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Volume 44, November 1 – November 10, 1936
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Volume 44, November 1 – November 10, 1936
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 44
November 1 - November 10, 1936
Regraded Uclassified
- B -
Book Page
Bank for International Settlements
See Stabilization
Belgium
See Stabilisation
- G - -
Great Britain
See Stabilization: England
- H - -
Holland
See Stabilization: Netherlands
Home Loan Bank Financing
Conference: HMJr, Preston Delano, Bell, and Upham - -
11/5/36
XLIV 118-119
a) Debentures with maturity of not less than
one year to be issued quarterly; fiscal agent of
Federal Intermediate Credit Bank to be used
- 8 -
South America
See Stabilisation
Stabilization (arranged chronologically)
(See Cochran resume September-December, 1936, Book XLIII)
HMJr 11/2/36 asks Lochhead to watch market particularly carefully-
1-3
Memorandum to be prepared by Haas and White from economic
not legal standpoint, covering (1) monetary arrangements
with Belgium, Switzerland, and Netherlands; and (2) the
point as to who holds title to the monetary gold in each
of these three countries, together with a brief picture
indicating the monetary pattern, perticularly with regard
to the handling of gold, et cetera - 11/2/36
6-8
a) Haas memorandum and drafts of Treasury announcement
to supersede those of 1/31/34 and 10/13/36 -
11/4/36
60-74
1) Discussion at HMJr's home - 11/4/36, 8:30 P.M..
77-99
FDR orders study by Federal Reserve Board and Treasury
into heavy buying of American securities by foreign
sources - 11/13/36
48-50
Import business in light of new currency policies
reviewed by Knoke - 11/9/36
207-208
Sterling resume
199-206,
209-215,
226-230
- 8 - (Continued)
Book Page
Stabilisation (Continued)
Bank for International Settlements:
Visit reported by Cochran - 11/10/36
XLIV
216-225
Belgium:
Offers collaboration on Triportite Agreement; has no
Stabilization Fund as do Netherlands and Switzerland
a) Conference at which Oliphant discusses legal
considerations - 11/5/36
120-142
b) HMJr asks Feis to participate in discussion -
11/5/36
143-144
c) Eccles, Ransom, Taylor, and Upham discuss
situation at luncheon - 11/10/36
145-146
1) Taylor explains to Ecoles and Ransom
that Stabilization Fund has run out of
liquid cash and so has had to sell some
gold to Treasury
d) HMJr explains Belgian situation to FDR:
United States "doing business" with England
on 10/13/36 declaration; "doing business"
with Belgium on agreement made 1/31/34, which
has never been cancelled
154-156
1) Quotes new formula to correct this
e) HMJr, Mallet, Feis, Taylor, and Lochhead confer -
11/5/36
157-160
1) Bewley reports that Chancellor has no
suggestion to make on new draft announcement-
11/10/36
231-235
f) Draft of proposed statement by Treasury intended
to cover release of gold for export to France and
England, 88 well as to countries now under
consideration (i.e., Netherlands, Switzerland,
and Belgium), cabled to Cochran - 11/5/36
161-164
1) Coohran cables that copy of statement has
been given to Baumgartner, who promised to
discuss matter with Finance Minister Auriol -
11/6/36
188
2) Cochran discusses with Baumgartner
189-193
3) Auriol to see Cochran 11/12/36
197
Cochran transmits letter from Minister of Finance de Man,
guaranteeing with regard to United States Government
obligations assumed in declaration of 10/17/36 by
National Bank of Belgium, fiscal agent of the State -
11/9/36
194-196
England:
Eden "hints delicately" that under provision of tripartite
exchange pact proposing abolition of quotas, England
might consider loan to Germany - - 11/5/36
45-46
American Embassy reports on British economic position:
(1) production beoming in heavy industries; (2) noticeable
pick-up in textiles and consumer goods industries;
(3) therefore general rise in world prices and British
trade balance position assume new importance - 11/10/36..
236-240
- 8 - (Continued)
Book Page
Stabilization (Continued)
Netherlands:
Cochren to go to Holland, 80 HMJr informs Taylor -
11/2/36
XLIV
4,6,7
a) Cochran cable explaining his understanding
of mission
9-15
b) Cochran cable concerning Netherlands trip -
11/4/36
27-36
1) Royal decree of 9/26/36 prohibited export
of gold coin and bullion
2) Law of 9/30/36 set up exchange stabilization
fund; by same law, Netherlands Bank's
obligation to redeem its notes was suspended
3) As a result of 1), gold standard is not
operative in Netherlands now
4) Exchange equalization fund is managed by
Netherlands Bank under supervision of
Minister of Finance
5) Exchange equalization fund offers reciprocal
facilities to United States under certain
conditions (enumerated)
6) This declaration by Netherlands Government
and Netherlands Bank is based on declaration
of Secretary of United States Treasury 10/12/36
c) HMJr-Cochran phone conversation concerning
Netherlands trip - 11/4/36
37-44
South America:
HMJr tells Feis he is opposed to all monetary conferences -
11/5/36
152
Stabilization Fund
HMJr notifies Federal Reserve Bank of New York and United States
Assay Office, New York, concerning instructions to be sent
from time to time authorizing the sale of gold from Stabilization
Fund to General Fund and the purchase of gold from General
Fund for the account of Stabilization Fund; in establishing
appropriate credits, purchases and sales shall be made at the
flat price of $35 per fine ounce without adding or subtracting
the ± of 1% charge - 11/4/36
75,76
I
November 2, 1936.
9:17 a.m.
Operator: Mr. Lochhead.
L:
Hello.
H.M.Jr:
Hello Archie.
L:
Yes sir. Well there's no - no change so far.
Sterling is holding between 8-15/16s to $4.89.
H.M.Jr:
Yes.
L:
And on the stock purchases and sales on Saturday..
H.M.Jr:
Yes.
L:
...there was a net purchase of 2,300,000...
H.M.Jr:
Yes.
L:
A little bit smaller but steady through the line
all the way down the line.
H.M.Jr:
Ah-ha.
L:
And nothing - nothing new in the lines of cable or
anything yet.
H.M.Jr:
Well now Archie.
L:
Yes.
H.M.Jr:
If there's any drop in exchange be particularly
interested to-day.
L:
Right - we'll - there will - we'll make sure there's
no deviation below this point at all.
H.M.Jr:
Yes.
L:
Very specially to-day.
H.M.Jr:
What is the point now.
L:
The point is 8 to 15/16s - $4.88
H.M.Jr:
......I
don't want it to drop below that.
Regraded Uclassified
2
- 2 -
L:
O.K. we'll see that it doesn't.
H.M.Jr:
Now I don't want any monkey-business to-day and the
same goes for the bond market.
L:
That same for the bond. All right I'll watch it
carefully and we'll make absolutely sure there's
nothing at all on it.
H.M.Jr:
I mean you can watch that thing like a hawk.
L:
Right.
H.M.Jr:
I don't care what it costs.
L:
Yes.
H.M.Jr:
I don't want anything funny in the bond market or
the exchange.
L:
All right well I'll - I'll watch particularly
myself through all the day.
H.M.Jr: And if they don't come in and protect the franc -
we step in.
L:
Ah - oh yes, you mean if they don't protect the franc.
H.M.Jr:
Yes.
L:
Yes, well we'll get that rate tomorrow - I mean by the
afternoon if they don't, we'll also do it.
H.M.Jr:
Yes but be particularly interested to-day.
L:
All right sir. I'll take special note and watch it
myself.
H.M.Jr:
For God's country and the Democratic party.
L:
Righto. (Laughter)
H.M.Jr:
Is Mrs. Klotz there?
L:
I don't - just a second Baside to someone in the office -
"Is Mrs. Klotz in)
K:
Yes, I'm here.
H.M.Jr:
All right.
Regraded Uclassified
a
- 3 -
L:
Yes, Mrs. Klotz is here.
L:
All right, sir.
H.M.Jr: All right.
Li
Right.
H.M.Jr: All right.
L:
Goodbye.
H.M.Jr: Goodbye.
**********
Operator: Hello
H.M.Jr: Yes.
Operator: Mr. Taylor.
Operator: Go ahead.
Taylor: Hello.
H.M.Jr:
Hello Wayne.
T:
Good morning Henry.
H.M.Jr:
How are you?
T:
I'm alive and you?
H.M.Jr:
Very much alive.
T:
Your mind all clear and made up is it.
H.M.Jr:
Yes, it's made up. Hello.
T:
Yes.
H.M.Jr:
Anything you want to tell me?
T:
No there's nothing new at all here.
Regraded Uclassified
- 4 -
H.M.jr: Well very briefly I spoke to Cochran yesterday - he
is going to Holland tonight. I spoke to Feis and
told him to give him the authority, see?
T:
Yes.
H.M.Jr:
And I'd like to do one more thing. Please ask the
State Department to send a cable to Cochran in
Holland, you see, so he'll get it there tomorrow -
hello
T:
Yes.
H.M.Jr:
Telling - no they better - better send it right
away through to Paris and let Waite catch him at
Holland - hello
T:
What?
H.M.Jr:
Tell them to send one to our Embassy in The Hague,
see?
T:
Yes.
H.M.Jr:
For Cochran telling him - ordering him to file his
cable there so that we'll get it Wednesday morning,
see?
T:
Yes.
H.M.Jr:
I want him to file his cable - what he has done before
he leaves Holland, see?
T:
Right.
H.M.Jr:
Get it?
T:
Yes.
H.M.Jr:
Ask them to do that.
T:
I will.
H.M.Jr:
Please.
T:
I'll do it right away Henry.
H.M.Jr:
That's all I got.
5
- 5 -
T:
Right.
H.M.Jr:
Now I've told Archie on the bond market and on the
foreign exchange to be particularly interested
to-day.
T:
Correct.
H.M.Jr: I said, "For God's country and the Democratic party".
(Laughter).
H.M.Jr:
(Laughter) Well you watch it - - I mean I don't want
anything to slip up to-day.
T:
No, we'll watch it.
H.M.Jr: O.K.
T:
Right Henry.
H.M.Jr:
Thank you.
T:
Goodbye.
H.M.Jr: Goodbye.
Regraded Uclassified
6
November 2, 1936
Over the telephone from the farm, this morning,
the Secretary said to Mrs. Klotz:
"Yesterday I called up Cochran and told him to
proceed to Holland Monday night. I asked him if there
was any reason why we could not let Belgium wait and he
said they could wait. I told him to go ahead and try
to get the Government to agree and then I told him to
send me a cable, for the record, confirming what I had
said to him over the telephone.
"I then called up Herbert Feis and asked him to
cable Paris giving Cochran permission to go and he said
he would.
"Then I called up Haas and told him that I wanted
him and White, by themselves, without any lawyers, to
give me, Wednesday morning, what they thought we could
do and I outlined to him what I wanted, Just the way I
did the other morning. I told nim that I wanted what
was best from the standpoint of economics and not from
a legal standpoint. I said after we decided what was
best from an economic standpoint, then we would let the
lawyers draw up a contract to fit that plan rather than
have the lawyers tell us what was best legally and then
try to fit the economic plan to the legal plan. I told
him to work entirely by themselves, but that they could
consult Lochhead if they wished, but nobody else."
Regraded Uclassified
7
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France.
DATE: November 1, 1936, 2 p.m.
NO.: 441.
FOR THE AMBASSADOR.
FROM THE SECRETARY OF THE TREASURY.
I should like Cochran to proceed to the Netherlands
on Monday evening for discussions with the Dutch author-
ities, if this is agreeable to you.
HULL
EA:LWW
Regraded Uclassified
8
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 2, 1936
TO
Secretary Morgenthau
FROM Mr. Haas MR
At 5:30 P.M., Sunday, November 1, 1936, you telephoned me at
my home and asked that I have ready for you by Wednesday morning,
November 4, this Division's recommendations covering our monetary
arrangements with Belgium, Switzerland, and The Netherlands; also
a suggested draft of an announcement covering this matter.
You also asked that I have ready at that time a statement
indicating just who holds title to the monetary gold in each of the
three countries - - Belgium, Switzerland, and The Netherlands, and a
brief picture indicating the monetary pattern in each of these coun-
tries particularly with regard to the handling of gold, etcetera.
Regraded Uclassified
9
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 2, 1936, 10 a.m.
NO.: 1070.
FROM COCHRAN.
FOR THE SECRETARY OF THE TREASURY.
I transmit the following to indicate my understanding
of certain points discussed in the conversation on Sunday
afternoon over the telephone.
I was told by you that you would request the Department
of State to send a telegram that day which would authorize
me to proceed to the Netherlands on Monday with the view
to procuring from the Dutch an arrangement for reciprocity
in gold dealings along the lines of the declarations al-
ready obtained from the Swiss and from the Belgians.
The Belgian and amended Swiss declarations have not
yet received the final approval of the United States.
In the conversation I told you that I thought both the
Belgians and the Swiss are quite anxious to cooperate with
us but that in their declarations they can go no further
than already indicated to us. The suggestion was made
that you inform me,whenever you may find one or more of
the countries of Europe whichxaxe eligible to be added
to your list for gold reciprocity, of the terms of the
announcement which you plan to make regarding the parti
ular arrangement. Then I would procure the approval of
the country concerned to the declaration that proposed.
You
Regraded Uclassified
10
(2) 2 -
You would then inform the British Government and I
would inform the French Government about the approved
declaration.
END SECTION ONE.
BULLITT.
EA:LWW
Regraded Uclassified
11
Paraphrase of Sections two and three of telegram No. 1070
of November 2, 1936, from the American Embassy, Paris.
I would be notified by the interested country of the terms
of the announcement which it might propose to make, and
I would pass this on to the French Government and to you.
After the interested country and the United States are
in final agreement on the reciprocal arrangements and on
the terme of the announcements, then I would suggest to
the interested country that it contact the British and the
French for direct negotiations with them.
The British, you said, wanted to participate in
arrangements with any countries which the United States
adds to its list, and I said that the same thing was de-
sired by the French. Therefore, the idea would be to
work toward simultaneous declarations with the terms of
each country's declaration known to the others in advance.
Although in our conversation we did not cover the
point it would presumably be desirable that if Belgium,
the Netherlands and Switzerland are all accepted by France,
Great Britain and the United States, the new additions
should reach arrangements for reciprocity among themselves
at the same time.
You made the explanation that you did not want pub-
licity for the details of your several arrangements, but
merely wanted to announce the additions made to the list
after "agreement with the appropriate authorities" - this
phrasing to depend upon the circumstances in each case.
I
Regraded Uclassified
12
- 3 -
I expressed the opinion that on this side satisfactory
arrangements could be made regarding the citing of the
authorities provided you indicated what you wanted. of
course there was to be no effort in any of these negotiations
to compel the internal financial or monetary set-up of
any country with which we negotiated.
I informed you that at noon on Saturday I had received
a letter from Bachmann in which he confirmed his telegram
which I quoted in the last paragraph of my telegram No. 1064
of October 30, 3 p.m. He added that:
"Thus the question of the 'declaration' is now
settled on the part of Switzerland. I suppose that the
two alterations we made in the declaration of October 18
and of which I spoke to you yesterday by telephone will
cause no difficulties for approval by the United States.
The declaration signed by our Minister of Finance as well
as by the Swiss National Bank will reach you within the
next (omission) days."
In his letter Bachmann stated he had noted that the
Belgian Government had on September 27 formally declared
its adherence to the monetary agreement of September 25
between the Governments of the United States, France, and
Great Britain. Bachmann wanted to know whether Switzer-
land should likewise signify in due form her consent to
this arrangement, and you said you thought it might be
desirable
13
- 3 -
desirable for the Swiss announcement on reciprocal gold
arrangements to include notice of adherence to the original
tripartite agreement; in the case of the Netherlands the
same procedure could be followed.
You questioned me about the French situation, and
I said that there was improvement in certain economic
factors. The gains of Government securities which had
been made after devaluation had been lost, however.
BULLITT.
EA:LWN
Regraded Uclassified
14
Paraphrase of section four of telegram No. 1070
of November 2, 1936, from the American Embassy, Paris.
I also said that there is gossip in the country regarding
the possibility of further devaluation of the franc.
I should add that I believe, for the following reasons,
that the importance of further action being taken to
implement the tripartite agreement becomes more urgent each
day.
(1) As to the French situation, there is a growing
distrust, aggravated by the publication of budget figures
for 1936 and 1937 showing substantial deficits. All
the support which the French Government can get is needed.
Any evidence of the tripartite monetary agreement being a
sincere arrangement acceptable to a growing number of
countries would be very helpful to the Government.
(2) If there is no continuous progress on this matter,
the German contention, voiced by Schacht in his declaration,
that the tripartite agreement could not be regarded as a
part of a permanent monetary settlement may receive some
apparent substantiation. Should new countries, on the
other hand, link on to the monetary arrangements made by
France, Great Britain and the United States, the general
public in France and in Germany and elsewhere should get
the impression that this agreement was a turning point in
the
15
- 2 -
the monetary history of the world.
I received this morning the Department's cablegram
No. 441 of November 1, 2 p.m., authorizing me to proceed
to Holland. I made a telephone call to President Trip,
who will receive me tomorrow morning. He will make an
appointment for me to see Colijn, the Premier. Therefore
I am leaving this noon for Amsterdam, and Wednesday
morning I should be back in Paris.
END MESSAGE.
BULLITT.
EA: LWW
Uclassifie
16
November 3, 1936.
9:18 a.m.
H.M.Jr:
Hello Archie.
L:
Good morning.
H.M.Jr:
What's new?
L:
Nothing new the rate is still pegged at 4.88-15/I6s
to 4.89.
H.M.Jr:
Ah-ha.
L:
The market doesn't seem to be doing an awful lot
over there.
H.M.Jr:
Ah-ha.
L:
Francs are still holding around 65 -4.65.
H.M.Jr:
Yes.
L:
And the only thing is yesterday Security bids
were fairly heavy again - about 51 million.
H.M.Jr:
Gosh.
L:
So they still keep going there.
H.M.Jr:
Archie.
L:
Yes.
H.M.Jr:
I notice they're having a little trouble holding
the guilder down.
L:
Well about holding the guilder down - they had the -
the guilder was going up day before and then yesterday
it turned around a little bit the other way.
H.M.Jr:
Yes but I was thinking if they're having trouble
stabilizing and I also see they are trying to get
out a new loan.
L:
Well there's talk, yes - talk about putting out
a new refunding loan there.
H.M.Jr:
They may be very glad to come into out little sgreement.
Regraded Uclassified
17
- 2 -
L:
I should think in a way they might because the -
of course Holland does work the bank - the Central
Bank of Holland works with the Bank of England but
then that's just simply a banking operation.
H.M.Jr: Yes.
L:
And I don't think they'd let them do too much over
there.
H.M.Jr: Yes.
L:
And so I wouldn't be surprised if they did come in.
H.M.Jr:
buy those bonds.
(Both men talking together - only last three words
could be made out)
L:
What's that sir?
H.M.Jr:
When did you buy those bonds yesterday?
L:
We bought those bonds about the last half hour
yesterday.
H.M.Jr: Yes.
L:
I told them to go in and advance the price a little
bit. The market was a little bit funny yesterday.
There was very little activity in it - some were up
and some were down and I thought best to put a little
strength in it by actually buying some.
H.M.Jr:
Just hold the wire a minute.
L:
Yes.
H.M.Jr:
Hello.
L:
Yes.
H.M.Jr:
Go ahead.
L:
Well as I say I sold - raised his bids up about a
thirty-second about the last half hour.
H.M.Jr: Good.
Regraded Uclassified
18
- 3 -
L:
And we picked up just about 800 - there weren't many
around but it was just enough to give it a little bit
better tone.
H.M.Jr:
Well that's all right.
L:
Yes.
H.M.Jr:
About how long are you going to stay at the office?
L:
Well I think I'll stay around till about noontime.
I want to just find out that everything is closed up
on the other side.
H.M.Jr: Well I'm going out to ride about ten. I'll be back
about noon and I'll call up then.
L:
Fine. Well I'll be here till about one o'clock or
so anyway.
H.M.Jr:
Well I'll call before that.
L:
Right. All right then. As I say, I doubt if we get
anything from the other side but naturally we'll be
ready in case anything did happen.
H.M.Jr:
Well I'll call between 12 and 12:30.
L:
Right, sir. Goodbye.
H.M.Jr:
All right.
Operator: I'll get Mr. Taylor.
H.M.Jr: Yes and then Mr. Gaston after that.
0:
I beg your pardon?
H.M.Jr:
Gaston if he's there.
0:
Right.
0:
Go ahead.
Taylor: Hello.
H.M.Jr: Hello - - Wayne?
Regraded Uclassified
19
- 4 -
E:
Good morning, Henry.
H.M.Jr:
Good morning.
Anything you want to tell me?
T:
No.
H.M.Jr:
Good.
T:
Very quiet as you probably heard from Archie.
H.M.Jr:
Yes, did you get off that cable to
T:
Yes I did.
H.M.Jr:
Well I wish you'd tell the State Department that we're
anxious - we'll have that cable and could they get it
over as early Wednesday morning as pessible.
T:
All right, I'll do that.
H.M.Jr:
See so that when I get
T:
I told them Wednesday that we wanted it Wednesday
morning when you get back.
H.M.Jr:
Well I'd tell them that - I mean it will most likely
be a long one - see if you can't get it over there by -
tell them we'd like to have it by 10 o'clock.
T:
All right, fine. When are you coming down?
H.M.Jr:
Well if the weather is all right I'll get in tomorrow
noon about.
T:
Around noon?
H.M.Jr:
Yes, yes.
T:
Does it look all right to you?
H.M.Jr:
Oh sure - sure.
T:
I think 30.
H.M.Jr:
Yes.
O.K. Wayne.
T:
All right, Henry.
H.M.Jr:
Thank you.
T:
Goodbye.
- 5 -
20
H.M.Jr: Hello.
Operator: I'm getting Mr. Gaston.
H.M.Jr: And after that I want whoever is the Acting
Commandant, Coast Guard, please.
0:
All right.
Operator: Mr. Gaston.
H.M.Jr: Oh Herbert.
G:
Yes.
H.M.Jr:
How are you?
G:
Fine.
H.M.Jr:
Herbert, I didn't have a chance to tell you before
I left....
G:
Yes.
H.M.Jr:
I wish - I think you ought to plan next week to
take some time off.
G:
Well that's very nice - I'd be delighted to.
H.M.Jr:
As a matter of fact you suit yourself.
G:
Yes.
H.M.Jr:
I'll be leaving Thursday and be gone for a week and...
G:
Next week.
H.M.Jr: Well this coming Thursday we're leaving.
G:
I see.
H.M.Jr:
But I mean if you want any time - as much time as
you want to take the following week.
G:
Well that's very fine - thank you. How are you?
H.M.Jr:
I'm all right.
9 I I
21
G:
Gamily all right?
H.M.Jr:
Everybody's fine. Just tired - but that's no news.
G:
No.
H.M.Jr:
It wouldn't even make the back page.
G:
No. You took the trip yesterday, did you?
H.M.Jr: Yes - yes. I road from Newburgh clear around with
him and I was with him most of the time alone and he
is in a grand humor - naturally he's a little high-
strung.
G:
He seemed to get a good reception over on the west
side.
H.M.Jr:
Well, considering the territory, very good.
G:
Ah-ha - ah-ha.
H.M.Jr:
The remarkable - the only thing that was remarkable
was last night's reception in Poughkeepsie. I've
never seen anything in the 20 odd years I've been
here.
G:
Ah-ha - ah-ha.
H.M.Jr:
The way the people - well they thought 20,000 - I
imagine there were 10,000 - 10 or 15,000 anyway.
G:
Ah-ha.
H.M.Jr:
Well if you can more than 1,000 together in Poughkeepsie
you're good.
G:
Ah-ha yes.
H.M.Jr:
And it really was a remarkable demonstration.
G:
Ah-ha.
H.M.Jr:
And he spoke without boasting and he talked and talked
and talked - it was one of the best talks I ever heard
him give.
G:
Is that so?
22
- 7 -
H.M.Jr: Yes.
G:
Ah-ha.
H.M.Jr:
And he just talked on and on.
G:
Ah-ha. Well....
H.M.Jr:
But the only thing that bothers anybody is that thing
of that Security tag.
G:
I wish that I had spoken to somebody two or three
days ago. There's one end of that they've neglected
very much. Both Landon and Knox said they believed
in Social Security, yes, for the needy-aged and should
be cared for out of taxation. Well take - for the
needy-aged means a paupers tax - it means the poor
farm and poor relief.
H.M.Jr: Yes.
G:
And I think they should have played that & little
more.
H.M.Jr: Ah-ha. Well I guess - I mean I haven't got the
slightest qualms of any kind.
G:
I haven't - I haven't the least.
H.M.Jr:
No.
G:
Yes.
H.M.Jr:
And there was no news - the last - nothing at all.
G:
No, there's nothing at all. The only - the only -
the nearest thing to a roorback is their - last night
they had a Rabbi and some others instructing God
which side he was on.
H.M.Jr:
A Rabbi?
G:
Well they were the Rabbi was the man that made the
prayer. He informed God that Roosevelt ought to be
defeated.
H.M.Jr:
He did?
- 8 -
23
G:
Yes.
H.M.Jr:
Well we're Mrs. Klotz and I will take care of
him.
G:
(Laughter) I hope you do.
H.M.Jr: O.K.
G:
Yes.
H.M.Jr: And - no - well I'll be seeing you Wednesday.
G:
Fine.
H.M.Jr:
All right, Herbert.
G:
Goodbye.
H.M.Jr: Goodbye.
Klotz:
(Laughter)
H.M.Jr:
Are you there?
K:
(Laughter) I love that.
H.M.Jr: What.
K:
I love that (Laughter)
Operator: I have Captain Covell.
H.M.Jr: All right.
0:
Go ahead.
H.M.Jr:
Captain Covell.
Covell:
Good morning, sir.
H.M.Jr:
Secretary speaking.
C:
Yes.
H.M.Jr:
I talked to the President about bring back the
Campbell from England.
Regraded Uclassified
- 9 -
24
C:
Yes sir.
H.M.Jr:
It is agreeable to him to bring her back right away.
C:
We'll order her right back, sir.
H.M.Jr:
Order her right back.
C:
Yes sir.
H.M.Jr:
And that's all. Anything you want to tell me?
C:
No sir, nothing. Admiral Waesche will be back
Thursday. Everything is quiet down here.
H.M.Jr:
You mean Thursday?
C:
Yes sir.
H.M.Jr:
What boat is this that Oliphant is going on?
C:
That's the England, sir.
H.M.Jr:
And where is she going?
C:
Why he wants to go down to - drop off - he wants to
take the boat at Philadelphia and then there's - that's
the one we've ordered into Savanah - came from your
office for a couple of days and then I believe to drop
him off at Havana.
H.M.Jr:
There was no order from my office.
C:
Well from across the street someone wanted - it came
from a Senator and a Congressman down there wanted a
boat to - one of these new boats to stop in at Savanah
for a couple of days. I got it - maybe it's Assistant
Secretary Is office.
H.M.Jr:
I guess it must have been Mr. Gibbons.
C:
Probably.
H.M.Jr:
Well what is the boat going to do?
C:
Just drop in there so they can see it sir.
H.M.Jr:
At Savanah?
C:
At Savanah, yes sir.
- 10 -
25
H.M.Jr: And then she goes from there?
C:
Then she goes from there to Havana to drop off
Mr. Oliphant and then she goes out aroung through
the canal.
H.M.Jr:
Oh well the only stop she makes extra is Havana?
C:
Yes sir.
H.M.Jr:
Is that right?
C:
Yes sir.
H.M.Jr:
Was she making this trip anyway?
C:
Yes sir, she's ordered - she's one of those going
around to the Pacific Coast.
H.M.Jr:
Oh
so
C:
It's right on his route and we allow them to stop.
When the Commanding Officer makes an itinerary he'll
stop one, two or three places on the way around.
H.M.Jr:
I see.
C:
So this is just absolutely in line with his regular
cruise.
H.M.Jr:
Well where does Mr. Oliphant get on?
C:
At Philadelphia, sir.
H.M.Jr:
Oh I see.
C:
Now I'm telling you this Mr. Secretary. I sat
in when Admiral Waesche was talking this over.
H.M.Jr:
Yes, I didn't have a chance
C:
Sir?
H.M.Jr:
I didn't have a chance to ask the Admiral so that's
why I'm asking.
H.M.Jr:
And when does she sail?
Regraded Uclassified
26
- 11 -
C:
I think it's the end of this week, sir. I - I
couldn't tell you that - I'd have to guess at it.
Within a very short time - it's a matter of days.
H.M.Jr:
But you say some Senator asked them to stop in?
C:
We had some - I saw the correspondence go to a
Congressman there at - at Savanah and I think one
of the Senator's office.
H.M.Jr:
Ah-ha.
C:
That's for - I'm just telling you that from recollection
now.
H.M.Jr:
Ah-ha.
Well that's all right.
C:
Yes sir.
H.M.Jr:
All right, thank you.
C:
All right, sir, we'll order the Campbell right back.
H.M.Jr:
Righto.
C:
All right.
H.M.Jr:
Thank you.
C:
Goodbye.
H.M.Jr: Goodbye.
K:
Hello
H.M.Jr: Hello
K:
Yes sir.
H.M.Jr:
I thought I might as well get it straight.
K:
Yes.
H.M.Jr: What?
K:
That's right.
27
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 4, 1936, 10 a.m.
NO.: 1075
FOR THE SECRETARY OF THE TREASURY FROM COCHRAN.
I make reference to telegram No. 441 from the Depart-
ment of November 1, 2 p.m. and to my telegrams No. 1063
of October 30 and No. 1070 of November 2.
On Monday night I arrived in Amsterdam; I was re-
eived by President Trip of the Wetherlands Bank at 9:45
Tuesday morning at the Bank. Mr. Beaufort, his ranking
director, and Mr. Dejong, the Secretary of the Bank, also
joined us for the discussion. I quote below the text of
& document drafted jointly -
"Declaration.
The Government of the Netherlands represented by
its Minister of Finance and
The Netherlands Bank represented by its President
declare and confirm the following vis-a-vis the
Government of the United States of America:
One. By Royal Decree of September 26, 1936, the
export of gold coin and buillion was prohibited in the
Netherlands. The said Royal decree acquired force of
END SECTION ONE.
BULLITT.
KA:LWW
28
MED
SPECIAL GRAY
PARIS
Dated November 4, 1936
RECEIVED 3:15 p.m.
Secretary of State,
Washington
1075, November 4, 10 a.m. (Section two).
law as supplemented day on which it was signed, by
virtue of a law of September 30, 1936, Staatsblad
(Official Journal) No. 101.
