKLOH¿HOGZRUNZDVGRQHGXULQJ-XO\$XJXVW histories, etc. among other things. and September 2010. This introduction provides a glimpse into micro ¿QDQFH DQG LWV FXUUHQW FKDOOHQJHV ,W LV QRZ Limitations of the Study: time to get back to the main hypothesis of the The major limitation of the study is that the sam- present paper and its detailed analysis. ple is only 100 respondents. For a study of a global nature, seeking to come out with policy 6RXUFHVRI'DWD 0HWKRGRORJ\ implications, this is a major limitation. Again, Having seen the advent and background of there were no face to face interviews with the CSR, the whole issue is examined with the respondents and as such the body language help of some empirical data collected from a communications and observation techniques randomly selected international sample study FRXOGQRWEHSUR¿WDEO\PDGHXVHRI5HVSRQG - of seven countries, spread over three con- ents, it is assumed, would be on the same wave tinents. It was designed in such a way that length as the interviewer even in an online sur- both developed and developing countries are vey. In fact, it is not always correct to assume represented in the sample along with a mix so. of large and small economies. Data were collected on a pre-structured questionnaire elec- )LQGLQJV 'DWD$QDO\VLV tronically. Though it was expected that some Table 1 shows the details of respondents, coun- 300 respondents would provide data, only 100 try wise distribution. UHVSRQGHQWV UHWXUQHG ¿OOHG LQ TXHVWLRQQDLUHV Country Respondents The sample respondents were well educated India 10 and had adequate exposure to CSR related Afghanistan 10 subjects to comment on it. Some of them were Australia 10 really practitioners of CSR themselves. Most of UK 10 the respondents were personally known to the Italy 10 authors, owing to their professional erstwhile Bahrain 10 interactions with them. 4DWDU 7KHFRXQWULHVFRYHUHGIRUWKH¿HOGZRUNLQFOXG - Others 30 ed Australia, UK and Italy as representatives of the developed world. The developing econ- As the above table is self explanatory, the fol- RPLHV FRQVWLWXWHG ,QGLD %DKUDLQ 4DWDU DQG lowing table examines the literacy details of the Afghanistan. The selection of these countries sample respondents. was mostly on account of the personal familiar- ity of the authors with the respondents. Nearly VDPSOHUHVSRQGHQWVKDGUHWXUQHGWKH¿OOHG

40 Table 2 - Level of Literacy of the respondents Table 5 Undergraduates 14 Corporate entities ploughing a part of their prof- Graduates 55 its back into sustainable development activities Post Graduates 31 of the community 73 % Organisations sharing Nearly 86 per cent of the sample was highly WKHLUSUR¿WZLWKWKHSRRU educated respondents. They were reasonably Businesses helping society well informed about CSR. Besides, they were with funding 7 % research New competent to comment on CSR. Some of them were even representing business houses them- It is very clearly brought into sharp focus by an selves and had practiced CSR. overwhelming majority of the respondents that their perception of CSR is to plough back part Table 3 shows the details of age distribution of RIWKHSUR¿WVRIFRPSDQLHVDQGEXVLQHVVHVIRU the sample. sustainable development oriented activities of Age Group Respondents the community. Less than 40 years Nil 40 to 60 years 61 Another attempt was made to ascertain as Above 60 years 39 to which would be the appropriate agency to FKDQQHOWKH&65IXQGV7KHVXPPDU\¿QGLQJV It can be seen from the above table that the are tabulated and presented in table 6. sample had nearly 40 per cent of the respond- HQWVDUHFODVVL¿HGDVVHQLRUFLWL]HQV7KH\ZHUH Table 6 - Agency to channel CSR Funds: NGOs DOOPDWXUHSHRSOHFDSDEOHRIDVVHVVLQJWKH¿HOG Good to channel through NGOs 93 realities. Not good to have NGOs 7

Table 4 shows the details of the annual average It is worthwhile to mention that a clear choice income of the sample in U.S. dollars. was offered to the respondents among NGOs, Av Income Respondents community organisations, local self government Less than 2000 Nil organisations, churches, temples and such 2001 to 20,000 67 other religious organisations. But the response Above 20,000 33 ZDVFRQ¿QHGPRVWO\WR1*2V,WLVZRUWKUHFDOO - ing that nearly 93 per cent of the respondents While some 33 per cent of the sample had re- favoured NGOs as the right vehicle to channel ported an average annual income of more than CSR funds on account of their grass root level USD 20,000, 67 per cent earned less than USD connections and transparency in their approach 20,000. In the international context of both de- and outlook. Of course, they were very vocal veloped and developing economies, this aver- in their views about cowboy NGOs. They were DJHLQFRPHLVDFOHDULQGLFDWLRQRIWKH¿QDQFLDO voting only for NGOs which are above board standing of the respondents. and run on professional lines with credibility.

Table 5 shows the perception of the respond- A question was asked about the desirability of ents about CSR. It was asked what they un- 1*2V WDNLQJ XS PLFUR ¿QDQFH DFWLYLWLHV RQ D derstand by CSR. The summary is presented in larger scale, using CSR funds. In fact, there are the table below. some misgivings in the minds of many people. The results are presented in Table 7.

41 Table 7: NGOs to take up Micro Finance activi- The better recovery performance of NGOs in ties: UHODWLRQ WR PLFUR ¿QDQFH DW SHUFHQW FDQ - Agreeable 90 not be taken as a major suggestive indication. Disagreeable 7 It may be noted that nearly 33 per cent of the Indifferent 3 respondents opined that NGOs do not make any difference with regard to recovery of mi- It can be seen from the table above that an over- FUR ¿QDQFH DFWLYLWLHV +RZHYHU KXPDQ ULJKWV New research New whelming majority of the sample had opined violations related to MFIs must be the topic of WKDW1*2VPD\WDNHXSPLFUR¿QDQFHDFWLYLWLHV debate and research as many a MFI is not for by making use of CSR related funds for ensur- SUR¿WDORQHDQ\PRUH ing sustainable development in the community around them. Again, it is a qualifying clause that Another hypothesis tested in the study was that it must be woven around those NGOs which PLFUR ¿QDQFH PD\ EH GLVEXUVHG WKURXJK VHOI have track operational record. help groups (SHGs). Again this was a debat- able subject. The results are tabulated and pre- As a logical corollary to the foregoing discus- sented in Table 10. sion, the cost effectiveness of NGOs in relation WRPLFUR¿QDQFHZDVGLVFXVVHGZLWKWKHVDPSOH Table 10: Micro Finance to be disbursed through respondents. The results are presented in Ta- SHGs: ble 8. Only through SHGs 63 % Through others 37% 7DEOH0LFUR)LQDQFH 1*2V&RVW(IIHFWLYH - ness: It may be noted that while 63 per cent of the Cost effective 97 % sample respondents had favoured the exclu- Ineffective 3% VLYHQHVVRI6+*VLQLQGXOJLQJLQWKHPLFUR¿ - nance domain, some 33 per cent had voted for It is evident from the foregoing table that around other agencies to do this job. This means no 97 per cent of the sample respondents had exclusiveness was voted for any one agency. voted in favour of cost effectiveness of micro Again, this may be a worthy topic for future re- ¿QDQFHRSHUDWLRQVE\1*2V0D\EHWKHZLV - searchers to be taken up. GRPFRPLQJIURPWKH¿HOGLVZRUWKH[SHULPHQW - ing with, considering both location and regional :KLOHUHVSRQGLQJWRPLFUR¿QDQFHWKURXJKWKH UH¿QHPHQWV,WRIIHUVQHZFKDOOHQJHVIRUSROLF\ NGOs, the voice of the respondents was more makers and researchers around the globe. discernible. Table 11 shows the details. Asked about recovery performance as experi- HQFHGE\1*2VZLWKUHJDUGWRPLFUR¿QDQFH Table11. Deployment of CSR related funds by WKH IROORZLQJ WDEOH SUHVHQWV WKH ¿HOG UHDOLWLHV NGOs: across the sample countries. Better to opt for NGOs 85 % Look for other agencies 15 % Table 9: Recovery Performance of NGOs in relation to Micro Finance: Respondents from almost all countries had Ensure better recovery 67 % IDYRXUHG WKH PLFUR ¿QDQFH OHQGLQJ WKURXJK Does not make any difference 33% NOGs. It may be worthwhile experimenting with this approach to prove or disprove it on a larger scale by innovative CSR oriented businesses.

42 Respondents were asked about their views re- XQGHUJRQHERWK¿QDQFLDODQGVRFLDODXGLWDQG garding wider coverage in terms of deployment must be like role models. of funds of CSR through the medium of NGOs. It was suggested that NGOs must be strength- The results are presented in Table 12. ened with professional staff and competent advisors. It was felt that only those NGOs with Table 12: Wider coverage of CSR related funds sound monitoring and evaluation systems may through NGOs: be selected for channeling the CSR funds for

Required 100 redeployment. research New Not necessary Nil NGOs which resort to strong arm tactics in effecting recovery may be discriminated against It is interesting to note that all the respondents in channeling the CSR funds. In fact, intimi- opined that wider coverage of CSR related fund dating methods in recovering dues of loans or deployment may be done only through NGOs. outstanding amounts must be done away with. :KHQHYHUTXDOL¿HGDQGFRPSHWHQW1*2VDUH MFIs are to be subjected to strict and close not available, the corporate bodies in question scrutiny for human rights violations related to may identify other organisations or do the job micro credit loan processing, sanction, disbur- themselves. Obviously it is an excellent policy sal and recovery. indication for those who are the movers and NGOs are to be assessed periodically to review shakers of policy domain in the developing their credibility and to ascertain whether they world and that too, particularly, in the context function as friend, philosopher and guide to of the Millennium Development Goals of the their stakeholders and SHGs. United Nations. There is another dimension to the whole issue in the context of leading the war on poverty. The How to empower NGOs through CSR related very exclusion of small and marginal farmers activities? IURP WKH EHQH¿WV RI PDLQVWUHDP GHYHORSPHQW Much depends on our perception. It was pointed due to the lack of credit to buy critical inputs out by many a respondent from the developing would pose a moot question in terms of equity countries that a lack of training is a major stum- too. It is common knowledge that the burden bling block withholding the NGOs from putting of indebtedness is very high in rural India and up a good performance. In order to overcome the rural poor are exploited by all, including the WKLVLQDGHTXDF\LQWUDLQLQJLQ¿QDQFLDOPDQDJH - micro credit institutions. Farmer suicides are ment, targeted training programmes may be im- mostly attributed to the lack of formal credit at parted. The local communities and NGOs are reasonable cost. Production oriented SHGs will to be empowered by undertaking study tours. become sustainable only with assured back- This would initiate them to several new things. ward linkages and credit and forward linkages According to conventional wisdom, it is said with markets. It is to be understood that the that seeing is believing. NGOs are to be trained rationale for micro credit is to strengthen the on an ongoing basis, particularly with targeted livelihood security of the poorer sections of the training inside NGOs. The starting point is to society who live below poverty line. Again, its empower the NGOs themselves. This is im- impact may be measured in terms of the pover- perative for any activity to be undertaken by ty reduction. It is high time that banks and cor- NGOs. As already mentioned elsewhere in this porations should lead the war on poverty, the paper, select only those NGOs with impecca- former by its mandate and the latter governed ble integrity to channel the CSR funds for rede- by the CSR considerations. ployment. Again, the selected NGOs must have

43 Policy Implications funds for ensuring sustainable development in It may be clearly understood that the corpo- the community around them. rate bodies owe certain duties to the commu- 97 per cent of the sample respondents had nity and should be transparently responsible voted in favour of cost effectiveness of micro to them and to the society at large. First and ¿QDQFH RSHUDWLRQV E\ 1*2V 7KHUH DSSHDUV foremost among them is strict compliance with to be a good case for experimenting with the laws of the land in relation to pollution, health, ZLVGRP FRPLQJ IURP WKH ¿HOG LQFOXGLQJ ERWK New research New environment and concern for the society. This ORFDWLRQDQGUHJLRQDOUH¿QHPHQWV7KHODEHOLQJ is all the more essential in the prevailing socio- of the extent of recovery performance of NGOs economic milieu where the corporate bodies in LQUHODWLRQWRPLFUR¿QDQFHDWSHUFHQWDVD several countries indulge in polluting the rivers ‘better recovery’ should not be taken as a ma- and other water bodies including aquifers. It is jor suggestive policy indication. It may be noted high time to have an inclusive growth approach, that 33 per cent of the respondents opined that rather than following an undeclared anti-social NGOs do not make any difference with regard and anti-people approach on the one hand and WRUHFRYHU\RIPLFUR¿QDQFHDFWLYLWLHV,QFRQ - a proclaimed CSR creed on the other. Corpo- WUDVW WKH UHFRYHU\ SHUIRUPDQFH RI PLFUR ¿ - rate bodies everywhere, namely in production, nance institutions in Bangladesh at 95 per cent trading, banking, etc., should not be doing any is laudable and even worth studying. MFIs are unethical operations for amassing instant prof- to be subjected to strict and close scrutiny for its by exploitations and manipulations. Basical- human rights violations related to micro credit ly good governance is the key word, preamble loan processing, sanction, disbursal and recov- and post-script for CSR. ery. It should be obvious that this paper is not an at- But one important factor affecting the loan uti- tempt to debate the pros and cons of CSR, but lisation and resultant repayment is the general rather looks into CSR as and when it appears inequalities and asymmetries that are prevailing in the form of resources for redeployment. As in the economy. Income inequality is the major such it examines the desirability of channeling factor to be reckoned with. It is a sad commen- CSR recourses through NGOs and dedicating it tary of our developmental dynamics that those XQGHUWKHKHDGHURIPLFUR¿QDQFH with resources are included and those with- It is very clearly brought into sharp focus by an out resources are excluded. In fact the policy overwhelming majority of the respondents that thrust must be one of integrated and inclusive their perception of CSR is to plough back part approach towards planning and development. RIWKHSUR¿WVRIFRPSDQLHVDQGEXVLQHVVHVIRU The starting point for any meaningful policy in- sustainable development oriented activities. tervention aimed at the poor is that micro stud- It is worth recalling that 93 per cent of the re- ies are required to theorise and conceptualise spondents had favored NGOs as the right ve- many a hunch and that is possible, among oth- hicle to channel CSR funds on account of their ers by engaging focus group discussions on an grass root level connections and transparency on going basis. in their approach and outlook. Of course, they It is interesting to note that all the respondents were very vocal in their views about cowboy opined that wider coverage of CSR related NGOs as well. They were voting only for NGOs funds deployment may be done only through which were above board and run on profession- NGOs. Obviously it is an excellent policy indi- al lines with credibility. An overwhelming major- cation for those who are the movers and shak- ity had opined that NGOs may take up micro ers of policy domain in the developing world, ¿QDQFHDFWLYLWLHVE\PDNLQJXVHRI&65UHODWHG particularly in the context of the Millennium De-

