840.515 Gold Bloc/21
The Economic Adviser (Feis) to the Director of the Economic Relations Section of the League of Nations (Stoppani)
Dear Stoppani: I am greatly obliged to you for the trouble you took in writing your letter of August 28, in regard to the intricate system of clearing and compensation agreements that have come into existence, and for the material which you sent. We are endeavoring in the Department to systematically follow these agreements and their application and to study their effects on trade and upon our own commercial agreements policy. I therefore welcome most particularly the resolution of the Assembly looking towards the undertaking by the Secretariat of a thorough investigation of the subject.
I agree with your general characterizations. The system has been resorted to because of what governments had deemed necessities for the most part, although I believe that in the case of certain countries like Switzerland, which might well have afforded to pursue a more tolerant policy, it also has resulted from the direct wish of creditor groups to collect debts. I perceive also, as you point out, that in some instances it seems to furnish the means of getting around stringent quota restrictions that have been established.
That system, at any rate as it operates up to the present, means introducing complete uncertainty into not only international trade but also into the internal economic situation of the countries pursuing it, without a doubt. If a government office has at any time the power to cut down or to increase the volume of any particular goods that enters the country merely according to its judgment or as part of a trade bargain, I cannot figure how those engaged in the trade in that commodity can possibly make anything like the ordinary commercial calculations. Further, that large monopoly profits will result seems to me beyond doubt. Again, that under these agreements the tendency will be to wipe out the surpluses of trade between pairs of countries seems definitely indicated, as you say. For these and many other reasons, I must say the whole development leaves a sour taste in my mouth. The development seems to me a further desperate effort to find a way of operating the combined systems of exchange control and of quotas that have become dominant in the commercial policy of so many European countries; whether they will make these other arrangements more bearable or whether they will merely serve to embalm the other arrangements will be interesting to observe.
I would not vent my judgment with as much irritation as the above indicates if it were not for the fact that various countries in Europe will now force such arrangements on the Latin American countries. [Page 599] This of course strengthens the support for the pursuit of similar policies by the United States and makes our problem more difficult. The further this development goes, the further it will dim the prospect of working out of our present difficulties by gradually getting rid of exchange controls, and by rebuilding international trade along the lines dictated by underlying economic conditions.
The arrangements seem to me to be supported by two sets of countries. First, those who are hopelessly unable to meet the payments due on short term capital which they have borrowed, e.g., Austria, Hungary and Germany. Second, the countries that have maintained the gold value of their currencies would appear to be determined to maintain it through thick and thin, and therefore they guard their balance of payments situations like dragons lest something should arise to threaten the stability of their currencies. These would retort, I suppose, that they are compelled to take such constrictive measures because of the cheapening of currencies elsewhere and the fluctuation of currencies. I presume this is behind your line of thought when you dwell on the difficulties of straightening out the situation before some arrangement is worked out between the United States, Great Britain, and the countries of the so-called gold bloc.
This will come, I am sure, but I don’t believe it will be undertaken before more muddy water has gone over the dam. I will appreciate being kept informed of developments in the matters I touched on above.
Sincerely yours,