The year that lasted from June 1967 to June 1968 was a very exciting one for me. It was a year of extreme financial turmoil that left a newly married 22 year old in the middle with a small role to play.
Firstly, a reminder of the background. I was the number two in the District Bank’s dealing room. District Bank was one of the smaller UK clearing banks with around 570 branches. It was wholly owned by the National Provincial Bank. For more details check out either Wikipedia or the RBS heritage site (RBS being the eventual owner). The head office was in Manchester but all of the FX trading was carried out in the London Office. Sometime during this year we had an extra team member join – Peter Johnston (maybe wrong spelling – sorry Peter). Peter joined the bank in the same week as me in the Walks Department (see earlier blog entry) and at that time was Assistant Foreign Cashier. On being asked to suggest a new member of the team, I was pleased to recommend him. As a member of the Clearing House, we had a direct line through to the Bank of England which enable them to place orders with us to be executed on their behalf in the markets. At that time, it was unheard of for central banks to intervene in the markets in their own name. They also would never confirm intervention nor would they discuss the amounts involved.
1967-68 was 12 months that encompassed a huge Sterling currency crisis, a Sterling devaluation, an international gold crisis and riots in the streets of Paris that shut the banks for a while. Through all of this, I was to play a small and, but not to me, insignificant part.
Let us start with the latter part. For a quick run down, check out the Wikipedia entry. The main effect on me was that the banks in Paris all closed down meaning that the turnover in the French Franc currency market trickled to a halt because no payments could be executed. We had some discussions with a couple of banks in Paris and it turned out that they were perfectly willing to quote us prices in French Francs with the understanding that the normal 2 day delivery of funds would have to be suspended – funds would transfer to settle all outstanding deals when the banks in Paris were working normally again. This gave us the opportunity to enter the London French Franc market as a market maker – something that was normally done by the likes of Credit Lyonnais and Banque National de Paris. We had a very successful run at this and made quite a lot of money as none of the London based French banks seemed to want to get involved – at least we didn’t see them.
Now, we come to the gold crisis of March/April 1968. From 1961, the major central banks had agreed to hold the price of gold at $35 per ounce. This had suffered some strains but had generally held in place. However, stresses in the market from the devaluation of Sterling in late 1967 (see later) caused a huge run on gold. Eventually, President de Gaulle decided that France would no longer participate in the “Gold Pool” as it was called. This had become a heavy net provider of gold to the market due to the fixed price in a crises. De Gaulle decided that he wanted to hold gold, not sell it so the French central bank (The Banque de France) started repatriating all of its US Dollar trade receipts to New York for payment in Gold. Eventually, the Gold Pool couldn’t hold. On March 8th, 100 tons was sold by the pool – against only 5 tons on the previous day. the following Wednesday it was 175 tons and on the Thursday 225 tons! Needless to say, this could not go on. The Queen declared Friday that week a bank holiday and the gold market was closed for two weeks. It finally opened with a two tier market of official sales between central banks at $35.20 but all other trades at a market price.
Aside: The change from $35 to $35.20 is interesting. Up until then all supply had come from London but the swing from then was to a New York delivery – the 20 cents represented the cost of transporting the gold!
All of this made the exchange markets extremely volatile and I was pretty much rooted to my desk for the period. In fact I was due to visit our Manchester Head Office during this time. The idea was that I would spend a few days up there to see what they did and explain to them what we did. Their exchange desk was purely a reporting desk to us and they had no role in fixing rates for customers over and above a small amount, which they would do at rates updated by me during the day. This means that they had to request rates from us for any large transactions – again, more of this later. I was delayed in going up to Manchester. I was quite proud when I did finally check into my hotel. I was greeted with the expression – “oh, you were the one delayed by the gold crisis”. I never felt more important!
All, in all, both of these events were headline news in the newspapers and I was really proud to read about the day’s events in the Evening Standard on the train ride home and think that I had been in the middle of it all. However, the best bit was yet to come!