44 velopment Goals of the United Nations. Dr KM George The starting point is to empower the NGOs Formerly UN Advisor, themselves. As already mentioned elsewhere Mel Mana, in this paper, select only those NGOs with im- P.O. Ooramna, Kerala, peccable integrity to channel the CSR funds for India, redeployment. Again the selected NGOs must Pin 686730. KDYHXQGHUJRQHERWK¿QDQFLDODQGVRFLDODXGLW E mail [email protected] and must be role models. research New It was suggested that NGOs must be strength- Director, AGES, ened with professional staff and competent P.O. Ooramana, advisors. It was felt that only those NGOs with Kerala, India, Pin 686730) sound monitoring and evaluation systems may be selected for channeling the CSR funds for Acknowledging the help received from others redeployment. LVDYHU\GLI¿FXOWMRE,DPJUDWHIXOWRDOOWKHUH - NGOs which resort to strong arm tactics in ef- spondents who come from three continents for fecting recovery may be discriminated against their time and commitment. I want to place on in channeling the CSR funds. In fact, intimi- record my special gratitude to Prof Dr. Albert dating methods in recovering dues of loans or Schram, School of Business and Economics, outstanding amounts must be done away with. Maastricht University; Dr. Michael Ashkenazi, NGOs are to be assessed periodically to review Senior Researcher of Bonn International Centre their credibility and to ascertain whether they for Conversion; Mr. K. Kannan, Director, Asian function as friend, philosopher and guide to Development Bank, Manila and Mr. Kishore their stake holders and SHGs. Menon of Bamco, Bahrain for editing an earlier Researchers are challenged the world over and version of this paper. They did contribute im- particularly in Asia, Africa and Latin America to mensely. However, errors if any are solely at- take up the CSR-NGO-Micro-credit-theme as tributable to the author. WKHSULPHWKHPHRILQYHVWLJDWLRQGXULQJWKH¿UVW half of the 21st century. It may be noted that out of the eight MDGs at least eradication of poverty and hunger is directly related to the theme of this paper. Gender equality and women em- ployment under the banner of SHGs and NGOs LQUHODWLRQWRPLFUR¿QDQFHGR¿QGDSURPLQHQW place in the modes operandi of the achieve- ment of the MDGs of the UN. The future beck- ons, shall we falter?

45 Islamic Finance from Local Initiatives to a Global Market Player: Can It Bridge the East and the West?

7KHJOREDO¿QDQFLDOFULVLV *)& RI to tread in order to obtain guidance in this world UDLVHG PDQ\ LVVXHV DERXW WKH JOREDO ¿QDQFLDO and deliverance in the next. infrastructure and its sustainability. Minsky’s The primary sources of Shari’ah are the Holy New research New claims – largely ignored up until recently – that 4XU¶DQ DQG WKH 6XQQDK D WHUP XVHG WR UHIHU stability breeds instability and that a system to whatever was reported that the Prophet Mu- dominated by interest-based debt contracts is hammad (peace and blessings be upon him) LQKHUHQWO\ XQVWDEOH DOVR NQRZQ DV WKH µ¿QDQ - said, did, or gave his tacit approval. These two cial instability hypothesis’, are gaining more are followed by the consensus of the jurists supporters every day. (ijma’) and analogy (qiyas). Shari’ah strictly pro- 2QWKHRWKHUKDQGWKH,VODPLF¿QDQFHLQGXV - hibits the payment and receipt of interest. How- try that stands against interest (riba) and other ever, describing the IFS simply as ‘interest-free’ harmful activities such as gambling (maysir), GRHVQRWUHÀHFWDWUXHDQGKROLVWLFSLFWXUHRIWKH extensive uncertainty (gharar), pornography, V\VWHP,VODPLQJHQHUDODQG,VODPLF¿QDQFHLQ etc. seemed to be somehow more resilient to particular, strives for preservation of property the crisis. It is believed that core principles of Is- rights, emphasising ethical standards, sharing ODPLF¿QDQFHWKDWVWUHVVPRUHWKHOLQNEHWZHHQ of risks, and promoting social justice. Moreo- ¿QDQFHDQGWKHUHDOHFRQRP\PDNHLWPRUHVWD - ver, not only must investment activities be in ble and, according to some authors, a viable al- line with the ethical principles of the Shari’ah, WHUQDWLYHWRWKHFXUUHQWJOREDO¿QDQFLDOV\VWHP they should also take into consideration public +HQFHLWLVQRWDVXUSULVHWKDW,VODPLF¿QDQFH interests (masalih pl. of maslahah). attracted a lot of attention in recent years. For example, the Vatican has called for reliance $6KRUWKLVWRU\RI,VODPLF¿QDQFH XSRQ,VODPLF¿QDQFHSULQFLSOHVLQ¿QDQFLDOGHDO - 3ULQFLSOHV RI ,VODPLF ¿QDQFH KDYH EHHQ SUDF - ings. Similarly, during protests organised by the ticed in the Muslim world throughout the ages. 'Occupy Wall Street' movement that started out- In fact, certain principles and practices that are side the New York Stock Exchange one could XVHGLQ,VODPLF¿QDQFHWRGD\KDYHEHHQSUDF - ¿QG D VORJDQ WKDW DSSHDUHG RQ D SURWHVWRU V ticed by Arabs even before the advent of Islam. placard saying ‘Let's bank the Muslim way’. All At that time, Makkah and the Arabian Penin- this indicates the growing importance of Islamic sula were well known for their trading activi- ¿QDQFHJOREDOO\ ties. The Prophet Muhammad (peace be upon ,QWKLVVKRUWHVVD\DQDWWHPSWLVPDGHWREULHÀ\ him) was himself a very successful trader on GLVFXVVWKHKLVWRULFDOGHYHORSPHQWRI,VODPLF¿ - behalf of Khadijah who later became his wife. nance and to show whether it can play a bigger With the advent of Islam, the Prophet Muham- UROHLQWKHJOREDO¿QDQFLDOV\VWHP mad (peace be upon him) reviewed and revised these trading activities and addressed them in :KDWLV,VODPLF¿QDQFH" one of the following three ways: ,VODPLF¿QDQFHEURDGO\UHIHUVWR¿QDQFLDODFWLYL - i) Principles of investment, business en- ties that are guided by teachings of Shari’ah (Is- trepreneurship and exchange that were not in lamic law). Literally, Shari’ah means a path to a FRQÀLFWZLWKWHDFKLQJVRI,VODPWKH3URSKHW0X - watering-place, a clear path to be followed. This KDPPDG SHDFH EH XSRQ KLP FRQ¿UPHG DQG led to its use for the path which the believer has approved. Musharakah (partnership), mudara-

46 bah (silent partnership), salam (advance pay- Europe. According to some historians, the con- ment) – among others – belong to this group. tribution of commendas to the industrial devel- ii) Principles that were not in line with prin- opment of the Ruhr valley in Germany and the ciples of Islam, Muhammad (peace be upon construction of railroads in Europe is particular- him) forbade and he suppressed their practice. ly strong. In fact, there is a consensus among Among other things, he abolished the practice medieval historians that commenda was the of interest-based (riba) funding. main instrument in and greatly contributed to iii) Finally, there were principles that had the rapid development of trade and investment, research New attributes of the above two groups. In this case, and ultimately to economic change and growth the Prophet Muhammad (peace be upon him) in Europe. would remove the prohibited elements (if pos- VLEOH DQGVXFKSXUL¿HGSULQFLSOHVZHUHDOORZHG 0RGHUQKLVWRU\RI,VODPLF¿QDQFH to be used. 7KHWHUPµ,VODPLF¿QDQFLDOV\VWHP¶LVUHODWLYHO\ During the twenty-three years of revelation, new and was coined only in the mid-1980s. the Prophet Muhammad (peace be upon him) The development of modern Islamic econom- explained to his companions basic principles LFVDQG¿QDQFHDVVHSDUDWHGLVFLSOLQHVWKHZD\ DERXW HFRQRP\ DQG ¿QDQFH 6KRUWO\ DIWHU KLV we know them today, has a very short history, arrival to Medina, he established a market indeed. Nevertheless, since its inception some where Muslims were allowed to trade accord- forty years ago, and especially in the last dec- LQJ WR VSHFL¿F UXOHV ODLG GRZQ IRU WKRVH ZKR DGH WKH ,VODPLF ¿QDQFH LQGXVWU\ KDV HYROYHG wished to participate in this market. Among oth- into a respectable and essential part of the in- er things, he forbade any kind of taxes for en- WHUQDWLRQDO ¿QDQFLDO V\VWHP$V D UHVXOW SULQ - tering/exiting the market; goods of traders from FLSOHVRI,VODPLF¿QDQFHDUHQRZLPSOHPHQWHG other regions who came to the market to trade throughout the Muslim world and even some were protected; a right to a certain place in the Western countries that have recognised the PDUNHWZHUHGHWHUPLQHGEDVHGRQ¿UVWFRPH EHQH¿WV RI ,VODPLF ¿QDQFH ZRUN KDUG RQ LWV ¿UVWVHUYHG EDVLV HWF ,Q VKRUW KH H[SODLQHG promotion and implementation in the domestic HYHU\WKLQJWKDWZDVQHFHVVDU\IRUWKHHI¿FLHQW market and beyond. functioning of markets. The emergence and development of the mod- Thus, the Muslim community from the very be- HUQ ,VODPLF ¿QDQFH LQGXVWU\ LV QRWKLQJ EXW D JLQQLQJKDVHVWDEOLVKHGLWVHFRQRPLFDQG¿QDQ - continuation of what the Prophet (peace be cial relations in the way that they were in line upon him) began with the Muslims in Medina with Islamic teachings. Mobilisation of funds 1400 years ago. Of course, modern banking was done in a way to avoid the prohibition of in- DQG¿QDQFHLVYHU\PXFKGLIIHUHQWIURPWKHHQ - terest (riba), namely through musharakah and vironment and institutions that existed at that. mudarabah. The spread of Islam to other parts +RZHYHUWKHSULQFLSOHVWKDWWKH,VODPLF¿QDQFH of the world and continuous trading of Muslims industry is using today are very much the same, with other regions, primarily Europe, has led with additional adjustments to market needs WRWKHVSUHDGRIWKHVHPRGHOVRI¿QDQFLQJDQG and circumstances. trading to those regions as well. A large number Nevertheless, it was only in the mid-nineteenth of studies point to the fact that principles of century that serious attempts were made to de- SDUWQHUVKLSDQGVKDULQJRISUR¿WDQGULVNZHUH YHORS WKH ,VODPLF ¿QDQFLDO V\VWHP %DFN WKHQ those that dominated the Mediterranean and some Muslims and even some Muslim coun- Europe for many years. What mudarabah has tries tried to resist the conventional banking and been for Muslims was commenda for Western ¿QDQFHWKDWODUJHO\GRPLQDWHGDFURVVWKH0XV -

47 lim world. Literature points out three main fac- what may be called ‘a market failure’ of the ex- tors that contributed to this development. First, LVWLQJ FRQYHQWLRQDO ¿QDQFLDO V\VWHP WKDW ZDV the rise in oil prices after 1974 brought about not able to meet the needs of a large number of a huge wealth to a large number of Arab and SHRSOHZKRZDQWHGWRDOLJQWKHLU¿QDQFHQHHGV Muslim countries, which further led to increased with teachings and principles of Islam. As a economic activity and investments. At the same UHVXOW ,VODPLF ¿QDQFLDO LQVWLWXWLRQV VWDUWHG WR time, Muslims wanted their investments to com- emerge with an objective to meet these unmet

