File No. 652.119/1386
The Secretary of State to the Ambassador in Spain ( Willard )
1461. For Davis from Leffingwell:
Treasury 9. Your 6 and 8, Embassy’s unnumbered August 11, 11 a.m., and 1684,1 August 14, 9 p.m. Understand suggestion to sell Treasury certificates now abandoned. Much interested in your report of British and French exchange operations. Cable fullest possible information as to method of operations and desirability of our joining in same with all details you can as to ways and means. What is present rate of exchange between Spain and London and Paris? Result your report of British-French exchange operations and reduced demands of our Army in consequence embargo strongly inclines us to go into some joint arrangement with British and French to bring general rate down rather than to segregate rate for Army purposes from market rate. In this connection you will recall that the French have some Spanish securities here. We are now prepared to allow the French to anticipate some of their maturities in order to release such securities if they are made available to meet Spanish situation. Will cable specific description of securities if of interest and you have net list with you. Plan of banking credits on 90-day bills would not solve our problem if it were undertaken merely to provide pesetas for Army use. However, await details and full advices from you before finally determining.
Am considering taking advantage of banking credits to be negotiated by you by selling our peseta certificates of indebtedness to group of New York banks under leadership of Federal Reserve Bank, these banks to avail themselves of credits opened by Spanish banks and to use proceeds so far as necessary in cooperation with British and French to reduce market rate to par. Banks would be protected by certificates of indebtedness for which they would pay Treasury not less than par in dollars at par of exchange and all profit in operation less agreed profit to them. Arrangements should therefore make amount of credit up to pesetas 250,000,000 optional with American banks and all renewals optional. Also there must be stipulation to permit payment in gold at the rate of 29.0322 grammes per peseta.
Not satisfied that it is necessary to put [Chadbourne’s?] 2011 into effect and if not necessary it is highly undesirable. If with consent of State Department it were finally decided to put it into effect, it would be limited to say cotton and petroleum. This might ultimately provide enough pesetas to meet our Army needs but would [Page 1705] not improve general exchange and might cause further depreciation of dollar in commercial dealings with Spain.