The Ambassador in Germany (Dodd) to the Secretary of State

No. 91

Sir: With reference to despatch No. 2521 of July 10, 1933,85 I have the honor to enclose in copy and translation the statement85 of the Konversionskasse for German Foreign Debts, as of June 30 and July 31, 1933, respectively.

The fact that the Konversionskasse had a balance on hand on June 30, 1933, prior to the effective date of the Law, is due to the receipt by it of amounts due and payable on July 1, 1933, the day the Partial Transfer Moratorium became effective.

It will be noted that by July 31, the sum of 61,490,043.96 Reichsmarks had accumulated in the Konversionskasse which are listed in the balance of that day as being in Reichsmarks and foreign exchange. The possession of this foreign exchange is accounted for by the conversion of an unstipulated amount of marks into foreign exchange in anticipation of the purchase abroad of certificates of indebtedness to be issued later by it in some form and representing non-transfer able non-interest bearing amounts in marks to be placed at the disposition of the creditors in nominal satisfaction of interest claims.

I am informed by the Berlin representative of Messrs. Sullivan and Cromwell of New York, (representing the American bondholders), that as yet no method has been agreed upon between Dr. Schacht and the American creditors regarding the form of certificate of indebtedness [Page 446] which can be employed in the United States covering the non-transferable 50 per cent of interest in the Konversionskasse. It appears that the first idea of the issuance of scrip, although adopted for use in Holland, Switzerland and other creditor countries except the United States, encounters objection on the part of American banks which are unwilling to assume the obligations they would incur under the United States Securities Act, by having to issue the scrip to bondholders in lieu of the unpaid 50 per cent of interest.

As an alternative the American representative suggested the stamping and return to the holder of the half paid coupon with a notation that it represented a claim on the Konversionskasse for the remaining half of the interest in Reichsmarks, since these could be marketed with practically the same facility as scrip. Dr. Schacht considered after consultation with his experts that this procedure would tend to lead to a temporary hoarding of the coupons, pending an eventual change in the world situation and defeat the main purpose of the arrangement which was stated to be early recovery of the evidences of indebtedness by the Konversionskasse to enable the promotion of German trade through the discount at which the claims for non-transferable interest would be marketed abroad.

Although the suggestion was made that the Konversionskasse set up its own institution in the United States for the issuance of scrip, thus taking the responsibility, it was found that such an organization even functioning through the personnel of an American bank as Agent, would be far too expensive, and was rejected by Dr. Schacht on that ground.

It now appears that the solution of the matter may be accomplished through an arrangement for the stamping of the coupons and returning them to the holders more or less as described above. This has not yet been agreed to by Dr. Schacht, but there is some evidence that the growing impatience of the American creditors and the insistence of their representative that Dr. Schacht take early action to avert a serious situation, may cause him to accept this feasible plan. In connection with the negotiations here reported reference is made to my despatch No. 39 of July 29, 1933.86

Although arrangements have been made to issue scrip in the other creditor countries, it is the belief of the American representative who has been consulting constantly with Dr. Schacht in Berlin, that these will not be issued prior to the completion of some workable arrangement for the creditors in the United States, who include many foreigners as well as American citizens. At the moment it is not thought that any satisfactory arrangement can be put into operation before September 1, at the earliest.

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I am authoritatively informed that the so-called “transfer marks” emanating from the Konversionskasse will in all probability be exclusively employed by Germany to promote her exports. The German Gold Discount Bank will probably establish agencies abroad for their purchase. Holland and Switzerland are stated to have already approved such a plan which they feel will create a stable market. In this event, the Konversionskasse would be responsible for the market rate abroad.

Respectfully yours,

William E. Dodd
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