New research New ply with the principles of Shari’ah: avoiding in- needs accordingly. terest and interest-based institutions. Second, ,QDQ\FDVHWKHRULHVDERXWWKH,VODPLF¿QDQFLDO D ODUJH QXPEHU RI 0XVOLPV ZDV QRW VDWLV¿HG V\VWHPVWDUWHGPXFKHDUOLHUWKDQWKH¿UVW,VODP - ZLWKWKH¿QDQFLDOV\VWHPLQWKHLUFRXQWULHV7KH\ ic bank was established. Some studies indicate did not want to place their money in banks that that this topic was discussed at the beginning were pro-Western and openly advocated inter- RIQLQHWHHQWKFHQWXU\$OWKRXJK,VODPLF¿QDQFLDO est-based activities. Third, a number of Muslim instruments were used throughout the ages, countries got their independence from colonial WKH¿UVWH[SHULPHQWVZLWK,VODPLFEDQNVFDPH powers in the second half of the nineteenth cen- much later, in the 1960s and 1970s. Some stud- tury. The independence started industrialisation LHVVKRZHGWKDWWKH¿UVW0XVOLPRZQHGEDQNV and development of those economies. Individu- were established in the 1920s and 1930s. How- als, and the society at large, wanted to get rid of ever, these banks adopted practices similar to all forms of dependency on the Western way of conventional banks. Later on, in the 1940s and life and believed that the best way for that was the 1950s, Malaysia and Pakistan initiated sev- to get back to Islamic values and traditions. eral experiments with small Islamic banks. In essence, however, all these factors indicate Mit Ghamr Local Savings Bank, established by Ahmad El Najjar in Egypt in 1963, is considered WKH¿UVW,VODPLFEDQN)ROORZLQJWKHVXFFHVVRI Mit Ghamr, in 1967 the Nasir Social Bank was HVWDEOLVKHGDQGLWZDVWKH¿UVWVRFLDOEDQNRS - erating in line with Shari’ah principles. Similarly, in 1963 the Government of Malaysia established Muslim Pilgrim’s Savings Corpora- WLRQWKDWUHSUHVHQWHGWKH¿UVW,VODPLF¿QDQFLDO institution in Malaysia. Later, in 1969, Pilgrims Management Fund Board, better known as ‘Tabung Haji’ or ‘Pilgrims Fund’ was established as a result of the merger between the Pilgrims Affairs Department and the Muslim Pilgrims Savings Corporation. The objective of this institution was to help Malaysian Muslims save money for their pilgrimage. Then in 1973, during the Conference of Finance Ministers of Muslim Countries held in Jeddah, the idea of establishing an international Islamic ¿QDQFLDOLQVWLWXWLRQZDVERUQ7KLVFDPHWREH known as the Islamic Development Bank that was formally opened in 1975. Table 1: Historical Development of Islamic Banking and Finance 48 At the same time, a group of Muslim business- lam, as a religion, is very much associated with men started an initiative for the establishment negative connotations. Ever since the publica- of an Islamic bank in United Arab Emirates. It tion of Samuel P. Huntington’s book ‘The Clash resulted in the establishment of Dubai Islamic of Civilizations’, especially after the tragic event Bank in 1975. After these initial steps and pi- of 9/11, Islam and Muslims have been portrayed oneering institutions, the world witnessed a as ‘bad boys’ by western media. JURZLQJQXPEHURI,VODPLF¿QDQFLDOLQVWLWXWLRQV This, so called, ‘clash of civilizations’ (or cul- being created all over the world. Table 1 above tures, as some authors call it) is not a new phe- research New VKRZVEULHÀ\WKHKLVWRULFDOGHYHORSPHQWRI,V - nomenon. It has been there since the advent of ODPLFEDQNLQJDQG¿QDQFH Islam. Nevertheless, no other institution, save &RQVHTXHQWO\ ,VODPLF ¿QDQFH WRGD\ DWWUDFWV IRU,VODPLF¿QDQFHKDVPDQDJHGWRHQWUHQFKLW - both Muslim and non-Muslim market partici- self into the western world in the modern times. pants. The worldwide market for Shari’ah-com- ,QGHHG ,VODPLF ¿QDQFH KDV PDGH LWV LQURDGV SOLDQW ,VODPLF ¿QDQFLDO VHUYLFHV DV PHDVXUHG into the western countries for quite some time by Shari’ah-compliant assets, is estimated to be and it is there to stay. more than $1,130 billion. According to London- 7KHTXHVWLRQWRDVNKHUHLV&DQ,VODPLF¿QDQFH based UK Islamic Finance Secretariat (UKIFS), bridge the gap between the East and the West? Shari’ah-compliant assets grew by 21 per cent Can it bridge these two cultures, civilizations? at end-2010 to $1,130bn from $933bn in 2009. In my humble opinion, there is no straight an- UKIFS also expect assets to grow even further swer to this question. Anyway, I will try to ex- in the coming years reaching 2 trillion by 2017. SODLQWKLVEULHÀ\ Many reports indicate the growth of the Islamic :HOO RQ RQH VLGH WKH ,VODPLF ¿QDQFH LQGXV - ¿QDQFHLQGXVWU\WREHDWWKHUDQJHEHWZHHQ try has already bridged the two worlds simply SHU FHQW SHU DQQXP ʊ D JURZWK UDWH WKDW by its existence in various western countries. IDU H[FHHGV WKDW RI WKH FRQYHQWLRQDO ¿QDQFLDO However, the fact is that the main motivation for industry. ZHVWHUQFRXQWULHVLQWHUHVWLQ,VODPLF¿QDQFHLV According to Islamic Banker, a leading maga- due to economic reasons. They recognise the ]LQHIRU,VODPLF¿QDQFHWKHUHDUHWZRPRGHOVRI JURZLQJSRWHQWLDOVRIWKH,VODPLF¿QDQFHLQGXV - ,VODPLF¿QDQFHWRGD\)LUVWWKHUHLVDV\VWHP - try and see it as an alternative source of fund- DWLFDSSURDFKWR,VODPLF¿QDQFHDVLPSOHPHQW - ing for their economies. This said, once these ed by Malaysia and its dual-banking model. In sources dry up, the West will move on, looking WKLV PRGHO FRQYHQWLRQDO DQG ,VODPLF ¿QDQFH for other avenues. operate side-by-side with separate (yet similar) 2QWKHRWKHUVLGHKRZHYHU,VODPLF¿QDQFHGLG rules and regulations governing them. not bring about a wider acceptance of Islam Second, there is the ‘ad hoc approach’ in which and Muslims. What is lacking, so far, is the polit- Islamic Banker claims ‘where neither the gov- ical will and appreciation of the culture that the ernment nor the regulator even acknowledge ,VODPLF¿QDQFHEULQJV,QRWKHUZRUGV,VODPLF the need for a stand-alone Islamic banking and ¿QDQFHGLGQRWKHOSPXFKLQUHPRYLQJELDVHV regulatory framework, let alone enabling laws’. and prejudices about the Islam and Muslims. In ,VODPLF ¿QDQFH DV D EULGJH EHWZHHQ WKH (DVW fact, one could argue that today there is a wider and the West gap between the two as the world is witnessing 7KH JURZWK RI WKH ,VODPLF ¿QDQFH LQGXVWU\ LV a growing Islamophobia. an indisputable fact, especially after the global market crash of 2008-2009. While Islamic “Islam is unfortunately sometimes negatively ¿QDQFHLVVHHQDVDEULJKWVWDULQWKLVFKDRV,V - portrayed. The global geopolitical context has

49 something to do with that suspicion: by favour- and contributing to overall cultural awareness. ing clichés, widening misunderstandings and In order for this to succeed, due attention needs exacerbating tensions. Fortunately, given the to be given to properly educate and inform the ZRUOGZLGHH[SORVLYHJURZWKRI,VODPLF¿QDQFH public with regard to the main principles that LWFRXOGDOVRVLJQL¿FDQWO\FRQWULEXWHWRFURVVFXO - ,VODPLQJHQHUDODQG,VODPLF¿QDQFHLQSDUWLFX - tural communication and brotherhood between lar stands for. The author strongly believes that people”, Djibril Seck in Islamic Finance News this article will positively contribute to this hon-

New research New magazine. ourable goal by shedding some lights on the IDVW GHYHORSLQJ LQGXVWU\ ,VODPLF ¿QDQFH DQG This brings us to one of the major problems of destroying prejudices about it. today’s world which is a lack of proper education and/or rather misinformation and negli- JHQFH :KLOH ,VODPLF ¿QDQFH GXH WR ¿QDQFLDO Edib Smolo and economic consideration, can grow in the Edib Smolo is a Ph.D. candidate at the Interna- western countries, the segregation of the peo- tional Centre for Education in Islamic Finance ple based on their religion is still evident in most (INCEIF), Malaysia. western countries. This needs to be changed He can be contacted at [email protected]. IRUPXWXDOEHQH¿W Djibril also pointed out that, “While cultural dif- The views and opinions expressed in this arti- ferences tend too often to alter into an intolerant cle are those of the author and do not neces- DQGPXUGHURXVH[WUHPLVP,VODPLF¿QDQFHPD\ VDULO\UHÀHFWWKHRI¿FLDOSROLF\RUSRVLWLRQRIDQG offer the opportunity to restate and explain an should not be attributed to INCEIF or any other HWKLFDOLGHQWLW\IUHHGIURPDQ\VSHFL¿FFXOWXUDO institution. and religious context, be it European, western or eastern. Different cultures may then meet together on the same banking project, a source of global growth and harmony for humanity who would be then able to effectively manage the redistribution of wealth and regulate fears, UHVHQWPHQWV DQG H[WUHPLVP ,VODPLF ¿QDQFH might contribute to an ethical reorganisation of FDSLWDOÀRZJOREDOO\´ Conclusion ,Q FRQFOXVLRQ WKH ,VODPLF ¿QDQFH LQGXVWU\ DV EULHÀ\ SRLQWHG RXW LQ WKLV VKRUW DUWLFOH LV WKH brightest thing that has happened to the Muslim world in the modern history. It is growing enor- mously and steadily, attracting more and more attention from all over the world. This successful story can inspire a better understanding between religions, cultures and civilizations. In short, it is believed that Islamic ¿QDQFHFDQSOD\DQLPSRUWDQWDQGDPRUHDF - tive role in bridging the East and the West by being a channel for transmitting cultural values

50 The Bank of England Archive: Our Online Adventure

)RUWKH¿UVWWLPHWKLVVXPPHUUHVHDUFKHUVIURP somewhat unbelievable discovery of ‘the Phi- around the world were able to search the Bank losopher’s Stone’: of England’s Archive catalogue online. Over Eric Dutt, an Anglo Indian resident in Swit-

56,000 entries are currently available, describ- zerland, contacted Harry Arthur Siepmann in Archives news ing records dating from before the Bank’s incep- 1933 claiming to have discovered a process tion in 1694 (the oldest record is dated 1516) up (whose inspiration seems to have been Ru- to recent times. therford’s early work on the atom) whereby 7KHUHFRUGVUHÀHFWDOODVSHFWVRIWKHKLVWRU\RI tungsten and boron could be transmuted to the Bank and its work, from the expected: the gold. The process was, of course, bogus, Bank’s development as a central Bank, its in- but the implications for the gold market had tervention in historical banking crises, the de- it been genuine seemed so devastating that cision to come off the gold standard, and the NQRZOHGJHRILWZDVFRQ¿QHGWRDQDUURZFLU - creation and operation of monetary policy; to cle at the top of the Bank. the surprising: tales of pirates, desperate ap- G1/363 Governor’s File: Eric E. Dutt’s Discov- peals from convicted forgers awaiting the death ery of the Philosopher’s Stone (22 June 1935 sentence, letters from Titanic survivors; and a - 6 September 1946).

E8-31 The Old Lady

51 The records also represent the broader his- ing to smile at them!’ tory of the nation and the world. Key political M5/474 Extracts from the Autobiography of events are interwoven in the everyday function- Janet Elizabeth Courtney (1894 - 1896). ing of the Bank, for example the Gordon Riots And of course, the two World Wars saw women of 1780: IRU WKH ¿UVW WLPH WDNLQJ RQ WKH VDPH UROHV DV That at the time of the Riots which happened men: in this City in the Month of June last the Gov- It is suggested that these women have shown

Archives news ernor and the Company of the Bank of Eng- that they possess much greater ability than land took possession of the parish Church of that which the Bank formerly required from St Christopher le Stocks, and introduced a them and it is placed on record that they have Military Force into the same for the security enjoyed the opportunity created by circum- of the Bank .. stances to prove their worth and undertake M5/748 Committee for Building – Minutes (23 work of a responsible character. As a result March 1764 - 5 April 1803). Entry dated 28 they would welcome some means whereby March 1781 referring to the use of the neigh- they could continue the full use of their talents bouring church by participants in the anti- in the future. Catholic Gordon Riots of 1780. E31/1 Women Staff: General Papers (Octo- ber 1918 – September 1963). Extract from a E8/31 The Old Lady (September 1928). A car- memorandum on the future of the permanent toon by James Gilray dated 1787 poking fun women staff in the Accountant’s Department, at the aggressive attitude of the Bank military December 1943. guard. The military guard were provided for the Bank at night as a result of the Gordon Riots. The catalogue is not just a search of records Many complaints were made to the City Corpo- though, it includes a new feature called the ration and in 1787 the Lord Mayor requested the Name search: a facility enabling users to search Secretary for War to direct the guard to march biographies of senior staff and departments LQVLQJOH¿OHWRDYRLGREVWUXFWLQJWKHSXEOLF of the Bank, and other related organisations. Social developments are evident throughout Each name entry is linked to relevant catalogue the records too, for example the progression of ZRPHQLQWKH%DQN)RUWKH¿UVWRQHKXQGUHG DQG¿IW\\HDUVRILWVKLVWRU\WKH%DQNZDVHQWLUH - ly male. From 1849 women were employed as cleaners but it was not until 1893 that the Bank employed women as clerks, in this instance to sort and list returned notes. Janet Hogarth (lat- HU &RXUWQH\ ZLWK KHU ¿UVW FODVV GHJUHH IURP 2[IRUG8QLYHUVLW\ZDVWKH¿UVW6XSHULQWHQGHQW of the new department of women clerks: :KHQ,¿UVWZHQWWRWKH%DQNRI(QJODQGLQ 1894,...women in ordinary Banks were un- heard of, and their introduction into the Bank of England , of all places, caused a mild sensation, not to mention a series of tire- some jokes about “old” and “young” ladies of Threadneedle Street. How tired one got of try- 4A156-1 Recruitment Brochure (iii)