Two. By virtue of a law of September 30, 1936,
Staatsblad official journal No. 403, an exchange
Equalization fund was established in the Netherlands
for the purpose of influencing foreign exchange rates and
smoothing out EXCESSIVE fluctuations of such rates.
By the same law the Metherlands Bank's obligation to
redeem its notes was suspended.
Three. As a result of the measure mentioned
sub (one) the gold standard is for the time being not
operative in the Netherlands. A new gold parity for the
Dutch guilder has not been fixed and no limits have been
fixed between which the gold parity of the Dutch guilder
will ultimately bE established. The obligation of the
Netherlands Bank to maintain a metallic cover of at least
forty percent against the aggregate of its liabilities
payable on demand (i.e. the amount of its notes outstanding
plus
29
MED - 2 - #1075 November 4, 3:15 p.m. from Paris
plus the balances it OWES in current account and the
bank post bills outstanding) is still in force.
Four. The Exchange Equalization fund mentioned sub
(two) above, operates for account and risk of the
Government and is managed by the Netherlands Bank
according to rules laid down by the Minister of
Finance and under the supervision of the Minister
of Finance (END SECTION TWO)
BULLI T
HPD
Regraded
30
LMS
SPECIAL GRAY
Paris
Dated November 4, 1936
Rec'd 4:55 P. m.
Secretary of State,
Washington.
1075, November 4, 10 a. m. (SECTION THREE)
Five. In its relations with the United States the
Dutch exchange equalization fund offers reciprocal facil-
ities for operations in the exchange markets of both
countries it being understood:
(A). That the amounts of dollars to be purchased
or sold in Amsterdam and the amounts of guilders to be
purchased or sold in New York as well as the rates at
which purchases or sales of the currencies in question
will be made will be fixed on each occasion by mutual
agreement;
(B). That any dollars thus acquired for the account
of the Dutch exchange equalization fund and any guilders
thus acquired for the account of the United States will
be converted into gold one quarter basis of the official
United States gold price of $35 per ounce fine, less
or plus one quarter of one per cent handling charge as
the case may be; and
(C). That the gold thus acquired by either of the
sources
31
LMS 2-No. 1075, November 4, 10 a. m., Sec. 3, from Paris.
sources will be earmarked for account of the owner in
the country of the other party and will at the request
of the owner be shipped to the country of the owner by
first available steamer of either country, the cost of
the shipments including insurance to be borne by
(END OF SECTION THREE)
BULLITT
NPL:ENB
32
LMS
SPECIAL GRAY
Paris
Dated November 4, 1936
Rec'd 5 P. m.
Secretary of State,
Washington.
1075, November 4, 10 a. m. (SECTION FOUR)
the Dutch exchange equalization fund.
In making this declaration the Netherlands Govern-
ment and the Netherlands Bank base themselves on the
declaration of the Secretary of the Treasury of the United
States dated October 12th, 1936. In view of the fact
that the United States have reserved themselves the right
to withdraw that declaration on giving notice twenty-
four hours before, the Netherlands Government and the
Netherlands Bank must make the same reservation with
regard to their offer of reciprocal treatment contained
in the present document.
B
The Hague, Amsterdam. November 1936. If
BULLITT
NPL:EMB
33
PARAPHRASE OF SECTIONS FIVE TO EIGHT, INCLUSIVE,
No. 1075 of November 4, 1936, from the American Embassy,
Paris.
I had lunch with Beaufort and President Trip. Trip and
I went to The Hague at 2:45, where at 4 o'clock Premier
Colijn with Minister of Finance Oud received us, and I
explained to the Minister and to Colija the procedure we
are following in negotiating with the countries which have
indicated interest in dealing with us in gold on a recip-
rocal basis, and the draft document was explained by Trip.
Colijn and Oud approved the draft declaration, but until
you may indicate through me the acceptability thereof, the
document will not be signed. Then the officials to sign
would be Oud and Trip. Trip and I went to the American
Legation at 5 o'clook to inform Minister Emmet of our
conversations, but the latter was not in The Hague.
of course I shall inform him of the developments in the
situation.
If and when you find the Dutch declaration acceptable
I am to telephone to Trip, who will then arrange for the
forwarding to me of the document when signed. This week-
end when the BIS directors have their regular metting
at Basel I shall have the opportunity to see Trip.
The request is made by the Dutch that publication
should not be given to the terms of their declaration; they
would be pleased to have us submit to them the wording of
the announcement which we may plan to issue regarding adding
their country to our list of countries eligible to get
gold
34
- 2 -
gold from us. It is not anticipated by the Dutch that
under this agreement there is likely to be a large vol-
ume of business transacted with the United States. But
they appreciate the usefulness of iisassociated cooperation
in the monetary field at this time and they are anxious
to join.
The point was made by the Dutch officials, however,
that one danger of giving a demonstration of solidity
in monetary matters between six or more important powers
is that within one or more of these countries, or else-
where, the impression may be gained that basic problems can
be solved by cooperation wethout the need for sound finan-
cial management internally.
The details of a proposed negative arrangement were
drawn up by Trip for cooperation between his Bank and the
Federal Reserve Bank of New York as fiscal agents of the
stabilization funds, which was for consideration if the
treasuries establish general lines of agreement. I made
the suggestion that before acting he condense paragraph
number five of the declaration to only those essential
points necessary to indicate the manner in which the Dutch,
being off the gold standard and having no free gold market
such as the British have, visibly arrive at a basic of
gold calculations with the United States. Please inform
as if you want the full text of his tentative suggestions
for the inter-fiscal agent arrangement at this time.
The
35
- 3 -
The American elections very much interested Premier
Colign, and he hoped Secretary Hull would be able to carry
on his program of trade agreements.
The progress made in the Netherlands since devaluation
seemed to be quite satisfactory to the Dutch officials.
There has been a rise of less than one per cent in retail
prices. It has been possible to make & reduction in Govern-
ment export subsisides to agriculture. Capital has been
quoted on a satisfactory scale and Dutch Colonial enter-
prises are receiving considerable foreign money, especially
British. The florin is left by the equalization fund to
find its own level, except that for a few days recently
in order to check the rise in the florin some purchases of
sterling and of gold at London have been made. Subscriptions
are being opened by the Dutch Treasury to a one hundred
million florin twenty-year three percent loan at ninety-five
three quarters to have around a 3 1/2 percent yield. Fifty
million florins will be taken by various official and semi-
official funds and organizations, and fifty million will
be open to public subsoription; This is a trial issue to
test the market after devaluing.
The French situation is of some concern to Trip, since
there is an apparent tendency of this country to continue
to coubt the Government, and since there is a lack of prospest
for a strong confidence-insipiring government to gain control.
Recent tendencies of politics and of economic policies
in
36
- 4 -
in Germany also disturbed Trip. There he thinks a spirit
of desperation is developing which within a couple of year a
may conceivably lead to war. He does not look for final de
jure negotiability of important currencies until the inter-
national atmosphere becomes more clarified.
Trip feels that the principal merit of the present
American legislation providing for a stabilization fund and
a further cut in the dollar is that this legislation con-
stitutes a balance to steady sterling, and that the relation-
ship between the dollar and sterling now more than ever
has an important influence on
the currencies of all countries.
At 5:25 p.m., on Tuesday I left The Hague for Paris.
END MESSAGE.
BULLITT.
EA:LWW
37
November 4, 1936.
3:30 P.M.
Cochran: Hello.
H.M.Jr: Hello.
C:
Hello,Mr. Morgenthau.
H.M.Jr: Hello, Cochran.
C:
Congratulations on your landslide.
H.M.Jr:
Thank you.
C:
Oh, the papers are carrying it in tremendous
headlines over here.
H.M.Jr: Well, we all feel very happy.
C:
Yes sir, you must.
H.M.Jr: I left the President at three o'clock this morning
and of course he was very happy.
C:
Surely.
Where are you now?
H.M.Jr:
What's that?
C:
Where are you now?
H.M.Jr: I'm sorry, I don't hear you.
C:
I say where are you?
H.M.Jr: I'm at my desk in Washington.
C:
Oh, you're in Washington then?
H.M.Jr: Yes.
C:
You had gone to New York when I called earlier.
H.M.Jr: Yes.
C:
Has - have you seen my two telegrams on the Hague?
H.M.Jr: On what?
C:
The two telegrams, one on the Dutch arrangement.
38
- 2 -
H.M.Jr: No, up till five minutes ago they had not come in.
C:
Is that so?
H.M.Jr:
Well, to be exactly accurate, the first section
of your telegram 1075 is in - just one section.
C:
Yes.
H.M.Jr:
That's all we got.
C:
That's all?
H.M.Jr:
Yes.
C:
So they started coding it early this morning.
I got in at midnight.
H.M.Jr:
Oh, you didn't send it from Holland.
C:
I didn't get your message there.
H.M.Jr:
Oh.
C:
I went to Amsterdam first where Tripp fixed up
the arrangements.
H.M.Jr: Yes.
C:
Then we went by train to the Hague -
H.M.Jr: Oh
C:
- where Premier Colijn and the Finance Minister live,
and they gave their O.K. to it.
H.M.Jr:
Yes.
C:
They didn't sign it until they knew whether it
would help.
H.M.Jr: Oh.
C:
Then Tripp and I went by the Legation place to call
on the Minister.
H.M.Jr: Yes.
39
3 I 1
C:
But he was in Paris.
H.M.Jr: Oh.
C:
So - and I just had time to catch a train then
and so Tripp took us on to the train.
H.M.Jr:
I see.
C:
And so we didn't either - the Secretary wrote me
last night - I got the letter here this morning
that you had wanted a cable gram from there.
H.M.Jr: Yes, well I wanted it so that I would get it
in time this morning but it's over now.
C:
It would have been plenty slow from there because
they would only have about one person to work on it.
H.M.Jr:
Ah-ha. Well now, what's on your mind?
C:
Now the point is this - I sent you a second
cablegram in which I read - quoted the following
report from a Zurich International paper of to-day
which carries this item from Geneva.
H.M.Jr:
Yes.
C:
It says, "The Swiss Federal Government has
authorized the Department of Finances and
the Swiss National Bank to sign a declaration and
according to the terms thereof Switzerland actively
adheres to the Anglo-Franco American monetary
agreement
H.M.Jr:
Yes.
C:
"Switzerland takes the same measure as the third
country to fix the price of gold; declares
herself ready to ship gold on the same conditions
and to exchange it at a price determined with the
Banks of
as of Great Britain, France
and the United States.
H.M.Jr:
Yes.
C:
Count DeArgon and Cortez were with me and we both
think it passed through the Swiss Federal Council.
Regraded Uclassified
40
- 4 -
H.M.Jr: You did what?
C:
We think that someone of the members of the Swiss
Federal Council
H.M.Jr: Yes.
C:
must have let this get out to a third party -
spoken somewhere.
H.M.Jr:
Yes.
C:
Anyway it's repeated in in all the financial
papers to-day with some fever.
H.M.Jr:
Yes.
C:
And Baumgartner telephoned me - he saw it before
I did this morning and he said that Auriol was
anxious to see what we were going to do.
H.M.Jr: Yes.
C:
.....SO that they could get busy too.
H.M.Jr: Yes.
C:
The point is I was afraid you were getting away
and I rechecked before you left Monday.
H.M.Jr:
Yes, Well -
C:
If we could get some decision so that these things
could come out to the front it would be better
now since a leak has started.
H.M.Jr: I - I didn't get that.
C:
I mean this one leak
H.M.Jr:
Yes.
C:
already is just a supposition.
H.M.Jr: Just a moment - just a moment. (Aside to someone
in H.M.Jr's office, "Where is Mr. Taylor? All right.")
H.M.Jr: Hello - go ahead please.
Regraded Uclassified
41
- 5 -
C:
I say the report of this one affair in Switzerland
H.M.Jr: Yes.
C:
......is already giving rise to conjectures.
H.M.Jr:
It's - it's given rise to what?
C:
Conjectures.
H.M.Jr: Yes.
C:
To - - to a supposition in the press as to what
Belgium and Holland will do.
H.M.Jr: Yes. Well now this what you're telling me -
have you cabled me this?
C:
Yes I cabled you that.
H.M.Jr: You did - I mean what you're telling me now?
C:
I've cabled you what I'm telling you now.
H.M.Jr: Yes.
C:
Not what the press is printing - in asking about
Holland and Belgium
H.M.Jr: Oh.
C:
.....that's being - that's just in tonight's paper -
since I've come home I've seen that.
H.M.Jr: Yes - well now let me ask you -
C:
Yes.
H.M.Jr:
In view of the fact that it hasn't come out, have
the French changed their position that they want
all three?
C:
No, they didn't say anything. They just said that
they hoped we could get some word.
H.M.Jr:
Well, Cochran - I haven't read your cable so I'm in
the dark.
Regraded Uclassified
42
- 6 -
C:
Surely.
H.M.Jr: Now I'm going to have the people come to my house
tonight and we'll see whether we can do anything
C:
All right.
H.M.Jr:
but I'm sorry that the Swiss let it out. I
still think that we ought to do it with all three
countries at the same time.
C:
Yes - yes - I agree.
H.M.Jr:
So I'll phone you tomorrow morning and let you
know what decision I've come to.
C:
All right.
H.M.Jr: And - ah - as I say, until I get these cables I
don't know.
C:
Yes.
H.M.Jr:
But
C:
I was afraid you'd be going away, you see?
H.M.Jr:
Well I'm going away tomorrow afternoon - Thursday
afternoon.
C:
Yes.
H.M.Jr:
But the only worry I'm going to take back with me is
this and of course the President isn't back and I
wouldn't want to bother him with anything for a
couple of days.
C:
No - no.
H.M.Jr:
But I'll - I'll call you sometime tomorrow morning.
C:
Then if you do decide that the three are acceptable...
H.M.Jr: Yes.
C:
.....and give me a formula I could get their O.K.
to it - that is as to our release.
H.M.Jr:
Yes. Well that's what we're working on now.
43
- 7 -
C:
And if - if we don't get this settled before Monday
H.M.Jr:
Yes.
C:
.....all these people will be feeling
H.M.Jr:
Will be what?
C:
All these Central Bank Governors will be feeling bad
at Basle. They might be pressing the Swiss quite
a bit for more information.
H.M.Jr:
Well when is the meeting in Basle?
C:
This Sunday and Monday.
H.M.Jr:
This Sunday and Monday?
C:
Yes.
H.M.Jr:
Well I doubt if we could get ready by then.
C:
I see.
H.M.Jr:
I don't think we can get ready by then.
C:
I mean if you can't, I'll just get them to keep
quiet as much as I can.
H.M.Jr:
I'm quite sure we can't get ready by Sunday or
Monday because, after all, after we make up our
own minds the English will have to make up theirs
and you know they have week-ends.
C:
(Laughter) Yes - yes - I know.
H.M.Jr:
Yes.
C:
Well the main reason - I wanted to get the word to
you lest you might be getting away to-day.
H.M.Jr:
Well that's all right.
C:
Fine.
H.M.Jr:
I've just read what Mr. Blum said about the
President's election and the pap - the tickers
carried it here.
Regraded
Uclassified
44
- 8 -
C:
Yes.
H.M.Jr:
And that the statement he made that - - I'm - this is
quoting Blum.
C:
Yes.
H.M.Jr:
He said, "I'm convinced the election assured con-
tinuation and close collaboration of the three
great democracies - United States, France and
Great Britain as inspired by the recent currency
realignment agreement.
C:
Oh is that so? I didn't know he was giving it
out.
H.M.Jr:
Yes - it just came over the ticker this minute.
I think that's rather nice.
C:
Yes - Auriol and Baumgartner send their con-
gratulations to you also.
H.M.Jr:
Fine - - well our stock market went up four points
to-day and our bonds went up about a half a point.
C:
Yes - good. So the security market was here
better and
securities were better too.
H.M.Jr:
Right.
C:
I'll wait till I hear from you then tomorrow.
H.M.Jr:
You'll hear from me tomorrow.
WCNS64
ADD EDEN, LONDON
THE FOREIGN MINISTER SEEMINGLY HINTED DELICATELY THAT BRITAIN
MIGHT BE WILLING TO MAKE A LOAN TO GERMANY.
REFERRING TO THE PROVISION OF THE TRI*PARTITE EXCHANGE PACT
PROPOSING THE ABOLITION OF QUOTAS, EDEN SAID:
"IF GERMANY SAW FIT TO PARTICIPATE WE WOULD GLADLY CONSIDER
SYMPATHETICALLY ANY METHODS LIKELY TO CONTRIBUTE TO THE EASEMENT
OF HER ECONOMIC DIFFICULTIES WHERE THEY ARE DUE TO INTERNATIONAL
ECONOMIC AND FINANCIAL RESTRICTIONS."
11/5 - R138P
NOV 12 1936
CHAMBERLAIN ON TRI-PARTITE AGREEMENT 571.47
LONDON- CHANCELLOR CHAMBERLAIN IN A REPLY
TO A QUESTION IN COMMONS AS TO WHEN THE BANK OF
ENGLAND WOULD BE REQUIRED TO HAND OVER TO THE
TREASURY 160 000 000 PDS THE PROFIT ON GOLD
RESERVE REVALUATION AS RESULT OF THE TRI-PARTITE
MONETARY AGREEMENT SAID THE QUESTION APPEARED
TO BE BASED ON TWO MISAPPREHENSIONS- THE TRI-PAR
-TITE AGREEMENT HE SAID INVOLVED NO REVALUATION
OF STERLING IN TERMS OF GOLD AND ANY PROFITS
FROM ULTIMATE REVALUATION WOULD BE HANDED OVER
TO THE TREASURY AND APPROPRIATED TOWARD REDUCT-
ION OF NATIONAL DEBT
DUTCH TO JOIN CURRENCY AGREEMENT
DJ.
2.00
AMSTERDAM - THE DUTCH GOVERNMENT IS
CONTEMPLATING JOINING THE TRI PARTITE MONETARY
AGREEMENT
NOV 13 1936
BANK OF NETHERLANDS HAS RESUMED THE
RACTISE OF REDISCOUNTING AMERICAN GUILDER
BILLS COVERING COMMODITY SHIPMENTS TO ENGLAND -
UTCH BANKS THEREFORE HAVE OPENED NEGOTIATIONS
OR FINANCING BY SUCH BILLS,
Friday - November 15, 1936 The President
WCNS39
PRESIDENT ROOSEVELT HAS ORDERED A STUDY BY THE FEDERAL RESERVE
BOARD AND THE TREASURY INTO HEAVY BUYING OF AMERICAN SECURITIES BY
FOREIGN SOURCES, HE SAID TODAY.
11/13--K1113A
MR. ROOSEVELT SAID THAT SUCH PURCHASES IF CARRIED BEYOND A CERTAIN
POINT MIGHT CONSTITUTE A DANGEROUS OR DISTURBING FACTOR TO FOREIGN
EXCHANGE AND CREDIT.
HE EXPRESSED THE BELIEF THAT LEGISLATION WOULD HAVE TO BE
OBTAINED TO CORRECT THIS SITUATION.
IN RESPONSE TO A BARRAGE OF QUESTIONS CONCERNING RECENT MARKET
OPERATIONS AND HIS CONVERSATIONS WITH FEDERAL RESERVE BOARD
GOVERNOR MARRINER S. ECCLES AND S. E. C. CHAIRMAN JAMES LANDIS,
HE DECLARED THAT THE QUESTION OF A POSSIBLE RUNAWAY STOCK MARKET WAS
NOT INVOLVED IN HIS DISCUSSIONS
11/13--R1117A
48
Regraded Uclassified
WCNS44
ADD ROOSEVELT
HE SAID THAT THE OBVIOUS DANGER TO GUARD AGAINST AT PRESENT
WAS THE POSSIBILITY THAT THE PRESENT TOP HEAVY MARKET POSITION MIGHT
REACT UNFAVORABLY UPON CURRENCIES IN THE MANNER THAT WHAT HE
CHARACTERIZED AS CERTAIN SYNDICATED DRIVES HAD DONE IN THE PAST.
HE MADE PLAIN THAT THE ADMINISTRATION'S POSITION WAS STILL IN
THE STUDY STAGE BUT THAT THIS WAS BEING CONDUCTED FROM THE POINT OF
VIEW THAT THE SITUATION CONSTITUTED A POTENTIAL DANGER NOT ONLY TO OUR
OWN CURRENCY BUT OTHERS AS WELL.
IN REVIEWING THE PICTURE MR. ROOSEVELT REMARKED THAT BEFORE THE GENTI
MEN'S AGREEMENT WAS PLACED INTO EFFECT THE GOLD CURRENCIES OF
VARIOUS EUROPEAN NATIONS HAD BEEN AFFECTED BY CERTAIN PRIVATE
OPERATORS WHO ATTACKED IN CONCERTED FASHION THE MONEY OF OTHER
NATIONS.
THIS HE SAID NOT ONLY UPSET THE PARTICULAR CURRENCY AT WHICH
THE DRIVE WAS AIMED BUT ALSO THE EXCHANGE RATES AND THE CURRENCIES
OF OTHER COUNTRIES.
Regraded Uclassified
THAT PARTICULAR FACTOR, HOWEVER, HE REMARKED IS NOW UNDER CONTROL
THROUGH THE GENTLEMEN'S AGREEMENT.
IT IS TO PREVENT ANY SIMILAR EFFECTS THROUGH HEAVY FOREIGN BUYING
OF AMERICAN SECURITIES THAT THE STUDY IS BEING MADE.
OFFICIALS ARE TAKING INTO ACCOUNT THE FACT THAT THESE HEAVY
ACCUMULATIONS OF AMERICAN SECURITIES BY FOREIGN HOLDERS ARE SUBJECT TO
DISPOSAL IN A HURRY.
THE PRESIDENT SAID THAT THE SECURITIES CAN BE SOLD IN A MANNER THAT
CORRESPONDENTS TO "HOT MONEY" THUS CREATING A DISTURBING FACTOR.
HE EXPRESSED THE BELIEF THAT THERE WAS NOTHING IN THE LAW
NOW TO MEET ADEQUATELY THE SITUATION AND THAT LEGISLATION WAS
NECESSARY.
IN RESPONSE TO QUESTIONS HE SAID THAT HE HAD NO ESTIMATE AS TO HOW
MUCH FOREIGN MONEY WAS INVOLVED IN PRESENT OPERATIONS
--0--
IN THIRD PARAGRAPH PLEASE READ X X X BEFORE THE
GENTLEMEN'S AGREEMENT X X X ETC INSTEAD AS SENT.
11/13--R1125A
5
Regraded classified
Blum on the Election
WCNS9
PARIS.-PREMIER LEON BLUM LED FRENCHMEN TODAY IN CONGRATULATING
PRESIDENT ROOSEVELT ON HIS ELECTION VICTORY. IN A STATEMENT TO THE
NITED PRESS HE SAID:
"I AM MOST HAPPY AT THE TRIUMPH OF PRESIDENT ROOSEVELT, FOR WHOM
I HAVE THE GREATEST ADMIRATION. I AM CONVINCED THAT THE ELECTION
INSURES THE CONTINUATION OF CLOSE COLLABORATION OF THE THREE GREAT
DEMOCRACIES--THE UNITED STATES, FRANCE AND GREAT BRITAIN--AS
INSPIRED BY THE RECENT CURRENCY REALIGNMENT AGREEMENT."
11/4--R843A
51
Regraded Uclass
BLUM ON ROOSEVELT REELECTION
PARIS-U P- PREMIER LEON BLUM LED FRENCHMEN
TODAY IN CONGRATULATING PRESIDENT ROOSEVELT ON
HIS ELECTION VICTORY- IN A STATEMENT TO THE
UNITED PRESS HE SAID-
-1 AM MOST HAPPY AT THE TRIUMPH OF
PRESIDENT ROOSEVELT FOR WHOM 1 HAVE THE
GREATEST ADMIRATION- I AM CONVINCED THAT
THE ELECTION INSURES THE CONTINUATION OF CLOSE
COLLABORATION OF THE THREE GREAT DEMOCRACIES-
-THE UNITED STATES FRANCE AND GREAT BRITAIN-
-AS INSPIRED BY THE RECENT CURRENCY REALIGNMENT
AGREEMENT-
12.25
-0-
NOV 41936
This is an eptra
copy and I
believe must
belong & you.
E % R
for channery
53
LMS
SPECIAL GRAY
Paris
Dated November 4, 1936
Rec'd 4:55 P. m.
Secretary of State,
Washington.
1075, November 4, 10 a. m. (SECTION THREE)
Five. In its relations with the United States the
Dutch exchange equalization fund offers reciprocal facil-
ities for operations in the exchange markets of both
countries it being understood:
(A). That the amounts of dollars to be purchased
or sold in Amsterdam and the amounts of guilders to be
purchased or sold in New York as well as the rates at
which purchases or sales of the currencies in question
will be made will be fixed on each occasion by mutual
agreement;
(B). That any dollars thus acquired for the account
of the Dutch exchange equalization fund and any guilders
thus acquired for the account of the United States will
be converted into gold one quarter basis of the official
United States gold price of $35 per ounce fine, less
or plus one quarter of one per cent handling charge as
the case may be; and
(c). That the gold thus acquired by either of the
sources
Regraded Uclassified
54
LMS 2-No. 1075, November 4, 10 a. m., Sec. 3, from Paris.
sources will be earmarked for account of the owner in
the country of the other party and will at the request
of the owner be shipped to the country of the owner by
first available steamer of either country, the cost of
the shipments including insurance to be borne by
(END OF SECTION THREE)
BULLITT
NPL:ENB
Uclassific
55
LMS
SPECIAL GRAY
Paris
Dated November 4, 1936
Rec'd 5 P. m.
Secretary of State,
Washington.
1075, November 4, 10 a. m. (Section FOUR)
the Dutch exchange equalization fund.
In making this declaration the Netherlands Govern-
ment and the Netherlands Bank base themselves on the
declaration of the Secretary of the Treasury of the United
States dated October 12th, 1936. In view of the fact
that the United States have reserved themselves the right
to withdraw that declaration on giving notice twenty-
four hours before, the Netherlands Government and the
Netherlands Bank must make the same reservation with
regard to their offer of reciprocal treatment contained
in the present document.
The Hague, Amsterdam. November 1936. It
BULLITT
NPL:EMB
Regraded Uclassified
56
PARAPHRASE OF SECTIONS FIVE TO EIGHT, INCLUSIVE,
No. 1075 of November 4, 1936, from the American Embassy,
Paris.
I had lunch with Beaufort and President Trip. Trip and
I went to The Hague at 2:45, where at 4 o'clock Premier
Colijn with Minister of Finance Oud received us, and I
explained to the Minister and to Colijn the procedure we
are following in negotiating with the countries which have
indicated interest in dealing with us in gold on a recip-
rocal basis, and the draft document was explained by Trip.
Colijn and Oud approved the draft declaration, but until
you may indicate through me the acceptability thereof, the
document will not be signed. Then the officials to sign
would be Oud and Trip. Trip and I went to the American
Legation at 5 o'clock to inform Minister Emmet of our
conversations, but the latter was not in The Hague.
of course I shall inform him of the developments in the
situation.
If and when you find the Dutch declaration acceptable
I am to telephone to Trip, who will then arrange for the
forwarding to me of the document when signed. This week-
end when the BIS directors have their regular meeting
at Basel I shall have the opportunity to 880 Trip.
The request is made by the Dutch that publication
should not be given to the terms of their declaration; they
would be pleased to have us submit to them the wording of
the announcement which we may plan to issue regarding adding
their country to our list of countries eligible to get
gold
57
- 2 -
gold from us. It is not anticipated by the Dutch that
under this agreement there is likely to be a large vol-
ume of business transacted with the United States. But
they appreciate the usefulness of disassociated cooperation
in the monetary field at this time and they are anxious
to join.
The point was made by the Dutch officials, however,
that one danger of giving a demonstration of solidity
in monetary matters between six or more important powers
is that within one or more of these countries, or else-
where, the impression may be gained that basic problems can
be solved by cooperation without the need for sound finan-
cial management internally.
The details of a proposed negative arrangement were
drawn up by Trip for cooperation between his Bank and the
Federal Reserve Bank of New York as fiscal agents of the
stabilization funds, which was for consideration if the
treasuries establish general lines of agreement. I made
the suggestion that before acting he condense paragraph
number five of the declaration to only those essential
points necessary to indioate the manner in which the Dutch,
being off the gold standard and having no free gold market
such as the British have, visibly arrive at a basis of
gold calculations with the United States. Please inform
re if you want the full text of his tentative suggestions
for the inter-fiscal agent arrangement at this time.
The
58
- 3 -
The American elections very much interested Premier
Colijn, and he hoped Secretary Hull would be able to carry
on his program of trade agreements.
The progress made in the Netherlands since devaluation
seemed to be quite satisfactory to the Dutch officials.
There has been a rise of less than one per cent in retail
prices. It has been possible to make a reduction in Govern™
ment export subsisides to agriculture. Capital has been
quoted on a satisfactory scale and Dutch Colonial enter-
prises are receiving considerable foreign money, especially
British. The florin is left by the equalization fund to
find its own level, except that for a few days recently
in order to check the rise in the florin some purchases of
sterling and of gold at London have been made. Subscriptions
are being opened by the Dutch Treasury to a one hundred
million florin twenty-year three percent loan at ninety-five
three quarters to have around a 3 1/2 percent yield. Fifty
million florins will be taken by various official and semi-
official funds and organizations, and fifty million will
be open to public subscription; this is a trial issue to
test the market after devaluing.
The French situation 18 of some concern to Trip, since
there is an apparent tendency of this country to continue
to doubt the Government, and since there is a lack of prospect
for 3 strong confidence-insipiring government to gain control.
Recent tendencies of politics and of economic policies
in
59
- 4 -
in Germany also disturbed Trip. There he thinks a spirit
of desperation is developing which within a couple of year 8
may conceivably lead to war. He does not look for final de
jure negotiability of important currencies until the inter-
national atmosphere becomes more clarified.
Trip feels that the principal merit of the present
American legislation providing for a stabilization fund and
a further cut in the dollar is that this legislation con-
stitutes a balance to steady sterling, and that the relation-
ship between the dollar and sterling now more than ever
has an important influence on
the currencies of all countries.
At 5:25 p.m., on Tuesday I left The Hague for Paris.
END MESSAGE.
BULLITT.
EA:LWW
TREASURY DEPARTMENT
60
INTER OFFICE COMMUNICATION
DATE
November 4, 1936
TO
Secretary Morgenthau
FROM Mr. Haas M
m
The attached report was prepared by Messrs. White and Seltzer
and myself.
