The Acting Secretary of State to President Wilson

Dear Mr. President: I spoke to you the other day about a conversation I had with a representative of certain banking interests in New York regarding the use of Treasury notes of the French Republic [Page 138]in this country in payment for purchases by that Government. Since then I have had conversations with representatives of other banking interests in New York, which relate to a similar type of loan to Russia as well as to France. You will also recall that this same subject was dealt with in a memorandum handed me by the Russian Ambassador a few days ago,8 which you returned with an oral explanation as to the attitude of this Government.

I have gone over the matter pretty carefully with these gentlemen and without comment submit in a memorandum, for your consideration, what I consider to be their views in regard to the situation. I have told them that I could make no statement until I had laid the matter before you. They naturally are anxious to know as soon as possible what your views are.

I should hesitate to ask your direction in this matter, were it not for the fact that there is evidence of a desire on the part of these institutions to do nothing which would in any way embarrass the Government or go contrary to your wishes, even if the law permitted them to do so.

Very sincerely yours,

Robert Lansing

Summary of Information in Regard to Credits of Foreign Governments in This Country and the Relation to Trade

The outbreak of the European war came at a time when this country owed a large amount to Europe, particularly to England in the form of short time drafts, maturing between the outbreak of the war and the end of the year. The amount, while large, was not abnormal, considering the volume of our trade relations and was directly due to the anticipated shipment of cotton during the autumn.

War conditions have made cotton bills unavailable for the settlement of this balance against us and it can only be wiped out by the shipment of the goods, in lieu of the cotton, that are now needed and desired by the various European countries. This is true, regardless of any temporary bridging over of the situation, and it has been the policy of the financial institutions in New York, as far as possible and proper, to stimulate the unprecedented and unusual buying by foreign governments and their nationals that is now going on in this country. Since the beginning of the war I am informed that one bank alone has received cabled instructions for the payment of more than $50,000,000 for American goods and that the volume of this business is increasing. Owing to war conditions, this buying is necessarily [Page 139]for cash and it is of such magnitude that the cash credits of the European governments are being fast depleted. Lately it has been urged by certain manufacturers and by representatives of some of the foreign governments, that the banks should provide temporary credits for these purchases. Recently the Norwegian Government arranged an advance of some three million dollars, practically all of which is to be expended for cereals in this country. Very recently the Russian Government, it is stated, has placed directly, and through agents, large orders with American manufacturers—orders so large that their cash credit has been absorbed and they have sought to obtain overdrafts, secured by gold deposited in their state bank, of some five million dollars.

Some of the manufacturers have been asked to take short time Treasury warrants of the French Government in payment for goods and have, in turn, asked the banks if they could discount them or could purchase warrants direct from the French Government for the purpose of replenishing their cash balances. The same question has been asked as to English Consols and Treasury securities, while some of the banks have been approached by German correspondents with the suggestion that, without naming a particular security, the banks sell securities to increase their cash account in America.

The representatives of the banks state that they feel the necessity of aiding the situation by temporary credits of this sort, otherwise the buying power of these foreign purchasers will dry up and the business will go to Australia, Canada, Argentine and elsewhere. They say that it may in the end come back to the United States but that, in their opinion, the critical time for American finance in our International relations is during the next three or four months and, if we allow these purchases to go elsewhere, we will have neglected our foreign trade at the time of our greatest need and greatest opportunity.

It seems to be the desire of the banks to be absolutely in accord with the policies of this Government, both in its legal position and in the spirit of its operations and, while very anxious to stimulate our foreign trade, they do not wish to, in any respect, act otherwise than in complete accord with the policy of the Government.

For the purpose of enabling European Governments to make cash payments for American goods, it is suggested to grant to them, short time banking credits, to both belligerent and neutral governments, and where necessary or desirable replenish their cash balances on this side by the purchase of short time Treasury warrants. Such purchases would necessarily be limited to the legal capacity of the particular bank and, as these warrants are bearer warrants without interest, they could not and would not be made the subject of a public [Page 140]issue. These securities could be sold abroad or be readily available as collateral in foreign loans and would be paid at maturity in dollars or equivalent in foreign exchange.

Robert Lansing
  1. Ante, p. 135.