52 entries, giving more focussed searching, and Norman was instrumental in rebuilding the in- contextual information at the touch of a button. ternational monetary system after the First For example, if ‘Bank of England’ is typed in the World War and was closely associated with Name search box, biographies of all of the de- the creation of the Bank for International Set- partments of the Bank, from 1694 to the present, tlements and the League of Nations. Under are returned. These entries can be navigated Norman the Bank became actively involved in to build up an understanding of the administra- supporting British industry through the promo-

tive history of the Bank. If a key Bank role such tion of rationalisation schemes and through the Archives news as ‘Governor’ or ‘Chief Cashier’ is typed in the establishment of the Securities Management same box, biographies of individuals who have Trust and the Banker’s Industrial Development held these posts are returned. These can be &RPSDQ\ 'XULQJ KLV SHULRG RI RI¿FH WKH ([ - explored by date or alphabetically by surname change Equalisation Account was established, to learn about some of the characters who have Britain returned and subsequently came off the been associated with the Bank, including one gold standard, and up to and during the Second time Governor and inventor of an award win- :RUOG:DU1RUPDQPDGHVLJQL¿FDQWFRQWULEX - ning automatic weighing machine for sover- WLRQVWRWKHRSHUDWLRQRIPRQHWDU\DQG¿QDQFLDO eigns, William Cotton, and Wind in the Willows policy. Although the diaries largely record Nor- author, Kenneth Grahame. man’s daily working routine, they do also give )RUWKH¿UVWWLPHWRRDVSDUWRIDSURJUDPPH an insight into his fascinating and often contro- of digitisation, researchers can access selected versial character and into key moments in eco- archives online, including the entire series of nomic history. Montagu Norman’s diaries dating from 1913 to 1944. Montagu Norman was Governor of the ADM34/28 – Diary of Montagu Collet Norman Bank from 1920 until 1944, the longest period (1939). Entry on the declaration of war on Ger- RI DQ\ *RYHUQRU DQG ZDV D FHQWUDO ¿JXUH LQ many by France and Britain, September 1939. the development of modern central banking. 7KH1RUPDQGLDULHVDUHWKH¿UVWLQDVHULHVRI

ADM34-28 Montagu Norman Diary - War

53 archive records that the Bank intends to publish available online, and that they should be acces- online. It is hoped that in the near future early sible globally and 24 hours a day; an expecta- issues of key Bank publications, the Court of tion some other archive services were meeting. 'LUHFWRUV¶PLQXWHV DQGWZRRI¿FLDO We too wanted to meet these current research but unpublished histories of the Bank during demands. Additionally we saw an opportunity to both World Wars, will be added to the online make this a dynamic resource that could link to digital content. The publication of the Court of more context (the Name search feature), and

Archives news Directors’ minutes is especially exciting for re- a resource that could reach out to new users searchers because they record the decision- (through web search engines). making of the Bank at the highest level and from We had also assessed the risks: the extra re- its very beginnings. In the Bank’s early days as search demand that the catalogue might gener- a private institution though, the issues it dealt ate for a small team; and the reputational risks with were quite different to those of today: for possible errors, mistakes and omissions in Mr Governor acquainted the court that Mr the published data or if the technology was inef- Jones having made complaint to him of Tho- ¿FLHQWRUZRUVHGLGQRWZRUN7KHEHQH¿WVIDU mas Dowdeswell one of the servants of the outweighed the risks, so in February 2010 the %DQNIRUFRPLQJODVW0RQGD\LQWRWKH2I¿FH decision was taken to put the catalogue online. disordered with liquor and neglected coming The online catalogue seemed relatively the next day; that he now suspended him for straightforward: the entire Bank archive was the same. already electronically catalogued using the G4/17 Court of Directors’ Minutes (10 Decem- software, Axiell Calm, and since 2003 the open ber 1741 - 28 March 1751). Entry dated 26 records had been available to search in the March 1747. reading room using Calm’s public access mod- Publishing the catalogue and digitised records ule, Dserve. It appeared to be a simple case online was no small undertaking for the Bank of publishing this existing catalogue online, but Archive. We are a small team, comprising three over two years on and after several hurdles and archivists and an historian. Alongside support- headaches, we realised this was not so. ing internal business needs, including the ap- The immediate problem was that Dserve was praisal and cataloguing of Bank records and to be replaced with a new public access mod- managing the care of the existing 4 kilometres ule called CalmView, so there was design and of records, we also run a busy search room and FRQ¿JXUDWLRQWKDWZHKDGQRWDFFRXQWHGIRUDQG enquiry service. There is not much time for ex- that was beyond our own technical abilities. We tra projects, not least projects that require ex- soon had to call on the skills of the Bank’s IT pertise beyond those of even the modern ‘jack department, slotting our project in amongst of all trades’ archivist. But, enthusiastic about KLJKHU SUR¿OH ZRUN ZLWK LQHYLWDEOH GHOD\V 6H - improving access to the archives, we took on curity is also a concern when publishing online the challenge. so in-depth risk assessments had to be under- :HKDGLGHQWL¿HGWKHQHHGIRUDQRQOLQHFDWD - taken and new processes developed to ensure logue: researchers could only access the cata- the catalogue’s publication was secure. There logue by visiting the Archive and as a result we was conformity with the Bank’s website style were frequently answering enquiries about the and content to consider, which involved the records we held and researchers were spend- Web Team’s input and advice. LQJWKH¿UVWSDUWRIWKHLUYLVLWLGHQWLI\LQJUHOHYDQW We initially tried to manage the project within records. There was also an evident and growing the Archive, but it became so complex, involv- expectation that archive catalogues should be ing so many people and specialist skills, that a

54 project manager was appointed. We remained effort on our part and learning on the job. heavily involved at each stage and in each proc- $VLJQL¿FDQWDPRXQWRIWLPHZDVVDYHGE\HP - ess, advising on archive considerations such ploying a professional digitisation team to pho- as explanatory text and how the information tograph the records. This still involved the se- should be searched and displayed, but having a lection of material, the compilation of detailed project manager enabled us to focus on editing instructions, and for those records sent off site, and developing the content of the catalogue, in- the packing and transporting of material. For

cluding adding the new names database. The the more valuable records, the digitisation took Archives news catalogue was successfully launched on 6 June SODFHRQVLWHZKLFKKDGWKHDGGLWLRQDOEHQH¿W 2012 (http://www.bankofengland.co.uk/Calm- of saving us the packing and transporting work. View/). As an example it took two professionals just The digitisation of paper records was an en- over two weeks to take about 50,000 images tirely new avenue for the Archive and indeed of the Court of Directors’ minutes. We did not WKH%DQN7KHEHQH¿WVZHUHVLPLODUWRWKRVHRI consider doing the photography ourselves as it the online catalogue: increased access to the ZRXOG KDYH EHHQ GLI¿FXOW WR GR DORQJVLGH RXU selected records and meeting researchers’ ex- daily work, we would have had to hire equip- pectations of how information is disseminated ment to ensure the same quality of result, and it to them. Likewise the risks were small and pre- would have taken us much longer. dominantly reputational: the risks of inadequate When the images were returned, we assessed images or the technology not working. Unlike what needed to be done to publish them. A bal- the online catalogue though, digitisation intro- ance was required between the quality of the GXFHGDZKROHQHZZRUNÀRZIRUWKH$UFKLYHWR images for research use and restrictions on the manage, that of taking photographs of whole size of the images due to limited server space series of records and then processing these im- (it should not be under-estimated how much ages. space images take up on a server and it is very Archive services have for a long time been important to clarify exactly what size and qual- publishing online galleries of images, but few ity is needed at the photography stage). For KDYHGRQHLWRQWKHVFDOHRIHQWLUH¿OHVRULQ - ease of use, we grouped images together into deed series, which cannot be treated in quite one PDF, so for the Montagu Norman diaries, the same way as a smaller number of single we grouped the images by month. This in itself SKRWRJUDSKVRILWHPVWKH\FDQWDNHXSVLJQL¿ - was time consuming (the diaries alone contain cantly more memory and are navigated by us- about 3,400 images). Each group then needed ers in a different way (via groups of images not to be compressed in size, have metadata (title, a single thumbnail). Where large scale digitisa- date, keywords) and security-settings added, tion has been done particularly effectively is by and additional search metadata added when it external organisations such as Ancestry or Find was uploaded to the Bank’s web content man- my Past who have successfully digitised series agement system. In the case of printed mate- VXFKDVWKHRI¿FLDO&HQVXVHV$QXPEHURIDU - rial, we also had the images converted into chive services are using such organisations to machine-encoded text using optical character publish their records online because the equip- recognition (OCR) so that the text was search- ment, specialist staff, and server space are all able. This work was far more labour intensive included, but whilst we sought external advice than we had anticipated, but having determined and some expertise, the project was done in- this, we decided to publish the digitised images ternally, with the advantage of remaining in full in stages and to employ temporary data-entry control, but the disadvantage of more time and staff. The Montagu Norman diaries were pub-

55 lished online on 7 September 2012 and it is The catalogue is available at planned that the remainder of the images will http://www.bankofengland.co.uk/CalmView/ be on the website by February 2013. In conclusion, both the publication of the Ar- The digital content is available at chive catalogue and digitised records were http://www.bankofengland.co.uk/about/Pages/ challenging projects: they involved many dif- history/archive/digitalimages.aspx ferent activities, a variety of skills and peo-

Archives news ple, and time consuming work, and therefore needed careful management. But such projects Lorna Williams were new to the Archive team and many les- Bank of England sons have been learnt. Most importantly, as a result of everyone’s efforts, we have success- IXOO\ FUHDWHG VHFXUH HI¿FLHQW DQG LQIRUPDWLYH resources. These will help both our existing researchers and new users, ultimately giving an opportunity for new and exciting discoveries in the Bank of England Archive.

Manuscript editions of staff magazine that contains a PL[WXUH RI ¿FWLRQDO VKRUW VWRULHV HVVD\V RQ EDQNLQJ travel reports; memoirs; drawings (both black and white and colour) and editorial notes. (1884-1885) Started up by the Bank's 'Pen and Pencil Club' (the DLPRIZKLFKZDVWRSURPRWHOLWHUDWXUHDQGDUW WKH¿UVW edition of 'Our Magazine' appeared in May 1884. With ¿QDQFLDOVXSSRUWIURPWKH%DQN V /LEUDU\DQG/LWHUDU\ Association', 'Our Magazine' was produced by and for VWDIIRIWKH%DQNRI(QJODQG7KH¿UVW¿YHHGLWLRQVRI the magazine were produced in manuscript format; it was the aim of the magazine's editorial board to raise reader-subscription levels in order to produce future HGLWLRQVLQSULQWHGIRUPDWDQGDFKLHYH¿QDQFLDOVHOIVXI - ¿FLHQF\)URPYROXPHVL[RQZDUGVWKHPDJD]LQHZDV published under the new title of 'The Bank Magazine' (unfortunately, no copies of The Bank Magazine are held by the Archive).

56 Monetary Museum of the Reserve Bank of India

The Reserve Bank of India, established on 1 The Museum is divided into the following six April 1935, is the Central Bank of the country. In sections: its capacity as the Central Bank it is custodian of the country's monetary heritage. To save and Section One - Concepts, Curiosities and Idea

preserve the monetary heritage from being irre- of Money: Archives news trievably lost to posterity and as part of the Re- This Section provides general information on serve Bank of India's education and outreach WKHFRQFHSWRIPRQH\LWVGH¿QLWLRQDQGWUDFHV programme for the common man, especially the evolution of money from barter system. school and college students, RBI conceived WKH PRQHWDU\ PXVHXP7KH ¿UVW RI LWV NLQG LQ Antique coins India, monetary museum was inaugurated by India is one of the earliest money issuers in the Dr. A.J.P. Abdul Kalam, President of India in world. Few countries rival India in the sheer di- 2004. The monetary museum traces the history versity of its coinage, be it minting techniques, of money as it evolved from barter system to motifs, sizes, shapes and metal used. Histori- e-money. cally these coins help us in documenting the Monetary Museum has a rich collection of coins, political and economic changes which occurred notes, promissory notes, cancelled securities, in the country. Foreign coins found in the coun- bills of exchange and artefacts. The museum try shed light on India’s trade relations during brings out the great numismatic history asso- ancient, medieval and pre-colonial period. On ciated with India through a time line extending display are items which were used like com- to the ancient times, dynasties, foreign rulers, modity money including cowri shells, Neolithic princely states and Republic of India. The story stones and axes, silver bar, knife and beads. of money comes alive in the monetary museum The earliest types of coins pertaining to 6th and an insight is provided into how the shape, century BC displayed are punched marked hav- size, design and metal of currencies changed LQJGLIIHUHQW¿JXUHVDQGV\PEROV&RLQVKDYLQJ from barter system to plastic money of present different shapes like circular, triangular, rectan- times. Money is an intrinsic component of the gle, square and hexagonal are exhibited. Coins cultural heritage of the country. India was one of the earliest issuer of coins in the world. The Museum has representative collection of over 10,000 exhibits of Indian coinage, paper cur- UHQF\ ¿QDQFLDO LQVWUXPHQWV DQG FXULRVLWLHV Given the vast canvas, over 1,500 exhibits on display provide a ringside view of the birth of currencies, their growth and emergence in modern times.