Mr. Lochhead has gone over it and has indicated that the pro-
posals therein contained would offer no difficulties in exchange
operations.
Attachment
61
Contents
1. Memorandum on draft of statement referring to sale
of gold to foreign countries.
2. Draft of Treasury announcement to supersede the
announcements of January 31, 1934 and October 13, 1936.
3. Alternative draft of Treasury announcement to supersede
the announcements of January 31, 1934, February 1, 1934,
and October 13, 1936.
4. Memorandum on gold ownership and the central bank of
Belgium.
5. Memorandum on gold ownership and the central bank of
Switzerland,
6. Memorandum on gold ownership and the central bank of
The Netherlands.
7. Copy of Treasury press release regarding statement made
by the government of Belgium, September 6, 1936.
Regraded Jclassified
62
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthmu
FROM
Mr. Haas JOA
Subject: Draft of statement referring to sale of gold to foreign
countries,
The accompanying draft of the new announcement to be issued
accomplishes the following:
(1) It replaces the statements of January 31, 1934, and of October
13, 1936, without involving any departure from the recently established
policy of dealing only with governments.
Furthermore, while embodying important change of policy from
that indicated in the two previous statements, it appears to contain
only minor changes from the earlier statements, and only those changes
necessitated by matters of more or less technical importance.
(2) It will make it possible and just for the Secretary of the
Treasury to announce publicly that in our arrangements with Belgium or any
other country we are dealing with the governments, though, of course, the
actual operations are carried out through fiscal institutions designated
for that purpose by the governments.
(3) The draft is so phrased as to make it possible for any
country to be added to the list of those eligible to purchase gold
from us. As the Statement of October 13, 1936, reads, countries not
having stabilization funds cannot be included in the list. Likewise
countries on the list would have to be taken off if the existence of
their stabilization funds terminated.
The suggested draft would malco it possible to add countries
like Sweden, China, Japan, Mexico, etc., even though they have neither
stabilization funds, nor are on the gold standard.
(4) While adhering to the policy of dealing only with governments,
the draft is 80 worded as to make it possible - in our opinion from
the economic point of view - for any government to consent to the
conditions even though that government may not have title to the gold
in the central bank, or have a stabilization fund, and without having
to actually deal in gold.
63
Secretary Morgenthau - 2 -
Thus we believe the drafted statement can be reasonably inter-
preted to mean that in the case of Belgium, by virtue of her being on
the gold standard, the government does in effect offer to sell gold
to those countries to which it permits gold to flow freely (U. S.
would be so included) at a price which the government fixes. In the
instance of Belgium, the price happens to be fixed by statute and can
be altered de jure only by statute, though de facto alterations are
doubtless possible without passage of any law. Whereas in the United
States the price is fixed by the Secretary of the Treasury and can be
altered by his statement.
In other words, the Belgian Government, while not actually
dealing in gold, nor being the principal in the transactions, offers
to sell gold by virtue of its statutes which compel the Bank of
Belgium to sell gold (to the United States) at a. fixed price. The
Belgian Government could alter the price at will by altering the
statutory price. Since a statute may be reasonably regarded as the
expression of will of the Government, it appears that the Government
is doing the offering on terms which it sete - though it may leave
the details by statute to the Central Bank.
(5) In affording the Belgian Government the opportunity to be
added to the list of countries eligible for purchase of gold from
the United States, we are not inquiring of a sovereign foreign power
whether she has the power to make the arrangement, nor are we suggest-
ing in any way that she make any changes in her domestic monetary
system, nor need NO in any way indicate the manner in which she imple-
ment the arrangement. All that we insist upon is that the arrange-
ment be made between the United States Government and the Belgian
Government Shrough appropriate government channels, and that the
Government of Belgium state what fiscal institution she designates
for the purpose of executing the gold transactions with the U. 8.
The difference in the arrangement which we are making with
Belgium, and the arrangements which prevailed under the old gold stand-
and is important. It lies in the fact that:
(a) We deal only with the Belgian Government, and our
fiscal agent sells gold only to the government or
its designated fiscal institution.
(b) The Secretary of the Treasury has power to alter
the price, the terms, and the conditions at which
he will sell gold from day to day, whereas formerly
the price, terms, and conditions were generally re-
garded set by statute and alterable only by statute.
64
Secretary Morgenthau - 3 -
(6) There is no clause in the draft stating the price at which
we will sell gold. It is purposely amitted in order to make our gold
price policy appear less rigid, This is a step toward making possible
flexibility in the price of gold, and is in line with recent state-
ments made by the Secretary at B. recent press conference. The price
of gold which the Secretary will set can be announced in some other
document (just as is done with the list of countries eligible to pur-
chase gold here) and will appear to be by that fact subject to change
from day to day. The price will have a greater appearance of potential
flexibility than would be the case were the price included in the state-
ment as was done in the October 13th draft.
(7) If Belgium refuses to accept this draft, it were better in
our opinion to leave her off the list than give up the principle of
dealing only with governments,
The consequences would be important as establishing the
principle. Actually Belgium would be affected only to a negligible
extent if any, unless her failure to be put on our list meant she
could not purchase gold in France.
She could, of course, purchase gold in the open gold market
in London and that would enable her to operate with almost as much
facility 8.6 if she could buy gold from us or from the French Govern-
ment. Yet because of the proximity of France to Belgium, and the
possible narrowness of the London market, it would by to her advan-
tage to be able to purchase gold from France and the United States,
as it would likewise be of some slight advantage to France to be able
to sell gold to Belgium if she chose.
Though the value of this privilege to Belgium is elight, it
might be desirable -- should Belgium not 000 fit to comply with our
conditions -- to make it clear to her and to France and England that
they can make whatever arrangements they wish among themselves pro-
vided the arrangements do not, of course, violate the tripartite
announcement of policy.
If Belgium's name were left off our list, the loss to us
would be nil. Switzerland and Netherlands would soon be added. Our
gold operations would be virtually unaffected. If it leaked out in
Europe that the "United States refused" to make it possible for
Belgium to obtain gold here, W6 would gain by the opportunity of
stating our principle that we deal only with governments in matters
of sale of gold.
65
Secretary Morgenthau - 4 -
(a) Draft No. 2 has all the advantages of Draft No. 1, but in
addition completes the channelization of gold from as well as to govern-
ments. It embodies the important step of actually confining gold
operations to governments. We not only would sell gold exclusively
to governments (or their designated fiscal institutions) but we
would buy gold only from such sources (except, of course, newly mined
domestic gold).
It would mean that no gold could enter this country unless
it came from some foreign central bank (as the designated fiscal
institution). It would eliminate so far as the United States is con-
cerned, all dealing in imported gold by private banks or individuals.
The difficulty of issuing such a statement lies in the under-
standing with France and England. It is extremely doubtful that we
could get England to agree to purchase for import gold from "stabiliza-
tion funds" or government fiscal operations because she maintains
the most important free gold market of the world.
If we were to issue such a statement as Draft No. 2 it would
have to be on our own.
Sales of gold will be made at $35 per fire cunce, plus one-quarter
er cent handling charge, and sales and earmarking will be governed by
the Regulations issued under the Gold Reserve Act of 1934.
Re graded.Uclas
66
I
Draft of Treasury announcement to supersede
the announcements of January 31, 1934 and
October 18, 1936
Superseding the announcements made by him on January 31, 1934 1934and
and October 13, 1938, referring to the sale of gold for export,
the Secretary of the Treasury states that (hereafter, and until,
on twenty-four hours notice, this statement of intention may be
revoked, or altered) the United States will sell gold for immediate
export to, or earmark for the account of, the exchange equalization
or stabilization fund, or fiscal institution designated by the
government, of each country whose government likewise offers to
sell gold to the United States; provided that such government
offers gold at such rates and upon such terms and conditions as
the Secretary may deem most advantageous to the public interest.
The Secretary announces herewith, and will hereafter announce daily,
the names of the countries complying with the foregoing conditions.
All such sales of gold will be made through the Federal Reserve Bank
of New York, as fiscal agent of the United States, upon following such terms
and conditions as the Secretary of the Treasury deems most advantageous
to the public interest.
Regraded Uclassified
67
Draft of Treasury announcement to supersede
the announcements of January 31, February 1,
1934, and October 13, 1936.
Superseding the announcements made by him on January 31 and
February 1, 1934, referring to purchases of gold by the Treasury and
on January 31, 1934, and October 13, 1936, referring to the sale of
gold for export, the Secretary of the Treasury states that (hereafter,
and until, on twenty-four hours notice, this statement of intention may
be revoked or altered) the United States:
(a) will soll gold for immediate export to, or earmark for the
account of, the exchange equalization or stabilization fund, or fiscal
institution designated by the government, of each country whose govern-
ment likewise offers to sell gold to the United States, provided that
such government offers gold at such rates and upon such terms and con-
ditions 8.8 the Secretary of the Treasury may deen most advantageous to
the public interest;
(b) will buy gold for immediate import into the United States,
or oarmark for the account of the United States from the exchange
equalization or stabilization fund, or fiscal institution designated
by the government, of each country whose government offers gold at
such rates and upon such terms as the Secretary of the Treasury may
deem most advantageous to the public interest;
(c) will buy domestic gold through any United States Mint or United
States Assay office at New York or Seattle at such rates and upon such
terms and conditions deemed by the Secretary most advantageous to the
public interest.
Regraded Uclassified
68
- 2 -
The Secretary announces herewith, and will hereafter announce
daily, the names of the foreign countries complying with the foregoing
conditions. All such sales and purchases of gold will be made through
the Federal Reserve Bank of New York, as fiscal agent of the United
States, upon such terms and conditions as the Secretary of the Treasury
deens most advantageous to the public interest.
TREASURY DEPARTMENT
69
INTER OFFICE COMMUNICATION
DATE November 4, 1936
TO
Secretary Morgenthau
FROM
Mr. Haas M
Subject: Gold ownership and the Central Bank of Belgium
1. Who owns the Central Bank?
The National Bank of Belgium is privately cwned. The bank is chartered
by the State. Shareholders owning more than twenty shares are entitled to
vote at the semi-annual meeting at which three Directors, nine Regents and
ten Censors are elected. Profits on the operation of the bank are distrib-
uted to the State and to the shareholders.
2. Who controls the Central Bank?
The Belgian Government exercises some control over the Central Bank
through the power of the crown to nominate the Governor of the bank and
through its power to appoint a Government Commissioner to supervise all
bank operations.
3. Who owns the gold reserve of the Central Bank?
The gold reserve is owned by the bank except, of course, as this owner-
ship is limited by the sovereign power of the State and the will of the
Government as expressed by law.
4. Who owns the profits of the reveluation of the gold reserve?
The bank turned over to the State Treasury the profit which accrued
from the revaluation of its gold, amounting to nearly 4 billion francs, in
accordance with the monetary law of March 30, 1935. The law provided that
this sum should be used for the execution of the policies of economic re-
covery.
In addition to payments of 133 million france to Luxembourg and
345 million france for reduction of the State debt to the National Bank,
the Treasury appropriated from the revaluation profit 1 billion francs to
each of two funds, one for the protection of the price of Government
securities and one for the equalization and protection of the exchanges.
The assets of these funds were ultimately to be returned to the Treasuly.
It appears that the Treasury has been using the remainder of this profit
for the purpose of balancing monthly expenditures and receipts.
70
Secretary Morgenthau - 11/4/36 - 2
5. Does Belgium have a stabilization fund?
An Exchange Equalization Fund of 1 billion francs was created on
March 31, 1935. In the twelve months of its existence no use was made
of this fund And its resources were returned to the Treasury in full on
March 31, 1936.
6. Who owned the stabilization fund while it existed?
The Belgian Exchange Equalization Fund, although administered by the
National Bank, was owned by the Treasury. At the end of its existence,
the 1 billion francs which comprised the fund were returned to the Treasury's
account of revaluation profits.
7. Is the stabilization fund in gold or local currency?
The Belgian Equalization Fund derived from revaluation profits was not
B stock of gold but was an account with the National Bank expressed in local
currency.
8. From whom does the Central Bank buy gold and to whom does it sell
gold?
The National Bank, which is authorized by its charter to deal in gold
and silver, was given exclusive right to export and import gold bullion or
coin by the Royal Decree of March 17, 1935. That same Decree provided
that any trading in gold within Belgium was subject to the authorization
of the bank. Although this Decree has not been repealed, it is believed
that the bank is very lenient in its application, readily granting
authority for domestic trading and freely selling gold. The export of
$8 millions of gold to the United States on October 17, 1936, may offer
proof that the bank is willing to sell gold to private banks for export.
71
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 4, 1936
TO
Secretary Morgenthau
FROM
Mr. Hass Yes
Subject: Gold ownership of the Central Bank of Switzerland.
1. Who owns the Central Bank?
The Swiss National Bank is owned partly by private citizens of
Switzerland, partly by the former issue banks, and partly by the Cantons.
(In 1933 the ratio was 46.3%, 15.5% and 38.2%, respectively.)
2. Who controls the Central Bank?
The Federal Government exercises a strong control over the bank
through its power to appoint the President and Vice-president, and a
majority of the members, of the Bank Council, and through its authority
to approve the Annual Report, all statements made by the bank, and bank
regulations.
2. Who owns the gold in the Central Bank?
The gold reserve of the National Bank is owned by the bank except,
of course, as this ownership is limited by the sovereign power of the State
and the will of the government BS expressed by law.
4. Who owne the profits on the revaluation of the gold reserve?
After provisional revaluation of the gold reserve of the National
Bank on September 27, 1936, the profits wore retained by the bank. Although
the Federal decree of September 27 directed the bank to maintain the gold
parity of the Swiss bank at between 25% and 35% of its former value, and
although the franc hAs recently stood at approximately 30% of its former
value, the gold reserve of the bank was revalued at 35% of the former value.
This yields a profit of approximately 538 million Swiss francs.
5. Does Switzerland have a stabilization fund?
A stabilization fund was created on September 27, 1936, when the entire
profit from revaluation was placed to the account of a special "equalization
fund," charged with maintaining the rate of exchange within the new limits
through buying and selling gold.
72
Secretary Morgenthau - - 11/4/36 - 2
6. Who owns the stabilization fund?
The bank controls the stabilization fund and has the sole right
to dispose of it. It is not clear, however, who does own it, according
to the information contained in cables from Cochran.
7. Is the fund in gold or local currency?
The fund is evidently held in terms of a Swiss franc account in
the Swiss National Bank. The fund has not been separated from the bank
and therefore it is not certain whether or not it can be said that the
fund is backed by 100% gold.
8. From whom does the Central Bank buy gold and to whom does it sell
gold?
By the decree of the Federal Council, dated September 27, 1936, the
National Bank is relieved of its obligation to redeem its notes in gold.
It appears that the bank does not sell gold to private persons or firms.
73
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE lovember 4, 1936
TO
Secretary Morgenthan
FROM
Mr. Hass M
Subject: Gold ownership of the Central Bank of the Netherlands.
1, Tao owns the Central Bank?
The Netherlands Bank is a private institution incorporated as a
limited company. The shares of the bank are owned by private persons.
The shareholders elect 15 commissioners and not less than 2 directors.
2. The controls the Central Bank?
A certain degree of control over the Netherlands Bank is possessed
by the government, although, apparently, the amount of control is less
than in the case of Switzerlend and Belgium. The crown appoints the
President and Secretary of the bank, and appoints & Royal Commissioner
who is entitled to vote. The President and Secretary and the Directors
together form the Management, in which the government has on important
influence.
3. Who owns the gold in the Central Bank?
The gold reserve of the Netherlands Bank is owned by the bank
except, of course, as this ownership is limited by the sovereign power
of the State and the will of the government as expressed by law.
4. The owns the profits on the revaluation of the gold reserve?
The gold reserve of the Netherlands Bank has not yet been re-
valued, and there are no indications of the policy which will be
followed when revaluation is carried out.
5. Does the Netherlands have E. stabilization fund?
On September 27, 1936 the Netherlands took steps towards the
creation of a stabilization fund whose resources of 300,000,000
guilders are to be obtained from the issue of Exchequer Bonds. No
estimate is yet available of the total of such bonds which have been
sold to provide funds for this purpose.
74
Secretary Morgenthau - 11/4/36 - 2
6. From whom does the Central Bank buy gold and to whom does it
sell gold?
By Federal law, dated September 29, 1936, Netherlands established
an embargo on all gold exports. Whether or not the Netherlands Bank
sells gold within the country, or redeems its notes in gold, has not
been ascertained.
75
Dear Sirst
Enclosed for your information and guidance is &
copy of 8. letter I have sent to the Assay Office at New York.
You will receive instructions from time to time
authorizing the sale of gold from the Stabilization Fund to
the General Fund and the purchase of gold from the General
Fund for the account of the Stabilization Fund. In establish-
ing appropriate credits, purchases and soles shall be made at
the flat price of $55 per fine ounce without adding or sub-
tracting the one-fourth of one per cent charge.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Federal Reserve Bank of New York,
New York, N.Y.
Enclosure
BBsfht
11-4-30
)
76
Dear Sir:
This letter supplements the instructions given to you
in my letter of October 12, 1936, relating to the delivery of
gold bars in connection with the statement issued on that date.
You are hereby further authorized and directed upon re-
ceipt of properly authenticated instructions from the Federal
Reserve Bank of New York to deliver or hold gold bars for the
account of, or receive gold bars from, the Stabilization Fund.
In establishing the appropriate credits purchases and sales
shall be made at the flat price of 835 per fine ounce without
adding or subtracting the one-fourth of one per cent charge.
Enclosed is a copy of & letter of authorization sent
to the Federal Reserve Bank of New York.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Superintendent
United States Assay effice
New York, New York.
Enclosure.
PB 11/2/36 rewrite BB:CVO:BJ 11/4/36
77
MEETING AT 2201 R STREET
November 4, 1936.
8:30 P.M.
Present:
Mr. Taylor
Mr. Haas
Mr. White
Mr. Lochhead
H.M.Jr:
Now, I haven't had time to read the description
of each - Holland, Belgium, and Switzerland, how
they operate; I mean how their central banks are
set up and formed.
Heas:
Harry can answer those questions as they come up.
U.M.Jr:
In going through this thing - in the first place
let me say I think it is an excellently prepared
memorandum. I think for the time being Draft 2
is out. I don't think - I don't think that there
is much use in discussing it. Anybody want to
plead for Draft 2? Let me run through this
and see how it looks now, huh? I didn't have
before me the January 31, 1934, or the October
13.
White:
I have those if you want them.
H.M.Jr:
I have them now.
White:
Oh.
H.M.Jr:
So it is difficult to compare Draft 1 with these
others, you see; so I'm going to read Draft 1 out
loud and then as we go along, White, supposing you
point out where Draft 1 differs from October 13.
See, White?
White:
Yes.
H.M.Jr:
Now I'll read this: "Superseding the announcements
made by him on January 31, 1934
...
White:
Of course, that begins right off the bat as being
different. Do you want me to point out the differ-
ence?
H.M.Jr:
Please.
78
- 2 -
White:
The previous announcement, the October 13, said
"supplementing." It was additional powers.
This supersedes the orders which relate to
selling only, not buying.
H.M.Jr:
Yes. Well - "Superseding the announcements made
by him on January 31, 1934, and October 13, 1936,
referring to the sale of gold for export, the
Secretary of the Treasury states that the United
States will sell gold for immediate export to or
earmark for the account of the exchange equaliza-
tion or stabilization fund, or fiscal institution
designated by the government ...
White:
That's new.
H.M.Jr:
Yes, that's new.
White:
That's new. That phrase is new and the next
phrase is new.
H.M.Jr:
Just a minute. Beginning "or fiscal institution
designated by the government of each country" -
is that right?
White:
Yes, that's all new.
H.M.Jr:
- "of each country whose government likewise offers
to sell gold to the United States."
White:
"Offers to sell gold" is the same, but the rest
is new.
Taylor:
Why do you say "of each," Harry?
White:
I wouldn't like to tell you, because I wanted to
say "those." The difficulty was this - do you want
to discuss that now?
H.M.Jr:
No.
Haas:
Just phrasing.
Taylor:
No, I thought it might mean something else.
White:
Huh?
79
3 I I
Taylor:
I thought it might mean something else. Instead
of saying "countries" why, do you say "of each
country"? That's more inclusive, isn't it?
White:
Well, shall - ? If you want to take it up now,
it is put in because - in order to keep the singu-
lar "fiscal institution" instead of "fiscal insti-
tutions" - in order to make that singular so that
the country doesn't designate many institutions,
say "All our banks are fiscal institutions," but
rather have to refer to the central bank alone.
You couldn't say "of those countries" 88 we orig-
inally had it, you see; it would be "fiscal insti-
tution of those countries" - so you had to make
that singular. I mean it was a language difficulty.
Taylor:
Yes. I'll come back to it.
H.M.Jr:
You go back to it in the debating room.
Taylor:
No, it was a curious way of saying it that - I
wasn't quite sure what it meant.
E.M.Jr:
Now, let's see -
Taylor:
"Of each country whose government" is the place.
H.M.Jr:
I've got that now. This next sentence - "provided
that such government offers gold at such ratesand
upon such terms and conditions as the Secretary may
deem most advantageous to the public interest."
White:
The one change there is that "such government."
See, we are repeating again.
H.M.Jr:
I see. All right. "The Secretary of the Treasury
announces herewith and will heresfter announce
daily the names of countries complying with the
foregoing conditions."
Haas:
That's the same.
B.M.Jr:
What?
Hass:
That's the same.
80
- 4 -
H.M.Jr:
"All such sales of gold will be made through the
Federal Reserve Bank of New York, as fiscal agent
of the United States, upon such terms and condi-
tions as the Secretary of the Treasury deems most
advantageous to the public interest.'
Just a minute. This is known as Draft 1, what
I am reading from (to reporter).
White:
There is a slight change there. The original
draft, instead of saying "upon such terms and
conditions, said "upon the following terms and
conditions, which meant that the price would
have to be stated as attached on Draft 1; it's
clipped on.
H.M.Jr:
Now, why do you change "upon such terms"?
White:
The original was "upon the following terms and
conditions."
H.M.Jr:
And this says "upon such terms as.
White:
It means that it can stand -
H.M.Jr:
What are you looking at when you compare this -
which one?
White:
Looking at the order of October 13.
H.M.Jr:
Now, I don't get the significance of not putting
in that gold price.
White:
Of not adding -
Well, the thought was as
follows: That -
H.M.Jr:
I do get it. I mean -
White:
Excuse me.
H.M.Jr:
I do get the significance.
White:
Oh, I beg your pardon.
H.M.Jr:
But I want to talk to the point of "why?"
81
- 5 -
White:
I think it should be left off because I think
we are at a disadvantage so long as there is a
perfectly fixed price of gold; that if we can
develop very gradually the idea of flexibility,
even though actually it may change negligibly
or not at all, there is something to be gained,
and that - that gain is achieved by not tying
the price onto this statement any more than you
tie the name of the countries onto this statement.
You say separately that "these countries are added
to the list" or "this and this is the price."
H.M.Jr:
Now, the disadvantage at this time is this: In
the first place, we have just gotten out this
October 13, and you men are suggesting that I
withdraw it and issue this one, which is a little
bit difficult, but I don't consider that too
great B. hurdle. See? I mean to make a different
arrangement, a different agreement with England
and France. But I want to give that very careful
thought, you see. But at this stage, if we don't
put the gold price on, you're just going to scare
people.
Lochhead:
Sure.
White:
I think you ought to have the gold price issued
at the same time.
H.M.Jr:
No, I disagree with you.
White:
At this point - this is a press release - you can
give them both together, but they needn't be part
of this.
H.M.Jr:
But just the fact - just the fact that it's loose
scares me.
White:
If it does you, it does others, and I'll go against
it.
Haas:
It was at Archie's suggestion that we clipped it
on, because he had the same view that you had.
H.M.Jr:
But instead of clipping it you should have riveted
it.
Regraded Uclassified
82
- 6 -
Haas:
Now we're getting into something, I'll tell you.
You're getting into something now, I think - I
mean I think it's a question of policy, which is
not economics at all.
H.M.Jr:
Well, I can say it without having -
This gets
down to a question of policy, public relations.
Haas:
That's right.
H.M.Jr:
And my feeling at this time is that that part
should not be changed, and that this statement
should read "upon the following terms."
White:
It is solely a question of policy.
H.M.Jr:
Do you agree with me, Wayne?
Taylor:
Absolutely.
H.M.Jr:
And you (to Lochhead)?
Lochhead:
Yes, sir.
Haas:
I'm not sure I do.
H.M.Jr:
George, I'm not arguing. I mean I've - I've told
the press -
Haas:
- that you could change it.
H.M.Jr:
Yes
Haas:
That you will.
H.M.Jr:
And there is - I want the country to get used to
that. This would be too much.
Haas:
O.K. I say it's not economics, it's policy.
Taylor:
You certainly have got to until you get your new
stabilization fund legislation. You're leaving
everything else out of it.
H.M.Jr:
Well then, this would read "upon the following
terms
Regraded Uclassified
83
- 7 -
White:
Then you'd have to put "upon the following terms
and conditions." Then it would read exactly
the same as the others all the way from "The
Secretary announces herewith.
H.Y.Jr:
I constantly subconsciously have been thinking
about this thing for four days. "Upon following
terms and conditions" and then this price of gold
would become a part of the statement. Now, 88
far BS this statement goes, this is one way to do
it. But can't we - I mean I'd have to think &
long, long time before I would change the October
13, and I'd rather get out a - I mean there's no
argument about cancelling, I think we all agree to
cancel January 31, 1934. And what I'd like to sug-
gest for argument 1s, leave the October 13 for
England, France and ourselves, and then let's get
out a new statement something along this Draft 1
for Belgium, Holland, and Switzerland.
Llaas:
Oh well, what we have done, Mr. Secretary - that
is one way of doing it; all we have done there is
we have ground it all into one lens. Here's the
reason: It looks as if you're -
H.M.Jr:
It is changing it, and furthermore I don't want
to put Belgium, Holland, and Switzerland in the
same class. So I see that is an idea, see?
And furthermore, I just don't want -
Haas:
Yes, sir, I think that's a real argument.
H.W.Jr:
And I don't want them apart. Now look - I mean we
are talking here very confidentially. Now, one
of the great burdens that Angland has to carry is
the fact that so many countries are tied to sterling.
It's both an advantage and dissdvantage. Now, right
now France is weak; it becomes a burden of England
and ourselves. And the bigger that agreement,
each money that is weak, it becomes a burden.
Heas:
And Belgium may think - may feel that if you put
it out this way, every time you change it you've
got to consult with Belgium and the Swiss, the
whole circle. And this bothers me - about the
35 - because when you have a fixed price agreement
84
- 8 -
with Belgium you practically have a gold stan-
dard pure and simple, almost. Put this way
keeps your original stabilization fund agreement
intact -
H.M.Jr:
Yes
Haas:
- and helps that situation out psychologically.
H.M.Jr:
Yes. I mean - that means - let's say we took
this Draft 1 as you wrote it, plus the gold on
it, and then we change it and ask England and
France to come onto this agreement.
Haas:
Uh huh.
H.M.Jr:
It's moving in the direction of Belgium.
Haas:
That's right. It wouldn't be if you left the
35 off, but when you put that on -
H.M.Jr:
That's true. But if we can keep the October 13
as it is and then get out a new formula for the
smaller countries; then let's say Italy wants to
come in; you can add Italy, you can add Sweden
to that, couldn't you?
Haas:
Uh huh, we could fix it so you could.
White:
Sweden is easy because it is a government-owned
bank.
Taylor:
To do that, have you got that 1dea - remember when
we five of us got together that evening?
Haas:
Yes
Taylor:
With the idea of working them all into one model,
leaving the October 13 as it was.
H.M.Jr:
You mean the stuff that you sent me up?
Taylor:
Yes.
H.M.Jr:
I've got that here, but that isn't this.
Haas:
No.
85
- 9 -
Taylor:
It can become this.
H.M.Jr:
This thing here is what I want.
Lochhead:
I can see where we could leave out Belgium on
that, but then when we read back to the October
13 you have more or less made a statement here
that you will add other countries to this list
whose exchange stabilization funds offer to do
that. Now, is that a backing down, would that be
interpreted as a backing down of the October 13
agreement?
White:
I think SO.
H.M.Jr:
Just a moment, I'm not listening. This is what
you people gave me. This is undated: "Modifying
the announcement made by him on January 31, 1934,
relating to the sale of gold, the Secretary of
the Treasury states that hereafter - etc. etc. -
the United States will sell gold to those foreign
central banks
Taylor:
No, that isn't the one. What I'm talking about
is where we took all the countries.
H.M.Jr:
Well, I haven't got it.
Haas:
And it said - some little note about Archie going
over.
H.M.Jr:
Well look, what's the point, what point are you
trying to make?
Taylor:
The point is doing - the intention was to do just
what you have in mind, to keep your three major
countries as is, with the loophole there which
Archie indicates here, that those countries which
have stabilization funds - you could add to the
October 13 countries without stabilization funds
regardless of whether it would run on a reciprocal
basis or whether It was simply a sale of gold to a
government, which wouldn't - which would just bother
you if you had a reciprocal arrangement with them -
such as Guatemala, for example; why, you bring them
all in on that one blanket thing. So that you only
have two formulas, your second formula being broad
86
- 10 -
enough so that it would take care of both sales
of gold .to Belgium and straight sales of gold
similar to a special license with Gustemala or
China.
H.M.Jr:
Well look, let's just leave Guatemala and China
out of this for a moment. I mean we have a satis-
factory formula for both Guatemala and China; I
mean they are taken care of. I mean I don't see -
Taylor:
All right, leave Guatemala and China out of it.
R.M.Jr:
Leave Gustemala and China out. I mean if some
country calls up the Federal Reserve and says,
"We want to get some gold" and if we think they
are entitled to it we'll let them have it, and
each transaction stands on its own feet.
Taylor:
Right
H.M.Jr:
But I want to get back to this thing here.
Taylor:
But I am still talking to this thing here.
U.M.Jr:
I don't get it.
Taylor:
In other words, over B formula that I am describing -
my terms - I'm sorry I muddied it by bringing in
the Guatemala and China. But it does do what you
are talking about, except that it leaves out the
point on a reciprocal basis, which I don't think
adds anything to it.
H.M.Jr:
Well, that's the whole point.
Taylor:
I think your "on terms advantageous to the public
interest" etc. covers that.
