841.51/89
The Acting Secretary of the Treasury (Crosby) to the Secretary of State
My Dear Mr. Secretary: I believe it is already quite familiar to you that a considerable portion of the loans made by this Government to the British Government and also to the French Government, acting more or less indirectly through the British Government, have been used for the purpose of buying all French and English exchange offered on the New York market. In so far as the amount thus purchased [Page 58] represents final balances of trade between France and England on the one hand and neutral countries on the other, the purchase of these bills is in fact a payment of the debts of English and French nationals or their Governments for the balances thus incurred. Until a recent date, it was possible for the sellers of these goods throughout the world to receive ultimate payment, if they so desired, by the shipment of gold from the United States. This movement, as has been indicated to you in the past, had attained very considerable proportions when the tentative embargo upon gold shipments was established by our Government. Since that date, the sales of these bills have resulted rather in the establishing of credits in New York banks in favor of the selling countries or the banks in various neutral countries representing these original sellers, these credits remaining as a part of the deposits of our great banks.
From this point of view perhaps there should be no complaint on our part, save that two questions of great import are presented in connection with the matter, namely, first, that the establishment of these credits through the means above indicated means at all times a heavy and almost unbearable pressure upon the Treasury of the United States to furnish to the French and British Governments the moneys to make the purchases of bills of exchange in New York; and, second, that after a certain period it may appear that the sellers of the goods, say from the Argentine Republic, or from Brazil, or Spain, will be unwilling or unable to receive their payment solely in New York bank credits. In this latter case, it is apparent that our associates in the war would be deprived, unless other means are taken, of obtaining goods which in the main we know are considered by them as essential for the prosecution of the war. It is true that some further economies in respect to their purchases in neutral markets may be established; but, without going too narrowly into the question, we are assuming now that they have already exercised an extreme prudence in limiting their importations to articles considered necessary.
In order to alleviate the situation without continuing the supply of funds for the purchase of bills of exchange in New York, with the attendant danger indicated above, the following means of relieving the situation have been discussed, namely:
1. That there should be an absolute forbidding of the dealing in bills traceable to neutral countries for British and French commerce in our market, thus at once diminishing the demand for moneys by those Governments intended for the purchase of these bills. This, of course, is an extreme and from many points of view an undesirable remedy, and is mentioned merely as one of the possible remedies. It would be attended with such great hardships upon our associates in the war that we scarcely like to contemplate it.
[Page 59]2. That there should be a renewed study by our associates in the war of the possibility of purchasing in this country the goods which they are now obtaining in neutral countries, which commerce creates the situation here described. It may be assumed that this particular remedy is now being more or less applied by the British and French Governments, but it seems difficult if not impossible that the whole situation should be thus met, since in the case of certain minerals from Spain, coffee from Brazil, and needed grain supplies from the Argentine, our markets cannot offer substitutes.
3. It has been considered that possibly the neutrals selling the goods in question might be content with increasing their London bank credits. This process, however, has been going on for so long a time in London and Paris, since the beginning of the war, that it is believed by the English and French advisers that it can scarcely be carried further.
4. Finally, it has seemed possible that by arrangement with these neutral countries their whole fiscal systems may be modified to meet the world-wide emergency in this way, namely, that as against securities or other satisfactory guarantees owned by the English or French Governments or their nationals, the neutral countries in question should issue currency in their own countries permitting payment to their producers for the articles in question. This is by far the most obvious and sensible arrangement which could be made. Obviously, it is not easy to accomplish at once. Doubtless in some cases legislation of special character would be required in order that paper money should be issued against securities in ways not now familiar in the countries in question. It does not follow that an actual legislative change of monetary systems will be required in every country in question, but it is contemplated that in some countries such changes may be required, and hence, since we cannot assume that these changes could be immediately brought about, it is desirable that the question should receive large and general consideration at as early a date as possible.
The importance of the matter is such that I venture to suggest that you should communicate to the neutral governments which I shall name below a statement that it is believed to be of common interest to them and to this Government that their present representatives in Washington should be fully empowered to negotiate such financial arrangements as have been above indicated, or that other representatives thus empowered should immediately be sent to Washington.
For your information, I beg to state that I have talked this matter over with the representatives of Great Britain and France, who approve of the proposed procedure. They realize that what we are attempting to accomplish is specially for their benefit.
The countries in question are, notably, Brazil, the Argentine Republic, Chile, Spain, Norway, Sweden, Holland, Denmark and Switzerland. You will of course determine whether in this list any countries appear with whose governments you would not now desire [Page 60] to enter into negotiations looking to the amelioration of and continuance of our commercial relations.
It seems difficult to arrange with any prudence and wisdom the vexatious questions connected with gold exports, dealings in bills of exchange, and even the general determination of exports and imports between our own country and the countries named, unless we have in view some general solution throughout the world of the extraordinarily difficult financial problems now being presented.
In the meantime, I am [etc.]