Antique coins Indo-Greek coin

57 were made from different metal and alloys like issued coins of rich variety, different motifs, gold, silver, alloy, nickel etc. The nomenclatures shapes and designs. Besides, the Portuguese, used for coins in different parts of the country the Dutch, the Danish, the French and the East were pies, anna, pice, dhinglo, escudo, kon, India Company issued their own coins which mohur, suvarna and tanka. are grouped under Indo-European coinage. The post-independence coins of India followed Section Two - Indian Coinage: the British denomination system which was in This is the biggest section of the museum and Archives news vogue and continued till 1957 when the decimal the coins displayed here have been divided into system was introduced. ancient, medieval, colonial period and modern India. There is a timeline which provides infor- Section 3: Coins to Bank Notes mation on hundreds of kings, empires, dynas- The journey from coins to paper money reveals ties that ruled the country and issued different how society started accepting the token money kind of coins. in lieu of money in terms of value of the metal The coins displayed start from 6th century BC and how the concept of 'Promise to Pay' origi- to the present times. Important coins in this sec- nated. In this connection, it would be interesting tion are of the Kurus of Kolhapur (1st century WRPHQWLRQWKDWWKH¿UVWH[SHULPHQWLQV\PEROLF BC), Indo-Greek and Kushan period, the Mur- currency was made in India in 1330 AD when yas, gold coins issued by the Gupta rulers, ear- Muhammed bin Tuglaq, Emperor of India intro- ly medieval coins issued by the kings of Rash- duced symbolic currency by proclaiming that trakutas, Chalukyas and Pandyas (6th century bronze coins would have value of silver coins. AD to 14th century AD). However, his experiment was a great failure. Coins of Sultnate period (13th-15th century AD) of the Emperors like Sikander Lodhi, Muham- Section 4: Paper Money mad bin Tuglaq, Allaudin Khilji are also on dis- This section displays the slow and gradual but play. certain transition from coins to Bank Notes. The Among the Mughal coins (16th-18th century AD) Issue of paper money in India dates back to the the standard silver coin issued by Sher Shah late eighteenth century when the private banks Suri (1538-45) and the gold mohur issued by started issuing currency notes. Among the ear- Jalaluddin Akbar (1556-1605) are specimens of liest to issue notes were the Bank of Hindostan innovative techniques issued in minting coins. (1770-1832), the General Bank of Bengal and It is interesting to note that during the British Behar (1773-75), and three Presidency Banks rule in India there were 565 princely states i.e. Bank of Bengal (1806.1921), Bank of Bom- and they issued their own coins. The promi- bay (1840-1921) and Bank of Madras (1843- nent states were Baroda, Gwalior, Hyderabad, 1921). These three Presidency Banks were Jaipur, Jind, Patiala and Travancore and they

Silver Rupiah of Sher Shah Suri and Gold Mohur of Ak- Note issued by Bank of Hindostan bar 58 later merged to form the Imperial Bank of India banks established by the Government Charters in 1921 and are now known as the State Bank had the privilege of issuing bank notes for circu- of India. lation within their region. The currency notes of the private banks and The currency notes issued by the Government three Presidency Banks are displayed in the of India under monopoly were granted under museum. This period was one of intense po- the Paper Currency Act 1861 and were fol- litical turmoil and uncertainty in the wake of the lowed by currency notes issued by the Reserve

collapse of the Mughal Empire and advent of Bank of India since 1935 in accordance with the Archives news the colonial powers. The changed power struc- Reserve Bank of India Act, 1934. ture, the upheavals, wars, and the colonial in- One can discern how the design of currency roads led to the eclipse of ingenious bankers notes have changed over the years - to cap- DVODUJH¿QDQFHVPRYHGIURPWKHLUKDQGVWRWKH ture the essence of history, incorporation of Agency Houses who enjoyed state patronage. security feature, to portray symbols of national 0DQ\$JHQF\+RXVHVHVWDEOLVKHGEDQNV2I¿ - cial patronage and the acceptance of notes in payment of revenue was a very important factor in determining circulation of bank notes. The

3RUWUDLWRI4XHHQ9LFWRULD)LUVW1RWHLVVXHGE\*RY - ernment of India (1861) Note Issued by Bank of Bengal

A Bank of Madras Note depicting Thomas Munroe Note of King George V Series (1923)

Note Issued by The Bank of Bombay featuring Mount. First Bank Note Issued by The Reserve Bank of India Stuart Elphinstone and John Malcolm in 1938

59 exchange, commodities and shares. Visitors can not only see exchange rates of various currencies but can also take imaginary positions in currency to buy and sell them. Besides, kiosks placed in the museum provide information with entertainment. Students can learn features of currency and other important information about

Archives news currency while playing games. On leaving, they can pick up brochures and posters on coins, postcards, the Story of Money in India and sig- Indo-French Note natures of Governors of the Reserve Bank of VRYHUHLJQW\ DQG WR UHÀHFW WKH FRXQWU\ V VRFLDO ,QGLD7KHPXVHXPDOVRRUJDQLVHV4XL]&RQ - and economic development. The British India test for school children to create awareness currency notes of the denominations of Rupees about the rich monetary heritage of the country. 10, 50, 100 and 1,000 are on display. Reserve The winners are given mementos and partici- %DQNRI,QGLDLVVXHG¿UVWFXUUHQF\QRWHVXQGHU SDWLRQFHUWL¿FDWH King Portrait Series in 1938. After India got independence in 1947, the portrait of King of Eng- Section 6: RBI and You land was replaced with the Lion Capitol of the This section provides information on the func- $VKRND 3LOODU DQG WKH ¿UVW FXUUHQF\ QRWH ZDV tions of the Reserve Bank of India, its role in the issued in 1949. Subsequently, currency notes growth and stability of the Indian economy and featuring fauna motifs, industrialisation, Parlia- how it touches the life of common man. Portraits ment Building, agricultural progress, Himalaya of the Governors of the Reserve Bank of India and Mahatma Gandhi series were introduced. and their tenure have also been displayed. Besides, the currency notes issued by the Indo- The Monetary Museum is a treasure trove of European and Princely States are also on dis- information on the evolution of money and the play. role played by the Reserve Bank of India in the sphere of supervision and regulation of banking Section 5: Know Your Currency system, formulation of monetary policy keeping Keeping in mind the increasing instances of in view the interests of commerce and industry frauds and circulation of counterfeit currency and safe and secure banking in the country. notes, this section educates visitors on the The Monetary Museum is open to the public security features of the currency. In addition, from Tuesday to Sunday from 10:45 to 17:15, awareness is created about how the currency located at Amar Building, adjoining RBI Main is managed in India and the journey of notes Building, Fort, Mumbai 400001. and coins from their birth to destruction. The museum also has a screen for trading in foreign Ashok Kapoor Former Chief Archivist Reserve Bank of India Archives Pune (India)

Mahatma Gandhi Series (2005)

60 Kress Collection Harvard Business School

The Kress Collection of Business and Econom- taxation, money and banking, trades and man- ics is recognised as one of the premier rare ufactures, agriculture, transportation, labor, book collections in the world. Formed by the and socialism. In addition, new directions in

collecting efforts of H.S. Foxwell, lecturer and research continue to bring to light valuable re- Archives news teacher of political economy and a book collec- sources for an expanding range of disciplines, tor of economic literature, it was acquired by including the history of technology, philosophy, the Harvard Business School by the generous African-American studies, gender studies, his- donation of Claude Washington Kress, busi- tory of science, and social and cultural history. nessman and philanthropist. Included are rare There are several special collections within the books, pamphlets, broadsides, manuscripts, Kress Collection: DQG SULQWV UDQJLQJ IURP WKH ¿IWHHQWK WKURXJK WKH WZHQWLHWK FHQWXULHV 5HVHDUFKHUV ZLOO ¿QG Bancroft Collection not only the great classics of economic thought Focuses on the speculation mania, particularly but also an extensive selection of ephemeral the South Sea Bubble, that swept England and material that provides a historical context for the Continent around 1720. the growth and dissemination of ideas. The Bancroft Collection was assembled by Among the collection's traditional strengths are Hugh Bancroft, Harvard University alumnus the history of political economy, economic phi- DQGIRUPHUSUHVLGHQWRI'RZ-RQHV &RLQ ORVRSK\ EXVLQHVV WKHRU\ FRPPHUFH ¿QDQFH the early part of the twentieth century, and gen-

The bubblers medley, or A sketch of the times : being Europe's memorial for the year 1720 ... [no. 1]. [Later Eight of diamonds, South Sea bubble playing cards. state.] London : Printed for Carington Bowles, no. 69 in London : Printed for Carington Bowles, 1721. St. Pauls Church Yard, [1720]

61 erously given to the Harvard Business School PHPEHU RI WKH ¿UP ZKR IRUPHG PXFK RI WKH by Mrs. Hugh Bancroft in 1935. collection. Mr. Brunner's love of banking his- Bancroft's interest in the South Sea Bubble and tory led him to acquire prints on all aspects of the speculative mania that swept England and PRQH\ VLQÀXHQFHRQPDQNLQG the Continent in the early part of the eighteenth There are over one thousand woodcuts, en- century led to the development of the largest gravings, etchings, and lithographs in the Blei- of the four great collections on the subject in chroeder Collection, from the sixteenth to the

Archives news the world. The other noteworthy collections are nineteenth century. It has been divided into the located at the British Library, the Seligman Col- following general categories: views of stock ex- lection at Columbia University, and the Gold- changes, banks, mints, and treasuries; portraits smiths' Library at the University of London. The RIEDQNHUVVWDWHVPHQDQG¿QDQFLHUVSROLWLFDO Bancroft Collection includes books, broadsides, DQGSHUVRQDOVDWLUHVQDWLRQDO¿QDQFHDQGWD[D - pamphlets, Parliamentary documents, manu- tion; images of money-lenders, avarice, corrup- scripts, and ephemera. tion, poverty, charity, and anti-Semitism; and speculation and credit. Many prominent artists Bleichroeder Print Collection also are represented in the collection, including Extensive grouping of prints from the sixteenth Breughel, Goltzius, Rembrandt, Hogarth, and to the nineteenth centuries on the subjects of Gillray. PRQH\EDQNLQJDQG¿QDQFLDOKLVWRU\ The Bleichroeder Collection was given to the Vanderblue Memorial Collection of Smithiana Kress Library of Business and Economics in One of the most comprehensive collections in E\WKH1HZ

Willem Isaakz Swanenburgh. [Allegory of wealth and Robert Brichet, after Joseph Franz von Goez. Le Finan- luxury]. [Netherlands]: Willem Isaakz Swanenburgh, cier. [Augsburg], 1784. (olvwork308311) 1611.( olvwork308267) 62 The collection amassed by former Harvard the world. The Historical Collections Depart- Business School professor Homer B. Vander- ment maintains its commitment to developing EOXHUHÀHFWVKLVSDVVLRQIRUWKHZRUNRI$GDP this collection and continues to actively acquire Smith. Vanderblue began collecting in the related materials. mid-1920s and actively sought out works by and about Smith, with a special focus on The H.S. Foxwell Papers Wealth of Nations. He generously presented A collection of H.S. Foxwell's personal papers,

his collection to the Harvard Business School in containing incoming correspondence, the bulk Archives news 1939 in memory of his father, Frank J. Vanderb- of which dates from 1898 to 1899, outgoing let- lue. In addition to his role as a professor at Har- ters, writings, memorials and obituaries, and vard Business School, Homer Vanderblue also photographs. served as Honorary Curator of Early Economic Literature in the Baker Library. Included in the gift were books, manuscript letters of Smith, and several volumes from Smith's own library. In addition to the gift of his rare book collection, Mr. Vanderblue also provided D ¿QDQFLDO JLIW WKH LQFRPH IURP ZKLFK FRXOG be used to purchase additional Adam Smith items and books of the period when Smith was D OHDGLQJ ¿JXUH 7KH %DNHU /LEUDU\ KDV EXLOW on this remarkable foundation over the years, bringing together one of the most comprehensive collections of the works of Adam Smith in

Autograph letter from Adam Smith to bookseller Tho- Portrait of Adam Smith mas Cadell, Edinburgh, May 25, 1790.