H.X.Jr:
Well, you might just - let's wait a minute. I
haven't finished and I want to get White just a
second. I think the thing we all overlooked in
this discussion, at least I did, is the fact
that Belgium is the only country that has sent us
a note, and she did it the day afterward - which
I have read very carefully. She sent it on Septem-
ber 26 - in which she - what's the word? - she
confirmed what we were trying to do and she used
Regraded Uclassified
87
- 11 -
very interesting language. I just want to draw
your attention to this. Here it says - this is
known as Treasury Department Press Service #8-55,
dated September 26, 1936 (to reporter). It says
here: "It is ready to take part (talking of
Belgium) - It is ready to take part, as often as
it may be necessary or useful, in consultations
which may be called either between interested
governments or between the competent institutions
11
Heas:
I noticed that today when Harry dug it up.
H.M.Jr:
I dug it up.
Hass:
I know; we dug it up for you; you asked for it.
H.M.Jr:
But now, I think they've said it; they've said it.
Now, I, in going through this in my mind - I was
erguing myself - I wanted to sort of put Belgium
on the shelf temporarily; but I think, inasmuch
as she did this - I think we ought to go ahead.
I mean if we can't do all three at the same time
I think we ought to go ahead with Belgium first.
I mean I've changed myself after having read this
thing very carefully, because it says so I mean.
And the thing that I think where Cochran slipped
up was that Cochran didn't throw this back at me.
It says here "interested governments or between
competent institutions."
White:
I forgot about it completely.
H.M.Jr:
I mean I - I'm not trying to rub it in, but I'm
just saying that when Belgium - when Cochran went
to Belgium I'm surprised that he didn't say, "Well,
Mr. Morgenthau, what's all the shooting for? They've
said it." It is interesting, isn't it?
Hass:
Very interesting. I think we've all overlooked
it.
Taylor:
I think we were perfectly conscious that Belgium
had been the first one in and had made a public
statement and so on.
White:
But that phrase -
88
- 12 -
Taylor:
That particular phrase -
White:
- would have avoided some discussion that we had.
H.M.Jr:
It would have avoided a lot. Now, what I think
is - I'll come back to the other point - this
thing again of trying to do the three countries;
it makes it awfully difficult, I think. I don't
think - I don't say it is unsurpassable.
Haas:
As a general rule, too, isn't it better to do
one at a time and look at yourself building it
up, rather than -
H.M.Jr:
Well, I'm just wondering; and here is this thing,
September 26, over a month old; they came through
voluntarily.
Haas:
I thought you were led toward taking the three
at one time because France wanted you -
H.M.Jr:
I know, I know it influenced me, but now that
they are talking that we should do it with the
three countries, we should notify France and
England and each of the three countries should
notify each other, it's getting to be like a
monopoly or something.
Haas:
Yes
H.M.Jr:
A game I mean. Huh?
Haas:
Doesn't that also indicate, what you read there,
that Belgium would like to be in on that when you
talked to England and France?
E.M.Jr:
That isn't important.
White:
I don't see why it would be necessary - and perhaps
you're not imputing it like I do - but why it is
at all necessary to take any other government into
the discussion even to the extent of getting their
acquiescence on any plan other than the three,
because those three governments were given that
oral understanding; that understanding didn't
extend to anybody who wants to join in the spirit.
It was something that did not appear in the
89
- 13 -
tripartite agreement, in the announcements.
And therefore, it seems to me you would be
perfectly within your reasonable policy to con-
fine the discussions as to what your policy will
be with additional nations, if you like, to
those three governments.
Taylor:
Well -
H.M.Jr:
Well, of course, the fact that -
Taylor:
Excuse me.
H.M.Jr:
What, Wayne?
Taylor:
I think that it is in the public announcement.
H.M.Jr:
Well, the fact that I have said so again and
again, although England went ahead and did busi-
ness with France without telling me -
Lochhead:
They do a certain amount of business with Holland;
that is, the Bank of England.
H.M.Jr:
But I think this - Cochran's point today that we
ought to hurry up because there's been a leak
from Switzerland, from the Swiss Council - I dn't
see why that should influence me. I mean since
reading this thing I've changed my own attitude.
I'm perfectly willing to go ahead and try to do
all three at the same time, but if we can't do the
three then I think we ought to give Belgium the
preference, due to her note of September 26.
White:
I don't see any particular merit in doing the
three at a time at all.
Haas:
No, I don't.
White:
Even from any point of view. Even if you could
do the three at a time I think it would be prefer-
able to do them separately. Why? Because it
gives an impression of progress, momentum - one
today, one next week, and nobody knows when the
next one will come; might be a day, might be a
week, might be a month, two months.
Taylor:
Three at a time gives -
Regraded Uclassified
90
- 14 -
White:
No, three at a time cleans it all up.
Haas:
Gaston always tells me when I have a bad thing
break it down into ten parts and it has much
more news value. That applies here.
H.M.Jr:
Another thing, I'd just as leave keep this thing
up in the public mind as much 88 possible up
until we get our stabilization legislation ex-
tended. And when we get this thing through, these
three, it is finished; I mean I don't think there
would be many others.
White:
Sweden might well come in - Sweden anyway.
H.M.Jr:
Let's just talk a minute - I mean just let's say
that we want a pattern that will fit either the
three or any one of the three. See? Now, why
doesn't this Draft 1 do it?
Let me read this again. (Reads Draft 1 through
again).
Now, I think that when some of you people get at
this thing you'll want to change this 8 little
bit; but what's the matter with that?
White:
I don't think you could do that if you leave the
other as it is.
H.M.Jr:
What?
White:
This can't - if you're going to leave the October
13, then you can't phrase it this way, because it
would be very peculiar. Then you'd have to - well,
you are already taking care of those countries
with exchange equalization funds In the 13; I mean
that's taken care of.
H.M.Jr:
Now, wait a minute; you're taking care of two
countries.
White:
You don't specify that in the announcement. You
don't specify England and France.
H.M.Jr:
Well, you'd leave out - I mean then those that had
Regraded Uclassified
91
- 15 -
stabilization funds would be added to the 13,
and those that didn't would come under - let's
say this is November 10, let's say.
White:
Yes. If you wanted to arrange a different one to
take care of those who did not come under the 13,
then I think you would have to word the beginning
& little differently, and we'd have to word it
down here a little differently.
H.M.Jr:
We'd leave out the reference to exchange equaliza-
tion.
White:
Say "superseding the announcement made on January
31 and supplementing that of October 13, 1936."
H.M.Jr:
Where are you reading? "Superseding the announce-
ment made by him
White:
- "on January 31, 1934, and supplementing.
H.M.Jr:
Wait B minute. And then you say "and supplementing :
White:
- "and supplementing the announcement made by him.
I don't know whether you have to repeat that - "on
October 13, 1936, referring to the sale of gold"
etc. Then we go down to "the United States will
sell gold for immediate export to any fiscal
institution -
Taylor:
- or earmark for
White:
-- or earmark for the account of - that's right -
any fiscal institution - the fiscal institution
designated by the government of those countries -
or of each country, avoiding that language diffi-
culty, whose government likewise offers to sell
gold to the United States, etc. etc. In other
words, the rest of that would be the same.
H.M.Jr:
Why isn't that about it?
Taylor:
That will do it.
White:
The only thought in my mind there is, you are
going to have two that are so nearly alike that -
will the thought occur to anybody "Why weren't
these combined? Such a simple thing. Why do you
have two statements in which the wording is so much
92
- 16 -
alike, where you could combine them in prac-
tically one statement?"
Haas:
It will Just serve the purpose that the Secretary
wanted, because he wants those three to stick.
Taylor:
You want those three to stick and you want those
countries with the stabilization funds to stick.
R.M.Jr:
Well now, wait a minute. Under - the way we are
thinking now, if Holland came in she'd go under
the October 13. Is that right?
White:
Uh huh, with 8 stabilization fund you sell to the
stabilization fund.
H.M.Jr:
Yes. Would she become a part of the tripartite
agreement?
Machhead:
Your tripartite agreement was one statement. Then
you follow that by a gold announcement on October
13. That wasn't the tripartite agreement. You see,
it didn't -
H.W.Jr:
No, it didn't refer to the -
Lochhead:
October 13 did not refer to the tripartite agreement.
H.M.Jr:
Well then, this statement should read something like
this: "Supplementing the statement of October 13..
White:
Yes, if you want to supplement.
Taylor:
You can't supplement that, because October 13 in
turn supplemented the one of January 31; so you
have to say "supersede."
White:
You'd have to supersede and supplement.
Lochhead:
First of all you want to eliminate that January,
so you have to start off by superseding that. -
White:
You can use that phrase "superSeding that and
supplementing this."
Taylor:
No you can't here.
93
- 17 -
White:
You mean because you - the 13 supplements some-
thing which you are now superseding?
Taylor:
Yes
H.M.Jr:
Look, this is very interesting. This gives you
a new angle. This October 13 says "supplementing
the announcement made by him on January 31 and
February 1." If we are going to supplement those
and then we cancel them
White:
That's just the point Wayne's raising now.
Taylor:
I say that you have to supersede.
H.M.Jr:
Then we have to get out a brand new statement.
White:
That is a brand new statement.
Taylor:
This Draft 1 supersedes January 31. All right
then, the other one which was supplementing January
31 -
H.M.Jr:
Well, this supersedes that also.
White:
The point is, how can you supplement something
which supplements something that you are super-
seding?
Taylor:
To the it's perfectly simple. Here's the relation-
ship here, you see; this is the main thing and
that is January 31 (referring to pillows on floor).
H.M.Jr:
Just a minute, I'm going to telephone. Will you
remember what you're going to do?
Taylor:
Absolutely.
(Secretary talks on phone)
H.M.Jr:
All right.
Taylor:
Are you ready?
H.M.Jr:
Yes, I'm ready.
94
- 18 -
Taylor:
This is January 31, see?
H.M.Jr:
This is damn silly.
Taylor:
Then you create October 13.
R.M.Jr:
Yes
Taylor:
Which supplements this baby. You see?
H.M.Jr:
Un huh.
Haas:
You've got to put them together.
Taylor:
All right. You've got them together. Now, if
you substitute this for this, that relationship
is still the same. In other words, October 13
supplements this.
Haas:
But now, Wayne.
H.M.Jr:
Does anybody understand it?
Haas:
Yes, but I was asking -
White:
In other words, by superseding, by having this
document supersede the January 31 -
H.M.Jr:
Listen, may I say something? If it takes three
pillows to explain, then I say it's no good; then
I say the simplest thing to do is to cut out
January 31 and October 13 and start again. When
you've got to take three pillows to explain it,
then I say it's no good.
Haas:
That's what we thought when we wrote it; but I
still think there is something in your point
of keeping this tripartite arrangement separate.
H.M.Jr:
I do, but - but this statement - on thinking it
over - let's say we used your Draft 1; that
doesn't say anything about taking on new part-
ners.
White:
I don't see why the new - this draft cannot be
used in place of the old one without any loss.
95
- 19 -
H.M.Jr:
Look, when you've got to talk seriously about
supplementing, amplifying, and superseding,
nobody - I mean you can't get it. Just have
one statement. And then there is another
point. If - let's say we went shead with
Belgium first and Just had a special statement for
Belgium. Then everybody would pick that up and
then they'd say - Belgium would stick out like a
sore thumb. In other words, let's say we got out
a statement, left October 13, got out a new
supplement-supersede statement for Belgium; Bel-
gium came along and then we put her on this new
November statement. Then Holland came along;
Holland went on October 13. And we'd have a
special statement just for Belgium and it would
stick out like a sore thumb, and that is just
what we don't want.
Taylor:
Right.
H.M.Jr:
I mean if we did that we'd have just what we
don't went; we'd have all the countries on
October 13 and Belgium on November.
Taylor:
You'd expect to do it this way - to have a new
one which takes in all?
H.M.Jr:
I think we ought to have 8 new one and we'll have
to submit the new one to England and France and
see if it's acceptable; and then, if it is scrept-
able to them, then we can show it to Holland and
Belgium and Switzerland.
Haas:
It's just the same thing; no change there. It's
just ground their agreement into another one.
Lochhead:
I don't think there would be any objection, but
naturally they'd want to see it.
H.M.Jr:
That's the point of this thing.
I suppose
Herbert wants to know what's going on; that's
why he's bringing this thing over himself. That's
all right.
I'm coming around to this thing, and I think we
can polish this thing up so that - I'd like to, if
96
- 20 -
I could get it by the President, I mean, SO he
could let me submit it to these countries the
week I'm away, and this thing would go the
rounds and by the time I'm back it would come
back, and we could explain why we have to do
that.
Taylor:
It's certainly easy to explain to England and
France.
H.M.Jr:
Oh yes, I'm coming around. What we'd have - we'd
have all the countries on October 13 and Belgium
on some November statement, which is just what I
don't want.
White:
But there is, as you are fully aware doubtless -
there is a phrase in here that may seem not much
different and innocuous, but really gives rise to
considerable discussion; so I think the lawyers
most assuredly ought to go over this.
H.M.Jr:
Let me explain to you how I'm working this thing.
I want to have my arguments first, clear my own
mind first, without being hampered by legal
phrasing. Then when I make up my mind what I
think I want to do, then I submit it to lawyers
and then I say "Tell me how I can do this legally."
I mean - I explained it to George - I want to
first make up my mind what is good business. Then,
after I decide what is good business, then I say
"I want to do this; fix this up so I can do it
legally." See, White?
White:
Yes, but it would have - well, it wouldn't have
to be explained to Great Britain. They'd under-
stand it.
H.M.Jr:
Well, what is it?
White:
It's the fact that we are saying here that we are
going to sell gold to each country - to countries
whose government offers us -
Haas:
Well, the stabilization fund is the government.
White:
But I'm speaking of a different point of view
from Belgium -
97
- 21 -
H.M.Jr:
Providing such government offers us gold. That's
all right.
Bass:
We carefully avoided saying central banks; we
said fiscal institutions.
H.M.Jr:
Well, I wouldn't move until the thing begins to
clear, clear. and I think this thing is beginning to
Jake will be here tomorrow, by the way. Inci-
dentally, 1f it is ready; if not - after all,
he set up those figures on gold, remember, for
us originally.
Heas:
Un nuh.
H.M.Jr:
And before that November 15 thing is in final
form I'd like Viner to go over it. I think
it's helpful; that's his baby.
Haas:
Yes, the more views we get on it the better. I
don't know if you've got it far enough (to White).
White:
I don't know what you're talking about.
Haas:
You know, the publication of the capital movement
stuff.
H.M.Jr:
Well, if it isn't that far we'll get - he can
come again.
Haas:
Oh, it's far enough along to go over it.
H.M.Jr:
Now Wayne, without any pillows, how do you feel
about this?
Taylor:
O.K. You may want to, where you say "whose
governments" -
H.M.Jr:
Well, when you get down to worries
Lochhead:
There's going to be a bitter fight about that,
though - on that question of the government and
central banks; Mr. Oliphant, I'm sure, is going
to -
98
-22 -
H.M.Jr:
What's he going to fight?
Lochheed:
When we say here that such governments offer
gold at such rates and upon such terms - and
he's going to say the government does not offer
you gold in Belgium.
H.M.Jr:
Well, I'll be responsible. (Goes out of the
room).
Lochhead:
But I still think he's going to have a pretty
stiff fight.
(Secretary returns)
H.M.Jr:
On that argument - I'll settle that argument.
This is a statement that I'm making, and when
it gets down to actual exchange, isn't that a
legal matter for our fiscal agent? They take
the responsibility for us. I mean I'm not
going to fight about that; I'm through, I'm
not going to fight about it. I mean they're
going to draw the contract the way I decide
that I want to work, and I'm not going to work
in order to have the thing legal.
White:
If fifteen years from now they discover it isn't
right, we can set up a new one.
Haas:
The practical thing is you can quit any time.
E.M.Jr:
This whole idea of trying to channelize this
whole thing and go to suit the lawyers - I'm
not going to do it.
White:
I think Oliphant would be satisfied with this.
H.M.Jr:
When I was in Albany I worked much closer then -
I mean the whole thing was smaller; and I always
used - the job for the Attorney General and all
of them was to get me out of Jail, not to stop
me from operating. That's what I used to tell
them; and we operated and he kept me out of jail.
Well, we've cleared this thing, and I think the
thing to do is immediately in the morning begin
99
- 23 -
to draft that thing with the idea that that
will take the place of October 13 and January
31. Hun? Everybody in accord on that? And
then when you begin to draft I'd let the law-
yers sit in on that, Wayne, see?
Taylor:
I've got this crop insurance thing tomorrow that
I think I ought to go to.
H.M.Jr:
Listen, young fellow - well, all right, I don't
care; I'll start the thing as soon as I get there.
What time is your crop insurance?
Taylor:
Ten o'clock.
H.M.Jr:
Well, I'm going to start on this thing early and
I'm going places and I'm going to have this thing
finished at 11 o'clock so when you come in in the
morning - I'll explain to Oliphant what I want and
I'll put you all into that room - you (Hass) and
you (Lochhead) and Oliphant and Jake - and then
by 11 o'clock I want something. That ought to be
possible, oughtn't it?
White:
Yes, because there isn't much that can be changed.
H.M.Jr:
Now, you've been through this thing, White, before;
do you see any arguments?
haas:
Plenty argument.
H.W.Jr:
Well, I'll tell Oliphant what I want. But the
thing is cleared in my own mind.
White:
I think we can satisfy Oliphant on this.
H.M.Jr:
I'll start as soon as he gets there in the morning.
I'll explain to him what I want and then he'll go
right to work and see if he can't have something
for me about 11 o'clock, see? Now, don't come in
late and then have some ideas, Wayne.
Taylor:
No, no, as long as it's like that, why, it's
absolutely O.K.
100
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
COPY
DATE November 4, 1936
TO
Secretary Morgenthau
FROM Mr. Haas
The attached report was prepared by Messrs. White and Seltzer
and myself.
Mr. Lochhead has gone over it and has indicated that the proposals
therein contained would offer no difficulties in exchange operations.
GCH:LL
101
Contents
1. Memorandum on draft of statement referring to sale
of gold to foreign countries.
2. Draft of Treasury announcement to supersede the
announcements of January 31, 1934 and October 13, 1936.
3. Alternavive draft of Treasury announcement to supersede
the announcements of January 31, 1934, February 1, 1934,
and October 13, 1936.
4. Memorandum on gold ownership and the central bank of
Belgium.
5. Menorandum on gold ownership and the central bank of
Switzerland.
6. Memorandum on gold ownership and the central bank of
the Netherlands.
7. Copy of Treasury press release regarding statement made
by the Government of Belgium, September 26, 1936.
102
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
COPY
DATE
TO
Secretary Morgenthau
FROM
Mr. Haas
Subject: Draft of statement referring to sale of gold to foreign
countries.
The accompanying draft of the new announcement to be issued
accomplishes the following:
(1) It replaces the statements of January 31, 1934, and of
October 13, 1936, without involving any departure from the recently
established policy of dealing only with governments.
Furthermore, while embodying important change of policy from
that indicated in the two previous statements, it appears to contain
only minor changes from the earlier statements, and only those changes
necessitated by matters of more or less technical importance.
(2) It will make it possible and just for the Secretary of the
Treasury to announce publicly that in our arrangements with Belgium
or any other country we are dealing with the governments, though, of
course, the actual operations are carried out through fiscal insti-
tutions designated for that purpose by the goverments.
(3) The draft is so phrased as to make it possible for any
country to be added to the list of those eligible to purchase gold
from us. As the Statement of October 13, 1936, reads, countries not
having stabilization funds cannot be included in the list. Likewise
countries on the list would have to be taken off if the existence of
their stabilization funds terminated.
The suggested draft would make it possible to add countries
like Sweden, China, Japan, Mexico, etc., even though they have neither
stabilization funds, nor are on the gold standard.
(4) While adhering to the policy of dealing only with governments,
the draft is so worded 8.5 to make it possible - in our opinion from
the economic point of view - for any government to consent to the
conditions even though that government may not have title to the gold
in the central bank, or have a stabilization fund, and without having
to actually deal in gold.
COPY
103
Secretary Morgenthau - 2 -
Thus we believe the drafted statement can be reasonably inter-
preted to mean that in the case of Belgium, by virtue of her being on
the gold standard, the government does in effect offer to sell gold
to those countries to which it permits gold to flow freely (U. S.
would be so included) at a price which the government fixes. In the
instance of Selgium, the price happens to be fixed by statute and can
be altered de jure only by statute, though de facto alterations are
doubtless possible without passage of any law. Whereas in the United
States the price is fixed by the Secretary of the Treasury and can be
altered by his statement.
In other words, the Belgian Government, while not actually
dooling in gold, nor being the principal in the transactions, offers
to sell gold by virtue of its statutes which compel the Bank of
Velgium to sell gold (to the United States) at a fixed price. The
Selgian Government could alter the price at will by altering the
statutory price. Since B. statute may be reasonably regarded as the
expression of will of the Government, it appears that the Government
is doing the offering on terms which it sets - though it may leave
the details by statute to the Central Bank.
(5) In affording the Belgian Government the opportunity to be
added to the list of countries eligible for purchase of gold from
the United States, we are not inquiring of a sovereign foreign power
whether she has the power to make the arrangement, nor are we suggest-
ing in any way that she make any changes in her domestic monetary
system, nor need we in any way indicate the manner in which she imple-
ment the arrangement. All that we insist upon is that the arrange-
ment be made between the United States Government and the Belgian
Government through appropriate government channels, and that the
Government of Belgium state what fiscal institution she designates
for the purpose of executing the gold transactions with the U. S.
The difference in the arrangement which we are making with
Belgium, and the arrangements which prevailed under the old gold stand-
and is important. It lies in the fact that:
(a) We deal only with the Belgian Government, and our
fiscal agent sells gold only to the government or
its designated fiscal institution.
(b) The Secretary of the Treasury has power to alter
the price, the terms, and the conditions at which
he will sell gold from day to day, whereas formerly
the price, terms, and conditions were generally re-
garded set by statute and alterable only by statute.
COPY
104
Secretary Morgenthau - 3 -
(0) There is no clause in the draft stating the price at which
WE will sell gold, It is purposely omitted in order to make our gold
price policy appear less rigid. This is a step toward making possible
(lexibility in the price of gold, and is in line with recent state-
sents made by the Secretary at a recent press conference. The price
of gold which the Secretary will set can be announced in some other
document (just as is done with the 11st of countries eligible to pur-
chase gold here) and will appear to be by that fact subject to change
from day to day. The price will have a. greater appearance of potential
floxibility than would be the case wore the price included in the state-
ment as was done in the October 13th draft.
(7) If Belgium refuses to accept this draft, it wore better in
our opinion to leave her off the list than give up the principle of
dealing only with governments.
The consequences would be important as establishing the
principle. Actually Belgium would be affected only to a negligible
extent if any, unless her failure to be put on our list meant she
could not purchase gold in France.
She could, of course, purchase gold in the open gold market
in London and that would enable her to operate with almost as much
(acility as if she could buy gold from us or from the French Govern-
nont. Yet because of the proximity of France to Belgium, and the
possible narrowness of the London market, it would be to her advan-
tage to be able to purchase gold from France and the United States,
ED it would likewise be of some slight advantage to France to be able
to sell gold to Belgium if she chose.
Though the value of this priviloge to Belgium is slight, it
might be desirable -- should Belgium not see fit to comply with our
conditions -- to make it clear to her and to France and England that
they can make whatever arrangements they wish anong themselves pro-
vided the arrangements do not, of course, violate the tripartite
amouncement of policy.
If Belgium's name were left off our list, the loss to us
would be nil. Switzerland and Metherlands would soon be added. Our
Cold operations would be virtually unaffected. If it leaked out in
Europe that the "United States refused" to make it possible for
to obtain gold here, we would gain by the opportunity of
stating our principle that we deal only with governments in matters
of sale of gold.
COPY
105
Secretary Morgenthau - 4 -
(8) Draft No. 2 has all the advantages of Draft No. 1, but in
addition completes the channelization of gold from as well as to govern-
ments. It embodies the important step of actually confining gold
operations to governments. We not only would sell gold exclusively
to governments (or their designated fiscal institutions) but we
would buy gold only from such sources (except, of course, newly mined
domestic gold).
It would mean that no gold could enter this country unless
it came from some foreign central bank (as the designated fiscal
institution). It would eliminate so far as the United States is con-
cerned, all dealing in imported gold by private banks or individuals.
The difficulty of issuing such a statement lies in the under-
standing with France and England. It is extremely doubtful that we
could get England to agree to purchase for import gold from "stabiliza-
tion funds" or government fiscal operations because she maintains
the most important free gold market of the world.
If we were to issue such a statement as Draft No. 2 it would
have to be on our own.
HDW:1s
11/4/36
106
Sales of gold will be made at $35 per fine ounce, plus one-quarter
per cent handling charge, and sales and earmarking will be governed by
the Regulations issued under the Gold Reserve Act of 1934.
107
COPY
grast
Draft of Treasury announcement to supersede
the announcements of January 31, 1934, and
October 13, 1936.
Superseding the announcements made by him on January 31, 1934,
and October 13, 1936, referring to the sale of gold for export,
the Secretary of the Treasury states that (hereafter, and until,
on twenty-four hours notice, this statement of intention may be
revoked, or altered) the United States will sell gold for immediate
export to, or earmark for the account of, the exchange equalization
or stabilization fund, or fiscal institution designated by the govern-
ment, of each country whose government likewise offers to sell gold to
the United States; provided that such government offers gold at such
rates and upon such terms and conditions as the Secretary may deem
most advantageous to the public interest. The Secretary announces
herewith, and will hereafter announce daily, the names of the coun-
tries complying with the foregoing conditions. All such sales of
gold will be made through the Federal Reserve Bank of New York, as
fiscal agent of the United States, upon such terms and conditions
8.8 the Secretary of the Treasury deems most advantageous to the public
interest.
108
COPY
Draft of Treasury announcement to supersede
Draft
the announcements of January 31, February 1,
1934, and October 13, 1936.
Superseding the announcements made by him on January 31, and
February 1, 1934, referring to purchases of gold by the Treasury and
on January 31, 1934, and October 13, 1936, referring to the sale of
gold for export, the Secretary of the Treasury states that (hereafter,
and until, on twenty-four hours notice, this statement of intention may
be revoked or altered) the United States:
(a) will sell gold for immediate export to, or earmark for the
account of, the exchange equalization or stabilization fund, or fiscal
institution designated by the government, of each country whose govern-
ment likewise offers to sell gold to the United States, provided that
such government offers gold at such rates and upon such terms and con-
ditions as the Secretary of the Treasury may deen most advantageous to
the public interest;
(b) will buy gold for immediate import into the United States,
or earmark for the account of the United States from the exchange
equalization or stabilization fund, or fiscal institution designated
by the government, of each country whose government offers gold at
such rates and upon such terms as the Secretary of the Treasury may
deem most advantageous to the public interest;
(o) will buy domestic gold through any United States Mint or United
States Assay office at New York or Seattle at such rates and upon such
terms and conditions deemed by the Secretary most advantageous to the
public interest.
Regraded Uclassified
109
- 2 -
The Secretary announces herewith, and will hereafter announce
the
daily, the names of the foreign countries complying with the foregoing
conditions. All such sales and purchases of gold will be made through
the Federal Reserve Bank of New York, as fiscal agent of the United
States, upon such terms and conditions as the Secretary of the Treasury
deems most advantageous to the public interest.
HUW:ls
COPY
110
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 4, 1936
TO
Secretary Morgenthau
FROM
Mr. Haas
Subject: Gold ownership and the Central Bank of Belgium
1. Who owns the Central Bank?
The National Bank of Belgium is privately owned. The bank is chartered
by the State. Shareholders owning more than twenty shares are entitled to
vote at the semi-annual meeting at which three Directors, nine Regents and
ten Censors are elected. Profits on the operation of the bank are distrib-
uted to the State and to the shareholders.
2. Who controls the Central Bank?
The Belgian Government exercises some control over the Central Bank
through the power of the crown to nominate the Governor of the bank and
through its power to appoint a Government Commissioner to supervise all
bank operations.
3. Who owns the gold reserve of the Central Bank?
The gold reserve is owned by the bank except, of course, as this owner-
ship is limited by the sovereign power of the State and the will of the
Government as expressed by law.
4. Was owns the profits of the revaluation of the gold reserve?
The bank turned over to the State Treasury the profit which accrued
from the revaluation of its gold, amounting to nearly 4 billion francs, in
accordance with the monetary law of March 30. 1935. The law provided that
this sum should be used for the execution of the policies of economic re-
covery.
In addition to payments of 133 million francs to Luxembourg and
345 million francs for reduction of the State debt to the National Bank,
the Treasury appropriated from the revaluation profit 1 billion francs to
each of two funds, one for the protection of the price of Government
securities and one for the equalization and protection of the exchanges.
The assets of these funds were ultimately to be returned to the Treasury.
It appears that the Treasury has been using the remainder of this profit
for the purpose of balancing monthly expenditures and receipts.
111
Secretary Morgenthau - - 11/4/36 - 2
5. Does Belgium have E stabilization fund?
An Exchange Equalization Fund of 1 billion francs was created on
March 31, 1935. In the twelve months of its existence no use was made
of this fund and its resources were returned to the Treasury in full on
March 31, 1936.
6. Who owned the stabilization fund while it existed?
The Belgian Exchange Equalization Fund, although administered by the
National Bank, was owned by the Treasury. At the end of its existence,
the 1 billion francs which comprised the fund were returned to the Treasury's
account of revaluation profits.
7. Is the stabilization fund in gold or local currency?
The Belgian Equalization Fund derived from revaluation profits was not
à stock of gold but was an account with the National Bank expressed in local
currency.
8. From whom does the Central Bank buy gold and to whom does it sell
gold?
The National Bank, which is authorized by its charter to deal in gold
and silver, was given exclusive right to export and import gold bullion or
coin by the Royal Decree of March 17, 1935. That same Decree provided
that any trading in gold within Belgium was subject to the authorization
of the bank. Although this Decree has not been repealed, it is believed
that the bank is very lenient in its application, readily granting
authority for domestic trading and freely selling gold. The export of
$8 millions of gold to the United States on October 17, 1936, may offer
proof that the bank is willing to sell gold to private banks for export.
COPY
112
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 4, 1936
TO
Secretary Morgenthau
FROM
Mr. Haas
Subject: Gold ownership of the Central Banic of Switzerland.
1. The owns the Central Bank?
The Swine National Bank is owned partly be private citizens of
Switzerland, partly by the former issue banks, and partly by the Cantons.
(In 1933 the ratio mes 46.3%, 15.5 and 38.2%, respectively.)
2, The controls the Central Bank?
The Federal Government exercises a strong control over the bank
through its power to appoint the President and Vice-president, and a
majority of the members, of the Bank Council, and through its authority
to approve the Annual Report, all statements made by the bank, and bank
regulations.
