Papers Relating to the Foreign Relations of the United States, The Paris Peace Conference, 1919, Volume VI
Paris Peace Conf. 185.12/58
The President of the German Delegation ( Brockdorff-Rantzau ) to the President of the Peace Conference ( Clemenceau )
Sir: Enclosed I beg to transmit to Your Excellency a few observations on articles 259 and 263 of the Draft of the Treaty of Peace.
Observations to Article 259
ad No. 1) The gold deposited with the Bank of S. Bleichröder in Berlin in the name of the administration of the Ottoman Public Debt as security for Turkish gold certificates to the amount of 57.919.687,34/100 marks will be placed at the disposal of the depositor immediately after the conclusion of peace. The German prohibition to export gold could in this case be suspended.
ad No. 2) The obligations incurred by the German Government as against the Imperial Turkish Government for the redemption of the Treasury Bonds which serve as security for the second and subsequent issues of Turkish currency notes stand in conjunction with the obligation assumed by the Imperial Turkish Government to repay the advances received. The enclosed memorandum which was handed to the Turkish Government before conclusion of the last agreement on advances to be made, gives detailed explanation as regards the origin of Germany’s obligation to Turkey and the manner in which it was to be fulfilled.
ad No. 3) The gold deposit held by the Administration of the Ottoman Public Debt with the Deutsche Bank in Berlin to the amount of 51.378 pounds 33 15/40 piaster Turkish money, will be placed at the disposal of the depositor just the same as the gold deposit mentioned ad 1).[Page 919]
ad No. 4) For the interest due on the Turkish Internal Loan in May 1919, Germany has transmitted neither gold nor silver to the Turkish Ministry of Finance.
ad No. 5) For the advances which Austria-Hungary received through the intervention of German banks, neither the German Government nor the banks concerned received any securities in gold. In so far as gold has been delivered to the Reichsbank by the Austro-Hungarian Bank during war-time, it was as payment for foreign exchange which the Reichsbank had sold to the Austro-Hungarian Bank.
ad No. 6) If Germany renounces the benefit disclosed by the Treaties of Bucarest1 and Brest-Litowsk2 and the supplements thereto, it is obvious that the obligations assumed by Germany through these Treaties must also be cancelled. If Germany is to hand over values received, the values given by her must be restituted.
The gold received from the Russian Government has already been handed over to the Allied Powers. Of the sums paid in roubles by the Russian Government to the German Government a part of the counter-value, totalling in about 150 million marks, has been applied to the redemption of interest warrants and bonds drawn for payment of the Russian State debt, in accordance with the agreements entered upon with the Russian Government. These payments cannot be cancelled.
ad No. 7) In so far as, in the above mentioned clauses, obligations are referred to which have been incurred by the German Government or by a German national as against a third party, the sums due can only be disposed of by the party thereto entitled (ad 1 and 3 by the Ottoman Public Debt).
Observations to Article 263 of the Draft of the Peace Conditions
Article 263 provides for Germany’s guaranteeing to the Brasilian Government the reimbursement of the sums deposited with the bank of S. Bleichröder in Berlin, together with 5% interest, representing the compulsory sale of coffee belonging to the State of Sao Paolo in the ports of Hamburg, Bremen, Antwerpen, Triest. Further Germany is to guarantee payment at the mark rate of exchange of the day of deposit, Germany having prevented the transfer of the sums to the State of Sao Paolo at the proper time.
To this the following is to be said: [Page 920]
- A compulsory sale of the coffee did not take place. On the contrary, the State of Sao Paolo itself, by a letter of the Brasilian Embassy in Berlin to the firm of Theodor Wille et Co. in Hamburg, dated November 10th, 1914, expressly empowered this firm and Messrs. Crossman and Sielcken, as members of the Committee of Valorisation, to sell the whole stock of “valorisation-coffee” or a part thereof at a price not lower than 65 Pfennigs per pound, against payment at sight in cash.
- According to the letter of the Finance Secretary of the State Sao Paolo to Mr. Theodor Wille in Hamburg, dated October 20th, 1914 the proceeds of the sale were to be deposited with the bank of Bleichröder at Berlin for the benefit of the creditors.
- In a letter dated March 31st 1916 to the Ambassador of the United States of Brasil the German Government declared its readiness to undertake the guarantee that the sums deposited with the bank of S. Bleichröder and representing the sale of the “valorisation-coffee” should stand at disposal in the full figure after conclusion of peace, to be disposed of with due consideration to the application prescribed by the legal position.
