File No. 841.51/79

The Secretary of State to the Ambassador in Great Britain ( Page )


5300. Your 6780, July 20.1 Secretary of Treasury requests following statement transmitted to you to be laid before the Chancellor of the Exchequer in answer to his memorandum:

The Secretary of the Treasury is in full accord with the Chancellor of the Exchequer in holding that the question of past misunderstandings in regard to supposed undertakings of the United States Government to assist the British Government financially is a matter of relatively small consequence compared with the question as to what may now be the actual financial needs of Great Britain and the extent to which those needs may be met by loans from the United States Government. Discussions concerning the misunderstandings referred to in the memorandum of the Chancellor of the Exchequer [Page 562] are rendered all the more unnecessary by what is believed to be now the firm establishment of the principle that no unilateral report of tentative discussions can be considered by either party as fixing mutual rights and obligations of positive character. It is hoped that upon this basis both Governments may freely engage in efforts to solve the grave problems now confronting them.

The Secretary of the Treasury appreciatively takes note of the facts stated by the Chancellor of the Exchequer bearing upon the existing financial statement of the British Government. They will be very helpful in future determinations concerning further loans to that Government. The gravity of the situation disclosed will of course dispose the Secretary of the Treasury toward the utmost possible effort to maintain financial stability of all the Governments associated in the war against Germany. In his endeavors to accomplish all that is desirable in this direction he is, however, limited by existing appropriations for all such war purposes, and is required to give consideration to the representations of other belligerent Governments whose difficulties are perhaps known to the Chancellor of the Exchequer, but whose urgent proposals for assistance (at least so far as expenditures in America are concerned), are now directed to the United States Government alone. Thus far, the representations of their needs have been made by each of the Governments concerned apparently with little consideration of the needs of other Allied Governments. The lack of coordination in this respect places upon the Secretary of the Treasury the burden of making determinations which, if possibly satisfying one Government, will yet almost necessarily leave another Government without that full assistance which it may have proposed.

It has already been demonstrated that the aggregate of proposed specific expenditures by various belligerent Governments will, if fully met by the Government of the United States exhaust the existing appropriation for foreign loans at a very early date, say approximately the first of October. The task of making allocations, even when dealing with specific amounts, has been difficult enough. It becomes an almost impossible undertaking to apportion a limited fund so that it will cover not only specific amounts, but also indefinite and perhaps necessarily unknown sums involved in the maintenance or various national exchange rates at artificial levels. Obviously, there is involved in any such undertaking a study of the whole world’s commerce. Nor would the most erudite investigation of existing commercial relations be sufficient to determine the magnitude of the burden involved in maintaining exchange, unless at the same time there should be fixed by the various Governments concerned limited amounts of exports and imports with further limitations as to the money value of the goods thus exchanged.

Referring to the payment for British purchases in the United States, including exchange, the Chancellor of the Exchequer is quoted in the following words: “If matters continue on the same basis as they have during the past few weeks, it will not be possible to avoid a financial disaster of the first magnitude.” This statement is emphasized in the Chancellor’s memorandum of July 20, 1917, and in that memorandum it is stated that approximately the sum of $100,000,000 [Page 563] is believed to be sufficient to maintain British exchange at the rate now held between London and New York. Will the Chancellor of the Exchequer be good enough to indicate during what length of time, in his judgment, this sum will suffice for all financial operations of his Government with the United States for exchange purposes, and, if possible, to what extent this figure will cover purchases made outside of the United States as well as those made in this country?

The Secretary of the Treasury would further be glad to be advised by the Chancellor as to whether, in addition to sums that may be loaned to French, Italian and Russian Governments to cover actual current expenditures of their Governments for military purposes in the United States, it would likewise be desirable to furnish further funds for the maintenance of the exchange rates of those countries at any particular point which might be indicated by them.

The Secretary of the Treasury believes that the question of relative values as between the supply of funds for the actual purchases of foodstuffs and munitions in the United States, on the one hand, or the maintenance of any national exchanges at a particular point, on the other hand, if both could not be immediately met by the United States Government, can be determined wisely only by conference of all the interested parties who would endeavor to weigh these questions in the balance, and thus reach conclusions as to the wisest uses to which limited resources may be put after full consideration of all the phases of the great war in which we are now engaged. The Secretary of the Treasury has recently proposed to the Governments which have borrowed money from the United States that an Inter-Allied Council should be established sitting in Europe, which would study all questions relating to the disposition of funds that are now or may hereafter be available as loans from the United States. It is hoped that such a council will be soon organized, and will, by its recommendations to the Secretary of the Treasury, be of great assistance to him in the exercise of the grave responsibilities thrown upon him by statute. The Secretary of the Treasury points out that, in respect to the American Purchasing Commission which has been proposed to be established for the benefit of the Allies operating in the American market, it was indicated that he would be prepared to make determinations for expenditures of the Allies in the month of August independently of the agreement concerning such Purchasing Commission or the Inter-Allied Council mentioned above. But he has stated, and still holds, that he should be assisted by the advice of the Inter-Allied Council in the matter of making determinations after the 15th of August. Whether or not such a council should reach unanimous conclusions, the value of even an attempt at coordination concerning requests for assistance from the United States would be of such importance that, in his judgment, it is his duty to urge prompt action concerning this matter. While it is true that the best results would be obtained for all parties by the establishment of both the Inter-Allied Council and the American Purchasing Commission for the Allies, yet the two are separable and the function of either the one or the other will be of benefit to the common cause.

[Page 564]

The agreement to lend $235,000,000 to the British Government for its needs during the month of August was not due to a withdrawal from the position taken in respect to the Inter-Allied Council. The Secretary of the Treasury, considering the views expressed to him by representatives in Washington of the various Allied powers, has reason to believe that those representatives were cooperating to bring about the establishment of the proposed Inter-Allied Council. The Secretary of the Treasury cannot guarantee that the United States Government will furnish funds sufficient to prevent grave financial disturbances among the powers associated in war against Germany. He is convinced, however, that the probability of furnishing the necessary financial support will be much increased if the Allied Governments will promptly coordinate their proposals for loans in conformity with the general plan outlined in his communication above referred to.

The Secretary of the Treasury takes notice of the designation by the Chancellor of the Exchequer of Lord Northcliffe as the duly authorized representative of His Majesty’s Government to conduct all financial negotiations on their behalf. He is advised, however, by the State Department of the United States Government that such designation does not clearly indicate whether Lord Northcliffe or Sir Cecil Spring Rice should sign the obligations which may be required to cover loans made by the United States to the British Government. It will be remembered that specific authority to this effect was given to the British Ambassador, and the Secretary of the Treasury would now be glad to be informed whether the actual signing of such obligations, as distinguished from the negotiations leading to them, is to be executed by Lord Northcliffe or by Sir Cecil Spring Rice.

  1. Ante, p. 549.