3. Tho owns the gold in the Central Bank?
The gold reserve of the National Bank is owned by the bank except,
of course, as this ownership is limited by the sovereign power of the State
and the will of the government 88 expressed by law.
4. Mao owns the profits on the revaluation of the gold reserve?
After provisional revaluation of the gold reserve of the National
Bank on September 27, 1936, the profits were retained by the bank. Al-
though the Federal decree of September 27 directed the bank to maintain
the gold parity of the Swiss bank at between 25% and 35% of its former
value, and although the franc has recently stood at approximately 30%
of its former value, the gold reserve of the bank Y.S.S revalued at 35%
of the former value. This yields a profit of approximately 538 million
Swiss francs.
5. Does Switzerland have a stabilization fund?
A stabilization fund was created on September 27, 1936, when the
entire profit from revaluation WELS placed to the account of a special
"equalisation fund," charged with maintaining the rate of exchange
within the new limits through buying and selling gold.
113
Secretary Morgenthau - 11/4/36 - 2
6. Who owns the stabilization fund?
The bank controls the stabilization fund and has the sole right
to dispose of it. It is not clear, however, who does own it, according
to the information contained in cables from Cochran.
7. Is the fund in gold or local currency?
The fund is evidently held in terms of a Swiss franc account in
the Swiss National Bank. The fund has not been separated from the bank
and therefore it is not certain whether or not it can be said that the
fund is backed by 100% gold.
8. From whom does the Central Bank buy gold and to whom does it sell
gold?
By the decree of the Federal Council, dated September 27, 1936, the
National Bank is relieved of its obligation to redeem its rates in gold.
It appears that the bank does not sell gold to private persons or firms.
TREASURY DEPARTMENT
114
INTER OFFICE COMMUNICATION
COPY
DATE November 4, 1936
TO
Secretary Morgenthau
FROM
Mr. Haas
Subject: Gold ownership of the Central Bank of the Netherlands.
1. The owns the Central Bank?
The Netherlands Bank is a private institution incorporated as a
limited company. The shares of the bank are owned by private persons.
The shareholders elect 15 commissioners and not less than 2 directors.
2, Who controls the Central Bank?
A certain degree of control over the Netherlands Bank is possessed
by the government, although, apparently, the amount of control is less
than in the case of Switzerland end Belgium. The crown appoints the
President and Secretary of the bank, and appoints a Royal Commissioner
who is entitled to vote. The President and Secretary and the Directors
together form the Management, in which the government has an important
influence.
3. Who owns the gold in the Central Bank?
The gold reserve of the Netherlands Bank is owned by the bank
except, of course, as this ownership is limited by the sovereign power
of the State and the will of the government as expressed by law.
4. Who owns the profits on the revaluation of the gold reserve?
The gold reserve of the Netherlands Bank has not yet been re-
valued, and there are no indications of the policy which will be
followed when revaluation is carried out,
5. Does the Netherlands have 8. stabilization fund?
On September 27, 1936 the Netherlands took steps towards the
creation of a stabilization fund whose resources of 300,000,000
guilders are to be obtained from the issue of Exchequer Bonds. No
estimate is yet available of the total of such bonds which have been
sold to provide funds for this purpose.
115
Secretary Morgenthau - 11/4/36 - 2
6. From whom does the Central Bank buy gold and to whom does it
sell gold?
By Federal law, dated September 29, 1936, Netherlands established
an embargo on all gold exports. Whether or not the Netherlands Bank
sells gold within the country, or redeems its notes in gold, has not
been ascertained.
FTO:fa/amn
116
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Press Service
Saturday, September 26, 1936.
No: 8-55
The Secretary of the Treasury makes public the following note
from the Belgian Entassy, transmitted to the Treasury Department by
the Secretary of State:
"BELGIAN EMBASSY
Washington,
September 26, 1936.
No. 3479
"Mr. Secretary,
"Upon the order of my Government, I have the honor to inform
Your Excellency of the following:
"1) The Belgian Government has learned of the declarations
by which the Governments of France, Great Britan and the United
States have considered it opportune to express their intentions
with regard to the nonetary and economic problems existing at the
present time, and joins with then in affirming a common intention
of safeguarding the peace, of favoring the estnblishment of con-
ditions which will contribute to the restoration of order through
the international economic relations and to pursue a policy with
a view to developing world prosperity and improving the standard
of living of all peoples.
"2) To this effect the Belgian Government is decided to modify
in no way the nonetary policy which it has carried nit during the
last "ear and FL half and which has had the effect of assuring the
complete stability of the Belgien franc on the international exchange
market, avoiding: any" disturbance of that market.
"3) The French Government, considering that the desirable sta-
bility of the principal currencies cannot be assured on a solid basis
without a previous re-establishment of & durable equilibrium between
the various national economies, has decided to propose for this purpose
to its Parliament the adjustment of its currency. The Belgian Govern-
ment, as well RS the Governments of the United States and Great Britain,
considers that this decision is of a nature to stablish on more solid
foundations the stability of international relationships. It is ready
to take part as often as it nay be necessary or useful in the consul-
tations which may be called, either between the interested Governments
or between the competent institutions.
117
- 2 -
"4) The Belgian Government, as well asthe Governments of France,
Great Britain and the United States, is moreover convinced that the
success of the policy above outlined is bound up with the development
of international commerce.
" Particularly, it attaches the greatest importance to the initi-
ation of an action without delay with a view to reducing progressively
the existing systems of contingents and control of exchange with a
view to their final abolition.
"5) The Belgian Government, as well asthe Governments of France,
Great Britain and the United States, considers that the collaboration
of the other nations for the realization of this program above nen-
tioned is highly desirable. For this purpose, the Belgian Government
will renain always willing and ready to bring its entire collaboration.
"For the Ambassador:
(Signed) PRINCE EUGENE DE LIGNE"
His Excellency,
The Secretary of State,
Department of State,
Washington, D.C.
?
Regraded Iclassified
118
November 5, 1936.
±
At 10 A.M., Mr. Preston Delano, Governor of the Home Loan
Bank System, D.W. Bell and Mr. Upham met with Secretary Morgenthau
to discuss Home Loan Bank financing.
Mr. Delano explained that the Home Loan Banks have a capital
of $130 million, of which $109 million was subscribed by the Govern-
ment. The maximum which the Government can subscribe is $125 million.
They propose to raise some additional capital in the market.
Mr. Delano has discussed the matter with Mr.Burgess, Mr. Eccles
and Governor Myers and others. It is his opinion that consolidated
debentures of all 12 banks should be issued and that they should be
uncollateralized. He pointed out that the Home Owners Loan Corpora-
tion can buy these debentures but recommended against it. The banks
can pay up to 2% for money but they would like to get it cheaper.
Moreover, they feel that long term debentures will not be well
received. The banks hold $45 million of one year and less maturity
8,8 collateral for their loans and it is logical to issue against
this short term debentures.
Mr. Delano was of the opinion that they could get 1 year money
at 1% or 6 month money at 1/2% to 5/8% They would not need the
money before February and then at the approximate rate of $5 million
a month.
Mr. Morgenthau suggested that they issue debentures with a
maturity of not less than one year and that they issue them quarterly
in amounts sufficient to meet three month needs. It was his sugges-
tion that they go to the market about January 15th.
Mr. Delano said that a syndicate might be formed to float the
119
₹
-2-
debentures or that they might make use of the fiscal agent of
the Federal Intermediate Credit Bank.
Mr. Morgenthau favored the latter course.
Mr. Morgenthau asked for some information about Federal
Savings & Loan Associations and plans to extend the system
and its operations, but discussion of this matter was post-
poned until after Mr. Morgenthau's return from Sea Island.
120
November 5, 1936
11:20 A.M.
Present:
Mrs. Klots
Mr. White
Mr. Haas
Mr. Viner
Mr. Oliphant
Mr. Opper
Mr. Lochhead
Oliphant:
I have here what I understand to be - this state-
ment is going to be your legal power that you will
receive, by virtue of the President's approval, to
sell gold. It is your grant of power. It is
purely a legal question as to what document is
sufficient to grant you the power of the sort that
you tell me you want. From an operating standpoint
it is wholly feasible - from Archie's standpoint,
because the only people he will communicate with
will be the Central Bank of Belgium, which the
Belgian Government has designated as its fiscal
agent.
Lochhead:
I understand you are to pass on the legal contract
that they give you.
Oliphant:
Yes, and read - and I understand Viner has some
reservations.
H.M.Jr:
He always does. That's why I asked him.
Viner:
No. I do - I have some now, but -
B.M.Jr:
Well; we got - I've got lots of time. Now, let
me just see this. White, I may want to take this
with me south. Could you give Mrs. Klotz another
one of those? See? Could you give her another
set of that?
Heas:
Uh huh.
H.M.Jr:
Now - now let me just see: "Superseding the
announcements made by him on January 31, 1934,
and October 13, 1936, referring - relating" -
no argument about that, is there? - Now that
is, I take it, the meat of the cocosnut, this
thing here: "earmark for the account of the
121
- 2 -
Treasuries or the exchange equalization funds."
Now, let me just - "providing such offers are
made upon such terms and conditions" etc. etc.
Then "the Secretary will name the following
countries coming within the foregoing" etc. -
"through the Federal Reserve Bank of New York
85 fiscal agent" etc.
Well then, the whole meat comes down here - "will
sell gold for immediate export to or earmark for
the account of Treasuries or stabilization funds
of those countries whose Treasuries - " Now, let
me go back to October 13 - "Supplementing the
announcements made by him on January 31, 1934,
and February 1, 1934" etc. - "will sell also gold
for immediate export to or earmark for the account
of the exchange equalization or stabilization funds."
Well, in this October 13 you don't mention Treasuries.
Oliphant:
Yes, sir.
U.M.Jr:
Ruh? You don't mention Treasuries.
Oliphant: Well, the only difference - we put the words "or
Treasuries," insert that into October 13.
R.M.Jr:
Well, you left that out, haven't you?
Oliphant:
Yes, in October 13.
H.M.Jr:
It says "the United States will sell gold for
immediate export to or earmark for the account
of the exchange equalization or stabilization
funds." And then you say "or whatever fiscal 8 gent
of those countries" -
Oliphant:
And then the words "whose Treasuries or." That's
all that's new. Except for polishing & little,
the only change in substance is we put in the
words "Tressuries or" before the word "fund."
H.M.Jr:
Well, wouldn't you say - partly explain "fund"?
Ollphant:
Then that would precede that.
H.M.Jr:
I'd repeat it anyway.
122
- 3 -
Olighant: It's desirable, but I don't think it's necessary,
because two lines above it says "exchange equali-
zation or stabilization funds."
H.V.Jr:
Now, let's start with White; you're on my left.
Wnst do you like and don't like about this?
White:
I like this, with this reservation: that this
states a little more clearly than the draft we
had last night that you are confining the opera-
tions to Treasuries or exchange equalization funds,
and that there is the possibility which must be
evaluated - which is not necessarily vital, but
it must be evaluated - that the Belgian Government
in receiving this will feel that this doesn't
cover their particular case unless they create
either a fund or unless they have some gold in the
Treasury, or unless the Treasury deals with gold.
And that - I'm satisfied with Oliphant's explana-
tion that that isn't necessary under this, but
they may not appreciate that. And so it may be
necessary to get that across to them before they
will accept it and there may be some difficulty
by virtue of the distance and agencies to get
that across. But outside of that -
011ghant:
May I state the hypothetical case that is possible
under this thing I've got drawn up. I'm going to
change it from gold to wheat. I'll be the Belgian
Government, you (to Secretary) be the United
States Government, Mrs. Klotz be the Secretary.
I enter into a contract with you to deliver to
you -
B.M.Jr:
Who are you?
Oliphant:
I'm the Belgian Government. I enter into & con-
tract to deliver to you one month from today 100
bushels of wheat. You and I are the partners to
that contract. I am bound to carry it out; the
liability is mine. Now, if at the end of the
month I procure that whest to be delivered to you
by Mrs. Klotz, that is no concern of yours. But
in the day to day operations, after this thing is
set up, say a month from now, any case Archie
enters into a transaction, in the background
123
- 4 -
the principals are the Belgian Government and
the United States Government. Now, the Belgian
Government, in discharge of that obligation may
procure the gold to be delivered to you by the
Central Bank; and AS I can enter into a contract
to deliver wheat and carry it out, never having
owned a bushel of wheat - but I'm the principal,
end I understood you wanted to deal with - not
with the Central Bank, but -
3.2.Jr:
Well, may I just say this, for the record. In
July, the middle of July, when Mr. Bewley, the
Financial Attache, came to see me, I first
broached the question that time that 1f we entered
into an agreement with Great Britsin under recip-
rocal gold, it would have to be with the British
Government. He NES very much taken aback. He
said, "Why, you can get gold in the open market.
Why with the British Government?" "Because, I
said, "if you do business with us you know the
United States Government guarentees they will
deliver that gold. I don't care where I get that
gold, but I want the British Government to guaran-
tee to me that when I buy I get it."
Now I don't care; now, we crossed that bridge with
them at that time. He was flabbergested, and left
me with the impression that it was very doubtful
whether they would do it. Well, they crossed that
bridge. And certainly in the case of England they
could say and did say, "We've got our open market.
Why ask us for anything more?" Still they came
across, they guaranteed it. Ne wanted to know
the British Government would see that they gave it
to us, and our contract was - was not with the
open market, whoever that is, or with the Bank
of England. And we crossed that bridge last
summer.
Now, if the British Government, with all their
pride and everything else, were willing to do
that - they might very well say, "Well, isn't the
Bank of England good enough?" etc. - but they are
willing to cross that bridge. And it was B. very
important decision which I made at that time when
I stated that, because I knew how difficult it
124
- 5 -
would be to get England to agree to it; and they
did agree to it. Now, that bridge was crossed a
good many months ago. And I know the President
feels very strongly on this subject, and I do too.
Now, the only - the thing that I have told each of
you, separately and collectively, is that I don't
want to tell any country how they should run their
own business inside; but when they deal with us,
I have a right to say on what basis and with whom
I want to deal. Now, that's the whole argument,
isn't it?
Cliphant: Yes
I.M.Jr:
Now, if any country wants to have - whether they
want to hold their gold, have B Central Bank or
National Bank or stabilization fund, that is
their business - or how they handle their gold -
entirely their business; but when they deal with
me, thet's my business.
Viner:
You want the contract on their part to be that they
will themselves sell gold of their property to you.
H.M.Jr:
No, no, I simply -
Viner:
That's what you're saying.
Oliphant: Not of their property. They will enter into the
contract. This says the United States is selling;
now, that is one party. Now, the only party on
the other side has to be the government.
Viner:
No, the contract needn't be that, though. We are
agreeing to sell, but we may agree to sell to a
country which agrees to sell to us or to make
available for sale to us through whatever insti-
tution that country chooses to select.
Cliphant:
It might be a private bank.
Viner:
It might be a private bank.
Oliphant: Well, I understand you don't want to deal with a
125
- 6 -
private bank or central bank.
H.N.Jr:
Not as principal.
Viner:
Well, the agreement would be the Government of
Belgium. I, for instance - you see, I'm thinking
of the Belgian case. On this basis the Belgians
would have to make some new arrangements at home
internally, or they couldn't - or this is not,
ipso facto, available to them.
You see, we are saying that we will earmark gold
for the account of the Treasuries or the exchange
equalization fund.
Hass:
- or designated agencies.
Viner:
No, no, it doesn't say "or designated agencies."
It says "through" - that's not "or." We won't
earmark it to the account of designated agencies.
That's what Oliphant explained to us. That means
you are operating through them as agents. That's
what they made clear. Now, this does not fit the
present Belgian situation.
H.M.Jr:
Now, let's just take the English situation. When
we earmark for them it's to -
Dochhead:
- the Federal Reserve account of the Bank of
England.
Viner:
And that account - who opens that account of the
Bank of England?
Lochhead:
The account, as we understand, is owned by the
stabilization fund.
Viner:
Does the Federal Reserve Bank know that?
Lochhead:
When we want gold from the English, it is ear-
marked for the account of the Federal Reserve
Bank; it is not shown on the Bank of England books
as the United States Treasury.
H.M.Jr:
Wait B minute. When we got down to the thing,
these contracts were drawn up by the lawyers of
126
- 7 -
the Federal Reserve Bank, with some consultation
and the aid of the Treasury.
Viner:
But with whom was the contract?
H.M.Jr:
You'll have to ask Oliphant.
Oliphent:
Well, this is -
Viner:
Didn't the Bank of England say it was acting 88
the agent of the exchange stabilization fund?
Oliphant:
As I understand, the Bank of England is agent
for earmarking, and SO on, but the earmarking is
for the account of the exchange equalization, or
stabilization fund.
Viner:
The exchange stabilisation fund part - is that
in the contract?
Lochhead:
No
Viner:
Well, you have no contract, and If the Bank of
England wanted to earmark gold, there is nothing
in the present arrangement -
Lochhead:
- except that it's understood that this is the
way we're operating.
H.M.Jr:
(On phone) Would that be convenient for him -
12:30? If the President will talk to me about
12:30, please I'm allowing him an hour (aside).
Well, we've got an hour on this.
Viner:
Well, what I feel is this: that all the purposes
that I can see that we have would be served if
we had an agreement with governments that if we
make gold available for sale to them or such
institutions as they designate, they shall see
to it that gold shall be available for us; whether
it is at their Treasury or stabilization fund
shouldn't make any particular difference to us
as long as the governments undertake that the
gold should be available to us. But this doesn't
do this.
127
- 8 -
R.M.Jr:
Well, just of minute. I'm going to - I mean I'm
going to take Oliphant. I explained to Oliphant
this morning what was the pattern that I had in
mind. I practically made up my mind that this
was a pattern; after I made up my mind what was
the pattern I'd like to have him draw a contract.
See? Now, his responsibility is to see that the
contract would be binding.
Now, let's boil this thing down. The contract is
between the United States Government as the first -
party of the first part, and let me ask you -
Oliphant:
The Government of Belgium on the general contract.
Viner:
Belgium would agree that gold would be available
to us upon demand at prices on such and such a
basis; as to who would sell the gold to us, that
is another part, when the Belgian Government would
agree that there would be somebody there whom they
would choose, and suitable to their own situation,
who would sell the gold.
H.M.Jr:
May I read this thing here just a second. "It
is ready to take part as often as may be necessary
and useful in the consultations either between
interested governments or between competent insti-
tutions (from Belgian note of September 26)."
Well, it all gets down - here's the United States
Government, party of the first part; who's the
party of the second part? That's all.
Oliphant:
Now, that's two Questions; that's a double ques-
tion.
H.M.Jr:
Why a double question?
Oliphent:
Well, your analysis -
H.M.Jr:
What?
Olipnant:
Your analysis of it is absolutely right. I just
want to carry it one step further. Who are the
two parties to this agreement we're now entering
into? Further, who will be the principals of the
agreements which we will be entering into from day
128
- 9 -
to day in the purchase and sale of gold? Now,
as I understand Viner's statements, he suggests
that you go this far: There is a certain country
that has nothing - no central bank - it merely
has private banks; and it agrees with the Secre-
tary to make gold available. Under Viner's
suggestion the plan would be that from day to day
the United States of America enters into a
contract for the purchase of gold from private
banks; and that would fit Viner's pattern, he'd
be satisfied.
Now, as I understand it, your thought is that
you are going to be doing business from day to day
and the United States Government is to be the
principal on this side in those contracts, and
you want the principal on those day to day con-
tracts on the other side to be the government
over there, regardless of whom they designate
as their fiscal agent to carry this out, and
whom they designate to deliver this gold. Is
that what you want?
H.M.Jr:
It isn't clear to me. Are you addressing me or
Viner?
Oliphant:
I was addressing both.
H.M.Jr:
wet Viner answer, because I don't get your
answer. Maybe Viner does.
Oliphant:
Well, everybody's agreed that the original under-
standing is to be anunderstanding in which the
Belgian Government will be a party; that's out
of the way. Then the dispute, the discussion,
is on the question of who are to be the parties,
that is, the principals, to the contracts entered
in from day to day for the purchase and sale of
gold. Now, that is the question.
On the other hand, this question is also out of
the way and everybody's agreed on it: Whoever
are the parties in the day to day contracts for
the sale of gold, each of those parties may use
any fiscal agent they please. We will use as
our fiscal agent the Federal Reserve Bank of New
York. The Belgian Government will use 88 its
Regraded Uclassified
129
- 10 -
fiscal agent its central bank.
Now, coming back to the question that is under
discussion: Who are to be the parties, the prin-
cipals, in the day to day contracts for the
purchase and sale of gold? As I understand what
you want, and as I have drawn this document, in
the background the principals of those contracts
should be the Belgian Government and the United
States Government. Whoever the Belgian Government
may designate to negotiate those transactions
from day to day and deliver the gold from day to
day, and whosever gold may be delivered, the con-
tract for the purchase and sale of gold should be
a contract between two sovereign governments.
H.M.Jr:
Right.
Oliphant:
Now, as I understand your statements, that is the
way I understand your position.
E.M.Jr:
Just 8. minute. Hello (on phone). What could he
do, please? - - Well now, just wait a second,
hold the wire. (Aside) I think we can clear this
thing in about 15 minutes, can't we?
Ollphant:
I think SO. We've got the question cornered now.
H.Z.Jr:
(on phone) Hello? He said either 12 or 12:15?
I'll take 12:15. Thank you.
All right, now. Let me go back again. I'm going
to repeat; I'm going back to what I said to Bewley.
I said to Bewley, "Now, mind you, I'm not satisfied
to do this thing unless the British Government will
guarantee to me that if I went a million pounds of
gold today I get it. Whose gold it is or where it
comes from is none of my concern." See?
Now, I think when I said that, that that was the
time that we laid down a new principle, and that's
what I want to carry out with the rest of them.
Viner:
That I adhere to absolutely.
H.M.Jr:
Well, where's the difficulty?
130
- 11 -
White:
He's also saying that, but that's not the same
thing.
Viner:
But that's not the issue. My proposition is that
you have agreements with countries that they will
themselves sell or make available, from whatever
agencies they find in their set-up, for sale to you,
gold upon your demand, but that who shall actually
sell the gold to you you don't care, provided it is
somebody in that country designated by that govern-
ment in accordance with the terms agreed upon by
that government; whereas their proposal is that
in each transaction the buyer be the United States
Government and the seller be the Government of
Belgium. And I think that that does not fit the
Belgien situation, and it maybe doesn't fit the
present English situation as far as your legal
arrangements go, and that it is a new restriction,
it serves no economic benefit, and that I don't see
any legal risks in the arrangement I stated. If
you see -
Heas:
I can bring those two views together.
H.M.Jr:
Can you? I think you're - well, you'll be good.
Heas:
That on the one that Herman was talking to you
about, he said that the buying and selling is
between the two governments or through some agent.
Viner:
Not "or" - "or" is wrong.
Heas:
No, not "or" - or buy and sell through some - the
operations could be through E fiscal agent.
Viner:
Yes.
Haas:
All right. All that that means is that Jake is
spelling out Herman's interpretation of what
Herman's document means.
Oliphant:
No, now let me try it once more. I want to state
Jake's position as I understand it, and I'm going
to make it clear by stating an extreme case, a
case to which it applies. I want you to think it
through and I think you can tell me very quickly
whether or not you went that sort of thing.
Regraded Uclassifie
131
- 12 -
So I want to take a sort of extreme case, make
a very concrete picture, I wish I could name a
country where there isn't any central bank, where
they have nothing but J. P. Morgans.
Viner:
You're trying to find a hard case that doesn't
exist.
Oliphant:
Excuse me, I'm trying to make the thing clear.
Viner:
Well, I'd meet it by saying, "Instead of desig-
nated institution, say central bank."
H.M.Jr:
Now, let him finish. Let him go ahead.
Oliphant:
Let's assume a country where there are no banks
that, in point of relation, rise above the status
of Morgan or other private banks.
Viner:
Bermuda. Take Bermuda.
Baas:
Angora.
Oliphant:
Viner's suggestion, now - now I come down and
talk about the day to day operations; that's where
the problem is; we're agreed on what the initial
steps are. Viner is suggesting that in the day
to day operations there will be solemn contracts
for the purchase and sale of gold between the
United States Government and that private bank.
Viner:
And that's all? No, that's not my proposal. If
you mean that's the whole story, that's not my
account.
H.M.Jr:
Are you through now (to Oliphant)?
Oliphant:
Well, I should add with the government in the
background as the guarantor.
Viner:
All right; that's 8 rather important addition.
H.M.Jr:
Now do you want to state - ?
Viner:
If he adds that, if he includes the addition,
that's the story: that we don't care who delivers
132
- 13 -
the gold to us as long as they do it on terms
that we have agreed on with their government,
and that government undertakes to see that this
contract shall be executed. That is, we have
a covering contract with the government; you see,
WE are not dealing with this side private bank,
as if it is -
H.M.Jr:
Now let me try it. Could you put it this way? -
We enter into a contract, the United States
Government, with the Belgian Government that we
will exchange gold under certain terms and con-
ditions. Then the Belgian Government chooses
to sublet that contract to the Bank of Belgium
and it says to the Bank of Belgium, "Will you
please go shead and enter an arrangement with
the fiscal agent of the United States Government."
Now, under a sublet, as I understand it, the
original contractor is still responsible to the
man who is building the house, but he lets this
person sublet his plumbing and his heating, and
all those people go shead and do business; but
the original contractor is the responsible person
to build the house. Now, isn't that about the
situation?
Oliphant:
Yes, that's another way of doing it, and that
doesn't face the problem of getting from the
President a document authorizing you to do that.
H.M.Jr:
Well, isn't that stating it in an entirely dif-
ferent way? I mean nobody has stated it yet -
and isn't that what I want to do? I want to build
a house. I enter into 8 contract with Jones &
Jones, General Contractors, to build a house.
Jones & Jones - I look them up and they are all
right, they are known. Now, they sublet. They
don't happen to be plumbers, so they sublet the
plumbing contracts and these fellows go ahead and
furnish the plumbing; but Jones & Jones are still
responsible to me.
Olipnant:
Well now, there are just three possibilities, and
I want to talk about the day to day operations.
H.M.Jr:
(Gets up) Oh, if you could see George's face -
My god - oh!
Regraded Uclassifie
133
14 1 I
Hass:
We've argued this Sunday, Monday, and Tuesday.
I think you hit it right, you hit the explana-
tion.
B.M.Jr:
Well now, wait a minute.
White:
I think it's it.
H.M.Jr:
What are you fellows pointing at?
Haas:
The contract that you just read.
Viner:
The trouble is this sublease may be of great
variety of kind.
H.M.Jr:
Now wait 8 minute. There's a couple of people -
Now, do you mind, George : what were you pointing
at, George?
Haas:
I was pointing at this statement which Herman
read to you, where it says "through" - there's
a parenthetical phrase in it: "through whatever
fiscal agent they may designate." Your explana-
tion which you just gave is, I think, a beautiful
explanation of just that - what that is.
H.M.Jr:
Well, if that's what that means, then Herman
Oliphant has done what I mean it is.
White:
But that's not quite what you said in the first
instance. In other words, the instance is a
little different from the principle which you
enunciated before, because in this case you are
still dealing with the government; you are not
dealing with the central bank, you're dealing with
the government. Whereas what he wants to make
possible is that when you arrange with the con-
tractor to build your house, you say to him, "I
hold you responsible, but I'll make my contracts
with -
H.M.Jr:
No, no, no, no, no, no. Now wait a minute, just a
second. Let me keep this thing on this house
basis. I've had a contract and I build a house.
The Procurement Division enters into a contract
to build a Post Office with Jones & Jones. Their
134
- 15 -
contract is with Jones & Jones, and if Jones
& Jones wants to have six sublettees I'm still
doing business with Jones & Jones.
White:
That's right.
H.M.Jr:
But the plumber, the steam fellow, and the cement
fellow, and the steel fellow - they go ahead and
do this thing because they ve got steel, they
have the plumbing, they've got cement. But the
principal that I'm doing business with is Jones &
Jones.
Viner:
Well, I think you want Oliphant's scheme, and that
means you will not buy gold - you will not buy gold
from the Bank of England, but you're doing it
today.
H.M.Jr:
You don't - I don't - don't know whether that is
so or not - I mean I'm not - To go back again -
Oliphant:
Can't be SO.
Opper:
It doesn't conform at all.
Oliphant:
If so, we're doing an illegal thing.
H.M.Jr:
When it came to the actual arrangements and drawing -
My job is, after all - my job is to try to work out
the principles of the thing; I think I worked it
out, or fought this thing through. The actual
"dotting of the t's" and the drawing of the con-
tracts between those things, - I take it that my
General Counsel 38W that those things were drawn
out in conformity with the October 13. Now - and
I don't agree with you, White, that I have
changed the thing.
White:
You haven't changed it, but the principle which
you enuncisted first, when Jake agreed, was not
the principle which you illustrated. There was a
difference, and that difference was that in the
first case it would have fitted the principle if
the Government of Belgium guaranteed that gold
was made available, irrespective of who made it
available, whereas yourillustration was that you
Regraded Uclassifie
135
- 16 -
would care who made the gold available; it
would have to be the government which made it
available through its fiscal agent.
Viner:
That's right; that's the whole issue.
H.M.Jr:
Wait a minute. I illustrated what we did in the
case of England -
Viner:
Yes
H.V.Jr:
- and I said to the British Government, "I don't
care where the gold comes from; I'm doing business
with the British Government."
Viner:
But you are actually carrying out the transactions,
which on your own books are not with the British
Government, but -
H.M.Jr:
If that's - I don't know whether that's so; and
that's why I said to let this thing go through
first to the British and the French. As a
preliminary, I mean, let me put this up to the
French and the British and say, "Now look, we
want to withdraw October 13 and we want to with-
draw January 31. We want to substitute this.
Can you see anything the matter with it? - because
we went to fit this thing SO we can let three
other countries in." You see? I have no objec-
tions from our standpoint, and so if they agree -
White:
That procedure is quite satisfactory. But you'll
probably get a reaction.
E.M.Jr:
I say in this case if you are not in a hurry try
it out, try it out. Now, you're saying something
very important. If this is acceptable to Great
Britain and France -
Viner:
- and Belgium -
H.M.Jr:
Now just a minute. If this is suitable 38 a sub-
stitute to Grest Britain and France and it doesn't
change our contractual relationship with Great
Britain - see?
Viner:
Well, this would change it. I am saying now that
Regraded Uclassified
136
- 17 -
your contractual arrangements are not in
conformity with that.
H.M.Jr:
Well, these two fellows (Oliphant end Opper) ought
to know.
