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.
[Enclosure—Memorandum]
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
[
Washington
,] October 23, 1914.