63 The Rothschilds in France in the 19th Century from November 20, 2012 to February 10, 2013 Richelieu / Mansart Gallery

In 1812, James de Rothschild is twenty when The destiny of James de Rothschild and his he arrives in Paris. He rapidly becomes one brothers allows visitors to discover the world of WKHSURWDJRQLVWVLQWKHZRUOGRIWKHKLJK¿QDQFH WKHHQOLJKWHQHGKLJK¿QDQFH Archives news made up of famous families of bankers. They come from all parts of Europe and are going to James has been put at the center of the display. play a major part in the Industrial Revolution. As a counterpoint, two other families are pre- Discovering the destiny of the Rothschild family sented, the Pereire brothers’ family and the Ca- LVDQRSSRUWXQLW\WRREVHUYHWKH¿UVWSDUWRIWKH mondo brothers’. They were rivals of the Roth- 19th century, its history from the First Empire to schild family involved in banking and industrial the beginning of the Republic… Who are these activities - railway network [Chemins de Fer businessmen who get involved in industry, raw du Nord company in Boulogne-sur-mer, devel- materials, transport? Who are these aesthetes opment of the line Paris-Orléans, Paris-Lyon- who encourage the development of a rich ar- Méditerranée (PLM)], exploitation of minerals tistic life? Who are these ‘philanthropists’ who and metals, urbanization of Paris, philanthropic support medical research or promote a vision activities (Rothschild hospital), development of of town planning based on hygiene theories? the tourist industry (creation of the city of Ar- cachon), investment in famous vineyards (Châ- WHDX/D¿WH&KkWHDX3DOPHU %XWWKHVHULYDOV were alike in their society ‘habitus’ and way of life: private mansions and castles, collections of works of art, activities as patrons in French institutions (musée du Louvre, Bibliothèque na- tionale de France, musée national de la Ren- aissance, Arts décoratifs, musée Nissim de Ca- mondo…). These great bankers marked their time but were also sources of inspiration for masters of literature such as Stendhal, Balzac or Zola.

Presented in the outstanding Mansart gallery of the Richelieu library, the exhibition proposes to discover a wide variety of paintings, objets d’art, books, illustrations, photographs, documents from archives and collections of the Rothschild family, from the BnF and from several French institutions.

64 The Archives of the Casa di San Giorgio of Genoa (1407-1805)

I am pleased to inform you that the archives of the “Casa di San Giorgio” have been catalogued and their inventory is now freely available on internet (www.lacasadisangiorgio.it). The “Casa delle compere e dei banchi di San Giorgio” was established in Genoa to manage the public debt in the interest of its creditors and in 1408 it opened a public bank very different from any

RWKHU¿QDQFLDOLQVWLWXWLRQRIWKHWLPHLQFOXGHGWKHIDPRXV0HGLFLEDQNDQGWKH7DXODGHFDQYLGH Archives news Barcelona. Given the operations it performed, the volume of capital involved and the abundance of documen- WDU\SURRIVWKH+RXVHRI6DLQW*HRUJHFDQEHUHJDUGHGERWKLQ,WDO\DQG(XURSHDVWKH¿UVWPRGHUQ EDQNIRUGHSRVLWVWUDQVIHUVDQGFUHGLWDVZHOODVWKH¿UVWHPEU\RRIFHQWUDOEDQN .LQGOHEHUJHU Braudel). 7KHOLIHRIWKH*HQRHVHVWDWHDQGODUJHSRUWLRQVRILQWHUQDWLRQDOFRPPHUFHDQG¿QDQFHLQWKHODWH middle ages and modern times are documented in its archives, numbering 40.219 records (mostly account books). The records’ catalogue, begun in 1983, has been just completed and it is available to scholars and history students.

Giuseppe Felloni Professor emeritus of the university of Genoa

Festività e orari di lavoro nella quarta edizione delle Frontespizio della seconda edizione delle leggi di San leggi di San Giorgio (1720). Giorgio (1634)

65 Woven in – 125 Years of Deutsche Bank in Latin America

\HDUV DJR 'HXWVFKH %DQN¶V ¿UVW /DWLQ 1997 saw a strategic realignment of the Bank’s $PHULFDQ RI¿FHV RSHQHG IRU EXVLQHVV LQ WKH Latin American franchise. Since then Deutsche Argentine capital, Buenos Aires. Banco Alemán Bank has specialised in the region on institu-

Book trailers Book Transatlántico was the name of the Deutsche tional clients and investment banking. Latin Bank subsidiary founded especially to direct $PHULFD¶V HFRQRPLHV KDYH DOVR PDGH VLJQL¿ - operations in the region. Back then, the Bank’s cant progress over the past few years. Their major business lines were international trade growth potential is extremely promising, provid- ¿QDQFHDVZHOODVGHEWLVVXDQFHDQGSURMHFW¿ - ing attractive opportunities for Deutsche Bank nance. In the following years the Bank opened to further expand its operations in the region. branches in other Latin American countries. Based on this outlook, Latin America was given The branch established in Rio de Janeiro in the status of an independently managed region 1911 became one of the most important. within Deutsche Bank’s management structure During the Second World War the Bank’s busi- in May 2011. Today, Deutsche Bank is repre- ness ties with Latin America were completely sented in Argentina, Brazil, Chile, Mexico and severed. In the 1950s the Bank returned to Peru. Latin America beginning with representative of- On the occasion of the anniversary in Latin ¿FHV7KH UHRSHQLQJ RI %DQFR$OHPiQ7UDQV - America the Historical Association of Deutsche atlántico’s traditional headquarters in Buenos Bank has published an illustrated history on Aires was celebrated in 1960. A branch in Brazil the bank’s past and presence in Latin America, followed only a few years later. When Deutsche which shows how closely Deutsche Bank is in- Bank began to strongly expand its international terwoven with the region. business, Banco Alemán Transatlántico was fully amalgamated into the Bank. Since 1978 the bank’s Latin American branches have been operating under the name Deutsche Bank.

Banco Alemn Transatlntico main banking hall in Bue- Book cover nos Aires in 1973

66 The book Woven in - 125 Years of Deutsche Main banking hall at the new premises of Banco Alem_o Bank in Latin America, Munich: Piper, 2012, Transatlantico in Rio de Janeiro in 1926 191 pp., ca. 150 images, multilingual English/ Spanish/Portuguese, can be ordered via the Historical Association of Deutsche Bank: http:// www.bankgeschichte.de/en/content/775.html

It costs EUR 10.00. trailers Book

(Copyright for all graphic material: Deutsche Bank AG, Historical Institute).

From 1896 to 1924, Banco Alemn Transatlntico was located in the former building of Carabassa Bank

67 A Europe Made of Money The Emergence of the European Monetary System Emmanuel Mourlon-Druol

A Europe Made of Money is a new history of operation, a major leap forward in the crea- the making of the European Monetary System WLRQ RI D XQL¿HG (XURSH

“In A Europe Made of Money , Emmanuel Mourlon- Druol explains the origins of European monetary cooperation and the challenges to the wider processes of European integration posed by the global economic transformation of the 1970s. This book is contemporary international history at its very best and provides necessary background for understanding today’s travails in the Eurozone.” O. A. WESTAD,

“Emmanuel Mourlon-Druol has written an exemplary work of historical research: elegant, clear, empirically strong, and theoretically challenging, both to historians and political scientists. Essential reading for all special- ists of European integration and highly recommended to anyone wishing to fully understand the current Euro- crisis.” YOUSSEF CASSIS,

68 Raiffeisen’s Footprint, The Cooperative Way of Banking Edited by J. Mooij and W.W. Boonstra VU University Press, 310 pages.

Cooperative banks are an important force in retail banking. Almost every European country has one

or more large cooperative banks. Generally speaking, cooperative banks have weathered the cur- trailers Book UHQW¿QDQFLDOFULVLVUHODWLYHO\ZHOO,QPRVWFRXQWULHVWKH\GLGQRWQHHGJRYHUQPHQWVXSSRUWWKHLU losses were comparatively small and they are seen as safe havens by clients and markets alike. It is not a new phenomenon, as earlier crises show similar patterns. These recent developments however have resulted in renewed interest in cooperative banking. The cooperative business model has been neglected during the last decades, as demonstrated by Panu Kalmi in his 2007 article “The disappearance of Cooperatives from Economics Textbooks” published in the Journal of Econom- ics. In general, more or less the same conclusions apply for the historical dimension of cooperative banking one might add. Raiffeisen’s Footprint; the Cooperative Way of Banking, edited by Joke Mooij and Wim Boonstra, PHHWVWKLVUHQHZHGLQWHUHVW,WDOVR¿OOVDJDSLQWKHDFDGHPLFEDQNLQJOLWHUDWXUH([FHSWIRUWKH%ULW - ish mutual banks many of the discussed cooperative banks are based on the ideas of Friedrich Wil- helm Raiffeisen (1818-1888), a social driven German mayor. In 1864, Raiffeisen founded the Hed- GHVGRUIHU'DUOHKQVNDVVHQYHUHLQLQ*HUPDQ\LQIDFWWKH¿UVWUXUDOFUHGLWXQLRQEDVHGXSRQKLVRZQ ideas. It became the model for many cooperative banks from the late nineteenth century onwards. 7KH¿IWHHQFRQWULEXWLRQVLQWKLVYROXPH IRUPRUHGHWDLOVVHHFRQWHQWVEHORZ LOOXVWUDWHWKDWGHVSLWH their common origins cooperative banking systems show a lot of variation across countries and over time. To understand the characteristics of coopera- WLYH EDQNLQJ WKH YROXPH FRQWDLQV UHÀHFWLRQV on the cooperative business model and the governance structures of cooperative banks in general. One of the rather unique features of Raiffeisen’s Footprint is the combination of the work of economists and historians resulting in chapters based on economic data analysis of recent developments and well as historical studies. The volume deals with the experiences of cooperative banks during the series RI¿QDQFLDOFULVHVWKDWVWDUWHGLQEXWDOVR includes a series of studies dealing with earlier crises in Austria, France, Germany and the Netherlands and with the Scandinavian crisis of the early 1990s. Together they provide a good overview of the role cooperative banks play in the various national banking systems. Contrary to what most economic textbooks have sug- JHVWHG WR GDWH WKH ¿QDQFLDO LQGXVWU\ LV PXFK more diverse and complex, both in the past and the present. 69 Business in-between Cultures – the Development of Islamic Finance

Sarajevo is discussed from various angles by the pre- For a conference titled ‘Business between Cul- VHQWHUV WKH GLVFXVVLRQV ZHUH IUHH ÀRZLQJ , tures: The Development of Islamic Finance’, I also need to note that both approaches result- think Sarajevo was an excellent choice. The ed in questions and answer sessions followed historical city is located at the crossroads for by discussions during the coffee breaks, all of two main religions, and three main faiths; Islam which were very open-minded.

Conference report Conference and Orthodox and Catholic Christianity and is The opening speeches were more ceremonial a melting pot of the west and the east. Today DQGIRUPHGWKHRI¿FLDOZHOFRPHIRUWKHFRQIHU - Sarajevo is an ailing city, trying to recover from HQFH)LNUHW+DG]LFZDVWKH¿UVWUHSUHVHQWLQJ the biter experiences of the recent past and is our host Sarajevo Business School, and he in need of development. was followed by Kemal Kozaric from Central Although I am a relatively newcomer in Islamic Bank of Bosnia-Herzegovina and Damir Jelic, ¿QDQFHFRQIHUHQFHVLWZDVDOPRVWLPSRVVLEOH representing our other hosts EABH e.V. IRU PH WR QRWLFH D VLJQL¿FDQW GLIIHUHQFH IURP The opening speeches were followed by the the usual conferences. In an ordinary Islamic keynote address from Mehmet Asutay. In his ¿QDQFHFRQIHUHQFHWKHSDUWLFLSDQWVDUHXVXDOO\ presentation, Asutay reminded the audience of the Muslim background, and in most of the the moral economy foundations of the Islamic FDVHVDUHEDVHGLQWKHFRXQWULHVZLWKVLJQL¿FDQW economic thought, which eventually has given ,VODPLF¿QDQFHLQGXVWU\+RZHYHUWKLVWLPHWKH ELUWK WR WKH ,VODPLF ¿QDQFH LQGXVWU\ EXW KDV participants were a much diverse group, com- QRW\HWIXO¿OOHGLWVRULJLQDOSURPLVHVRIKXPDQ LQJ IURP GLIIHUHQW EDFNJURXQG DQG VFLHQWL¿F DQG VRFLRHFRQRPLF GHYHORSPHQW7KH ¿UVW disciplines. And I believe these characteristics session of the conference focused on the past were the main reason for the multidisci0plinary and present of interest free banking. Eleonora and multicultural contexts of the presentations Blasi has provided a historical review of Islamic and the discussions. economy; Mehmet Asutay has discussed the SODFHRI,VODPLF¿QDQFHLQVHFXODUHQYLURQPHQWV Conference Day 1 and the evolution of the legal and governance The conference was organised in the form of frames to co-existance; Fikret Hadzic and Velid ¿YH SUHVHQWDWLRQ VHVVLRQV VXSSRUWHG E\ WZR Efendic have discussed the development of in- discussion sessions and a keynote address. terest free banking in Bosnia and Herzegovina. :KLOHDOOVHVVLRQVKDGDVSHFL¿FWKHPHZKLFK The session concluded by Kabir Hasan, who

