London. Affected by the plummeting domestic grain prices, the capitalists who had originally signed contracts with the Russians were no longer prepared to honor them.
Openly breaching the contracts was obviously out of the question. Not only would it violate British law, but it would also involve diplomatic issues.
Moreover, these grain payments were meant to repay the Russians' debts to domestic banks. The earlier loans had already been issued; if they defaulted, the Russians could legally renege on their debts as well. The bankers certainly would not agree to that.
Take rye as an example. Rye on the British market now cost roughly 6–7.5 Pound Sterling per ton, while the price stipulated in the contract signed with the Russians had been as high as 9.1 Pound Sterling per ton.
This meant that not only would they fail to make money from the deal—they would actually have to lose money on it.
Of course, even at 9.1 Pound Sterling per ton, these capitalists would not be operating at a loss. The added value of the processed products would still be enough to offset the difference.
But any qualified capitalist would naturally be unwilling to swallow such a loss. It meant earning 1.5–3 Pound Sterling less per ton of rye.
That might not sound like much, but once multiplied across tens or hundreds of thousands of tons, it became an astronomical sum.
They could not simply renege on the debt, but that was no challenge for capitalists. Members of Parliament existed to handle such work, and steering public opinion was also a fine method. In short, they had to find a reasonable and legal excuse to default.
With anti-Russian sentiment surging, this was hardly good news for the newly installed Gladstone Cabinet.
The "Pound Sterling–gold system" had established their monetary hegemony.