Memorandum by the Adviser on International Economic Affairs (Feis) to the Secretary of State

Mr. Secretary: I informed the Secretary of the Treasury14 this afternoon that the question of the application of the Neutrality Act in the Far Eastern situation was now under immediate consideration and that decision might be promptly reached. Therefore, I explained that this Department wished to inform itself first as to whether the Treasury would be embarrassed in fulfilling its agreements with the Chinese Government in case the Act was invoked, secondly, as to whether there was anything in the exchange situation which ought to be taken into account, and thirdly as to whether it seemed necessary to the Treasury to make any preparations in regard to the application of Section 3.

After discussing the matter with Messrs. Taylor,15 Oliphant16 and Viner, who were also present, the Secretary of the Treasury gave the opinion that the application of the Act would not impede the operation of those phases of the Agreement with China having to do with the purchase and ear-marking of gold. (The whole of the $50,000,000 procured by China is incidentally still on ear-mark in New York.) As to any future question in regard to short-time lending upon the collateral security of such gold, that could be dealt with when and as it arose in Mr. Morgenthau’s opinion.

I was also informed that there was nothing in the immediate exchange situation which need be taken into account.

Finally, as to questions arising under Section 3 it was agreed to call together the inter-departmental committee which had previously been studying this matter.

At the termination of the discussion the Secretary of the Treasury stated an idea which he thought might be of great importance in the event that the American and other Governments should ever undertake to try to end the conflict. It was to the effect that by agreement dollar, sterling and franc exchange would be refused to Japan in return for yen or gold—without explanation given.

I did not undertake extensive discussion of this idea as it seemed beyond the field of the Department’s immediate intentions.

H[erbert] F[eis]
  1. Henry Morgenthau, Jr.
  2. Wayne C. Taylor, Fiscal Assistant Secretary.
  3. Herman Oliphant, General Counsel.