Audience )LNUHW +DGåLü 6FKRRO RI (FRQRPLFV DQG %XVLQHVV Sarajevo) - Opening Ceremony 70 GLVFXVVHG WKH JOREDO ¿QDQFLDO FULVLV DQG WKH KDVEHHQVXFFHVVIXOLQIXO¿OOLQJWKHP7KLVMRLQW possible solution that can be offered as a solu- paper with Mehmet Asutay has drawn a picture WLRQWKURXJKWKHPHDQVRI,VODPLF¿QDQFH that reminded the participants that there are still The second session was the start of the mul- a lot to do in order to achieve success for Is- WLFXOWXUDO DVSHFW RI WKH HWKLFDO ¿QDQFH DQG LWV ODPLF¿QDQFH UHÀHFWLRQ RQ ,VODPLF ¿QDQFH 5HEHFFD 6FKR - The third session focused on the position of Is- nenbach presented the history and working prin- ODPLF¿QDQFHLQPRGHUQ¿QDQFLDOPDUNHWV$PHU ciples of ethical and church banks and provided Bukvic discussed the current situation through a comparative analysis of these with Islamic a case study example of Bosna Bank Interna- banking in Germany. Damir Jelic discussed the tional, and underlined the successes and dif- report Conference importance of business mindedness and long- ¿FXOWLHVKLVRUJDQLVDWLRQKDVIDFHGWKURXJKWKH term objectives in order to achieve success for years. The two following presentations were in- interest-free banking and argued that Islamic teneted to be on the standardisation of Shari’ah banking has the necessary elements for suc- LVVXHV LQ ,VODPLF ¿QDQFH 8QIRUWXQDWHO\ DV D cess. These were followed by Nathan Marcus, result of the network connection problems, the who added another dimension to the multicul- attendants couldn’t healthily receive the pres- tural theme of the conference, and discussed entation of Abulazeem Abozaid. However, this the ethics of interest from Judaism perspec- JDS ZDV VXFFHVVIXOO\ ¿OOHG E\ D YHU\ LQWULJX - tive. Coupled with Rebecca’s presentation, it ing presentation by Ahmad Alkhamees, who was interesting to see a common theme among discussed the standardising Shari’ah scholars’ the Abrahamic religions underlining the dan- YLHZVLQ,VODPLF¿QDQFHLQGXVWU\WKURXJKERWK gers of creating money without the means of historical and legal methodological perspec- production. This multicultural dimension was WLYHV7KH¿QDOSUHVHQWDWLRQRIWKHVHVVLRQZDV further enhanced by Valentino Cattelan. In his by Renaud Foucart, who in his joint paper with presentation, Valentino has discussed the pos- Eddy Fang, presented a novel perspective of VLEOH FRQWULEXWLRQV RI ,VODPLF ¿QDQFH WKURXJK ,VODPLF¿QDQFH,QWKLVSDSHUXVLQJDVHWRISUL - the means of property rights and development mary data, Eddy and Renaud discussed Islam- issues. His presentation has provided an out- LF¿QDQFHWKURXJKWKHH\HVRI:HVWHUQ¿QDQFLDO come supporting Mehmet Asutay’s argument of industry professionals. It was interesting to see, co-existence, resulting in a ‘plural capitalism’. despite the increasing knowledge and aware- 7KH¿QDOSDSHURIWKHVHVVLRQZDVSUHVHQWHG QHVVDERXW,VODPLF¿QDQFHIURP:HVWHUQSHU - by ErcumentAksak, who has discussed the va- spective, actually this awareness and knowl- lidity of the ideals behind the emergence of Is- edge can be very diverse and in some cases ODPLF¿QDQFHDQGZKHWKHUWKHFXUUHQWVLWXDWLRQ suggesting opposing views. 7KH¿QDOVHVVLRQRIWKHGD\ZDVDURXQGWDEOH discussion about the future prospects of Islam- LF ¿QDQFH )ROORZLQJ DQ LQWURGXFWLRQ E\ $ODP Haneef, discussants Mehmet Asutay, Amer Bukvic, Valentino Cattelan and Damir Jelic shared their views on the future prospects of ,VODPLF ¿QDQFH WKH RSSRUWXQLWLHV DQG WKUHDWV lying ahead.

Mehmet Asutay (Durham University)

71 Conference Day 2 mechanism from a western perspective, which The conference continued in the second day was also providing essential criticism to enable with the fourth session discussing the new tra- Islamic banks enter into new markets. Haider MHFWRULHVRI,VODPLF¿QDQFH7KLVWLPHWKHIRFXV Ala Hamoudi, in the second paper of the ses- ZDVRQWKHJHRJUDSKLFDOH[SDQVLRQRI,VODPLF¿ - sion discussed the investor decision making nance, and the presenters provided information process with the availability of both conven- DERXWWKHDFWLYLWLHVRI,VODPLF¿QDQFHLQGLIIHU - WLRQDODQG,VODPLF¿QDQFLDORSWLRQV+DLGDUDU - ent countries through different stages of devel- JXHGZLWKWKHLQFUHDVLQJXVHRI,VODPLF¿QDQFH opment. Andrei Juravliov discussed the viability facilities, especially after the Arab Spring, there

Conference report Conference DQGLPSHGLPHQWVIRU,VODPLF¿QDQFHGXULQJLWV will be more opportunities of “reverse Shari’ah introduction stage to Russian markets. His data arbitrage” and investors will be more willing to DQG ¿QGLQJV ZHUH SUHFLRXV JLYLQJ D GHWDLOHG engage in this kind of arbitrage opportunities. VQDSVKRWRILQWURGXFWLRQRI,VODPLF¿QDQFHWR However, he notes, this concentration on op- a country which is not predominantly Muslim. portunities will inevitably thrust demand for His results suggested that there are still a lot PRUH SUR¿W DQG ORVV DQG ULVN VKDULQJ DVSHFWV to be done to achieve success and growth in RI,VODPLF¿QDQFHIXUWKHULQWREDFNJURXQG7KLV DPXOWLFXOWXUDOHQYLURQPHQWIRU,VODPLF¿QDQFH presentation was followed by Nick Foster. In his The second presentation of the session was by joint paper with Simon Archer, Nick investigat- Ayhan Keser, who discussed the development HGYDULRXVDVSHFWVRIWKHODZRI,VODPLF¿QDQFH of Islamic banking industry in Turkey. In his from the law methodology point of view and presentation, Ayhan provided a historical over- DUJXHG WKDW WKH OHJDO URRWV RI ,VODPLF ¿QDQFH view of the development of the Islamic banking has developed out of the boundaries of a legal industry and the current situation, using both in- system and has an independent characteristic. dustry statistics and the review of the regulatory 7KH¿QDOSDSHURIWKHVHVVLRQZDVSUHVHQWHG IUDPHLQ7XUNH\7KH¿QDOSDSHURIWKHVHVVLRQ by Rudiger Litten, discussing the regulatory en- was by Aaron Pitluck. Aaron used the evidence vironment for Islamic banks in Germany. Like from the Malaysian experience and combined Gabriela, Rudiger also discussed about the this to the arguments on ‘multi-culturality’, ‘co- place of Islamic banks in the banking system, existence’ and ‘plurality’ which have been con- and how they can be placed within a different stantly discussed from the beginning of the con- legal frame. He also provided a detailed reference. His ideas using sociological elements, YLHZ RI *HUPDQ ¿QDQFLDO VXSHUYLVRU\ V\VWHP empirical evidence and the possible outcomes KRZ,VODPLFEDQNV¿WLQWRWKLVV\VWHPDQGWKH were thought provoking and suggestive for fu- taxation issues regarding Islamic banks in Ger- ture cooperation among cultures. many, and two other major European Union ,QWKH¿IWKDQGWKH¿QDOVHVVLRQRIWKHFRQIHU - economies, UK and France. ence, presenters discussed various issues Following the presentations on the regulatory regarding the legal and regulatory aspects of LVVXHVUHJDUGLQJ,VODPLF¿QDQFHLQYDULRXVOHJDO ,VODPLF¿QDQFH*DEULHOOD*LPLJOLDQRLQKHUSD - HQYLURQPHQWVWKH¿QDOSDQHOGLVFXVVLRQFRQWLQ - per discussed two main issues. First, how the ued the discussion from where was left at the Italian legal framework affects the market en- end of the previous session. Alberto Guiseope try decisions of Islamic banks to Italian market; Brugnoni, Haider Ala Hamoudi and Rüdiger Lit- and second, where the Shari’ah supervisory ten with moderator Mehmet Asutay discussed ERDUGPHFKDQLVPVRI,VODPLFEDQNV¿WLQZLWKLQ DERXWWKHIXWXUHSURVSHFWVRI,VODPLF¿DQQFHLQ this kind of a legal framework. It was interesting the European regulatory environment, the pos- to see a paper discussing the Shari’ah board sible opportunities, both for the markets and

72 WKH ,VODPLF ¿QDQFH LQVWLWXWLRQV DQG SRVVLEOH Final Thoughts shortcomings. The discussion in general was a This conference was one of the most diverse YHU\JRRGH[HUFLVHIRUVXPPLQJXSWKHVSHFL¿F H[SHULHQFHV RQ ,VODPLF ¿QDQFH , KDYH HYHU cases discussed in the previous session. witnessed. With speakers and audience com- 0HKPHW $VXWD\ PDGH WKH ¿QDO SUHVHQWDWLRQ ing from diverse backgrounds, academic disci- with concluding remarks. He summarised a plines and various experiences, the conference review of the presentations, underlined the has become worthy of all the efforts and travel. JHQHUDOLVVXHVGLVFXVVHGDQGGUHZVSHFL¿FDW - I would like to thank all of the participants, who tention. It was quite clear at the moment that, have given me many new ideas to investigate there will be a need for many more of the simi- for my research projects, and opportunities to report Conference lar conferences, gatherings and discussions. collaborate in the future. I also need to men- Mehmet also announced the good news about tion the organisation committee and their efforts HVWDEOLVKLQJDQHZLQLWLDWLYHIRU,VODPLF¿QDQFH once again. They have made an otherwise ex- in Bosnia and Herzegovina. I am sure; there will hausting and dry organisation an experience to EHLQWHQVL¿HGHIIRUWVIRUGHYHORSPHQWRI,VODPLF remember fondly in the years to come. Thank ¿QDQFHUHVHDUFKLQ6DUDMHYRDQGWKHUHZLOOEH you once again. many more opportunities to visit this beautiful city once again. Ercument Aksak Durham University

On my way back from Sarajevo, I read the following story in a Belgian newspaper: “Brussels Region Minister touring the Gulf countries to advertise Brussels as European Capital of Islamic Finance”. The minister claims he wants to build legislation able to attract sovereign funds following Islamic principles. The day after, the usual pamphleteers (Belgian MPs) were arguing in the same newspaper about whether this was another attempt from “Radical Muslims” willing to impose sharia in the FRXQWU\7KLVLVPRVWRIZKDWSROLWLFVLQWKH:HVWKDVWRVD\DERXW,VODPLF¿QDQFH:HVWHUQ¿QDQFLDO actors are much more pragmatics than politicians towards this issue (see our forthcoming contribution in the proceedings of the conference). When it goes about the practical implementation of Islam- LF)LQDQFHWKHUHDOZRUOGLVPXFKPRUHUHOHYDQWWKDQDK\SRWKHWLFDO³¿QDQFLDOFODVKRIFLYLOL]DWLRQ´ But, beyond the general principles, their understanding of what the application of Islamic principles to the economy should be is still stammering. In Sarajevo, I learned how passionate and timely this GHEDWHLVIRUWKHDFWXDODFWRUVRI6KDULDFRPSOLDQW¿QDQFH(YHU\RQHREVHUYHVDPRPHQWXPVRPH - thing is happening. But interpretations diverge and there is nothing such as a general agreement on what Islamic Finance is and should be. The debate is the same everywhere in the world and is not UHODWHGWRDVSHFL¿FUHOLJLRXVEHOLHILVWKHUHURRPIRUHWKLFVLQ¿QDQFHRUVKRXOGZHWDONPRUHDERXW HWKLFVLQWKHHFRQRP\",V¿QDQFHSHUVHXQHWKLFDORULVLWSRVVLEOHWRPDNH¿QDQFHPRUDO",QVWHDG RIPRUDOL]DWLRQVKRXOGZHQRWWDONDERXWUHJXODWLRQRI¿QDQFHDQGNHHSWKHPRUDOSULQFLSOHVIRUWKH HFRQRP\DQGQRWWKH¿QDQFLDOPHFKDQLVPV"7KHRQO\GLIIHUHQFHPD\EHWKHPHDQLQJSHRSOHSXW on the words “ethical” and “moral” … This is the kind of things I heard in Sarajevo. So far away from politicians of my own country playing with the same fears again and again…

Renaud Foucart University of Oxford

73 Archival Legislation for Finance (ALFF) in Europe First Workshop

The past 23 November 2013, several mem- VKDOOEHSUHVHUYHGDQGLQZKDWDVSHFWV¿QDQ - bers and friends of the European Association FLDOLQVWLWXWLRQVFDQQRWEHÀH[LEOHRUDFFHSWIXU - for Banking and Financial History (EABH) e.V. ther limitations regarding the preservation of gather together for the First Workshop on Archi- documents. val Legislation for Finance (ALFF) in Europe. With the participation of experts from nine dif-