- As regards the interest to be paid on the sum deposited with Bleichröder, article 12 of the loan contract of April 8th 1913 provides that interest is to be payable at 1½% under the rate of discount of the Bank of England, but not more than 4% p. a. Following the desire expressed by the Government of Sao Paolo an increase of the contractual rate of interest was conceded through an agreement of 4th September/14th November 1916. In accordance with this arrangement the rate of interest was raised on January 1st 1917, to 4½% and on April 5th, 1917, following the fall of the discount of the Bank of England, was lowered to 4%.
- Germany has nothing to do with the “valorisation-coffee” warehoused in Triest. This coffee has been bought and taken over by Austria-Hungary from the wholesale coffee firm C. Arnstein in Triest, which had been empowered by Brasil to dispose thereof.
Following these facts the German government is not in a position to recognize an obligation to undertake a guarantee for the payment of interest at the rate of 5% and for the repayment at the mark rate of exchange of the day of deposit, a contractual agreement existing as to the rate of interest and the government of Sao Paolo having assented to the depositing of the proceeds of the sale till after conclusion of peace.
The alliance between Turkey and Germany has also given rise to financial relations between the two Governments. It is in the nature [Page 921] of the alliance that its members should place at each other’s disposition the surplus of their war matériel and their industrial and agricultural products and that they should facilitate the delivery of them as well as the payment for them. Besides, the German Government has, since the beginning of the war, furnished all sorts of supplies, without interruption, to the Imperial Ottoman Government without requiring payment during the war. As a result of the furnishing of these supplies, Turkey’s debt to Germany amounted, on August 1, 1918, to 715 million marks. Germany, furthermore, has made cash advances to the Ottoman Government to cover the expenditures caused by the war and to meet other needs; for example, service on the Ottoman loans placed in Germany and Austria. On the date above mentioned, these advances had reached a total of 1,000 million marks in round numbers. On the other hand, the Ottoman Empire has delivered raw materials to Germany. Since payment for these purchases was to be effected in Turkish monetary values, the Ottoman Government took care to facilitate the said payment for the German Government by procuring for it, in 1916, Turkish notes issued against the deposit of German Treasury bonds. These Turkish notes represent the sum of 5 million Turkish pounds, and the Ottoman Government has just declared itself ready to conclude a second like agreement for a value to be determined.
The debts between Turkey and Germany, as they have just been set forth, are of the same character as those which were contracted as a result of the war by all the States which were members of one or the other of the two groups of belligerents. But the special situation of Turkey resulted in a considerable increase in, as well as a complication of, the reciprocal debt between that State and Germany. While all the belligerent States have been able to meet the greater part of their war costs themselves—insofar as they were to be settled in the country—either by national war loans or by the issuance of Treasury Bonds or, again, through the cooperation of the National Bank—Turkey from the beginning saw herself unable to employ the same methods, for the Ottoman Bank was inactive and had never, even in peacetime, played anything but a secondary role with regard to monetary circulation, a large part of the population was accustomed only to metallic currency and, in its distrust, opposed the introduction of any other means of payment. Furthermore, the Ottoman public had never been initiated into the investment of capital in Government bonds, so that the floating of a public loan for the purpose of procuring the necessary capital for the Government had to be considered, at the outset, as having no chance of success. In the opinion of the Ottoman Government, the means of payment which it needed had therefore to consist of coin and, since silver was already in active circulation, gold alone entered into the question. As a result of these circumstances, the German and Austro-Hungarian [Page 922] Governments made, at the beginning of the war, advances to the Ottoman Government in actual gold. But, as it was soon noted that the Ottoman population hoarded all the gold, thus withdrawing it from circulation, the Governments concerned agreed that the advances should no longer be paid in actual gold but rather that the gold should be placed at the disposition of the Public Debt, which issued in the name of the Government of the Ottoman Empire certificates redeemable in gold six months after the war, their total representing the value of the gold deposited.
The population of Turkey, destitute of metallic currency as a result of the accumulation of gold in the hands of private persons, accepted without any difficulty these notes to be paid in gold. However, as a result of the prolongation of the war, it was soon found that Germany would absolutely not be in a position to diminish her own stock of gold to the extent thenceforth required for compensating the Ottoman war costs by payments in coin.
