851.5151/986: Telegram

The Chargé in France (Wilson) to the Secretary of State

908. For Secretary of the Treasury from Cochran. Reference to my telegram No. 907, September 22, 8 p.m.,27 I saw Undergovernor Founder at Bank of France at 10:15 this morning. He raised two questions.

It is envisaged that the French stabilization fund will be operated by the Bank of France for the account of the French Treasury [Page 555] and Fournier will presumably be in charge thereof. He said that the plan would be to hold the franc from the beginning within the limits specified by the authority which will be granted the Government by Parliament to fix the new gold value of the franc by decree. The convertibility of the French franc into gold will be entirely suspended by the monetary legislation. Gold transactions would be only those between the stabilization funds that are agreed upon. The franc will not be immediately reattached to gold. The French stabilization fund would operate, however, during the transition period toward holding the franc at the middle rate between the two limits. The French fund would in its operations purchase dollars and sterling. It would desire to convert such currencies into gold and avoid the French error which Fournier says was made in 1926 of building up tremendous holdings of foreign exchange. Therefore could the American monetary authorities assure the French at this juncture that if a common declaration is issued the French stabilization fund could be permitted to exchange the dollars which it acquires against gold? The French would be willing on a reciprocal basis to give the American fund gold against the francs which it acquires. The latter operation would involve determining a price as long as the franc is not definitely attached to a fixed weight of gold. The price might be day to day or over a certain period. I told Fournier that I would raise this question immediately and that my personal impression was that if we find it possible to agree to the simultaneous declaration now being negotiated we presumably would grant the desired reciprocity.
It is anticipated that a call for special convoking of the French Parliament would be made at the time the declaration is issued. At that same time the French would [order?] the closing of their stock market and exchange market. That is, from the time of making such announcements no exchange transactions would be permitted until after the monetary law had been passed and announced. They do not contemplate closing the banks. They hope for such a period to begin with Saturday and probably terminate with Monday. Fournier had talked with Cobbold of the Bank of England on this point seeking similar action by the British. Cobbold said according to Fournier that the British were considerably perturbed lest the interim period between convoking Parliament and passing the law might see a tremendous attack upon the Swiss franc and the florin. Consequently Cobbold thought that the British might look with favor upon taking action similar to that contemplated by the French but that this would not be worth while unless the Americans followed the example. Fournier asked what we would be willing to do. I told him I would submit the question but that I had considerable doubt as to whether we would risk shocking our public to the extent that this might involve.
[Page 556]

Fournier subsequently talked with Governor Labeyrie.28 The question was raised by the latter as to whether the Bank of France should communicate with the Federal Reserve Bank of New York in regard to technical cooperation. I told them that for the present negotiations were being handled entirely in Washington. They will utilize present channels, therefore, until they may receive further suggestions from us. They both impressed upon me the necessity for haste in view of the nervous condition of the French market. As I left the bank I stopped to see Cariguel29 who had been consulted by the Governor and the Undergovernor before I arrived. I told Cariguel of my uneasiness over suggesting that our markets be closed. He suggested, personally and most confidentially, as an alternative, that we might give our word that the Treasury or Federal Reserve would ask the important American banks to refrain from trading in the French franc or possibly other currencies during the period under reference. He thought cooperation of the banks in the United States most likely to engage in important transactions in foreign exchange could thus be achieved without upsetting the public.

I think it would be well when I next see the Governor and Under-governor of the Bank of France to make it clear that if an embargo is placed upon the export of gold those American banks which may have sold dollars against francs in practice such as followed by the Guaranty and National City Bank should be entitled to obtain gold therefor. That is, we should not desire to see an American bank suffer loss through an embargo especially since the banks particularly under reference have been instrumental in maintaining the stability of the franc through their operations.

President Trip30 telephoned me this morning from Amsterdam that Labeyrie had requested that he postpone his visit to Paris until Friday noon instead of Thursday noon. Trip agreed to this and will call on me at 9:30 Friday morning.

Without mentioning Trip’s plans I asked Fournier whether the French had notified any other countries of present negotiations. He replied in the negative but added that as soon as agreement might be reached governing declaration by the three powers the French would send three agents to the Netherlands, Belgium, and Switzerland, to inform the monetary authorities respectively as to the declaration and solicit these countries joining after.

Gold losses of Bank of France yesterday amounted to 370 million francs. By 11 o’clock this morning the Bank had lost 60,000,000 francs gold.

[Page 557]

At 12 noon Baumgartner was still in conference with Minister of Finance so I have not talked with him since he received British reply.

Please provide me with answer to points (1) and (2). [Cochran.]

  1. Telegram in four sections.
  2. Not printed.
  3. Emile Labeyrie, Governor of the Bank of France.
  4. Foreign exchange expert of the Bank of France.
  5. Leonardus J. A. Trip, Governor of the Bank of the Netherlands; President of the Bank for International Settlements.