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In the event of a crisis central banks would find themselves torn between two responsibilities.The first was to defend their currency’s parity with gold and thereby the entire edifice of the international gold standard.70 percent of the global telegraph cable network was composed of lines operated by British companies; UK shipping companies carried 55 percent of the world’s seaborne trade (by comparison, American and French shipping constituted a quarter of the total); and Britain controlled about three quarters of the coking coal annually used by the world’s cargo vessels.The hierarchical division of labor found in the City of London was the most developed financial system in the world, but the pattern was replicated at a smaller scale in national financial sectors across Europe.The Great War required war-making states to mobilize and sustain the financial resources for a global war on an unprecedented scale.

But it was the scale, power, and international reach of its private financial sector that made London preeminent.

On the other hand, they could “go off” gold for the duration of the war, but thereby push the costs of regaining parity forward into an uncertain future.

Britain and the United States, determined to uphold the exchange rate between the pound sterling and the dollar in the interest of easy borrowing, picked the former option.

This required raising interest rates and keeping the total volume of money and credit under control, often with contractionary effects.

The other responsibility was to act as a lender of last resort for their banking system by supplying emergency liquidity.

Moreover, in the decade before the war, the importance of large financial institutions (especially the large clearing banks of the City of London) grew as their gold reserves and lending behavior exercised a larger influence on global financial market conditions.