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Britain’s Grand Strategy of Restrained Punishment


to China. Before departing for the Far East, Leith-Ross conducted inter- views with bankers, ‹nancial interests in the City, and businessmen inter- ested in trade with China.31 Joint Anglo-Japanese ‹nancial cooperation on aid to China might give way to a solution to Manchukuo, save the Washington Naval Conference system, arrive at a working arrangement in regard to occupied China, and lead to Japan’s return to the League of Nations (Louis 1983, 366).

Finally, neither the Treasury nor the Bank of England wished to become involved in the considerable rescue operation that would inevitably follow from the termination of ‹nancial relations with Ger- many or Japan (Newton 1991, 185). British international creditors that had issued a large volume of short-term credits to Germany opposed calls for stringent exchange and import control arrangements (183–84). Ger- many had already issued decrees halting the withdrawal of foreign loans, endangering the City. As the Governor of the Bank of England warned, punishment will result in “a loss or freezing up of £35,000,000 of British money” (186). In 1931, in response to the high levels of capital with- drawals from Germany that escalated into a Europe-wide scramble and at the behest of the City Bankers and the Bank of England, London erected the Anglo-German Standstill Agreement (renewed annually until 1939) (Roberts 1991, 64). The Standstill Agreement froze existing credits while interest payments continued, with the goal of keeping the German banks a›oat and, more broadly, liberalizing Anglo-German trade. In conjunction (and in opposition to the FBI), bankers called for the tem- porary suspension of German reparations until conditions improved.32 Thus, as one author summarizes, free traders lobbied for “a wide range of measures of co-operation in foreign trade and ‹nance which could be appropriately deployed to keep a foot in the door in Central Europe, to check the general drift towards autarky, to relieve international political tension and thus preserve a basis for the re-establishment in the future of the world economic order with the inclusion of Germany” (Wendt 1983, 165).

In the Far East, the in›ation rate in China and the instability of China’s currency caused alarm in London’s ‹nancial circles (Trotter 1977, 43). To put China on sound ‹nancial ground, the Bank of England, the commer- cial banks (Hongkong and Shanghai Bank), insurance and trust compa- nies, businessmen, and the commercial and industrial lobby proposed a joint Anglo-Japanese loan to China in 1935 (and another in 1937, issued in London and guaranteed by Britain and Japan). The joint rescue pack-

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