File No. 861.00/2504

The Ambassador in Russia (Francis) to the Secretary of State


364. Since your [omission] nothing from Moscow, Petrograd, Vologda except British Embassy received cable to-day from Stockholm dated 8th saying British and French consuls and military missions arrested by Soviet government, August 5, and all Entente subjects being held as hostages.

New government here needs currency badly and wishes Allied Governments to guarantee payment Rs. 15,000,000 in six months, 5 per cent bonds, to be sold for currency only in hope of drawing rubles from hiding. Allied chiefs all recommending to their governments request be granted. Guaranty joint and several, but at present rate of exchange total only million and a half dollars, so that if this is joint guaranty, which I earnestly recommend, our liability limited to half-million dollars, which if lost would be proper charge against six-millon-dollar allotment for the purchasing supplies, but no financial risk because State Bank, which is maker of bonds, will set aside twenty million rubles worth merchandise to [Page 59] secure guarantors, and such merchandise be marked and its identity preserved.

Would assume responsibility of action if financial risk only question involved. But such action by Allies would not be recognition of the new government, but would be continuance of our policy to establish business relations with local authorities where our representatives reside. Unconfirmed intercepted wireless states Soviet government, Moscow, overthrown, but if untrue is only anticipatory. Furthermore if the Soviet government still exists, relations between it and the Allies are equivalent to state of war. German officers certainly command Bolshevik troops opposing Allied forces, consequently can see no political objection to authorizing guaranteeing of bonds.

If bonds sold and Rs. 15,000,000 realized therefrom, that provides insufficient [funds] for governmental and commercial needs; consequently bank requests Allied guaranty of bank note issue maximum Rs. 200,000,000 of which more issued [sic]. Fifteen million ruble guarantee safeguards arranged by myself, therefore I think same effective.

Crosby reported in Europe. Is it possible for him to come here? Lindley thinks Allies have joint financial agreement, but if so, I am unadvised. Crosby could come direct to Archangel from London now and if navigation should close early could go by sleds to Murman, whence navigation continues. Navigation closed last year November and never closes before October.