The Ottoman Government decided therefore to issue currency notes, the payment of which was fixed at one year after the conclusion of peace and guaranteed by the deposit of German Treasury bonds. These Ottoman notes, also, did not encounter any resistance either as there was in Turkey a scarcity of coin in trade, but as the issuance of paper money gradually assumed considerable proportions in consequence of the increase in the costs of the war, difficulties arose from the fact that the Ottoman population, especially in the provinces, attributed to the notes a value much lower than that of the metallic currency, from which there resulted a new increase, which was quite natural, in the war costs.
The Ottoman Government therefore declared that the issuance of the aforesaid currency notes could no longer take place and that the financial situation of Turkey could be improved only by a guarantee of redemption in gold, after the war, of notes to be issued afterwards. In that case, there would be no objection to distributing the redemption over several years. The German Government consented to the proposal of the Ottoman Government and extended this guarantee of payment in gold to the German Treasury bonds which had served as coverage for the notes of the previous issues.
Soon, however, the constantly growing issuance of this new paper currency rendered it necessary to prolong by some years its term of redemption in order not to overburden the annual payments. But meanwhile the notes underwent a depreciation so rapid that their commercial value decreased to a quarter or even, in the provinces, to a fifth of their value in gold, which had as an immediate and inevitable result an enormous rise in the price of merchandise and a new and excessive increase in war costs. Restriction of the issuance of new [Page 923] currency notes and raising of the value of those which were in circulation has even been tried. Thus Germany met all the requests of the Ottoman importers and bankers to obtain for them German monetary values and German and foreign funds, accepted for the investment of capital, and in this way released a certain number of Ottoman notes, which were placed at the disposition of the Ottoman Government. Turkey, on her part, has placed in circulation short-term Treasury bonds which were sent to her by the German Government for the purpose of withdrawing superfluous notes from the market, and the Ottoman population, at least that of the principal towns, having begun finally to show itself inclined to invest capital in paper securities, the Ottoman Government was even able to try a national loan, which was crowned with complete success and brought it about 18 million Turkish pounds. Nevertheless, these procedures and other measures which were put into effect were far from meeting the constantly increasing material exigencies of the war, so that a new issue of currency notes became inevitable, the payment of which in gold will be, as in the preceding cases, guaranteed by the deposit of Treasury bonds, redeemable in gold.
Up to the present the German Government has undertaken to honor:
The advances in gold and coin made by Germany to the Government of the Ottoman Empire for particular purposes at the beginning of or in the course of the war amount to the sum of 14,055 million Turkish pounds. As for the payment of German Treasury bonds deposited and redeemable in gold after the war, it goes without saying that this debt in gold of 2,380 million marks (1 Turkish pound being counted as equivalent to 18.45 marks in round numbers) could not be paid in specie. Besides, it has never been a question of this, and the impossibility of effecting this enormous payment appears all the more evident if one considers that the total gold stock of the German Imperial Bank, after the accumulation of all German gold during several years, amounts today to only 2,347,282,000 marks and that that of the Bank of England comprises only 67,259,000 pounds sterling; that is to say, 1,345,180,000 marks.
His Excellency the Ottoman Minister of Finance has therefore always made it apparent that Ottoman purchases in Germany would, after the war, assume very large dimensions and that, furthermore [Page 924] the interest due to Germany, as well as certain purchases of the Ottoman government, would be taken into account, so that there would remain only a rather small sum to be refunded annually in actual gold. His Excellency even deemed it advisable to fix, by contract, the minimum to be paid annually in gold. As a result of these considerations, the redemption of German Treasury bonds serving as coverage for Ottoman currency notes has been settled in such a manner that it would be effected either in gold or in currency notes issued by virtue of the Treasury bonds deposited.
Now, the amounts falling due annually reach at the present time, as a result of the continual issuance of notes, so high a figure that payment can be effected only in case the Ottoman Government makes it possible by active cooperation. That Government ought, for this purpose, to make every effort after the war to encourage and expedite by liberal measures the importation into Turkey of German products, and it ought also to undertake to facilitate for Germany by any other effective measure the fulfillment of her contractual obligations in question.
On various occasions His Excellency the Minister of Finance, Djavid Bey, has stated to the German negotiators that it would be entirely in the interest of the Imperial Ottoman Government to act in this way and that he himself would certainly contribute all his power and assistance.
Only firm confidence in these assurances has made it possible for the German Government to accept in advance, for the new contract likewise, the method of payment desired by the Government of the Ottoman Empire; that is to say, the issuance of new German Treasury bonds redeemable in gold.