At the close of the cotton conference Secretary McAdoo appointed a committee to draft a report embodying suggestions for the solution of the problems presented at the conference. The report of this committee, adopted August 28, approved the treasury plan of issuing currency against notes secured by warehouse receipts for cotton, tobacco and naval stores; and recommended that, to assist the producers to hold their cotton for a price that would minimize their loss until such times as the channels of foreign trade should be opened, loans be made upon a basis of 8 cents per pound for middling cotton, less whatever margin the lender should consider necessary; that warehouse receipts for tobacco and naval stores be accepted as security for loans on a basis that had due reference to their market value; and that notes having longer than four months to run, when secured by the proper warehouse receipts, be accepted for rediscount by the Federal reserve banks and also by the national currency associations as security for additional circulation to the national banks under the provisions of the amended Aldrich-Vreeland Act.

On August 24 the Senate passed without a roll-call the cotton-warehouse bill providing for the Federal licensing and inspection of cotton warehouses. It was thought that this would strengthen the Treasury plan of using warehouse receipts as a basis for the issue of additional currency. Amendments were passed later extending the provisions of the bill to tobacco, naval stores, canned salmon, grain and flaxseed. A clause of this bill stipulated that its provisions should remain in force for only nine months after a treaty of peace had been ratified between Great Britain and Germany, and that in no event should they remain in force longer than two years after the passage of the bill.

As already noted, the outbreak of the war caused an immediate derangement of foreign exchange operations. With the closing of the stock exchanges in Europe, foreign holders of American securities started to dump their holdings on the New York Stock Exchange. This movement made it necessary to close the Exchange on July 30, which* was quickly followed by the closing of all the leading stock exchanges in the country. As a further protection to the gold supply most of the large cities resorted to the issue of clearing house loan certificates as in the panic of 1907.

When the war broke out it was estimated that the United States had over $150,000,000 of obligations about to mature in Europe. Since foreign exchange operations were almost completely suspended, and since there was no certainty when and under what conditions Europe would be ready to receive exports to meet these obligations, it became a question whether gold should be shipped to meet this foreign balance or whether our bankers should say to their correspondents abroad that, so long as moratoria existed in Europe, it was necessary to recognize the operation of an informal moratorium on this side in foreign transactions. Many bankers felt that, before shipping gold to London or to Ottawa, wince soon after the declaration of war the Bank of England had deposited a large amount of gold to meet the demand for sterling exchange, they should have some assurance that London would be ready to pay in gold for future shipments of grain and other American products. For the purpose of working out a plan by which American obligations to Europe could be adjusted without shipping gold, the Secretary of the Treasury called a conference of bankers and clearing house representatives from twenty cities to meet with the members of the Federal Reserve Board at Washington, September 4. At this conference a committee of bankers, with Mr. Forgan, of Chicago, as chairman, was appointed to formulate a plan and submit it to the Federal Reserve Board.

The Forgan committee in a report dated September 4 recommended the creation of a fund of $150,000,000 in gold through contributions by the banks to meet our foreign obligations and to clear up the sterling exchange situation. One-sixth of this gold fund was to be paid immediately into the Canadian depositary of the Bank of England, the remainder to be subject to call by the New York committee charged with the duty of fixing the price at which foreign exchange should be bought and sold. When the Federal Reserve Board took up the consideration of this proposal on September 8, it was found that the proposed fund of $150,000,000 included $80,000,000 of obligations of New York City held by European creditors and maturing within the next few months; and that a syndicate of New York bankers had arranged to underwrite this $80,000,000. As a result the bankers' committee made a second report, September 19, recommending that the proposed gold pool be reduced to $100,000,000. This recommendation was approved by the Reserve Board, and a committee of New York bankers was appointed to manage the fund. On September 24 the Board addressed letters to the clearing house associations in the central reserve and reserve cities recommending that they appoint committees to secure from the national banks and state banking institutions of their respective cities their subscriptions to the gold fund, naming the amounts that represented their fair proportions based upon their holdings of gold. The largest contributions to the gold fund were as follows: New York, $45,000,000; Chicago, $16,000,000; Philadelphia, $8,000,000; Boston, $7,000,000; St. Louis, $5,000,000; San Francisco, $3,500,000; Pittsburgh, $3,000,-000. The clearing house associations were notified to transfer the contributions of their members to the custody of the Gold Fund Committee in New York. Assurances were received that the entire fund of $100,000,000 would be subscribed and the call for the first installment of 25 per cent was sent out. Some of the members of the Gold Fund Committee believed that this first payment of $25,000,000 would prove sufficient to restore practically normal exchange conditions. In the meantime the committee arranged with nine New York banks to advance $10,000,000 so that the sale of foreign exchange might begin without delay. This gold was taken from the Sub-Treasury in New York and shipped to Ottawa on October 2, and on the following day a sub-committee began passing on applications for checks on London.