841.5151/955: Telegram

The Chargé in the United Kingdom (Johnson) to the Secretary of State

784. For Assistant Secretary of the Treasury Taylor from Butterworth. I returned to London 8 o’clock last night.

Sir Frederick Phillips sent for me and discussed at some length the French situation.

He let me read the British reply to the French note of August 12 which was sent in confidential code to the British Embassy in Paris and delivered orally to Bonnet. While admitting that there is some disturbance of the European currencies due mainly to the international political situation it states that advisers of the British Government are unanimously agreed that rumors of changes in the value of the Tripartite Agreement currencies have little or no practical effect on the situation, that such rumors existed before Mr. Morgenthau went to France, and it is always possible that they will recur from time to time but at this moment international political events completely overshadow other considerations. It goes on to state that the effect of denying such rumors in a formal and official manner would not be likely to be beneficial; that the fact that the Governments would be forced to give an explanation would be taken by the market as a sign of weakness and an effort to distract attention from the real causes. The position therefore would only be aggravated if demands for gold in London would not be fully met and there is no question of interfering with London’s free gold market.

I also obtained from Phillips a copy of a proposed Tripartite statement which Monick handed to the British Treasury when he returned from Paris Tuesday morning. He said that he was acting on behalf of Daladier. Phillips did not gather that Daladier had approved of the text as such which was probably drafted by Monick himself but that it probably was as Monick maintained, the kind of statement which Daladier would think appropriate. The translated text is as follows:

“The Governments of the United States of America, of Great Britain and of France, (a) in view of the unjustified return to the hoarding of gold, its incidence on the position of exchanges, the instability of the financial markets, (b) considering, on the other hand, that the production of gold has never attained the present figures, that the metallic reserves in the United States, in Great Britain and in France have increased all their forces of credit to unthought of proportions, and that their capacity of production is greater than ever, (c) noting that the last monetary adjustments have now attained [Page 292]their end; considering that for the future it is on their closely concerted financial and commercial policy that the new economic adjustments, which are still necessary, depend, (d) determined above all to maintain the foreign exchange value of their internal currencies which guarantees their purchasing power and the stability of price, (e) declare solemnly that their common monetary policy excludes all manipulation tending to new devaluation, (f) decide to base on their large available stocks of gold and their forces of credit the execution of a collective program of economic recovery, of development of international commerce and of assistance to countries more especially affected by the crisis and by the political instability in Europe and in the rest of the world, (g) constitute from now on among themselves a committee of permanent international action charged with putting this program into effect and gradually to pursue its realization.”

Phillips told me in the strictest confidence that Daladier had addressed a personal and private letter to the Prime Minister which was dated August 12 but received August 15. (Incidentally Phillips specifically asked that no mention of it be made in my telegram to Paris the text of which follows below). In this letter Daladier set forth the difficulties of the French position and Government and indicated that he had an internal plan which he wished to put into effect but could not do so except under cover of and in conjunction with an international arrangement. He gave no details of his internal plan. He emphasized the dislocating effect of the fluctuations in the price of gold incident to hoarding and dehoarding movements and implied that inasmuch as the Tripartite currencies controlled the overwhelming majority of the world’s gold stock it was up to them to produce a plan for its use in restoring international commerce. He concluded by asking the British Government to enter into discussions immediately with a view to producing some scheme and prophesied “disastrous things for next week”. Phillips said the British reply had not yet been formulated but that it would be designed to get at the real intentions of the French. It would ask about the internal plan and at the same time point out that whereas it was highly desirable to use the available gold stocks to facilitate international commerce there was no new plan at hand for the execution of such a purpose. It would also mention that the price of gold had in fact been remarkably steady, not having varied more than 3 per cent which was scarcely more than a gold point variation. It would also mention that because there had been a strong movement into gold there was no reason to believe that it would go on forever and that there was in private hands in London about the same amount of gold now as at the time of the signing of the Tripartite Agreement.

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There follows below the two telegrams which were sent Cochran this afternoon and which set forth Phillips’ views on what he conceives to be “the real inwardness of the situation.”

1. “August 17, 4 p.m. For Cochran from Butterworth. The British interchange accomplishment with the French have convinced Phillips that the British and American Governments are about to be faced by the Daladier Government with the following alternatives.

Resignation of the Daladier Government.
Imposition of exchange control.
Further depreciation of the franc presumably to another established but lower level.

Phillips does not think Daladier wants to resign and considers 1 an unlikely contingency.

As regards 2 and 3 he pressed me for a definition of the American attitude which I countered by pointing out (a) that I had no instructions on this point, and (b) that even the French Government itself had by the manner in which it had conducted the recent interchange accomplishment shown that they looked to the British, their allies, for a prior definition of attitude.

Phillips then said that as regards 2 he did not see how the French could impose exchange control and still adhere to the terms of the Tripartite Agreement and that as he had mentioned on so many previous occasions he did not believe that exchange control was workable in France. He asked whether it was also our opinion that the French Government had no existing legal powers with which to impose an exchange control and I told him that I had asked you the same question when I was in Paris 2 weeks ago and that you also did not know of any legal means by which exchange control could be imposed without obtaining the sanction of the French Parliament. He then said that that being the case he could not conceive of anything which would do more harm than the calling of the French Parliament for such a purpose at such a time and that on that score alone it should be excluded.

As regards 3 he said ‘we certainly are not going to advise the French to depreciate the franc further.’ I said I took it that that meant that the British would in the last analysis acquiesce to its depreciation, to which he agreed.

Phillips stated that the British have been advised by the French a monetary decision must be reached before Monday August 22 and therefore he wants an official expression of our attitude in the premises as soon as possible. He asked me when you would see the Secretary of the Treasury and I told him of the possibility of your leaving for Geneva tonight. He expressed strongly the hope that you would carry with you to the Secretary the above information and therefore this is being telegraphed to you. He particularly asked that it not be transmitted orally over the French telephone system. Given the Monday deadline Phillips wants an expression of our attitude by tomorrow afternoon if possible.

Copy to Washington.”

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Telegram 2. “August 17, 5 p.m. For Cochran from Butterworth. Since talking with you I had occasion to see Phillips and told him that you might not leave tonight and that by staying you might obtain a statement from the French. He said he felt sure that no worthwhile statement would be forthcoming because the French were obviously awaiting an indication of the British Government’s views and that in turn [the British?] did not wish to move without prior consultation with us. He again urged most strongly the desirability of immediate action.

This I pass on to you for what it may be worth.”

While the first part of this message was being sent Phillips telephoned to say that he had just had “reliable advices from a private source in Paris” to the effect that there were two parties within the French Government as regards the alternatives 2 and 3 referred to above and that inasmuch as alternative 2 would require the calling of the French Parliament the advocates of this course would doubtless be defeated and might well have to be dropped from the Government. His informant also had warned him that Daladier had a way of signing papers which he had not himself prepared and to the contents of which he had not necessarily given careful consideration.

Will you please advise me tomorrow when I may expect our official reply. [Butterworth.]