Conference report Conference This Fist Workshop allowed us to store a large IHUHQWFRXQWULHVZHFDQSUHVHQWWKH¿UVWFRQ - amount of new information regarding Archival clusions as a result of this Workshop from a and Records Management Legislation. Within particular legal perspective. In short: all pres- this document we would like to present some of entations acknowledged a strong difference the general results. EHWZHHQVXEMHFWVFRXQWULHVDQG¿QDQFLDOLQVWL - ,QLWLDOO\ZH ZRXOG OLNH WREULHÀ\ UHPLQGLQJ WKH tutions. general goal of the First Workshop, which we For presenting the conclusions, it will be also consider necessary to elaborate an accurate convenient to divide the subject in Archival leg- summary. islation, on the one hand, and Records Man- The objective of the past workshop was to un- agement regulation, on the other. derstand current regulation for archives and Further, we need to consider the differences UHFRUGVPDQDJHPHQWZLWKLQ(XURSHDQ¿QDQFLDO between countries and to separate institutions. institutions. We have aimed to discover how It has been found, that legislation in countries this regulation has been applied in practice (in which had more strict governments in their SULYDWHDQGSXEOLF¿QDQFLDOLQVWLWXWLRQV WRKDYH past, have a similar regulatory treatment for a better perception of the European current SXEOLFDQGSULYDWH¿QDQFLDOLQVWLWXWLRQV,QPRVW VWDWXVRIODZVWR¿QGWKHGLI¿FXOWLHVZLWKLQWKH of the cases this is based on the argument of regulation, as well as its positive aspects, and WKHHFRQRPLFDOIXQFWLRQRI¿QDQFLDOLQVWLWXWLRQV to know how the archival and records legisla- and the protection of the public interest. tion works in Europe. And then there are countries with a more liberal Once a general view of archives and records background, which separate public and private PDQDJHPHQW LV HVWDEOLVKHG ¿QDQFLDO LQVWLWX - ¿QDQFLDO LQVWLWXWLRQV LQ ZKHUH VWLOO SXEOLF LQVWL - tions will be able to determine which regulation tutions are strongly regulated, but within the private sector the historical relevance of docu- PHQWVLVWREHGH¿QHGE\WKH¿QDQFLDOHQWLW\LW self’s and they are only limited by general laws and their own internal codes or procedures. After taking this under consideration, I will short- ly present the remarks from our joint workshop: Regarding archival legislation, meaning, the legislation for preservation of documents that are not considered records any longer, or whose value is historical instead of legal or economical for the institution, we can state the following: $UFKLYDODVSHFWVDUHQRUPDOO\FRQWDLQHG Angela Campana (EABH eV) presenting the conclu- not only in archival law, but also in cultural herit- sions of the 1st ALFF Workshop

74 DJHODZV,QVRPHFDVHVUHJDUGLQJSULYDWH¿ - ,QPRVWRIWKHFRXQWULHVRQO\¿QHVDUH nancial institutions, they are also preserved in imposed rarely the penalty is related with crimi- their internal codes or manuals. nal felonies. 0RVWRIDUFKLYHVDUHSURWHFWHGIRUWKHLU On the other side, we have records manage- Historical Value. However, the term Historical ment legislation, which is law that applies for 9DOXHLVQRWGH¿QHGE\ODZLQPRVWRIWKHFRXQ - current records or documents that have present tries. Subsequently, the term still needs to be legal or economical value for the Financial In- FODUL¿HGE\DGPLQLVWUDWLYHDXWKRULWLHVRUE\WKH stitution. Financial Institutions. For instance, in certain The law on these matters has been generous.

FRXQWULHVWKHVHGH¿QLWLRQVRIWHQDUHVKDSHGE\ Records legislation in Europe can only be de- report Conference the national archives or the minister of culture. ¿QHG DV YDULDEOH LW FKDQJHV IURP FRXQWU\ WR In some other cases, the meaning of this word country, from codices to codices (statutes), and is contained in the law, but it is so broad that from internal regulation to internal regulation. they ease several interpretations. Therefore, each document, within each statute, To have this concept so open can be either within each country has its own retention pe- EHQH¿FLDOLIDXWKRULWLHVDUHÀH[LEOHZKLFKLP - riod and its own legal, administrative or criminal plies that you can either keep or throw away consequences. documents based on the grey areas of the law; However, a compilation on these records man- or highly inconvenient, if you are under the agement matters needs to be made, to have surveillance of a strict supervisory authority, in a better understanding of the numerous legal ZKLFK¿QHVRUHYHQFULPLQDOVDQFWLRQVPD\DS - frameworks and anticipate changes in regula- ply. tion. On this regards, a consultation guideline 7KHUHWHQWLRQSHULRGVDUHXVXDOO\ODUJH with all countries regulation has been designed However, the moment in which these docu- as part of the (ALFF) in Europe Project and ments can be available for public consultation WKH($%+H9H[SHFWVWRKDYHWKLV¿QLVKHGE\ or access vary from 30 to 100 years depending 2013. on the content of the document (personal data To come slowly to a close, there are several or government information), the country (as we differences to be concealed within Europe. We VDLGEHIRUH DQGWKHNLQGRI¿QDQFLDOLQVWLWXWLRQ are working on the compilation of all of them, (public or private). in order to facilitate the work of archivists, law- \HUVDQGKLVWRULDQVZLWKLQ¿QDQFLDOLQVWLWXWLRQV and of the Financial Institutions itself. We hope to complete this assemblage with information collected at the successful workshop that took place on 23 November 2012, a questionnaire (that will clarify how archives and records management work in practice) and a future workshop in 2013, to elaborate on these matters within the whole European community.

ALFF Workshop participants

75 Born this Way: Business Archives and the Digital Record Business Archives Council Conference 2012

The theme of the 2012 BAC conference was digital records – both those which are born digital, and those which have been digitised. The topic was chosen following feedback from BAC members and attendees at previous conferences, many of whom had expressed the need for discussion around WKHLVVXH7KHFRQIHUHQFHZDVKRVWHGE\WKH%DULQJ$UFKLYHDW,1*¶VRI¿FHVRQ/RQGRQ:DOODQG was well attended by archivists and records managers from both the private and public sectors –

Conference report Conference over 100 delegates in all. In the course of the day, six speakers gave thirty minute presentations on themes around the sub- MHFW6HVVLRQRQHZDVHQWLWOHGµ'LJLWDO'HP\VWL¿FDWLRQ¶DQGLQFOXGHGDGLVFXVVLRQRQWKHLPSDFWRI digital material within one’s organisation. This discussion generated feedback which enabled data WREHFRPSLOHGDQGSUHVHQWHGGXULQJWKHSDQHOVHVVLRQODWHULQWKHDIWHUQRRQ7KH¿UVWVHVVLRQDOVR included a talk from William Kilbride, Executive Director of the Digital Preservation Coalition. Kilbride stressed that in the future, problems will mainly be around the large volume of digital records rather than obsolescence, along with expansion in complexity and also growth in user expectation for digital material. Session two was entitled ‘Sharing Knowledge: widening our professional outlook’ and included presentations from David Hill, manager of archives, information and records at the Bank of England, and Simon Rooks, multi-media archivist at the BBC. Hill talked about born digital records from a records management perspective, using the example of the system currently in place at the Bank of England and posed the question as to whether it was appropriate to leave the management of this digital material to the end user. Rooks talked about the long journey towards the archiving of multi-media material at the BBC, which is in the process of developing its digital archive, in order to preserve the huge amounts of photo, sound, television, written, web, music and also gramophone material in its possession. Session three in the afternoon focussed on two case studies on digital delivery. Vicky Stretch, archivist at National Rail, spoke about the value of the Network Rail Virtual Archive, and how this has been useful for internal communications, marketing and generating positive publicity for the Company. Clara Harrow, archivist from The Baring Archive, spoke about Baring’s ‘risk and rewards’ HGXFDWLRQDOUHVRXUFHZKLFKZDVFUHDWHGE\GLJLWLVLQJVRPHRIWKH¿QDQFLDOUHFRUGVIURPWKH%DULQJ Archive collections. Vanessa Winstone, one of our bursary delegates, was especially interested in this project for schools, bringing to life the sometimes dry topic of commercial and government loans. Finally, session four, ‘Taking stock and moving forward’, featured a talk by Oliver Morley, Chief Ex- ecutive and Keeper at The National Archives, on a pragmatic approach to digital records and the need to be build systems for digital records based on the expectations of future use. The session ended with a lively panel discussion on the future implications for the management of digital records in the business archive environment, with questions and comments from the audience. There was also a chance to look at a summary of the information and comments from feedback forms collected after the morning’s discussion session. The conference was then bought to a close, with some delegates staying on for John Orbell’s demonstration of the new Business History Explorer, an online bibliography of histories of UK businesses, available on a three year subscription.

Anne-Marie Purcell London Metropolitan Archives

76 pp368370 - CarstenBurhop &DPEULGJH8QLYHUVLW\3UHVVSS ,6%1 )RKOLQ0RELOL]LQJ0RQH\+RZWKH:RUOG V5LFKHVW1DWLRQV)L SS Maes Ivo &DPEULGJH&DPEULGJH8QLYHUVLW\3UHVVSS ,6%1 *RRGKDUW7KH%DVHO&RPPLWWHHRQ%DQNLQJ6XSHUYLVLRQ7KH+LVWR SS HåkanLobell $QGHUVHQ7KH(YROXWLRQRI1RUGLF)LQDQFH %DVLQJVWRNH3DOJUDYH0DFPL ReviewsBook pp337361 - DavidLeBris :DUVLQÀDWLRQDQGVWRFNPDUNHWUHWXUQVLQ)UDQFH± SS DoloresMaría Gadea,Marcela Sabaté,Isabel Sanz /RQJUXQ¿VFDOGRPLQDQFHLQ$UJHQWLQD± pp289309 - John James A. Panics,payments disruptions and EnglandBankthe of before 1826 pp269 288 - GeorgeSelgin Thosedishonest goldsmiths Articles pp249267 - Douglas Irwin A. Goldsterilization and recessionthe 1937–1938 of PastSurveys,Notes,Mirror: The Debates VolumeDecember03,Issue 19 249370 2012,- / pp ISSN: 0968-5650,ISSN: 1474-0052EISSN: Financial HistoryReview Financial QDQFHG,QGXVWULDO*URZWK &DPEULGJH U\RIWKH(DUO\

EABH noticeboard 5HPRYLQJWKHGXVW Brentani. WKDWRSHQHGWRWKHSXEOLFODVW\HDUDQGLVKRVWHGL The modern art collection complements a selection o P\RI¿FHWKDWDUHQRZRQSXEOLFGLVSOD\´ PDVWHUSLHFHVZHUHKRZHYHUHQMR\HGE\MXVWDIHZSHRSOH,KDG Supervisor Bazoli, Giovanni said area,” local their ³)RU,WDOLDQEDQNVHYHQWKHVPDOOHURQHVLWKDVEHHQDWUDGL %XUULRUZRUNVE\0$& FRQFUHWHDUW PRYHPHQWIRXQGHU%UXQR0XQDUL EmilioVedova, one of the most important Italian paintersof works with deliberate holes or slashes in them. Other masterpiece WKHHPEOHPDWLF)RQWDQDNQRZQIRUKLV6SDWLDO&RQFHSWVHULHV Italian works, many from the Lombardy region where Milan is based. UHSUHVHQWDOOWKHOHDGLQJDUWLVWLFPRYHPHQWVIURPWKHVWRW DQGE\WKHHOHJDQWVKRSSLQJVWUHHW9LD0DQ]RQL)URP,QIRUPDO *DOOHULHG ,WDOLDWKDWEHORQJVWR,QWHVD6DQSDRORDQGLV 7KHQHZO\LQDXJXUDWHG&DQWLHUHGHO H[KLELWLRQ DQLQWHJUDOSDUWRIWKHH[KLELWLRQVSDFH´ /XFFKLZKRGLUHFWHGWKHSURMHFW³:HKDYHOHIWSRUWLRQVRIW the now is hall bank main “The sculptures. and ings (YHQWKHEDQN VUHVWRUHGYDXOWVZLOOEHWXUQHGLQWRH[KLELWKD hallswhere clerkdesks and cashcounters 100stood for years. ,QWHVD6DQSDROR VKXJHDUWFROOHFWLRQDUHRQGLVSOD\DVRIWK merciale Italiana, now part of domestic bank giant IntesaSanp VLFDOVW\OHZLWKHFOHFWLFIHDWXUHVZDVEXLOWLQDVDSUHVW )RQWDQDDQG5HQDWR*XWWXVR3DOD]]R%HOWUDPLDVXSHUE0LODQH VTXDUHLQWRDPDMHVWLFPRGHUQDUWPXVHXPGLVSOD\LQJ,WDOLDQSRVWZ 0LODQ,WDO\ VELJJHVWUHWDLOEDQNKDVWXUQHGLWV aaz nusoa h caoa oryr PalazzoBeltrami,maithe Palazzo Anguissola,octagonalthe courtyard Bank turns vaults into artmuseum into vaultsBank turns KLVWRULFKHDGTXDUWHUVLQ0LODQ VFHQWUDO/D6FDOD QWKHDGMDFHQW3DOD]]R$QJXLVVRODDQG3DOD]]R y Board Chairman of IntesaSanpaolo. “These “These IntesaSanpaolo. of Chairman Board y f works from the 19th century also from the bank key museum hall,” said architect Michele De De Michele architect said hall,” museum key LVSDUWRIDEURDGHUPXVHXPFRPSOH[FDOOHG VHWDFURVVIURPIDPHGRSHUDWKHDWUH/D6FDOD the post-War era, collages from Alberto KHRULJLQDOFDVKFRXQWHUVWKDWDUHQRZ OOVKRVWLQJDURWDWLQJVHOHFWLRQRISDLQW LJLRXVQHZKHDGRI¿FHIRU%DQFD&RP LVZHHNLQWKHVDPHHDUO\WKFHQWXU\ WLRQWRFROOHFWDUWDQGGRFXPHQWVIURP aolo. Nearly 200 works of art, all from LVPWR3RS$UWWKHFROOHFWLRQDLPVWR PRQRFKURPDWLFSDLQWLQJVDQGRWKHU KHV,WLVHQWLUHO\PDGHXSRI WZRZRUNVRI8PEHUWR%RFFLRQLLQ VHEXLOGLQJZKLFKEOHQGV1HRFODV s include abstract paintings from DUZRUNVIURPWKHOLNHVRI/XFLR A whole section is dedicated to n bankn hall Lisa Jucca Lisa - - -