File No. 861.51/392a
The Secretary of State to the British Chargé (Barclay)
The Secretary of State has the honor to acknowledge the receipt from the British Chargé d’Affaires of the memoranda numbered 980 and 1053, dated respectively September 5, 1918, and September 24, 1918.1
[Page 73]These memoranda refer to certain proposals made by the British Government for providing a suitable currency medium for the Archangel and Murmansk regions in northern Russia. It is stated that His Majesty’s Government proposes “to found a local office note issue under Russian auspices attached to such Russian governmental authorities [authority] as the Allies may recognize which will issue a new rouble note secured to a limited extent by obligations of such governmental authority but in the main by sterling reserve held at the Bank of England. This reserve would be built up by the purchase from the Russian office note issue for sterling at a fixed rate of exchange all notes required by the Allies in north Russia. The reserve would be inalienable property of office note issue and would be available to redeem notes at the same rate of exchange as that at which the notes were issued.”
It is stated that the proposal of His Majesty’s Government does not involve any Allied guarantee and that the British Government would be able to proceed without the active participation of the United States.
It is further stated that “the guarantee proposals under consideration assume a concurrent policy of setting up a responsible civil [Russian] government in northern Russia.” The memorandum of September 24 adds that the British Embassy is advised that, if the United States authorities consider it desirable to take the initiative in making financial arrangements for Siberia, this procedure would be acceptable to the British Government.
The views of the United States Government on the proposed scheme are briefly as follows:
The problem in connection with Russian currency both in north Russia and in Siberia is practically identical. In each case it is a question of creating a circulating medium that will be accepted by the people. Probably no circulating medium will generally be accepted at its nominal value unless backed by commodities on the spot so that the purchasing power of the new medium may be demonstrated. It will be an advantage if any new circulating medium should be such as can ultimately be adopted or taken over by a stable Russian government. The ruble originally had a gold value of 50 cents. It is now selling at from 10 to 15 cents. If a new and distinctive issue of rubles, backed by commodities, is now put out on the market at what the old rubles are selling, it would be necessary ultimately to redeem that ruble at a face value of 50 cents which would involve considerable and unnecessary losses.
The problem, therefore, is to put out a new and international ruble backed by commodities and to put that ruble into circulation at approximately 50 cents. This can, probably, be done if, as stated above, [Page 74] the international ruble is backed by commodities so that its purchasing power may be at once demonstrated.1
The plan proposed by His Majesty’s Government, which, the United States Government understands, involves the establishment of a new Russian currency through a so-called “conversion office,” this currency to be backed in part by sterling deposits carried in London, presents, in the opinion of the United States Government, three objections:
- 1.
- The currency is being put out on the market at its approximate market value and unless it be ultimately redeemed at its face value will undoubtedly at some future time lead to an impression of deception in view of the fact that the note is denominated a ruble note. If so redeemed it will involve the loss pointed out above.
- 2.
- This currency is being issued solely under British auspices though it will receive whatever circulating value it develops through the presence of commodities brought not only from Great Britain but from the United States and France.
- 3.
- The proposal of His Majesty’s Government does not take into account the desirability of establishing a similar currency in Siberia as is established in northern Russia, so that the systems established may fit into each other and be taken over subsequently by any stable Russian government.
It is not entirely clear to the United States Government what is meant by His Majesty’s Government’s reference to “the guarantee proposals under consideration.” Further explanation of this feature of the British Government’s proposal is earnestly desired by the United States Government.
The United States Government notes with pleasure the declaration of the British Government that if the United States authorities consider it desirable to take the initiative in making financial arrangements for Siberia this procedure will be acceptable to the British Government. This matter will be discussed in a subsequent memorandum.