Norman was Britain’s first modern central banker and Governor for a remarkable 24 years until 1944, amassing powers at Threadneedle Street that turned what was a cosy City institution into an arm of the state.
But he was also an economic dinosaur, whose determination to put Britain back on the gold standard in 1925 destroyed industry and condemned Britain to a more severe recession than necessary.
Adam Posen, a former Bank’s rate-setter, has said that when he could not decide which way to vote he would look at the giant portrait of Norman hanging in the Monetary Policy Committee’s meeting room and ask himself “What would Montagu do?”. Then do the opposite.
So, Mark Carney’s decision to remove the heirloom shortly after taking over as Governor on July 1 was loaded with symbolic significance. What he could not have known, though, was that another – more damaging – gold scandal involving Norman was about to erupt.
On Tuesday, in a newly digitally published history, the Bank revealed that it had helped the Nazis sell gold looted from Czechoslovakia in March 1939. The documents put Norman right at the heart of the decision, raising fresh questions about his suspected Nazi sympathies.
According to the documents, the gold was being held in the Bank’s vaults on behalf of the Bank for International Settlements (BIS) – the central bank for central banks. On March 21 1939, BIS requested the Bank transfer £5.6m of gold – £735m in today’s prices – from “Number 2 Account to Number 17 Account”.
The Bank was “fairly sure” the transfer was from the National Bank of Czechoslovakia to Germany’s Reichsbank, the record states. But, regardless of its suspicions, the transfer was made that very same day. Over the following 10 days, the Reichsbank sold £4m of the gold, with the proceeds poured into Germany’s ongoing rearmament.
There is little doubt the Bank was aware of the significance of its decision. The request came just days after Hitler had invaded Czechoslovakia, in direct breach of the Treaty of Munich of September 1938, when Germany was given the Sudetenland in exchange for peace.
Moreover, the request came from the then BIS president, J W Beyen, a Dutchman. The Czech central bank, under threat from its new Nazi bosses, had instructed Beyen to make the transfer. The Netherlands at the time was feeling extremely vulnerable to invasion and desperately trying to demonstrate its neutrality, so Beyen was in no position to object.
However, had it wanted, the Bank could have blocked – or at least delayed – the request. It had significant influence at BIS because its representative Sir Otto Niemeyer was chairman, a post that revolved between member countries. Yet, it took the French to suggest barring the transfer of the looted gold.
According to the historical record, Norman told the Treasury on March 22 that he had “received a telephone message from the Governor of the Bank of France proposing that they should urge their respective Treasuries to make joint protest to the President of the BIS against possible delivery of Czech assets to the Germans, and that they themselves should join in making a specific request to transfer no Czech assets pending the next meeting of the board”.
Norman “declined” the request, taking the puritanical position that “it would be wrong and dangerous ... to attempt for political reasons to influence the decisions of the president of the BIS”.
Contact with the French appears to have been made on the day both the BIS request and transfer were made, suggesting Norman green-lighted the deal personally. His defence was that BIS rules had to be followed no matter what, and he persisted with this absurd line even after war was declared on September 3.
On September 4, he wrote to senior Treasury official Sir Richard Hopkins to warn that any deviation from the BIS rules “would offer hostile propaganda an excellent opportunity for criticism that, where it is in their interest, HM Government do not hesitate to disregard their international arrangements”.
To make itself absolutely clear, the Treasury replied: “The Bank should not act upon an order of the BIS if it seems to the Bank to be likely that the order might benefit the enemy... The Bank should not act upon an order without consulting the Treasury... Neutrals are to be assured that, where the Treasury are satisfied as to ownership, orders by the BIS shown to be on behalf of neutrals will be authorised”.
The documents reinforce the impression that Norman was an inflexible aparatchik, but also renew questions about his suspected Nazi sympathies. As outlined in Liaquat Ahmed’s Lords of Finance, Norman was close friends with Hjalmar Schacht, Hitler’s minister of economics and Reichsbank president.
In January 1939, Norman went to Berlin to attend the christening of Schacht’s grandson, named Norman in his honour. Ahmed writes that Norman admired “Schacht, and during the early years of Nazi rule, even the achievements of Hitler – he is said to have told a Morgan partner that 'Hitler and Schacht are the bulwarks of civilisation in Germany’.”
Schacht later turned against Hitler and was sent to Dachau in 1944 for suspected involvement in the attempt on the Fuhrer’s life. But he played a vital role in restoring Germany’s fortunes under the Third Reich.
Suspicions about Norman’s political leanings would be reinforced by his behaviour after the press got hold of the Czech gold scandal. By May 1939, it had become a major political issue and on May 26, the Chancellor of the time Sir John Simon, asked Norman if the Bank still had the Czech gold. Norman obfuscated.
He “did not answer the question”, the record states. In fact, the Bank did have the gold. It never left the Bank’s vaults, but was simply moved from one account to another. Beyen later defended his transfer request in a chance encounter with the journalist who broke the story. Being remarkably disingenuous, Beyen claimed: “It is all technical. The gold never left London.”
More controversially still, on June 1, amid the political outcry, Norman conducted a further gold transaction on behalf of the Reichsbank worth £860,000 – without official clearance. “This time, before acting, the Bank referred the matter to the Chancellor, who said that he would like the opinion of the law officers of the Crown,” the record says.
“On the BIS enquiring, however, what was causing the delay and saying that inconvenience would be caused because of payments the next day, the Bank acted on the instructions without referring to the law officers.” Norman defended his actions by claiming the law officers later supported the decision.
History has not been kind to Norman, whose dandyish eccentricities such as disappearing on long cruises under the pseudonym Professor Clarence Skinner during crises have not enhanced his reputation. On the other hand, Carney’s colleagues at the Bank of Canada, where he was Governor, say he is acutely aware of his place in history.
Hanging in one of the BoC’s boardrooms are portraits of all former Governors and whenever Carney was lobbied by some vested interest, according to his special adviser Tim Hodgson, he would ask: “You’re comfortable with the next Governor looking up at my picture and saying you did that to me. That’s the standard by which I make decisions.”
Norman, it appears, has not passed the Carney test.