Viner:
Pick up the phone and ask the Federal Reserve
Bank of New York.
Oliphant:
Jake -
Lochhead:
We're doing business with the stabilization fund
of England, see?
H.M.Jr:
Jake, let me put it another way. First, if this
new draft is acceptable to England and France
and when we present it to them we say, "We only
wish to change it so it will let in Holland,
Belgium and Switzerland, and if this doesn't
let them in we may have to change it again, but
if this is acceptable to you in the first place,"
you see: Then what? Is it all right?
Viner:
Sure.
H.M.Jr:
"hat I want to ask is it all right, is it in the
interest of the United States Government?
Viner:
Yes, it's perfectly satisfactory from my point of
view. The only consideration I have in mind now
is whether we may not have to relax this in order
to get other countries in.
H.M.Jr:
But the thing I want to get - tell me, is this
all right?
Viner:
Sure, absolutely.
H.M.Jr:
But we needn't stick to it, see? Now, October 13
is that; now we've got something - we've got some-
thing to go on, we're learning to walk.
Viner:
Yes
H.M.Jr:
Maybe this won't - will or won't permit Sweden or
South Africa or Brazil or the Argentime to come in;
Regraded Uclassifie
137
- 18 -
I don't know.
Viner:
This is perfectly all right if it is all right;
if they will let it work, it's all right.
H.M.Jr:
Let me go around once more. Let me put it this
way: from the standpoint of the interest of the
United States Government, do you think it's all
right? White?
White:
Unquestionably, if you're going to follow that
procedure of presenting it to them and if they
find difficulties with it we'll have a chance to
reexamine those difficulties; I say it's quite
all right.
H.M.Jr:
George?
Haas:
I think it's perfectly safe. When you et down to
presenting it to Belgium, I think Cochran should
be given some more information on the way to
explain it to them. I think it's perfectly safe
from our side.
Lochhead:
I think it's perfectly safe from our viewpoint.
I don't think - thisis going to be a little dif-
ficult for the Belgians, We're argued these fine
points out, and they re going to take it on the
mat. Well, you know the Central Bank is the one
who handles it there, and we've said that 8 dozen
times.
Oliphant:
I made this remark before: that just the moment
that you say to the lawyers in the Central Bank
of Belgium that we're merely insisting that the
day to day transactions be with the Belgian
Government they 11 understand instantly what
this is.
Viner:
They'll understand; I don't see why it can't be
explained to them.
H.M.Jr:
I don't. Well, if they don't we'll ask them,
"Have you any suggestions?" Then we'll listen.
White:
And you may be sure that France, in giving their
reply to you, will take full cognizance of and
138
- 19 -
fully appreciate any difficulties which Belgium
may have and will communicate that.
Viner:
With Belgium -
White:
So that we'll know.
H.M.Jr:
How about you (to Opper)?
Opper:
Fine.
H.M.Jr:
Herman?
Oliphant:
I think it's all right.
H.M.Jr:
O.K.
Oliphant:
I think - I'm inserting something, your sugges-
tion, but I don't think it's necessary.
S.M.Jr:
What?
Oliphant:
Well, the words "stabilization fund."
I think it is well to bear in mind that when you
submit it to the British and French, you want to
discount any disposition on the part of any of
them on that side to take up the cudgels for the
Central Bank of Belgium, trying to get you to do
this with the Central Bank of Belgium.
H.M.Jr:
Listen, if - They crossed that bridge themselves.
As a matter of fact, I think the only one who
England is interested in right now is Holland.
Now, let me get this thing -
(On phone) See if
Dr. Feis is in the office and if not - (Aside)
What's his assistant's name?
Heas:
Livesey.
H.M.Jr:
(On phone) Livesey - please. - - - Hello? Well
now, you find out where Herbert Feis is, and I
want to talk to him. Will you? It's very impor-
tant. I know where he is; he's over at S.E.C.;
he told me. I don't care if he's in there; I want
to talk to him.
Regraded Iclassified
139
- 20 -
(Aside) What I want to do - Herbert Feis says
that the best man, bar none, to draft a message
is Livesey, so I want to get him over and help us,
because I haven't got - you fellows explain it;
the thing is to draft a message to Cochran simply
saying that we are presenting this to the English
and to the French for their consideration as a
substitute for October 13 and also for January
31, with the idea that this will permit Belgium,
Holland, and Switzerland to come in, and if they
have any suggestions - and we'd like to know
whether this would be acceptable to them and
any suggestions that they have we'd be glad to
receive them. You see? And Herbert Feis knows
nobody better to draft the message than Livesey;
I want to get him over. You fellows can explain
it; I haven got time. Let him just go in the
room and draft B cable to Cochran forwarding this
statement to Cochran.
Viner:
I think it would be better if we draft it here
and show it to Livesey and have him go over it,
because it would take a long time otherwise and
it's new to him.
H.M.Jr:
Well, it isn't a very complicated thing.
Oliphant:
*hen I may in that cablegram insert two or three
sentences for Cochran's benefit making it expli-
cit what this is.
H.M.Jr:
All right. Now, if we can't get this thing done
by two o'clock, when I get down there tomorrow
morning you (Mrs. Klotz) will read it to me on
the telephone, and if it sounds all right I want
to personally talk to the British. DO if you
can't do it by two, if the cable isn't all right,
you can give it to Mrs. Klotz and when I call up
tomorrow morning she'll read it to me over the
telephone. I mean I'm just going to take this
kind of - I mean I don't want it pushed.
Let me just, while I have you here - Jake, if
you - you can spend two days, can you?
Viner:
All right.
140
- 22 -
H.M.Jr:
Get me an extra photostat on that to take with
me. I want to take all this stuff south.
Oliphant:
May I ask the stenographer to type up that
little portion in which the Secretary gave
his ideas on -
H.M.Jr:
on no; Jake, you've got what I want to go to
Cochran.
Oliphant:
Now I have here three letters necessary to
do this. Now, one is a letter from the Presi-
dent, one a letter from the Federal Reserve
Bank, and one a letter from the Assay Office.
May I stand back of you just a
moment?
H.M.Jr:
Always glad to have you stand back of me as
long as you don't kick me in the pents.
Oliphant:
All right, we'll go to that.
Regraded Uclassified
141
- 21 -
H.V.Jr:
When this thing is finished I want you to go
in - White tells me that he's far enough along
on this statement of November 15 to show it to
you. I want you to take about - well, whether
you want to do this monthly or quarterly.
(on phone) Good morning, Herbert. Well - I
know. Well now, look. What we are going to do
is this. We've come to an agreement as to this
message. I'm going to read it to the President
in B few minutes. If he approves it we're going
to draft a tentative cable to Cochran, see, and
I'm going to ask the British to be here at two;
I want to explain it to them personally, see?
Now, can you be here at two, and then at that
time we will - either will or will not have a
message for Cochran. You can polish it up. - -
Well, we'll have something to show you at two
o'clock. I'd like very much to have you here
at two. W111 you? Thank you. - - Thank you.
(Phone conversation ends).
Just a second, Jake. (To Kieley) Ask Mr.
Bewley and Mallett to be here at two, please.
And get Taylor here at the same time, two
o'clock.
Now Jake, that is either monthly or quarterly,
see?
And in this case, before we do this thing I think
it would be 8 nice gesture to let Goldenweiser
see it. See?
Haas:
Oh yes.
H.V.Jr:
Let Goldenweiser see it, incidentally.
And the other thing - if you still had time when
you get that done - there seems to be in the minds
of the people confusion on the method of our running
the gold figures; I don't know. I told this all
to George Heas last night and he's delighted to have
you do this. Now -
Lochhead:
Lo you want to give this meeting a copy of that
license?
142
Superseding the announcements made by him on January 31, 1934,
and October 13, 1936, relating to the sale of gold for export, the Secre-
tary of the Treasury states that, hereafter, and until, on twenty-four
hours notice, this statement of intention may be revolted or altered, the
United States will sell gold for immediate export to, or earmark for the
account of the treasuries or the exchange equalization or stabilization
funds (through whatever fiscal agents they may designate) of those countries
stabligation
whose treasuries or funds likewise are offering to sell gold to the United
>
States, provided such offerings of gold are at such rates and upon such
terms and conditions as the Secretary may deem most advantageous to the
public interest. The Secretary announces herewith, and will hereafter an-
nounce daily, the names of the foreign countries coming within the fore-
going description. All such sales of gold by the United States will be
made through the Federal Reserve Bank of New York, as fiscal agent of the
United States, upon the following terms and conditions which the Secretary
of the Treasury deems most advantageous to the public interest:
Sales of gold will be made at $35 per fine ounce,
plus one-quarter of one per cent handling charge, all
such sales and earmarkings will be governed by the regu-
lations issued under the Gold Reserve Act of 1934.
Uclassified
143
November 5, 1936.
12:02 p.m.
H.M.Jr: Hello
Operator: Dr. Feis and Mr. Livesey are both attending a
meeting out of the building.
H.M.Jr: Well now you find out where Herbert Feis is.
I want to talk to him - it's very important.
I know where he is - he is over at BEC - he
told me.
0:
All right I'll get him.
H.M.Jr: And you get - tell him - I don't care - he's in
there - I want to talk to him on the wire.
0:
All right.
H.M.Jr:
Hello.
0:
Dr. Feis. Go ahead.
H.M.Jr:
Hello
Feis:
Good morning, Henry.
H.M.Jr:
Good morning - Herbert
F:
Sorry I'm still over at the Securities Commission
H.M.Jr:
Well I know.
F:
Still on the grill.
H.M.Jr:
Well now look.
F:
All right.
H.M.Jr:
What we're going to do is this. We've come to an
agreement as to this message. I'm going to read
it to the President in a few minutes.
F:
Yes sir.
H.M.Jr:
If he approves of it we're going to draft a tentative
cable to Cochran, see?
144
- 2 -
F:
Yes.
H.M.Jr: And I'm going to ask the British to be here at
two. I want to explain it to them personally.
F:
At two?
H.M.Jr: Yes.
F:
Right.
H.M.Jr:
Now can you be here at two?
F:
Yes.
H.M.Jr:
And then at that time we'll either have - will or
will not have a message for Cochran and you can
polish it up and
F:
Henry, I'm sorry I didn't get that.
H.M.Jr:
Well we'll have something to show you at two o'clock.
F:
You want me to be there at two.
H.M.Jr:
I'd like very much to have you here.
F:
I shall be there.
H.M.Jr: Will you?
F:
Yes sir, certainly.
H.M.Jr:
Thank you.
F:
Thank you.
145
Hrs
November 10, 1936.
Chairman Eccles, Governor Ransom, Mr. Taylor and Mr. Upham
had lunch at 1 o'clock in room 184.
Mr. Taylor told Mr. Eccles and Mr. Ransom that we had communi-
cated to the British and to the French a suggested supplementation
of the statement of October 13th. He stated his belief that it is
so worded as to make it possible for the Government of the United
States to conclude an arrangement with the Belgian Government under
which reciprocal sales and purchases of gold might be effected between
the Treasury of the United States and the designated fiscal agent of
the Belgian Government. He explained that the British have said that
they 506 no objection to the proposed statement. and that while no
official comment has been received from the French Government, the
personal opinion of one of the officials in the French Treasury is
to the effect that it would seem to involve an undesirable discri-
mination against Belgium.
There was some discussion of what that discrimination might
be and some of the pointswhich have been made over and over in
Treasury discussions, were repeated, bringing out the fundamental
point of difference between dealing with a central bank as such
and dealing through a central bank as fiscal agent of a government.
The point was made that perhaps the French feel that the statement
as worded is one step further away from the automatic gold standard.
Mr. Taylor was of the opinion that the French banking Community
at least would like to go back to the automatic gold standard as
soon as possible.
Mr. Eccles responded that that was also true of the banking
146 that
-2-
community in this country, including the Federal Reserve Bank of
New York. He sees no reason to object to the small countries return-
ing to and maintaining the automatic gold standard. He thinks it
might have been better if we had not fixed a definite price for gold,
but followed the example of England and maintain a free gold market.
Mr. Eccles is of the opinion that there 1s likely to be some
objection in Congress to the continuation of the Stabilization Fund
without some provision for public accounting and public report.
He and Mr. Taylor agreed that it might be well to anticipate that
attitude and not only make a report to the Congress at the time
extension is asked, but agree as well to quarterly reports from now
on.
Mr. Ecoles thought that some quarterly reports should be made
promptly at the close of the period covered by the report.
Mr. Taylor also explained to Mr. Eccles and Mr. Ransom that
the Stabilization Fund had run out of liquid cash and had found
it necessary to sell some gold to the Treasury to replenish its
cash.
Mr. Eccles was particularly interested in the method by which
this transaction and others like it would be handled and the resulting
effect upon excess reserves. He suggested the possible desirability
of dealings in bills by the Stabilization Fund as offsets to gold
flows.
Both Mr. Eccles and Mr. Ransom seemed pretty sure that difficulty
will be encountered in connection with the extension of the
Stabilization Fund.
There was some discussion of the tax on undistributed earnings
Regraded
147
-3-
H
and its effects as revealed by increased wages and dividend payments.
Mr. Eccles referred particularly to the increased wage payments
as calculated to reduce the 1937 yield from the new tax and he
commented upon the fortunate fact that there was not a complete
abandonment of the corporation income tax in the Revenue Act of 1936.
to sey 64
ong furnated
maR. (Sen
has histon personal
notes written m him
at comb with Pres)
:
WPA (wiluding ad.) 136
NYA
6.5
Fed. agenni
7.0
Fed. admin.
(Treets, U.S.P.S., gAO) 4.0
& 153.5
Present Corton
same basis 195
148
November 15, 1936.
Hopicins talking:
Obligations: November 160
December 150
January 140
February 140
March 140
April 130
May
135
June
116
1100
All Departments included except Tugwell.
December 15 will drop 250,000 drought farmers.
125,000 will need relief.
Prior to Dec. 15, drop 150,000 more families - W.P.A.
Drop prior to December 15, 25,000 administrative and foremen and
supertisors.
Starting December 15, will save $25,000,000 a month through
doing above three things by December 15.
-
-
-
-
-
-
2,500,000
on W.P.A.
300,000
in other Departments
2,800,000
-
-
-
Establish new formula effective January 1st - spend $50 per -
per month by dropping from $65 to $50. Expect to have formila
ready in twesty-four hours.
Regraded Uclassified
149
HI
- 2 -
85% of unemployed is in 100 cities.
- - - -
President Speaking:
Quicker get federal relief by paying wages of people on
relief rolls. Locality will have to pay for material. Get
his reorganisation bill through first and then put all
relief expenditures into one agency.
Hopkins says:
Can drop 400,000 more. Start July 1st with 2,000,000 on
relief 6 $50 per month # $1,200,000.
President says:
Shorten hours of labor in groups where there 1s a surplus
of labor.
Between now and time I get back figures will be estimated
for needs of balance of fiscal year. In April of 1936 :-
Hoped it would last, but that amount of over-run would
depend on business.
At present time most skilled employees can get jobs. However,
unskilled workers do not show an adequate decrease. Hope
every employer between now and January 1 will employ more
unskilled laborers,
150
E
November 15, 1936.
Hopkins talking:
Obligations: November 160
December 150
January 140
February 140
March 140
April 130
May
125
June
115
1100
All Departments included except Tugwell.
December 15 will drop 250,000 drought farmers.
125,000 will need relief.
Prior to Dec. 15, drop 150,000 more families - W.P.A.
Drop prior to December 15, 25,000 administrative and foremen and
supervisors.
Starting December 15, will save $25,000,000 a month through
doing above three things by December 15.
2,500,000
on W.P.A.
300,000
in other Departments
2,800,000
-
Hatablish new formula effective January 1st - spend $50 per nan
per month by dropping from $65 to $50. Expect to have formula
ready in twinty-four hours.
151
- 2 -
85% of unemployed is in 100 cities.
-
-
-
President Speaking:
quicker get federal relief by paying wages of people on
relief rolls. Locality will have to pay for material. Get
his recrganization bill through first and then put all
relief expenditures into one agency.
Hopicins says:
Can drop 400,000 more. Start July 1st with 2,000,000 on
relief 6 $50 por month - $1,200,000.
President says:
Shorten heres of labor in groups where there is a surplus
of labor.
Between now and time I get back figures will be estimated
for needs of balance of fiscal year. In April of 1936 - -
Hoped it would last, but that amount of over-run would
depend on business.
At present time most skilled employees can get jobs. However,
unskilled worlders do not show an adequate decrease. Hope
every employer between now and January 1 will employ more
unskilled laborera,
Regraded
Uclassified
152
November 5, 1936
I told Dr. Feis, last night, and if any question
came up on monetary matters in South America, that per-
sonally I was opposed to holding any monetary conferences,
and if any North or South American country wanted to con-
sult us on monetary matters, as far as I was concerned
they would have to see me in Washington. Dr. Feis agreed
with me entirely.
Feis informed me today that he had conveyed this
message in decisive terms to Mr. Hull and Mr. Welles.
With this heavy buying of stocks -- $16,000,000 a
day -- we can't keep sterling up and shouldn't artificially
keep it up. I think we ought to keep it steady. On the
other hand, at least 1/2 point each day I consider a sharp
break and I don't want more than 1/2 cent & day. And if
things get bad, get hold of Mrs. Klotz and have her call
me, but I am Just going to call up once & day, in the
morning, and unless things are bad, don't call. Personally
I think things are going to be very quiet.
(Explanation: This last paragraph was what he said
to Taylor and Lochhead just before he left to go to take
the train for Sea Island Beach, Georgia.)
FEDERAL RESERVE BANK
Zn holders 153
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 5, 1938.
To CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF FRANCE.
Mr. Cariguel called at 11:18 today. He stated that so far
they had done nothing in dollars but had sold a fair amount DI
of
sterling. He would have liked it if he could have bought some
sterling in anticipation of the repayment of the £40,000,000 credit
but, unfortunately, there were other buyers and he had to sell some
in an endeavor to keep the rate somewhat steady. The pressure on
francs was mostly against sterling. Dollars did not seem to be in
demand just now. The sterling, Cariguel continued, he thought would
probably ultimately go into Wall Street. I agreed with him and men-
tioned that yesterday's security purchases in our market for foreign
account were probably as big as ever. He inquired whether we sup-
ported sterling yesterday and today. I told him that yesterday we
had purchased some commercial sterling; today we had done nothing so
far but probably would support the market if the rate went lower.
I inquired as to his plans regarding the franc and he said he did
not think they would let it go lower. I asked Cariguel how he made
out in London and he said "Beautifully." Everything was arranged for
him to make payment in gold, which was all in London now.
LWK:KMC
154
November 5, 1936
HM,Jr. spoke to the President at 12:15 today and
said to him, "Have you a minute. I want to put something
up to you on this European thing. Belgium, Holland and
Switzerland are about ready to come in and we have been
working here for two or three weeks to fix this thing up
30 that they could come in, but Holland end Switzerland
have stabilization funds and Belgium has not and it makes
It very difficult, because we are doing business with
England on the declaration of October 13. We are still
doing business with Belgium on an agreement made January 31,
1934, which has never been cancelled.
"We have been trying to work out something which
would fit all of these things and give us an excuse to
cancel the January 31, 1934, agreement, which 1a the old
agreement under which gold moved between points.
"We have worked out a formula which satisfies me
and I would like to read that part which 18 new:
'Superseding the announcements made
by him on January 31, 1934, and October
13, 1936, relating to the sale of gold
for export, the Secretary of the Treasury
states that, hereafter, and until, on
twenty-four hours notice, this statement
of intention may be revoked or altered,
the United States will sell gold for 1m-
mediate export to, or earmark for the
account of the treasuries or the exchange
squalization or stabilization funds
(through whatever fiscal agents they may
designate) of those countries whose
treasuries or stabilization funds like -
wise are offering to sell gold to the
United States, provided such offerings
of gold are at such rates and upon such
terms and conditions as the Secretary
may deem most advantageous to the public
interest. The Secretary announces here-
with, and will hereafter announce daily,
the names of the foreign countries coming
within the foregoing description. All
such sales of gold by the United States
will be made through the Federal Reserve
155
-2-
"Bank of New York, as fiscal agent of
the United States, upon the following
terms and conditions which the Secre-
tary of the Treasury deems most advan-
tageous to the public interest:
Sales of gold will be made at $35.00
per fine ounce, plus one-quarter of one
per cent handling charge, all such sales
and earmarkings will be governed by the
regulations issued under the Gold Reserve
Act of 1934."
"The new part is where we bring the thing in through
Treasuries. The thought that I have worked out is that I
would submit this to the French and English, first, and ask
them if this was acceptable and If it was I would then tell
them that I propose to submit this to Holland, Belgium and
Switzerland.
"This is the result of about three weeks' work. Is
that acceptable to you?" The President said it was. Mr.
Morgenthau then said, That is very helpful.
"Elinor, my father and I are leaving at 3 c'clock
for Sea Island. We are planning to get back on Sunday
the 15th. Will I have a chance to see you and shall I
remind you? (The President must have said, No; you won't
have to remind me. I will keep the time for you.)
The President inquired whether Taylor should attend
the Cabinet menting tomorrow and HM, Jr's reply was, "I would
11ke him to 60 if he 1a acceptable to you. He has been
doing a good job.
"Europe yesterday, as near as we can estimate, bought
on balance $16,000,000 worth of stocks. Consequently,
Sterling is a little weak, The Government bond market
goes up 2 and 3 points at a time. Sterling is a little
weaker; that 18 because they are sending their money over
here to buy our stocks,
"I had both Starling and Murphy in this morning
about their going to South America. Everything is ar-
ranged. Murphy would like very much to go, Do you
mind?" (Explanation: After the conversation, HM, Jr.
said the President was surprised to hear that Murphy
156
-3-
wanted to go.) We have an agent in Customs in Cuba by
the name of Kime. I am putting him at their disposal,
because he speaks Spanish fluently. He's the man the
Navy spoke so much about."
(Explanation: The President said for HM, Jr. to
have a grand trip and call him up any time on the tele-
phone. 'I will be happy to talk to you' he said.)
157
November 5, 1936
Mr. Mallet came in to see the Secretary today. Alao
present were Dr. Feis, Mr. Taylor and Mr. Lochhead.
Mr. Mallet said to the Secretary, "I an sorry to say
that Bewley 1e in New York today. I think he won't be
back until tomorrow afternoon normally, unless you want
him."
The Secretary said, "I will explain to you. I will
start anyway. What we have been trying to do here is we
have had word now from both Switzerland, Holland and Belgium
more or less indicating their willingness to come, but all
a little bit different, you see?" Mr. Mallet answered,
"Tes." Continuing, the Secretary said, "In order to ac-
complish this, we feel that we have to change the declara-
tion of October 13." Mr. Mallet's response was, "Oh!"
"We will have to change that," said the Secretary,
"in order to make it possible for Belgium to come in.
Holland and Switzerland could fit the present agreement."
Mr. Mallet inquired, "That is the President's decree?" and
the Secretary answered, "Yes, of October 13th. If we
wanted to add Holland and Switzerland, they would fit in
with the October 13th announcement." Mr. Mallet agreed,
saying, "Yes; yes. Belgium would not, because she is on
gold." Continuing the Secretary said, "Which would mean
that if we left the October 13th announcement, we would
have it and then another one. One especially for Belgium.
That's the way it would be interpreted. People would
interpret that we had & special one for Belgium and on
account of Belgium being on the gold standard, it would
take on BU importance which it does not deserve." Mr.
Mallet remarked, "On, yes, You want to have them all
fitted into one."
The Secretary then explained, "Therefore, we have
redrafted a new declaration, which I am going to hand you,
which we are submitting to you and to the French for your
approval and suggestions and comments, and before we show
it to anybody other than yourself and the French we want
first to come to an agreement that this substituted agree-
ment is acceptable. If it 18 acceptable, then I will
show it toHolland, Switzerland and Belgium, but I first
want to make sure it 18 acceptable to Great Britain and
158
-2-
France. And the thing that has slowed us up 16 to try
to find a way to do this and it always kept coming back
that we would have two agreements -- one with Great
Britain and France, Holland and Switzerland could slip
into that, but Belgium could not. I repeat myself --
we would have five countries on one agreement and Belgium
on a separate one. It would focus attention on Belgium;
on the old gold standard, Everybody talking -- does it
mean the world is going to move towards Belgium, the old
gold standard? You can 800.
"This 1s what we have drawn up and if it is not
clear -- it's practically the same as the other."
Mr. Mallet remarked, "Yes. Then you would simply
publish the thing, stating the names of the five countries?"
Mr. Morgenthau answered, "That's all. The five countries,
that would be all. I am going to hand you this and ask
you to transmit it to your Government, AB I say, for any
suggestions or comments, and then we are doing the same
with the French and we will do nothing until we hear. We
are instructing Cochran to ask the French. We want to
keep this to ourselves until we come to an agreement.
If we come to an agreement that this is acceptable, then
we will present this piece of paper simultaneously to
Holland, Belgium and Switzerland and say we are ready to
do business on this basis."
"Then if they agree," inquired Mr. Mallet, "then
the President will promulgate this?" Secretary Morgen-
thau answered, "Yes; that's right. And again we would
let each other know & few days in advance BO we could go
it all together."
Mr. Mallet asked, "Announce it in London along
somewhat similar lines. I suppose it would take the
lines suggested the other day in the message I brought
you. Mr. Morgenthau agreed, saying, "On, yes. Oh,yes."
The Secretary then added, "We have been working
on this thing for weeks, trying to get one formula that
will do for all the countries." Mr Mallet remarked,
"Yes, quite. There was 8. phrase the Chancellor used --
'The Chancellor would be in position to say, if Mr. Mor-
genthau 80 desires, that he welcomes the extension by
the United States Treasury of their arrangement to the
159
-3-
countries named, which is in harmony with the arrangements
already made between United States, Great Britain and
France. Extension of the arrangement 13 also in harmony
with the basis of mutual cooperation that exists between
the British monetary authorities and the monetary authori-
ties named in the United States announcement.' That would
really meet the case, wouldn't it?"
Mr. Morgenthau's reply was, "Yes. And furthermore,
if you will make B. note of this, it is in my thought that
if we do come to an agreement with Holland, Switzerland
and Belgium, we do not consider them necessarily a member
of the tri-partite agreement. I would 8 little bit rather
keep to the three countries, but giving the privilege of
exchange of gold to these other countries, but keep it to
England, France and ourselves. That's the way I feel."
Mr. Mallet remarked, "You would not, in your own mind,
treat them as being parties to the original agreement."
HM, Jr. said, "Not necessarily; in my own mind I would not
consider that."
Dr. Feis added, "If I may suggest, Mr. Secretary,
you recall the last paragraph of the original simultaneous
declaration in which we said we welcome the full cooperation
and participation of all other countries. That still
stands good?"
The Secretary's response was, "That still stands
good, yes. But let's, for example, say that after we
get Holland, Belgium and Switzerland and Bay Mr. "X" comes
along. I wouldn't feel it necessary to consult Holland,
Belgium and Switzerland, but I would consider it 2 part
of the gentlemen's agreement to consult Great Britain and
France, and vice versa." Mr. Feis remarked, "I thought
that W&B the point you nad in mind; Just trying to clear
that up." The Secretary said, "You did; you did."
At this point, Mr. Taylor said, "After you had
made certain arrangements, you probably would let Holland,
Belgium and Switzerland know." The Secretary remarked,
"But I can't go through this whole rigamarole." Mr. Mallet
added, "Give tuem a little notice; say we are going to do
such and such a thing." HM,Jr. said, "Yes; 48 hours or
80.5 Mallet then said, "But you would not consult them in
160
the same way." The Secretary replied, "No, I could not.
With every country that came along, it would make the
thing too burdensome. It gets BO complicated that we
wouldn't be able to move." Mr. Mallet added the remark,
"And the risk of leaking increases." HM,Jr. said, "Well,
you see what happens to the Swise; Just too many people
talking." Mr. Mallet inquired, "They have announced the
whole thing already?" HM,Jr. said, "And this 18 the
stage I am in." Mr. Mallet then asked, "Has that actually
caused any embarrassment?" HM,Jr. replied, "It does not
cause me any embarrassment. It may embarrass them."
Dr. Feis remarked, "The French seem to be embarrassed."
The Secretary said, "I should think it would be very em-
barrassing to the Swise. That 1s that. I am going to
be gone a week and if you will see Wayne Taylor when you
get word. And I have a telephone down there, 80 when
this comes back, will you 500 Taylor?" Mr. Mallet re-
plied, "Certainly, and are you in a great hurry to get
this answer?" Mr. Morgenthau's reply was, "Just reason-
ably." Dr. Feis asked the Secretary, "They won't have
to telephone?" Mr. Morgenthau replied, "No. That's
unkind!"
Mr. Mallet said, "If I say you would like an answer
as soon as convenient, or would you rather say 'as soon as
possible'?." Secretary answered, "As soon as convenient.
This is not a matter of such importance as some of the
others." Mr. Mallet remarked, "All right. That's splen-
did! I should think you would like to get away for a
holiday." HM, said, "I an going away in twelve minutes."
Mr. Mallet asked the Secretary, "Were you up in
New York?" The Secretary replied, "Yes, I was with the
President." Mr. Mallet remarked, "It must have been de-
lightful." HM,Jr. answered, "It was. And I might say,
in passing, that he has approved this. I read it to him
this morning and he has approved." Mr. Mallet added,
"I should not imagine that we will have any comments to
make at all,"
At this point, Mr. Mallet departed.
The Secretary asked Dr. Feis to remain and showed
him the draft of cable to Cochran and said to him, "I sug-
gest that Herbert Feis go in the other room with Jake Viner
and Haas and thrash this out."
161
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France
DATE: November 5, 1936, 5 p.m.
NO.: 445
FROM THE SECRETARY OF THE TREASURY.
FOR COCHRAN.
Below is quoted the draft of a proposed statement
by the Treasury which is intended to cover the release
of gold for export to France and England in addition to
the countries now under discussion, i.e., Holland,
Switzerland and Belgium.
QUOTE. Superseding the announcements made by him
on January 31, 1934, and October 13, 1936, relating to
the sale of gold for export, the Secretary of the Treasury
states that, hereafter, and until, on twenty-four hours
notice, this statement of intention may be revoked or
altered, the United States will sell gold for immediate
export to, or earmark for the account of the treasuries
or the exchange equalization or stabilisation funds
(through whatever fiscal agents they may designate) of
those countries whose treasuries or stabilization funds
likewise are offering to sell gold to the United States,
provided such offerings of gold are at such rates and
upon such terms and conditions as the Secretary may deem
most advantageous to the public interest. The Secretary
announces herewith, and will hereafter announce daily,
the names of the foreign countries coming within the
foregoing
162
- 2 -
foregoing description. All such sales of gold by the
United States will be made through the Federal Reserve
Bank of New York, as fiscal agent of the United States,
upon the following terms and conditions which the Seo-
retary of the Treasury deems most advantageous to the
public interest:
Sales of gold will be made at $35 per fine ounce,
plus one-quarter of one percent handling charge, all such
sales and earmarkings will be governed by the regulations
issued under the Gold Reserve Act of 1934. END QUOTE.
