Foreign Relations of the United States, 1950, Central and Eastern Europe; The Soviet Union, Volume IV

861.13/3–2450: Telegram

The Chargé in the Soviet Union (Barbour) to the Secretary of State

restricted

Moscow, March 24, 1950—7 p. m.

948. For Dept and VOA. Following first person note number 39 dated March 24 addressed Soviet Ministry Foreign Affairs delivered Foreign Office today:¹

“Excellency, I have the honor, on instructions to refer to Your Excellency’s circular note of February 28, 1950, advising the Embassy that the Council of Ministers of the Union of Soviet Socialist Republics has decreed that the special discount arrangements under which diplomatic representatives in the Soviet Union may buy rubles with foreign currencies in limited quantities is established at reduced level for the period March 1 through June 30, 1950 and will be abolished from July 1, 1950.

“The Government of the US cannot accept the reasons advanced in your circular note of February 28 as justifying the indicated reduction and early abolition of the special diplomatic discount arrangement. Need for such special arrangement was recognized by the Soviet Government itself through adoption of the original preferential rate in 1941² in an effort to equalize the purchasing power of the ruble with prevailing world prices. The need for such an arrangement still exists. Although the concept of an exchange rate for the ruble in the accepted sense is, of course, purely fictitious so long as the ruble is not an internationally traded currency, nevertheless it is possible to make a comparison of prices paid by members of the Soviet Embassy staff in Washington with prices paid by US Embassy personnel in Moscow. Despite some reduction in the Soviet price level since December 1947 prices in Moscow are extremely high relative to prices in Washington. For example, white bread from first grade flour was approximately 24 cents per kilo in Washington in December 1947 and is currently 26 cents per kilo. In Moscow, white bread from first grade flour was 7 rubles per kilo in December 1947 and now, after recent price reductions, is 5, 60 rubles per kilo. At the discount rate of 8 rubles per dollar then established, the Moscow price of white bread in December 1947 was equivalent to over 87 cents per kilo as compared with 24 cents per kilo in Washington. The present Moscow price of white bread on the 4 ruble per dollar basis available to diplomatic representatives after June 30, 1950 is equivalent to $1.40 per kilo as compared with the current Washington price of 26 cents per kilo. At the 8 rubles per dollar discount rate the Moscow price of butter was equivalent to $8 per kilo in December 1947 as compared with the Washington price of from $1.71 to $1.87. The present Moscow prices for butter on the 4 ruble per dollar basis are equivalent to from $8.58 to $11.03 per kilo as compared with the current Washington price of $1.52 per kilo. Attention is also invited to the fact that price reductions recently announced do not include any reductions in such cost of living items as rent. These and additional comparisons contained in the appendix of this note show conclusively that in view of the continued low purchasing power of the ruble, the abolition or reduction of the preferential rate for diplomatic representatives is completely unjustified.

“It is also stated that the buying power of the US dollar has declined because of a continuing rise in living costs in the US. The index of the cost of living in the US published in the monthly bulletin of statistics of the United Nations stood at exactly the same figure in December 1947 when the diplomatic discount basis was reduced from 12 to 8 rubles per dollar³ as it did in January 1950, the most recent month for which a figure has been published. Since the cost of living was the same in the US on these dates, no basis exists for justifying a reduction in the diplomatic discount rate from 8 to 4 rubles per dollar on grounds of a living cost increase in the US.

“The Government of the US accordingly wishes to reiterate that it finds no basis for the contentions of the Soviet Government in its circular note of February 28 that the reduction and abolition of the diplomatic discount rate is justified and requests that this rate be promptly reinstituted.

“Accept, Excellency, the assurances of my highest consideration.” Signed Walworth Barbour, Chargé D’Affaires AI”

Appendix

Column one item, columns two, three, four, five, six and seven as indicated Deptel 227.⁴ All quantities kilos unless otherwise stated. White bread 26 cents, 23.5 to 24.3 cents, 5.60 rubles, 7 rubles, $1.40, 87.5 cents; milk fluid liter 20 cents, 20.1 to 22.8 cents, 3.78 rubles, three to four rubles, 94.5 cents, 37.5 to 50 cents; beef first grade $1.39, $1.30 to $1.52, 24.3 rubles, 30 rubles, $6.075, $3.75; butter $1.52, $1.71 to $1.87, 34.3 to 44.1 rubles, 64 rubles, $8.575 to $11.025, $8; tea $1.39, $2.20, 162 rubles, 160 rubles, $40.50, $20; coffee $1.54, 84.9 cents to $1.12, 79.2 rubles, 75 rubles, $19.80, $9.375.⁵

Barbour

1. The Department of State had sent the text for a note to the Embassy in telegram 227 on March 20. It was drafted along somewhat different lines, which were preferred over the British draft. The Department believed that the reply should be “based primarily on inadequacy justification cited in withdrawal of dipl[omatic] corps preference although treatment sh[ou]ld be such as afford greatest propaganda value VOA and other media.” The note was to be presented as early as possible, “either alone or in concert [with] other Missions” which should be encouraged to make a similar approach. (861.13/3–450)

   The Chargé in the Soviet Union informed the Department in telegram 947 on March 24 that this note was delivered at the Ministry of Foreign Affairs in the afternoon. A British note was to be delivered on the following day. A few days previously, the Netherlands Ambassador had replied in a similar note, and the Italian Ambassador had done so on March 23. Others were expected to follow suit shortly. (861.13/3–2450)

2. 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, the German Ambassador Friedrich Werner, Count von der Schulenburg, see Foreign Relations, 1941, vol. i, pp. 870–872, 875–877.
3. For the establishment of the diplomatic exchange rate of 8 rubles for $1, see Foreign Relations, 1947, vol. iv, footnote 2, p. 637.
4. The wording of the headings of the seven columns was: Column 1, Item; column 2, Present Dollar Price, Washington; column 3, December 1947 Dollar Price, Washington; column 4, Present Ruble Price, Moscow; column 5, December 1947 Ruble Price, Moscow; column 6, Present Price Moscow in Dollars at 4 to 1; and column 7, December 1947 Price Moscow in Dollars at 8 to 1.
5. The Department advised the Embassy in the Soviet Union by telegram 250 on March 27, that the text of this note had been released to the press at noon. (861.131/3–2750) See Department of State Bulletin, April 10, 1950, p. 561.