Foreign Relations of the United States: Diplomatic Papers, 1944, The British Commonwealth and Europe, Volume III

800.515/8–2644

Memorandum by the Chief of the Division of Financial and Monetary Affairs (Collado) to the Secretary of State

[Washington,] August 26, 1944.

Mr. Acheson⁹⁷ has asked that I bring directly to your attention the following situation with respect to currency arrangements for the military forces in Germany:

1. The subject of what type of currency the armed forces should use upon entering Germany and what rate of exchange would be involved has been under discussion in the Civil Affairs Committee, and with the British and Russian Governments for many months.

2. Initially, all agencies of this Government and the British Government suggested the use of Allied military marks, but there was considerable disagreement on the rate of exchange. The British and the FEA⁹⁸ have wanted a rate of five to the dollar. We in the State Department have felt that a rate of six to eight to the dollar would be more appropriate. The Treasury originally urged a rate of twenty to the dollar. The Russians have shown little interest in the rate of exchange to be employed.

3. Although the Treasury has never admitted it, it is our feeling that Mr. Harry White, at least, wishes a very low rate in order to bring financial difficulties and economic pressure on Germany, as he feels that the Allied control policies otherwise may be too lenient.

4. Early in the summer, the Treasury proposed that we negotiate with the British on the basis of ten to the dollar, and the Department agreed to this proposal for bargaining purposes. As the British held out for five to the dollar, at Bretton Woods⁹⁹ Mr. White suggested the fixing at this time of only a rate for purely military purposes with the thought that a general rate for both commercial and military purposes could be determined more properly a month or two after the surrender of Germany. The Department somewhat reluctantly acquiesced and in discussions with the British in Washington a range of six to eight to the dollar for military operations was tentatively fixed. Subject to London’s concurrence, it was agreed to approach the Soviets on this basis.

5. Early this week, the British indicated that London still wants to talk in terms of between five and eight to the dollar, rather than six to eight.

6. Yesterday, the Secretary of the Treasury saw the President and without prior consultation with the State Department made some proposal which has not been revealed to us. In any event, the President directed that no rate be fixed for the time being, and that dollars be used for troop pay. The Treasury yesterday informed us of this decision and subsequently added that Allied military marks would, however, be used for local expenditures by the Army which themselves would not involve a rate of exchange.

7. The Treasury yesterday informed the British of this unilateral decision. The British reaction was one of some indignation of our departure from the previous practice of working these matters out jointly with the British and the Russians. They indicated that they would telegraph London at once. They also pointed out that sooner or later a rate of exchange would have to be set, and that the only result of delay would be to set up black-market transactions against the yellow seal dollars which probably would result in a rapid depreciation of the mark and a runaway inflationary situation in Germany.

8. We believe the proposed action would be unfortunate because (a) it is a unilateral action breaking the joint front which has previously been presented on military financial and civil affairs matters, and (b) the economic consequences in Germany will probably be inconsistent with our policy objectives and make much more difficult the task of occupation and control. As indicated, however, we suspect the Treasury would not be unhappy to see a precipitous decline in the mark rate of exchange.

Mr. Acheson suggests that we may wish to wait until we hear from the British before considering any steps in the matter. He felt that you should be informed at once, however, in case the President mentions the matter to you, and in case you wish at once to take the matter up with the President.

97. Dean Acheson, Assistant Secretary of State.
98. Foreign Economic Administration.
99. United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, July 1–22, 1944. For correspondence regarding this Conference, see vol. ii .