A copy of this statement has been given to the
British for their agreement, with the request that they
make any comments or suggestions they care to. You are
likewise requested to deliver a copy to the French
authorities for their agreement with the same request
we made of the British. You are to advise the French -
I have advised the British - that the enclosed statement
1s not to be shown to any other government until the
United States, Great Britain and France are agreed that
the arrangement set up therein 18 satisfactory.
I want to point out, for your guidance, that the
arrangement proposed in the statement just quoted con-
templates not merely that the initial understanding setting
up an arrangement shall be among the respective govern-
ments to the exclusion of central banks as principals to
such understanding, but it also contemplates that the
governments
Regraded Uclassified
183
- 3 -
governments to the exclusion of central banks shall be
the parties principal to the day to day contracts for the
sale of gold under this arrangement. I do not mean
by this, however, that the respective governments shall
not be free to use central banks as their respective fiscal
agents, nor do I mean that a particular government may
not arrange for a central bank which is not wholly owned
by the government to deliver gold under such contract for
its account, even though such central bank may continuously
own that gold. Or in other words, the United States Govern-
ment at this end will be the party to any contract for the
purchase or sale of gold though it will, of course, in
its day to day operations use the Federal Reserve Bank as
its fiscal agent. In like manner it is contemplated that,
at the other end also, the government shall be the con-
tracting party to such day to day contracts even though
it delegates to its fiscal agent the making of such con-
tracts from day to day on its behalf and in its name, or
even though it arranges for such a fiscal agent to perform
these contracts by the delivery or receipt of gold.
I state for your information and guidance that the
arrangement contemplated in the statement just quoted
has been worked out with this underlying thought in mind -
and my explanation of it to you has been made with the
same
164
- 4 -
same point in view: The Government of the United States
disavows any desire to diotate or even suggest to other
countries what their own monetary arrangements shall be,
but all will recognize that for this Government to indicate
with whom it shall enter into contractual obligations of
the sort being considered is appropriate.
HULL
(HF)
EA:LW
COPY
165
U
GRAY
Paris
Dated November 5, 1936
Rec'd 2:37 p.m.
Secretary of State
Washington
1080, November 5, 4 p.m.
FROM COCHRAN
Franc weak in exchange against other important
currencies. Rentes up 75 centimes to 1 franc. Domestic
business securities continuing yesterday's gains. Bank
of France statement as of October 30 showed no change in
gold holdings and no other important alterations except
that note circulation gained about two billion francs
with resultant decline in coverage from 64.95 to 64.09.
French Parliament reconvened this afternoon for special
session. Uneasiness over government's financial problems
and over recurrence of shut in strikes responsible for
renewed weakness of franc.
European financial press pleased with President Roose-
velt's reelection and optimistic over prospect of con-
tinuing monetary cooperation for tripartite agreement.
The FINANCIAL NEWS, London, today says in part: "The
dollar was not affected by President Roosevelt's success.
Although the elector of the Republican (END SECTION ONE)
HPD
BULLITT
166
FS
GRAY
Paris
Dated November 5,1936
Rec'd 5:21 p. m.
Secretary of State,
Washington.
1080, November 5, 4 p. m. (SECTION TWO)
candidate--who could be expected to adopt a more orthodox
financial policy--would have been considered a "bull"
point for the dollar, the reelection of Mr. Roosevelt was
so much a foregone conclusion that it failed to disturb
the dollar in the least. More especially as the conclusion
of the recent gentlemens agreement on currency control is
generally taken to indicate a return to a 'sane' monetary
policy by the Democratic Administration".
Following is excerpted from item on effect of American
election appearing today under city notes in the LONDON
TIMES.
"It is a reasonable assumption that the American
recovery movement having now got well under way the
President will be anxious to refrain from taking any steps
that might hinder the movement which has yet a long way to
go before unemployment is reduced to normal proportions and
the budget balanced. There will not be the same necessity for
such experiments, monetary or otherwise, as the President
indulged
167
FS
2-No. 1080, November from Paris (SECTION TW)
indulged in to the consternation of the orthodox at the
beginning of his term of office in the hope of finding a
way out of the severe trade depression which existed at
that time. Mr. Roosevelt put an end to the monetary experi-
ment in less than a year and his recent actions show him
to be keenly alive to the importance and desirability of
international monetary stabilization. Mr. Roosevelt
NPL: TIB
BULLITT
168
FS
GRAY
Paris
Dated November 5,1936
Rec'd 5:10 P. m.
Secretary of State,
Washington.
1080, November 5, 4 p. m. (SECTION THREE)
lost the support of many able American economists and
businessmen in 1933 owing to what were regarded as his
unhecessary and dangerous experiments in the currency and
banking sphere and not because they were opposed to his
liberal policy in regard to social relief and security.
That phase, however, has now passed away."
Press report of Swiss adherence to tripartite
monetary agreement mentioned my 1076, November 4, 1 p. m.
gave rise to conjectures in financial press as to whether
(might?)
other countries make also be planning to cooperate.
FRANKFURTER ZEITUNG carried some details of Swiss declara-
tion cnd also the rumor that the Belgium Government and the
National Bank of Belgium had already declared their adher-
ence. The FINANCIAL TIMES London today carries the
following report from its Amsterdom correspondent:
"The Dutch Government and the Netherlands Bank are, I
learn studying the question of Holland joining the
tripartite
169
FS
2-110. 1080, November 5 from Paris (SECTION THREE)
tripartite gold agreement. So far no result has been
reached, the question, it was stated, being for the present
'as "loating as the guilder'. In Dutch banking it is
believed that it will be decided to join the agreement
though it should be borne in mind that the situation in
Holland in different from that in Switzerland which has
already fixed a new parity for
NPL:T13
BULLITT
170
FS
A portion of this
telegram must be closely
Paris
paraphrased before being
communicated to anyone.
Dated November 5, 1936
(c)
Rec'd 5:30 p. m.
Secretary of State,
Washington.
1080, November 5, 4 p. m. (SECTION FOUR)
(GRAY) her currency."
This report was followed by an editorial footnote
"if the Dutch Government should agree to enter into the
tripartite agreement it vil. 11 cause a certain amount of
surprise in the city of London as it had been generally
felt that such action would not be taken by the Dutch
authorities until the guilder had found its natural level."
Under money market notes the FINANCIAL TIMES London
said today:
"While the reported adherence of the Swiss Government
to the three power gold pact created little surprise in
money market circles the news was received with interest.
The practical effect of this decision may or may not be
small but it does demonstrate the desire of the country
to contribute towards this currency agreement and to extend
still further the scope of this international economic plan.
Actually
171
- 2 -
Actually, there are now five countries who have ranged
themselves together as Belgium previously announced her
desire to cooperate with Great Britain, France and the
United States. No doubt there will be some people who
will contend hat the more countries join this pact the
sooner we shall see the abolition of the stabilization
funds, agreements, undertakinge, and all the rest--lock,
stock and barrel 80 that the return to the 'old-fashioned
gold standard' may be brought about. That 1s too much to
hope for; a fairly long period of the experimentation is
generally expected. In fact, it is being thought to an
increasing extent, that the world is moving slowly but
surely towards a new crientation in currency and economic
matters and that management in some form or another will
be ever present."
I refer to telegram No. 1075 of November 4 from the
Embassy. The opportunity arose to inform Minister Emmet
fully of the conversation which I had with officials in
the Netherlands.
END MESSAGE.
BULLITT.
EA:LWW
Regraded Uclassified
172
LNS
GRAY
London
Dated November 5, 1936
Rec'd 3:45 P. ni,
Secretary of State,
Washington.
512, November 5, 5 P. m.
FOR treasury.
At the meeting with Waley and Philipps, the latter
began by offering to cooperate in every possible way and
asked on what specific subjects did the American Treasury
desire any information which the British Treasury could
give. After expressing appreciation I explained that to
date our instructions were general not specific.
Philipps then said that he understood Mr. Morgenthau
would like information as to how they saw the franc situa-
tion. There was no doubt that many persons and institu-
tions directly or indirectly concerned with the foreign
exchange problem took a pessimistic view of the franc;
that they had grown accustomed to their way of feeling
which, however, in most cases had proved unjustified.
Philipps said he saw no indication that the French author-
ities were themselves weakening in their attitude. The
French budget position was, of course, very bad; the
40-hour
173
LNS 2-110. 512, November 5, 5 P. m., from London.
40-hour week was a bold experiment particularly as one
heard that the average French workman was not inclined to
work very hard for the 40 hours and above all the internal
political situation was the indeterminate and dominant
factor. No one was really able to see what would be the
turn of the French political wheel but he for one was not
unduly pessimistic; in any event the French franc now no
longer played on the financial stage its former important
role.
I asked Philipps about the flow of funds from London
to ex-gold block countries and he said that there has been
a considerable flow to Switzerland; the Swiss had confi-
dence in their new currency. On the other hand the amounts
which had gone from London to Holland and France were very
small indeed. I gathered that to some extent the British
were relieved that circumstances had prevented a very
large flow of capital from London to the continent in the
first fortnight following the monetary arrangement and
that the movement would now be relatively gradual in
character.
Valey and Philipps cummented on the decisiveness of
the election and mentioned the fact that the trade agree-
ment program seemed to have been & political asset rather
than liability. Philipps seemed to think that the level
of
174
LMS 3-No. 512, November 5, 5 p. m., from London.
of prices was already rather high in the United States
and that it was practically certain that there would be
a further increase in American prices, perhaps an abrupt
increase. He asked about the shipping strike, how serious
it was et cetera, and the conference ended by their offering
to see the representatives of the Embassy whenever they had
any matter which they wished to take up with them.
BINGHAM
WWC:CSB
175
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France
DATE: November 5, 1936, 5 p.m.
NO.: 445
FROM THE SECRETARY OF THE TREASURY.
FOR COCHRAN.
Below is quoted the draft of a proposed statement
by the Treasury which is intended to cover the release
of gold for export to France and England in addition to
the countries now under discussion, i.e., Holland,
Switzerland and Belgium.
QUOTE. Superseding the announcements made by him
on January 31, 1934, and October 13, 1936, relating to
the sale of gold for export, the Secretary of the Treasury
states that, hereafter, and until, on twenty-four hours
notice, this statement of intention may be revoked or
altered, the United States will sell gold for immediate
export to, or earmark for the account of the treasuries
or the exchange equalization or stabilization funds
(through whatever fiscal agents they may designate) of
those countries whose treasuries or stabilization funds
likewise are offering to sell gold to the United States,
provided such offerings of gold are at such rates and
upon such terms and conditions as the Secretary may deem
most advantageous to the public interest. The Secretary
announces herewith, and will hereafter announce daily,
the names of the foreign countries coming within the
foregoing
Regraded Uclassified
176
- 2 -
foregoing description. All such sales of gold by the
United States will be made through the Federal Reserve
Bank of New York, as fiscal agent of the United States,
upon the following terms and conditions which the Sec-
retary of the Treasury deems most advantageous to the
public interest:
Sales of gold will be made at $35 per fine ounce,
plus one-quarter of one percent handling charge, all such
sales and earmarkings will be governed by the regulations
issued under the Gold Reserve Act of 1934. END QUOTE.
A copy of this statement has been given to the
British for their agreement, with the request that they
make any comments or suggestions they care to. You are
likewise requested to deliver a copy to the French
authorities for their agreement with the same request
we made of the British. You are to advise the French -
I have advised the British - that the enclosed statement
18 not to be shown to any other government until the
United States, Great Britain and France are agreed that
the arrangement set up therein 18 satisfactory.
I want to point out, for your guidance, that the
arrangement proposed in the statement just quoted con-
templates not merely that the initial understanding setting
up an arrangement shall be among the respective govern-
ments to the exclusion of central banks as principale to
such understanding, but it also contemplates that the
governments
177
- 3 -
governments to the exclusion of central banks shall be
the parties principal to the day to day contracts for the
sale of gold under this arrangement. I do not mean
by this, however, that the respective governments shall
not be free to use central banks as their respective fiscal
agents, nor do I mean that a particular government may
not arrange for a central bank which is not wholly owned
by the government to deliver gold under such contract for
its account, even though such central bank may continuously
own that gold. Or in other words, the United States Govern-
ment at this end will be the party to any contract for the
purchase or sale of gold though it will, of course, in
its day to day operations use the Federal Reserve Bank as
its fiscal agent. In like manner it is contemplated that,
at the other end also, the government shall be the con-
tracting party to such day to day contracts even though
it delegates to its fiscal agent the making of such con-
tracts from day to day on its behalf and in its name, or
even though it arranges for such a fiscal agent to perform
these contracts by the delivery or receipt of gold.
I state for your information and guidance that the
arrangement contemplated in the statement just quoted
has been worked out with this underlying thought in mind -
and my explanation of it to you has been made with the
same
178
- 4 -
same point in view: The Government of the United States
disavows any desire to dictate or even suggest to other
countries what their own monetary arrangements shall be,
but all will recognize that for this Government to indicate
with whom it shall enter into contractual obligations of
the sort being considered is appropriate.
HULL
(HF)
EA:LWW
aded Uclassified
179
Superseding the announcements made by him on January 31, 1934,
and October 13, 1936, relating to the sale of gold for export, the Secre-
tary of the Treasury states that, hereafter, and until, on twenty-four
hours notice, this statement of intention may be revoked or altered, the
United States will sell gold for immediate export to, or earmark for the
account of, the treasuries or the exchange equalization or stabilization
funds (through whatever fiscal agents they may designate) of those coun-
tries whose treasuries or equalization or stabilization funds likewise
are offering to sell gold to the United States, provided such offerings
of gold are at such rates and upon such terms and conditions as the
Secretary may deem most advantageous to the public interest. The Secre-
tary announces herewith, and will hereafter announce daily, the names of
the foreign countries coming within the foregoing description. All such
sales of gold by the United States will be made through the Federal Re-
serve Bank of New York, as fiscal agent of the United States, upon the
following terms and conditions which the Secretary of the Treasury deems
most advantageous to the public interests
Sales of gold will be made at $35 per fine ounce,
plus one-quarter of one per cent handling charge, and
sales and earmarking will be governed by the Regulations
issued under the Gold Reserve Act of 1934.
HO:CVO:BJ 11/5/36
894110
180
U
GRAY
London
Dated November 6, 1936
Rec'd 11:45 a.m.
Secretary of State
Washington
514, November 6, 1 p.m.
FOR TREASURY.
In the course of last night's debate in the House
of Commons on foreign affairs Eden took occasion to
answer the recent speeches of Goebels and Goering by
Emphasizing the sume lent by Great Britain to Germany
since the war and the favorable character of the Anglo-
German payments agreement; hE concluded as follows:
"the central problem which WE have to face is the pos-
sibility of securing an increase in the volume of world
trade which will involve an increase in Germany's exports
as in those of EVEry one Else. In that connection I
want to say something about the hopeful line of approach
which was contained in the recent three power currency
declaration and notably the reference in that declaration
to the possibility of action being taken without delay
to relax, and as soon as possible to abolish the present
system of quota and Exchange control. This is the point
to which I wish to draw the attention of the HOUSE. The
cooperation
Regraded
Uclassified
181
U -2- #514, Nov. 6, 1 p.m. from London
cooperation of other nations, including Germany, was
specially invited in this programme and WE should bE only
too glad if Germany saw fit to take her part in this
programme. In so far as her Economic difficulties orise
out of international restrictions of an Economic and
financial character, and not out of decisions taken by
her to deal wich her own internal difficulties, WE should
always bE glad to consider with sympathy any methods
which appeared likely to contribute towards their EASE-
ment. WE desire Germany's cooperation in the Economic
C.G WELL as in the political sphere, and there can bE no
question on our part of the (?) of Germany in Either".
In winding up this debate Neville Chamberlain said
in part "it has been our Endeavor to help wherever
WE could in facilitating the resumption of more normal
Economic and financial relations. The three power
declaration on the devaluation of the franc was an
instance in point and has I think been generally ap-
proved. It has bEEn generally recognized as a first
step but only a step in the direction of freeing inter-
national trade which if it is to have its full Effect
must be followed up by further steps. There has never
been any suggestion that this was a means of bringing
back the gold standard by a back. I have on more than
one
Regraded
182
LMS 3-No. 514, November 6, 1 P. m., from London.
one occasion stated my own view that some day or other
WE shall get back to an international gold standard but
before WE do so conditions must bE fulfilled which are
not fulfilled at the present time. Until then I SEE no
prospect of getting back to that standard."
BINGHAM
CSB
183
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
Care November 5, 1936.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF ENGLAND.
I called Mr. Bolton at 10:35 today. Bolton stated that
there was a big speculation going on in commodities in the London
market; Paris and the whole continent was a buyer of sterling which
seemed to be more in demand than the dollar. In view of the definite
weakness of the franc rate, Bolton thought that we were probably work-
ing into a disturbed area with more trouble for all of us since weak-
ness of one currency was likely to spread. There was an enormous in-
terest in Europe and in London in our stock market at the moment. All
the brokerage houses there were getting cables from New York couched
in the most glowing terms stressing the probability of further divi-
dend distribution, etc. There seemed to be no suspicion in London at
all of what might be called an insane speculation; everybody seemed to
regard the whole thing as 8 more or less sound investment.
I referred to the Spanish situation which we had recently
discussed and told Bolton that, as suggested by him, I had spoken to
the City Bank and also to Mr. Dawson as Chairman of the Committee here.
I repeated to him what the City Bank had told me, that is that they had
been able to effect payments since the end of August and had paid out
in excess of 4,000,000 pesetas in small amounts (no individual payment
exceeding 250,000 pesetas). In each case they had asked their offices
in Spain to cable immediately upon execution of the payment ordered and
in each case had promptly received advice by cable. Also that the
City Bank had managed to clear up practically all of their commercial
contracts without recourse to London and were now agreeable to extend
open contracts as long as necessary. He emphasized that his cable to
184
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 5, 1936.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF ENGLAND.
- 2 -
Midland Bank, suggesting settlement, was held in very friendly terms,
was most tactful and did no more than suggest that prompt settlement
might be convenient to the Midland Bank. He did not want anybody to
have the impression that he had tried to use improper pressure upon
the Midland.
I also repeated briefly what Dawson had told me, namely,
that after advising the members of the Committee here of Bolton's
recent comments, he had found a surprising number of banks which
wanted to obtain delivery of their peseta contracts, not being willing
to go short by selling to the foreign banks at the present low rates,
and that the banks insisting on delivery were primarily those upon
which calls for delivery had been made by their own commercial customers.
In other words, they were the banks which found themselves in a very
awkward position. Bolton replied that since speaking to me first re-
garding the Spanish situation he had had talks with the Guaranty in
London and two or three other people, and that the banks in London were
trying to arrange as many deliveries as possible, in brief were going
to make a big effort to try and clear up the position. Bolton expressed
the opinion that discussion of the situation between the Bank of England
and ourselves had been very useful.
LWK:KMC
LM
185
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 6 1936
TO Files
SUBJECT:
D. J. Cameron
TOM
Mr. Bolton of the Bank of England telephoned at 1:32 p.m.
and asked what was going on here. I told him that sterling was
very weak, that the market was then 4.87 5/8, and that we had
bought about £1,700,000 and would probably buy more before the
end of the day. I told him that from all indications the weakness
was due to stock market transactions and sell orders from abroad.
He said that they had had a very active day and that he had sold
$3,000,000 since cabling us, making total sales of $10,000,000 for
the day. He said that he attributed the weakness partly to the
political situation on the continent, but to a much greater extent
to the enormous conversion into shares and commodities. I mentioned
to him that the silver market had taken quite a rise and he said
that was in line with what he had just said and that India was a
buyer of silver. Before cutting off he said "don't let sterling go
below 4.87 3/8." I told him we would watch out for that.
186
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
COPY
DATE November 7, 1936
CONFIDENTIAL FILES
SUBJECT:
OM
Allan Sproul
Mr. Cariguel of the Bank of France called me at 11:35 a.m.,
this morning. He said they have been having a heavy time for the
last three days, but that most of what they have been doing has been
in sterling which has been wanted in Paris. Yesterday, he said, they
had sold £8 million and this morning they had sold £3 million, which
is very heavy for a Saturday morning. He then said that although
London and New York have been supporting the pound, Paris has lost
more gold to London than London has lost to New York so that, on
balance, London has gained gold and losses have been borne by Paris.
Mr. Cariguel then asked me what had been going on here
this morning. I told him that we had bought 9,900,000 francs on his
order thus far; that francs had been offered at .0462 1/2 early in
the morning, that we had bought some at that figure and at .0462 3/4;
that when we raised our bid to .0463 nothing came out and it was then
raised to .0463 1/4 and finally .0463 5/16 (.0463 1/2 net to Bank of
France) at which figure francs were still coming out but not so
heavily as earlier. I asked Mr. Cariguel if he had any different
plans, than those he had been following, for next week. He said he
thought the franc would continue to be under pressure but that the
market is a psychological one and that they would continue to support
it around present levels. I told him I thought he was right about
the franc market and that there seemed to be considerable feeling
here that the franc would go lower which, in turn, resulted in sales
of francs causing it to be weak. I then said I would like to tell
him how it looked to me, namely, that in such a psychological market
107
E
187
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
COPY
DATE November 7, 1936.
CONFIDENTIAL FILES
SUBJECT:
Allan Sproul
OM
-2-
it would be better to hold the franc around whatever level he had
decided upon, rather than to let it go down sharply and then to Jerk
it back up. Mr. Cariguel at first did not quite understand my
remarks and asked whether I meant they should let the franc depreciate
or should try to make it appreciate; but added that with speculative
pressure centered on the franc they could not let it depreciate. I
told him I was not suggesting letting it depreciate and certainly
would not, under present conditions, have any idea of their causing
it to appreciate, but I repeated what I had said about allowing such
wide swings to take place in the market, referring to yesterday when
the franc got as low as .0461 7/8 in this market before noon, and
then we brought it back up to .0463 1/2 (on his order) in the after-
noon. Mr. Cariguel agreed that fluctuations such as yesterday's
were bad and thanked me, but did not suggest what he might do about it.
188
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 6, 1936, 5 p.m.
NO.: 1088
FROM COCHRAN. FOR THE SECRETARY OF THE TREASURY.
I refer to telegram No. 445 of November 5, 5 p.m.,
from the Department.
This afternoon I left with Baumgartner at the Min-
istry of Finance a copy of the statement Secretary
Morgenthau proposes to make, which was quoted in the
cablegram above referred to. I was promised by Baum-
gartner that he would discuss the matter with Minister
Auriol. He said that if possible he would provide me
tomorrow forenoon with a memorandum setting forth such
comment upon the draft declaration as the French Min-
istry of Finance may care to make.
BULLITT.
EA:LWW
graded Uclassified
189
PARAPHRASE (PARTIAL) OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 7, 1936, 2 p.m.
NO.: 1092
FROM COCHRAN. FOR THE SECRETARY OF THE TREASURY.
I refer to telegram No. 445 of November 5 from the
Department and to telegram No. 1088 of November 6, 5 p.m.,
from me.
I visited Baumgartner, the Director of the general
movement of funds in the Ministry of Finance, at noon
today. Baumgartner is the principal technical assistant
to the Minister of Finance on questions such as that
now being discussed. Since my call yesterday, Baumgartner
had not been able to see the Minister, as the latter was
engaged on Parliamentary affairs. However, Baumgartner
gave me a letter in which he set forth his personal views
on the matter; he will see the Minister over the weekend,
and on Tuesday will inform me whether the Minister may
desire to amend or supplement the opinion which 1s ex-
pressed in Baumgartner's letter. I made a translation of
the letter, and I quote it below:
"I have read over carefully the document which you
desired to communicate to me and here is my personal
reaction on this subject:
If the document in question does not appear to me
for the moment susceptible of directly embarrassing my
Government it seems to me on the other hand to offer in
Regraded Uclassified
190
- 2 -
a general way three categories of inconveniences.
(One) I wonder first whether it would not be quite
inopportune to modify the October statement of the Secre-
tary of the Treasury 80 short a time after its publication.
During the period which we are now
END SECTION ONE.
BULLITT.
191
PARIS
Dated November 7, 1936
Received 2:20 p.m.
Secretary of State,
Washington.
1092 November 7, 2 p.m. (Section two).
going through, I believe that everything should be avoided
which might give even erroneously the impression that we
are going back on or modifying the conditions decided upon
in common for internal monetary cooperation.
I should much prefer that the list of countries to
which the October statement is applicable be completed
as the possibility therefor was expressly provided in the
said statement by the naming of those countries which are
disposed to conlcude with you, as well as with Great
Britain and France, an agreement analogous to that which
has been arrived at among us three.
(Two). Without wishing to mix in the internal
affairs of Belgium it seems to me that it would be
entirely regrettable that this country should be excluded
from the arrangements which you are going to conclude and
such would be, I believe, the consequence of the formula
proposed by your Government. For our part, I do not
hesitate to tell you that we are very decided, and I
believe that the British will share this view point, to
incorporate
192
- 2 -
incorporate Belgium as soon as it may be possible into
our system of agreement for gold deliveries. In fact,
moreover, we are already exchanging gold with Belgium.
(Three). In a general manner and for some period
of time there is no indication that the equalization or
stabilization funds of the European countries will be of
an indefinite duration. It is strongly possible that
on the contrary we will come back to the normal system
of the gold standard, that is to say, to the
BULLITT.
-/
193
SECTION THREE. No. 1092 of November 7, 1936, from Paris.
PARAPHRASE.
banks of issue maintaining without doubt close relations
with the treasuries but conserving, at least in principle,
their independence. From this point of view again the
annulment of the statements of 1934 could eventually
present inconveniences.
There you have some observations which I wish
to communicate to you. They are of & personal character.
But I do not doubt that my Minister of State will share
these sentiments when I may have the opportunity to discuss
the question with him."
Tonight I go to Basel, where on Sunday and Monday
the BIS directors hold their meeting. I shall be in
touch with the French Ministry of Finance again on Tuesday
morning, and shall inform you of any further reaction
to your draft after my contact with the Ministry.
END MESSAGE.
BULLITT.
EA:LWW
Regraded
194
Paris, November 17, 1936.
Dear Mr. Secretary:
I have pleasure in transmitting
herewith the original of a letter addressed
to you by the Minister of Finance of
Belgium, Mr. H. de Man, which was sent
to me for forwarding.
There is attached an English
translation which I have made of this
communication. The letter follows exactly
the terms drafted on my second visit to
Brussels, and repeated in my cablegram No.
1061 of October 28, 10 p.m.
Very sincerely yours,
H. Merle Cochran,
First Secretary of Embassy.
Enclosures.
The Honorable
Henry Morgenthau, Junior,
Secretary of the Treasury,
Washington, D. C.
TRANSLATION
195
Cabinet
of the Minister of Finance
Brussels, November 9, 1936.
Mr. Secretary of the Treasury,
With reference to the declaration of October 17,
1936, I have the honor to confirm to you that the
Belgian Government fully guarantees with regard to
the Government of the United States the obligations
assumed in this declaration by the National Bank of
Belgium, which is, moreover, as you know, the fiscal
agent of the State.
It is understood that this declaration shall not
be made public without the common consent of the two
Governments.
Please accept, Mr. Secretary of the Treasury,
the assurance of my very high consideration.
The Minister,
(signed) H. de Man
To Mr. Henry Morgenthau
Secretary of the Treasury
WASHINGTON.
196
CABINET
10E DES FINANCES
Bruxelles, le 9 novembre I936
WISTER KABIMET VAM
Monsieur le Secrétaire de la Trésorerie,
Comme suite à la déclaration du I7 octobre 1936, j'ai
l'honneur de vous confirmer que le Gouvernement belge ga-
rantit pleinement à l'égard du Gouvernement des Etats-Unis
les obligations assumées dans cette déclaration par la Ban-
que Nationale de Belgique, qui est d'ailleurs comme vous lei
savez le caissier (Fiscal Agent) de l'Etat.
Il est entendu que cette déclaration ne sera pas ren-
due publique sans l'assentiment commun des deux Gouverne-
ments.
Veuillez agréer, Monsieur le Secrétaire de la Tréso-
rerie, l'assurance de ma considération très distinguée.
LE MINISTRE,
tede man
sieur Henry Morgenthau
Secrétaire de la Trésorerie
WASHINGTON
W.W.
H50
PARIS
2 AV. Gabriel, Paris.
17
17
€
RUE 1936 D'AN IDEA
The Honorable
Henry Morgenthau, Junior,
Secretary of the Treasury,
Washington, D. C.
Bronal
Dearadod Uclas
197
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 10, 1936, 7 p.m.
NO.: 1100
FROM COCHRAN. FOR THE SECRETARY OF THE TREASURY.
With regard to the final sentence of my telegram
No. 1092 of November 7, 2 p.m., Minister Auriol has
asked me to come to see him on Thursday, the twelfth,
at noon.
BULLITT.
EA:LWW
FEDERAL RESERVE BANK
Mr 190
OF NEW YORK
OFFICE CORRESPONDENCE
198
DATE November 9, 1936.
TO. CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF FRANCE.
Mr. Cariguel called me at 11:18 today to discuss the fol-
lowing cable, which he said he was going to send to us:
"Sell franes against dollars for our account 8
on the basis of 105 francs to the pound. Buy
francs against dollars for that account on the
basis of 105.20 francs to the pound net to us.
His purpose for changing his method is of course obvious. From his
viewpoint the important rate is the London-Paris rate. The dollar
rate is of less importance compared with the sterling rate. He is
clearly trying to hold the London-Paris rate close to 105. That being
so, by giving us his orders on the basis of the London-Peris rate, he
enables us to follow sterling fluctuations in this market up and down.
For instance, with sterling at 4.87 3/8, his quote of 105 to 105.20
equals 8 franc quotation of .046416 to .0463284; at 4.87 3/4, .0464523
to .0463640. 1 told Cariguel that I saw no difficulties and promised
to talk to him frankly if, in the course of operating on his basis,
I found that the scheme did not work as expected. I used the oppor-
tunity again to point out to him that what mattered above everything
else was that we should receive his orders as early in the day as pos-
sible. Cariguel replied that switching over to & sterling basis, or
rather tying his order up with the sterling rate in this market, would
enable him to cable us in time for our opening, that is at his noon-
time.
