File No. 861.51/357

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


401. British Government cables British Embassy following financial scheme:

A new currency for use throughout that portion northern Russia in friendly [relations] with Allies, to be issued by whatever authority recognized from time to time as representing provisional government of country and based on sterling reserve as follows:
Notes to be issued by indefinite “office of conversion” like those issued in South America which raised currency there from previously depreciated condition. Conversion office Russian, not Allied, but adjunct of provisional government; issue and redemption notes to be strictly governed by following rules, save in exceptional cases, and then only on advice of British financial adviser attached to conversion office.
Notes issued: (a) in exchange for sterling in London, at fixed rate, probably forty rubles for one pound; (b) in exchange for old ruble notes at rates of exchange fixed by office of conversion and changed from time to time; (c) in exchange for treasury bills of provisional government provided no more notes are so issued whenever the amount of such issue exceeds one third of the total amount in circulation.
Conversion office would exchange sterling for such notes to the limit of sterling in its possession at the same fixed rate, one pound (sterling) for forty rubles.
Exchange operations between sterling and old ruble prohibited in London, also in north Russia except through conversion office. All persons wishing to remit old rubles to London would first be required to buy new rubles for remittance as trading in old rubles prohibited in London and north Russia except through the office of conversion.
Imported foodstuffs would be sold for new rubles only and payments to local authorities made in new rubles to extent possible.
Sterling and old rubles received for new notes issued would become “inalienable property of Russian conversion office and would be held in Bank of England.”

Following is paraphrase of British argument for scheme:

Above scheme disassociates currency of northern region from collapse of ruble in other parts Russia which must soon occur as result of overprinting by Bolsheviks and extended forgeries. This disassociation is effected by Russian and not by foreign authorities.

Allies are thus enabled to make immediate cash settlements for all expenditures without disturbing local conditions and provisional government can thereby obtain adequate currency for its immediate needs without straining its credit. British Government derives no pecuniary benefit whatsoever from the operation. Russians and all persons trading with Russia by such scheme have advantage of stable currency, lack of which has hitherto handicapped business.

To assist conversion office British Government is prepared to purchase at outset substantial amount of new notes for first four months of scheme operation, subsequently it is hoped new currency will form basis of circulating throughout Russia.

Under this scheme America would deposit sterling in London and receive rubles here to the extent of requirements such as paying army, diplomatic, consular officers, employees, laborers, etc., stabilizing currency; and [I] find no fault with this plan except the prominence it gives to British financing and consequent advantage. If such scheme could have dollar for basis at rate of say eight rubles for one dollar and New York as depositary for reserve, it would be better financial system and more acceptable to me and to Russians also who suspect British even when bearing gifts. As British Government suggested, however, we might adopt some scheme for stabilizing ruble in Siberia and thereby offset to a great extent British domination of Russian foreign commerce. I await anxiously your view of scheme, also Secretary of Treasury.