File No. 841.51/874
The British Ambassador ( Spring Rice) to the Secretary of State
[Received July 2.]
My Dear Mr. Secretary: I am instructed by His Majesty’s Principal Secretary of State for Foreign Affairs to call your immediate attention to the financial position of Great Britain in regard to the war inasmuch as it is of an urgent and critical character. It appears, indeed, to Mr. Balfour that the United States Treasury do not realize how perilous the situation truly is, namely, that there is danger that the ability of His Majesty’s Government to effect payments in America from to-day onwards will be in jeopardy.
The effect which will be produced on the progress of the war by a collapse of the exchange will be no less disastrous than a great military reverse, for not only will all commercial relations between the two countries, including the cotton trade, be thrown into complete disorder entailing the stoppage of the entire private export business from the United States, but, further, the basis of financial relations of all the Allies with the rest of the world will be removed, and a general collapse of credit and of all financial confidence will inevitably result.
It is to be remembered that His Majesty’s Government have, single-handed, borne the burden for nearly three years, of financing the whole of the Allied powers, and have never failed to furnish them with the monies which were indispensable to enable them to meet their actual liabilities whether in the United Kingdom or elsewhere.
When Mr. Balfour was here, he discussed the matter thoroughly with the United States Government and left with the full understanding that they would relieve His Majesty’s Government definitely of the expenditure, in the United States, of the other Allied powers calculating from the day on which the United States entered into the war. Up to the present time however His Majesty’s Government have borne Russia’s entire expenditure in the United States amounting to some $50,000,000 and they have not been informed that this sum will be repaid.
So far as British requirements are concerned His Majesty’s Government have never feared that the United States Government would [Page 534] not give the financial support required. Indeed upon the entry of the United States into the war His Majesty’s Government abandoned financial expedients previously contemplated in order that the American market might be free for the Liberty Loan operation. The needs of His Majesty’s Government for the six months beginning June 1 were communicated in writing to the Secretary of the Treasury on May 3rd during the presence of Mr. Balfour in Washington and the specific assistance desired for June was indicated in my note to the Secretary of the Treasury of May 29th. It was confidently expected that these needs would be met.
Now during the month of June the following transactions have taken place. The British Government have received from the United States Government the sum of $150,000,000. They have had to supplement this however by bringing in $125,000,000 in gold and by the sale of securities in America to the value of $10,000,000 and on the 28th ultimo they were forced to authorize their financial representative in New York to bring in a further $25,000,000 in gold. Thus you will perceive that, in the course of this month, only about half of the British expenditure in the United States has been met by the United States Government.
The increase in our exchange expenditure during June arose largely from the withdrawals by American banks of their sterling balance in London, presumably to pay for the Liberty Loan. The amount of these withdrawals has already exceeded $100,000,000 during the course of the month. This is in effect a diminution of the amount loaned by the United States.
In view of the practical depletion of our resources in gold and marketable securities I am instructed to present to you a formal request for the following financial assistance. It is desired—
- (1)
- That the commitments which His Majesty’s Government has undertaken in this country on behalf of Belgium and Russia may constitute a first charge on the first loans made to these two countries, and may be repaid to Great Britain with the least delay possible;
- (2)
- That an arrangement may be come to immediately between the United States Treasury and the British agents in America defining the amount of assistance which can be granted to His Majesty’s Government for the months of July and August and that the first instalment for the month of July ($100,000,000) may be made available by the 4th of July at the latest;
- (3)
- That assistance may be given to cover the amount of our overdraft with New York bankers amounting to about $400,000,000. It was explained to the Secretary of the Treasury in April and again in my communication of May 3rd that this overdraft had been incurred mainly in order to enable our other allies to carry on and he agreed that this sum might be included in our [Page 535] application and regarded as a first call on the credits under the loan.
Mr. Balfour desires me to add that the friendly nature of the discussions which he had on these matters with the statesmen of this country did not leave him in any doubt as to the intentions of the United States Government to meet this situation and that the first and third requests which are now put forward merely embody in, a formal manner points which he fully understood to express the settled intentions of the United States Government.
In conclusion Mr. Balfour desires me to add that the foregoing urgent requests are presented solely on account of the immediate and grave necessities of the situation which he is convinced have only to be realized by the United States Government for relief to be forthcoming.
I am [etc.]