800.51 W 89/17a

Statement Issued to the Press by the Secretary of the Treasury (Mellon), August 24, 1922

A number of inquiries have been received, as a result of statements recently published, with respect to the exact status of the obligations of foreign governments held by the United States. Especial attention has been directed to the origin of the indebtedness of the British Government amounting to about $4,135,000,000. It has been said that this liability was not incurred for the British Government but for the other Allies, and that the United States, in making the original arrangements, had insisted in substance that though the other Allies were to use the money borrowed, it was only on British security that the United States was prepared to lend it. It is apparent from the inquiries which have reached the Treasury Department that it is supposed that this, in substance, is the explanation of the existing indebtedness of Great Britain.

In answer to these inquiries, it should be said that the obligations of foreign governments, in question, had their origin almost entirely in purchases made in the United States, and the advances by the United States Government were for the purpose of covering payments for these purchases by the Allies.

The statement that the United States Government virtually insisted upon a guarantee by the British Government of amounts advanced to the other Allies is evidently based upon a misapprehension. Instead of insisting upon a guarantee, or any transaction of that nature, the United States Government took the position that it would make advances to each Government to cover the purchases [Page 414] made by that Government and would not require any Government to give obligations for advances made to cover the purchases of any other Government. Thus, the advances to the British Government, evidenced by its obligations, were made to cover its own purchases, and advances were made to the other Allies to cover their purchases.

The nature of the arrangements is shown by a memorandum which the Secretary of the Treasury, in June 1918, handed to the British Ambassador, as follows:

“So far as the purchases of the Allied Governments for war purposes within the United States and its territories and insular possessions are concerned it is the expectation of the Secretary of the Treasury to continue as heretofore the advances necessary to enable the financing of such approved purchases. The Secretary of the Treasury quite agrees with what he understands to be the views of the Chancellor of the Exchequer that advances shall be made to each Allied Government for the commodities purchased in the United States by or for it and that no Allied Government should be required to give its obligations for such purposes when merely serving as a conduit for the supply of the materials so purchased to another Allied Government. Any other course would indeed be incompatible with what the Secretary of the Treasury deems a cardinal principle which should be followed in respect to such advances, namely, that the Allied Government for the use of which the commodity is purchased must give its own obligation therefor and the obligation of any other Allied Government can not be accepted by the United States as an equivalent.”

It is well to further quote from a memorandum handed to the British Ambassador in June, 1920 by the Secretary of the Treasury, in regard to these loans as follows:

“It has been at all times the view of the United States Treasury that questions regarding the indebtedness of the Government of the United Kingdom of Great Britain and Ireland to the United States Government and the funding of such indebtedness had no relation either to questions arising concerning the war loans of the United States and of the United Kingdom to other Governments or to questions regarding the reparation payments of the Central Empires of Europe. These views were expressed to the representatives of the British Treasury constantly during the period when the United States Government was making loans to the Government of the United Kingdom and since that time in Washington, in Paris and in London.”

From these two statements, it appears to be quite clear that the respective borrowing nations each gave their own obligations for the money advanced by the United States and that no guarantee of the obligations of one borrowing nation was asked from any other nation. This is the understanding of the Treasury as to the status of the foreign obligations growing out of the war, now held by the United States.