861.515/1–848: Telegram

The Ambassador in the Soviet Union (Smith) to the Secretary of State


37. Following is substance three protest notes handed Vyshinski1 yesterday during two hour conference on currency reform and customs.2 Full text by pouch.3

First note dealt with 822,212 rubles official funds converted at 10 to 1 under protest and reserving full US rights. Pointed out US Govt through official channels had accepted rubles at fixed rate of exchange for value given and expected in good faith Soviet Govt would honor currency at face value. On contrary without warning Soviet Govt arbitrarily reduced value of currency by nine-tenths which in effect represented capital tax on funds of foreign govt. Such action discriminatory since not Embassy practice maintain current ruble account while missions maintaining such accounts received new rubles 1 to 1 basis up to one month’s authorized withdrawal at old diplomatic rate. Note pointed out conversion contrary international practice as exemplified by exceptional treatment accorded diplomatic missions connection Belgium, Bulgaria, Finland, France, Holland, Norway, Rumania currency reforms and requested 1 for 1 payment for total amount official funds on same basis accorded missions maintaining current ruble accounts.

Second note referred 138,884 rubles converted at 10 to 1 by 84 American members of staff who had received these rubles at official rate exchange as part salary, and requested similar treatment that accorded foreign correspondents who permitted exchange cash holdings 1 to 1 up to 3,000 rubles.

Third note requested reestablishment 12 to 1 diplomatic rate.4 Pointed out: (1) contention purchasing power ruble had increased not true for diplomatic missions since rents, salaries, et cetera remained [Page 792] same and at new diplomatic rate cost in dollars increased 50%; (2) cost staple products at new diplomatic rate and new prices considerably above world prices similar commodities, table annexed showed costs staple products here were several times higher than US prices; (3) old rate established 1941 after consultation with diplomatic corps and that rate at the time was effort equalize purchasing power of ruble with world prices then prevailing. Therefore, new rate established without consultation not consistent and did not reflect present purchasing power ruble since ruble prices today considerably higher than 1941.

Most noteworthy thing about this conference was completely intransigent attitude Vyshinski who, for first time during our many conversations, departed from usual attitude of personal friendliness regardless of official subject, and showed irritability and antagonism. It is quite obvious that he had received instructions to make no concessions whatever. Net result can be summed up in his statement “we did not make this law against the Americans and we are not going to change our law for their benefit.”

Although after display of antagonism conversation restored to usual friendly tone he takes with me, I am not optimistic or hopeful of any concessions on currency question.5

Only other mission make similar detailed protest was British by sending third person note. Italians may also follow up. Iranian, French, New Zealand and Italian protests sent shortly after reform rejected by curt replies.

On subject our customs difficulties his attitude entirely different, and I think we may arrive at some reasonable solution.

  1. Audrey Yanuaryevich Vyshinsky, First Deputy Minister for Foreign Affairs of the Soviet Union.
  2. For documentation regarding ruble revaluation, abolition of the ration card system, and price changes in the Soviet Union, see Foreign Relations, 1947, vol. iv, pp. 626653, passim.
  3. The full texts of these protest notes, dated January 3, 1948, were enclosed in despatch No. 35, from Moscow on January 8, 1948; not printed. (861.5151/1–848)
  4. For documentation on the establishment of the diplomatic exchange rate of 12 rubles for $1, and the role played by the Dean of the Diplomatic Corps, Ambassador Friedrich Werner, Count von der Schulenburg, see Foreign Relations, 1941, vol. i, pp. 870872, 875877.
  5. Ambassador Smith reported in telegram 307, from Moscow on February 17, 1948, that he had received Vyshinsky’s reply of February 13 rejecting his second note herein described, and in telegram 344, from Moscow on February 21, that he had received Vyshinsky’s rejections dated February 19 of the other two notes. Neither telegram is printed. (861.515/2–1748, 2–2148)