LWK:KMC
Regraded Uclassified
199
November 9, 1936.
9:27 a.m.
Loch-
head:
Hello.
H.M.Jr:
Hello Archie.
L:
Good morning.
H.M.Jr:
What's new?
L:
Well sterling is a little bit easier this
morning but not as bad as the other two days -
it's 4.87-3/8s - that's just about an eighth
off from Saturday.
H.M.Jr:
Ah-ha.
L:
Saturday was pretty heavy.
We did about
six million dollars.
H.M.Jr:
Is that right.
L:
Yes - all small amounts and a great deal stock
exchange. It steadied up again though with -
it wasn't quite as bad this morning.
H.M.Jr:
Ah-ha.
L:
And so I think we'll have less trouble supporting
it, that is it looks that way now.
H.M.Jr:
What is it?
L:
I say it looks as if there'll be less trouble
supporting it - it's about 4 - 4.87-3/8s.
H.M.Jr:
Ah-ha.
L:
Ah - the other markets are quiet - silver looks
up again though - they've given silver a little
squeeze.
H.M.Jr:
You mean their pushing it up?
L:
Pushing it up - yes.
H.M.Jr:
Well -
Regraded Uclassified
- 2 -
200
L:
And maybe China will be able to work something
over. We haven't got this morning's rate yet
but it looks as 1f it will be up - well over
45¢.
H.M.Jr:
Ah-ha.
L:
The stock ticker shows there's about two million
dollars excess purchased in the London market -
in the New York market by foreigners on Saturday.
H.M.Jr:
I see.
L:
But that's small.
H.M.Jr:
All right.
L:
Nothing further - everything else is quiet and
no cables.
H.M.Jr:
Well, Archie - I'd very much hate to see sterling
go below 4.87.
L:
Yes.
H.M.Jr:
I'd fight awful hard to keep it from going below
4.87.
L:
Fight awfully hard at 4.87. Well I'm going to
step in on it this morning. We haven't - it
hasn't opened up the New York market yet, but I'm
working much closer to the figures than we started
out too.
H.M.Jr:
Yes.
L:
But, in other words, I'm not waiting for it to
ease off at all from the London figure - - we start
right in here.
H.M.Jr:
No - - I - - I - - I'd dislike to see it below 4.87.
L:
Right, well we'll - we'll work it up pretty heavy.
Incidentally, I've about used up my cash balance.
I'll have to start in transferring back some of the
gold in New York for the General rund again.
H.M.Jr:
You mean out of the hundred million?
Regraded Uclassified
201
- 3 -
L:
Yes - yes.
H.M.Jr:
That's what I got you that order for.
L:
Yes well that was cleared through and was cleared
through the next day.
H.M.Jr:
Well I'd do it five million at a time.
L:
Well what I thought was that we'd work it more
or less according to our needs in the day so that
there wouldn't be any straight amount that they
could follow.
H.M.Jr:
Yes that's better.
L:
And if we don't have - - we'll take some of it out
to-day anyway. You see - a couple of days here
we've used 12 and 13 million at a time. Now that's
pretty heavy.
H.M.Jr:
How much gold have we in London?
L:
We have 67 million in London.
H.M.Jr:
What?
L:
67.
H.M.Jr:
Oh.
1.
See we've been taking the gold pretty heavily from
London on supporting the Sterling.
H.M.Jr:
Oh.
L:
I spoke to Dan Bell. I want him to check up and
find out whether I can make transfers of gold -
the London gold to the monetary stock and he's
looking that up because otherwise we might have to
start in making a movement of gold from London which
would look funny in the first place and then probably
we'd have to reverse it sooner or later anyway.
H.M.Jr:
Well can't you use up your hundred million they have
here?
202
- 4 -
L:
Well I've - - that will be first but, as I say,
H.M.Jr:
Oh you're looking forward.
L:
I'm looking forward and not only that - I'd like
to save some of this gold I have here, in case
there should be a move-out then I wouldn't have
to drain the monetary stock again. Of course
I'm checking with that but I mean, of course, we
have a hundred million to work on in the meantime.
H.M.Jr:
Yes - all right Archie.
L:
All right then, as I say, we'll watch that very
closely to 4.87. Yes?
H.M.Jr:
If any cable comes in from Cochran in answer to
ours that we sent him - this new one about changing
the October 13th -
L:
Yes.
H.M.Jr:
If you get an answer from Cochran I want either you
or Mrs. Klotz to telephone me.
L:
All right, we did on Satruday get just ashort
message that he had turned it over to the French
and that he'd let us know when they'd reply.
H.M.Jr:
Well when you hear
L:
When I get something definite we'll get in touch
with you.
H.M.Jr:
get Mrs. Klotz to talk it over and if it's
definite why 'phone me.
L:
All right then.
H.M.Jr:
Please.
L:
Right.
H.M.Jr:
Now Archie is everything closed on Wednesday?
L:
Everything closed on Wednesday?
H.M.Jr:
Armistice Day.
203
- 5 -
L:
New York will be closed and, of course, the
European markets will be practically closed.
H.M.Jr:
Well I understand - I saw in the paper that
everything will be closed except the French.
L:
Well the French (aside to someone in his office,
"Have you had the French on that?") Well
H.M.Jr:
Well supposing you check up?
L:
Yes I'll - I can
Yes
H.M.Jr:
If the French stay open I would suggest that they
close. I mean it's perfectly silly - the weakest
one to stay open.
L:
I see. According to our book here France is
meant to be closed but we'll check that up.
H.M.Jr:
The papers down here carried the story that they
were all going to close except France which didn't
seem right
L:
Yes.
H.M.Jr:
And if France is going to stay open I'd suggest
that they close up because otherwise they'll take
an awful beating.
L:
Yes - well they're just checking here. From our
book here it looks as though France would be
closed and England would be open but I'll have to
check that.
H.M.Jr:
Well Archie.
L:
Yes.
H.M.Jr:
Supposing you do a little checking
L:
Yes, well we'll make absolutely sure of that but
our book here shows that France is closed and
England open.
H.M.Jr:
Yes well do a little checking up on it.
L:
All right, then we'll do that.
Regraded
204
- 6 -
H.M.Jr:
All right.
L:
Goodbye.
H.M.Jr:
Hello.
Operator:
Mr. Taylor - Mr. Taylor - go ahead.
T:
Hello.
H.M.Jr:
Hello Wayne.
T:
Hello Henry.
H.M.Jr:
How are you?
T:
I'm fine and you.
H.M.Jr:
I'm better thank you.
T:
Good.
H.M.Jr:
Your note just came this minute.
I haven't had
a chance to read it.
T:
All right.
H.M.Jr:
Anything you want to tell me?
T:
Well I think there's quite a lot going on in
connection with the RFC situation.
H.M.Jr:
Well that doesn't interest me down here.
T:
Well that's I had played golf with Jim Ally
yesterday morning and
H.M.Jr:
Well I really don't want to be bothered.
T:
I get that.
H.M.Jr:
No, I - - I don't - - there's nothing that I can do -
you mean as to their extension?
T:
Yes.
205
- 7 -
H.M.Jr:
Oh I don't ---
T:
Well there's nothing for you to do down there about
it but I'd - I'd have it in the back of my head
that that whole subject is coming up.
H.M.Jr:
Well there's only one person to decide about RFC.
T:
Yes.
B.M.Jr:
And that's the President.
T:
Right.
H.M.Jr:
Now my calling the Lending Agencies together was
surely a farce.
T:
Well that was my impression too.
H.M.Jr:
I mean the President has to make up his mind as to
what he wants to do.
T:
Right.
H.M.Jr:
Is he finished with Jones?
T:
What?
B.M.Jr:
Has he finished with Jones at all?
T:
Well Jones has talked to him - oh just a little
before election, you see, and I gather that Jesse
is thinking about - oh narrowing down the field
very materially which is a good thing. No there's
nothing to worry about but
H.M.Jr:
I wouldn't worry about it anyway because I don't -
it's purely up to the President.
T:
Right.
H.M.Jr:
And, of course, if Jesse is speaking of narrowing
the field I'd say that was good.
T:
Very much to the good.
- 8 -
206
H.M.Jr:
I told Lochhead I hate to see the pound go
below 4.87.
T:
Yes.
H.M.Jr:
And - - hello
T:
Hello
H.M.Jr:
So I hope it won't.
T:
Well he says it's acting better this morning -
less pressure on it.
H.M.Jr:
All right, Wayne.
T:
All right, Henry.
H.M.Jr:
Goodbye.
T:
Goodbye.
207
drip
FEDERAL RESERVE BANK
The
OF NEW YORK
November 9, 1936
Dear Mr. Secretary:
I am sorry that, between the weekend and the election
holiday, it was impossible to get any word from our contacts
round the Street until today, on the subject of your note of
October 27. Even so, the information that I have for you is
perhaps not altogether satisfactory.
Certain of our banking friends have made a rapid but
quite thorough canvass of their commercial departments and branch
offices, and of the customs brokerage community. They report, in
substance, that the changes in the direction of import business
to date are far too slight to allow of any affirmative interpreta-
tion. The chief reasons given for this are first, that Christmas
orders were placed before the new currency policies were announced,
and the amount of business done with the interested countries is
at the moment slight. Second, while some importers have sent
buyers abroad to look over the price situation, on the whole the
attitude of the importing community is one of watchful waiting,
for they are still unable to see what the changed conditions are
going to mean in the future. Third, as I wrote you on October 21,
prices in some countries were advanced to an extent such that
purchases there do not look like bargains. Finally, we are informed
that in certain lines (precision instruments and optical goodu) the
high degree of specialization and the reputation of the makers induce
Regraded Uclassifie
FEDERAL RESERVE BANK OF NEW YORK
2
The Honorable,
11/9/36.
The Secretary of the Treasury.
208
importers to hesitate about taking business away from their old
suppliers. This last is chiefly true as regards German goods.
Our contacts have promised to follow this matter up, and
it has been proposed that we repeat our questions in about six
weeks' time. I do not intend to wait as long as that, but I venture
to suggest that it may be longer than a week or two before I am
able to report anything new. However, we shall continue our in-
quiries.
Respectfully
awknown
L. W. Knoke,
Assistant Vice President.
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
us OC VOU
209
November 10, 1936.
9:48 a.m.
Operator: Mr. Lochhead.
H.M.Jr:
Hello.
L:
Hello.
H.M.Jr:
Hello - Archie?
L:
Yes, good morning.
H.M.Jr:
Good morning.
L:
Well now on sterling - it took care of itself
yesterday.
H.M.Jr:
Did it?
L:
Yes, it held up to 4.87 and 9/16ths to 5/8ths
and it looked for a while there as if there might
have been support by selling of stock by foreigners.
H.M.Jr:
Oh.
L:
But the sheet this morning shows that they're still
on the buying side to up to pretty nearly five million
dollars.
H.M.Jr:
Yes.
L:
So it did pretty well in face of that yesterday.
H.M.Jr:
Ah-ha.
L:
Now the important thing though yesterday was silver,
Mr. Morgenthau.
H.M.Jr:
Yes.
L:
They - I told you it looked a little bit nervous
yesterday.
H.M.Jr:
Yes.
L:
The India speculators got in and jumped the price
up to 486 in London.
H.M.Jr:
Yes.
- 2 -
210
L:
Now I
- it was an awfully
strong rise. I spoke to - I got in touch with C
again and drew it to his attention so he could
notify his people abroad and remind them again on
that. And then they still came in - they said the
market was so strong abroad so I took it on myself
to sell a million and a half forward delivery over
there.
H.M.Jr:
Ah-ha.
L:
Now this morning we just got the prices - China
apparently didn't come in and they pushed the price
up to about 50¢.
H.M.Jr:
Yes.
L:
Now of course I imagine that China or Mexico will be
starting to cut there in a day or two but the specula-
tors in India are just trying to run it wild a little
bit and I don't - I mean you spoke before about trying
to hold it level - I didn't know how far you'd want
to go yesterday.
H.M.Jr:
Yes.
L:
But it seems to me that we ought to put some kind of
a clamp on that.
H.M.Jr:
Well what's the matter with "exico?
L:
Well I'll tell you - Mexico probably hasn't got
enough ready yet and another thing they've given
some publicity to the fact that the Silver Senste
Committee is meeting at the end of this week.
They've gotten that in the newspaper now - they're
playing it up....
H.M.Jr:
Couldn't we bring back that silver we've got over
there?
L:
Well what we could do better than that - we have
three million ounces in the stabilization.
R.M.Jr:
Where?
L:
Well - ah - most of it is here but that's not the point.
On the opinion that we had checked up on that the
lawyers say that what we should sell is forward
delivery and never make a natural delivery of the
- 3 -
211
forward
silver but just sell/so that would cover the contracts.
So we could do that very easily because the forward
rate starts with delivery for 60 days is still up.
I mean it's up as high as the spot rate.
R.M.Jr:
Oh.
L:
So it's very easy - I mean - because it's all specula-
tion and they all buy forward. We could easily buy
forward delivery and then just turn it around and
cover it again when the - when China or Mexico started
coming into the market.
(Pause)
H.M.Jr:
Well I think - what - what did you - how much did you
sell yesterday?
L:
I sold a million and a half yesterday.
H.M.Jr:
At what price?
L:
At 48 - about 48½.
H.M.Jr:
Did you talk to Taylor about it?
L:
Yes I spoke to Taylor about it and he felt we ought
to sell but I mean he didn't know to what extent;he
thought this morning I'd better check again with you.
H.M.Jr:
Well that was all right - you're lucky Coolidge wasn't
Acting Secretary.
L:
(Laughter)
H.M.Jr:
Well that's all right. I'd a little bit you rather
call me but I guess it's all right - I don't know.
Before I do anything more I'm going to talk to the
President.
L:
I see. Well that - in other words, we won't sell
anything more.
H.M.Jr:
I'll call you back. I think
(fade out)
L:
Yes, well now I'll tell you - we checked the markets
carefully end everything they say comes from India -
that the Indians are starting to speculate again on it.
212
- 4 -
H.M.Jr:
Did you get off a cable to our man in India?
L:
We - I've checked to see if there's anything
come in from Waterman - there's nothing come
in yet but we have full cables from both the
Chase and the City and they - they say on that -
that the speculation over in India - it started
over there - they came in higher before the other
markets and the general feeling is that with the
new election here; after election took place that
there would be something more done for silver and
they're spreading the rumors around again and it's
entirely a rumor market; they say that there's no -
there's no buying for regular account; it's all
speculative buying.
H.M.Jr:
Well*I think I ought to let him know and I'll call
you back.
=
All right then - then we'll wait and I'll wait to
hear from you before I do anything further.
H.M.Jr:
(fade out)
sterling.
L:
What is that, sir?
H.M.Jr:
If sterling is quiet-like - what is it to-day?
L:
Sterling at the moment is 4.87-9/16ths.
H.M.Jr:
If it's quiet I would buy a little and for this
reason. I guess it needs the price of of the dollars
in advance and not wait until they get short and then
when they come to sell the sterling it - because
there's a shortage of dollars, see?
L:
Yes.
H.M.Jr:
You've never done that, see?
L:
Well we could do - of course it means we're working
a little bit closer under the rate - at 4.87
H.M.Jr:
I'd like to try it just for one day.
213
- 5 -
L:
All right - just try it and lift them up a little bit
when the market is steady.
H.M.Jr:
I'd like to try it for one day.
L:
All right then, we'll try it and see what it does on
that.
H.M.Jr:
I'd like to see if you can't lift it up back to 4.88.
L:
I see. All right, well we'll test it out and start
in buying a little early here and see how it comes
along.
H.M.Jr:
Try it and if that makes an air-pocket after a day
or so we'll know we made a mistake.
L:
Right.
H.M.Jr:
But I'd like to try it, even though it's quiet,
and force it up to 4.88 if it's possible.
L:
Yes.
H.M.Jr:
And then see if you can hold it there.
L:
All right. Well we'll see how it goes if we have
to take very much.
H.M.Jr:
We've never done that but I'd like to try it.
L:
O.K. then I'll do that.
H.M.Jr:
Righto.
L:
Well, incidentally, yesterday we had to take about
21 million in gold from London. That was what London
had done to support sterling last Friday and Saturday.
H.M.Jr:
How much?
L:
21 million.
H.M.Jr:
That shows they're good.
L:
Yes, they're working hard. The only point on it
was that I had to sell out some of the gold that
I've been holding here.
214
- 6 -
H.M.Jr:
Where?
L:
In the Assay office.
H.M.Jr:
Well, unless I'm entirely wrong, I want you to clear
up the gold we have in America before you touch
that London gold.
L:
Right. Well that's what I'm doing. I sold 21
million of that.
H.M.Jr:
That's all right.
L:
The only point will be on that - the question will come -
that's stock. going to show up as a gain to the monetary
H.M.Jr:
We can't help that.
L:
And the only point is whether or not we should let
the Federal making any announcement on it. Also
whether we just let it show up on our own statement.
H.M.Jr:
Well you fellows will have to work that out.
L:
O.K. then I'll - we'll talk that over here.
H.M.Jr:
I'm going to follow that closely.
L:
Right.
H.M.Jr:
Use up what we've got here first.
L:
I'll use that up before I touch anything else.
H.M.Jr:
And I'll call you back in a little while.
L:
O.K. sir. Right.
Klotz:
Hello
H.M.Jr:
Hello
Klotz:
Yes sir.
H.M.Jr:
I want Taylor.
K:
Yes.
H.M.Jr:
Hello
- 7 -
215
Operator: Hello
K:
Mr. Taylor.
0:
All right.
0:
Mr. Taylor - go ahead.
T:
Hello
H.M.Jr:
Hello Wayne.
T:
Yes, hello Henry.
H.M.Jr:
Good morning.
T:
Good morning.
H.M.Jr:
I talked to Archie and he told me about silver.
T:
Yes.
H.M.Jr:
I'm going to check up and call the President but
before I talked to him I wondered if there was
anything you had on your mind.
T:
No - - that - I think Archie's thinking about rate
there. I don't know whether I'd do anything to-day
too much; give the Chinese time to get in.
H.M.Jr:
Well -
T:
I've think they've had time but I don't think we
ought to let it get away on the top side though,
do you?
H.M.Jr:
No - no - I think you did all right.
T:
Yes.
H.M.Jr:
I'll - I'll talk to you later.
T:
All right, Henry.
H.M.Jr:
Thank you.
T:
Goodbye.
AM26
216
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris
DATE: November 10, 1936, 10 a.m.
NO.: 1096
FROM COCHRAN.
This morning I returned from Basel where on
Sunday and Monday the BIS directors had their meeting.
There were present as week-end visitors to Basel, in
addition to the directors, the central Bank Governors
of Canada, Greece, Hungary and Austria.
I was told by President Trip that when the Poles,
Mlynarski and Baranski, recently visited his Amsterdam
Bank, the advisability of devaluing the Zloty was being
studied by them. Last Saturday, during my visit at the
French Ministry of Finance, I gained the impression
that the Poles were likewise consulting the French offic-
ials with regard to that matter. The President of the
Netherlands Bank told me that for him to advise the Poles
was quite a difficult thing. In countries such as his
own and Switzerland, he said, which have tremendous gold
resources, it was easy enough to hold confidence while
resorting to devaluation of the currency.
END SECTION ONE.
BULLITT.
EA:LWW
217
SECTION TWO. No. 1096 from Paris, November 10, 1936.
Devaluation in Poland might have very different effects,
he said, since that country has limited gold, a rather
unstable political situation, and 80 on; he feared it
might lead to further flight of capital and imposition
of more regulations governing its flight. Trip's opinion
was that if it was decided that Poland could not hold
the present currency, it should immediately proceed to
devalue and not lose time through exchange restrictions
as an intermediary stage.
The Governors of the Central Banks of Greece, Austris
and Hungary were consulting their colleagues and experts
of the BIS with regard to debts and currencies. Kienboeck
of Austria, it was believed, was especially anxious to
convince the Viennese officials of his high international
standing and of his useful contacts with his colleagues
in central banks and in the BIS, since it is understood
that Schusnigg is considering giving his position to
someone else. Observers of the BIS thought that possibly
the removal of League financial officials from Austria
was premature. Some of these observers look for Austria
to have some real problems in the near future principally
because of their high gold prices and the extent to which
Switzerland, through its devalued franc, may draw to itself
some of the highly profitable tourist traffic which was
built
218
- 2 -
built up in Austria during recent years at the expense
of St. Moritz and other Swiss resorts.
V
END SECTION TWO.
BULLITT.
EA:LWW
legraded Uclassified
219
PARAPHRASE OF SECTION THREE. No. 1096 of November 10,
from Paris.
Sir Otto Niemeyer, it is believed, told the visitors
from Austria and Hungary they had better act quickly
toward cutting their currencies. Some of the other mone-
tary experts whose opinions were solicited at Basel,
on the other hand, counselled a policy of waiting until
the plans of Germany might be made known, or at least
that they should have a period of tentative freedom such
as is now enjoyed by most of the principal currencies if
it should be decided that depreciation is necessary.
At Basel it appeared to be the impression that the Polish
zloty will get the next currency out, and that Hungary
and Austria will wait at least until the fate of this
currency is determined - and possibly that of the
Reichamark - before they take action on the zloty.
The Canadian Central Bank Governor is making the
practice of an annual visit to the BIS. The idea of a
Treasury-owned Central Bank, such as that of Canada, seemed
satisfactory to hime At Basel he showed especial interest
in getting information regarding Germany. Canada recently
negotiated a commercial treaty with that country.
This time when I talked with Schacht he was in much
better spirits than a month ago when I saw him. He told
me that no change was constituted in their new four-year
plan; the first four year plan had simply come to 80 end
and Hitler felt under obligation to make some new announce-
ment regarding it. Schacht said that to the extent that
be could improve the foreign trade of Germany, they would
220
- 2 -
alter the so-called plan. The German harvest, he said,
had been quite spotty, and there are hard problems ahead
for Germany; in fact, an unhappy winter may be expected
for Europe, he thought, because of its economic state
and its political state, considering particularly the
situation in Spain. Schacht expressed the hope that our
country would not experience repercussions therefrom, but
he feared that before long we would have some social and
labor problems to face. He believes there will have to
be further devaluation of the frano, and reaffirmed to
me his belief that the present Government in France
cannot command confidence and that the whole cycle of
depreciating currencies and rising prices is demoralizing
and futile. The recent trade treaty between Canada and
Germany gave Schacht great pleasure - particularly the
fact that Canada, neighbor to the United States, had under-
taken not to consider as dumping such assistance B.B might
be given by the German Government to exports to Canada,
BO long as such aid may not exceed the percentage of
depreciation of the Canadian dollar. The big victory of
President Roosevelt in the recent election was not sur-
prising to Schacht, but he, as well as many other Basel
visitors, expressed keen interest in the course that might
now be followed by the Fresident.
It seemed DO be the opinion of most observers that
the President would follow a generous policy toward labor
sad
221
- 3 -
and agriculture. The consensus of opinion seemed to
be that there need be no worry about our ability in the
future to balance the budget. It was realized that the
United States has an opportunity for leader ship in the
monetary field, but it was not certain that we would grasp
this opportunity constructively and wisely.
All of the permanent BIS staff, Quesnay, Hachsler and
Van Zeeland, asked me whether there was any likelihood that
our Treasury might now release goid to the BIS 80 that the
latter might have proper facilities for continuing to assist
the smaller European Central Banks to rebuild their supplies
of gold.
Comment was made to me by Governor Norman about the
large amounts of (omission) which, subsequent to the
consummation of the monetary agreement, have been moving
from London to New York. He emphasized the magnitude of
the movements of capital to the New York stock market from
Europe, and said that the United States seems likely to
be the one possible destination for gold for an indefinite
period. Too much gold he said has already been attracted
to Switzerland and the Netherlands has an ample stock
and is wise in not encouraging too great an influx of the
metal.
END SECTIONS THREE, FOUR AND FIVE.
BULLITT.
EA:LWW
222
PARAPHRASE OF SECTIONS SIX, SEVEN AND EIGHT OF
No. 1096 of November 10, 1936, from the American
Embassy, Paris.
He said because of the unfavorable political and financial
situation in France, that country is not able to hold the
gold which it acquired immediately after devaluation of
the franc. He said that other European countries could
not afford to purchase gold at the price now prevailing.
The Bank of England, he said had all the gold that it
needed or had use for. My suggestion that they dig a hole
up in Scotland and bury some gold was rejected by Norman -
he said his bank knew how to employ its funds more
profitably than to tie them up in a gold surplus. The
French situation is still of great concern to Norman.
The Under-Governor of the Bank of France, Fournier,
did not follow the usual practice of accompanying Governor
Labeyrie to Basel the past week-end. It is believed that
possibly his presence in Paris was required because of the
nervous condition of the franc. It was the opinion of
most of my contacts that Blum was doing his best, and has
shown considerable political acumen; however, they felt
that the average Frenchmen will have insufficient confidence
in the present Socialist Communist set-up to allow the
world revival of prosperity and faith. My contacts consider
the few indices of economic recovery Bo far demonstrated
as simply the first effects of devaluation which, in an
atmosphere of nervousness and social unrest, will not con-
time.
223
- 2 -
tinue. It is predicted by these contacts that by the end
of the calendar year the French Treasury will be obliged
practically to exhaust its present borrowing facilities with
the Bank of France. At present a public issue is impossible,
and will become increasingly difficult as the amount borrowed
from the Bank of France increases. There is not nearly
a high enough quotation on rentes to permit the conversion
which is necessaryto reduce the burdensome carrying charge
of the public dett. A few of my friends were of the opinion
that dissolution of Parliament and a new election would be
the best thing for France, in the thought that voters,
disillucioned through the Popular Front experiment, would
cut down the number of votes for Communist and Socialist
parties, and would prepare the way for a Center Government
which would have an opportunity to restore confidence and
prosperity in France.
I was reminded by President Bachmann, Swies National
Bank, that in December the Swiss Parliament reconvenes.
President Bachmann is quite anxious to have settled before
that time the question of a reciprocal gold arrangement with
our country; otherwise some embarrassing questions may
face the Government and his Bank. Some comment is being
raised because no new country has yet been added to our
eligible gold list. Bachmann's assistant, Pfenninger, told
me that perhaps there has been too (omission) an influx of
gold
Regr aded Uclassified
224
- 3 -
gold and capital into Switzerland. He expressed fear that
this might lead to a rise in prices, which would offset
considerably the benefits to the Swiss tourist and other
industries from devaluation of the Swiss franc. The out-
lets for domestic investment, furthermore, are becoming BO
clogged that Swime bankers are grasping around for opportun-
ities to lend abroad and in present circumstances may take
risks which might have unfortunate results. The observation
that it is "better to have lent and lost than never to have
lent at all" was made by one BIS expert in an endeavor to
console Pfenninger.
Further research work for the BIS staff is being planned
by Beyen. He hopes within the next few months to invite
member central banks to send young economists to the BIS
for periods of one or two years. It is presumed they would
be limited to four or five at a time, that the BIS would
pay their salaries, and that after their period of service
in the BIS, they would return to their respective banks.
Certain plans are also being considered by Beyen for the
BIS to be of service in discounting international clearing
balances. There was considerable discussion at the BIS
meeting of revising Articles 53 and 54 of the statutes
regarding reserves and dividends. However, no decisions
were taken on the matter. Before the end of the year it
is expected that Governor Norman will name a successor to
225
- 4 -
(omission) as resident British Manager of the BIS.
December 14 has been set as the date for the next
meeting of the BIS directors.
END MESSAGE.
BULLITT.
EA:LWW
226
November 10, 1936.
10:34 a.m.
L:
Yes sir.
H.M.Jr:
Hello - what happened?
L:
Well on the silver there's nothing new. They say
that on the other side the buyers seem to have
stopped for the time being.
H.M.Jr:
Well you can sell two million ounces.
L:
Yes.
H.M.Jr:
I think it's a good sale.
B:
Right.
H.M.Jr:
Sell two million.
L:
About two - is there any limit - I mean I probably
won't be able to make this top price.
H.M.Jr:
Well I'd sell it....
L:
But somewhere between within a half a cent range,
say?
H.M.Jr:
What is it now?
L:
It's - it's about 50 now.
H.M.Jr:
I'd sell - yes - yes - I'll give you a half a cent
range.
L:
I see. O.K. then.
H.M.Jr:
Yes.
L:
Well I'll do that. I think just a little bit to
steady it off there.
H.M.Jr:
Yes - yes I'd sell it.
L:
Right.
H.M.Jr:
And have you - have you got an opening on the bonds?
227
2 I I
L:
The bond market is strong again. They're going up
about one or two thirty-seconds - a couple of them
more than that but it looks as though they're going
to turn around and take fairly good gains. The
stock market - it looks a little bit irregular -
it's kind of hard to say what it's going to do -
it's turning around a bit but the other things - the
commodities are all steady.
H.M.Jr:
I talked to the President and he didn't know anything
about this silver.
3
Well as far as we find it's a purely - - it started
in Bombay as a speculator's market.
H.M.Jr:
He said it must be old man Balmer that's taking the
run of silver.
L:
(Laughter)
H.M.Jr:
Trying to stage a come-back.
L:
Well (laughter) well I think it's some of the
Bombay boys that are trying to make a come-back
all right at some expense.
H.M.Jr:
The President said some Hindu was pulling a fast
one - he said, "maybe old man Balmer was staging
a come-back as a Dictator".
L:
(Laughter) Well O.K. then I'll work on that.
Now on sterling, it's a little bit better - around
about 4.60 - about 4.87-11/16ths.
H.M.Jr:
Yes.
L:
I mean we're trying to watch that and see if it will
go up itself naturally a little bit it would be much
better than to try to force it.
H.M.Jr:
Archie.
L:
Yes.
H.M.Jr:
I've been thinking it over since I talked to you -
I wouldn't force it.
L:
Right. Well then I'm very much better satisfied.
- 3 -
228
H.M.Jr:
No, I wouldn't.
L:
O.K. I mean if it shows any sign of weakness at
all I - I mean we won't let it dip at all.
H.M.Jr:
I repeat if the English did 21 million in two days
L:
Yes.
H.M.Jr:
they're playing ball.
L:
Well that's what I kind of felt. I wouldn't
want them to feel that we're taking advantage of
anything.
H.M.Jr:
No, I thought the thing over and I would keep on
just as we have.
L:
All right then. Well then we'll work it that way.
It looks a little bit better anyway.
H.M.Jr:
If there's any weakness I'd step in
L:
Oh yes, we'll step in very hard on any signs of
weakness.
H.M.Jr:
But as long as they're playing ball that way I
wouldn't try to push it.
=
Fine. Well I'll feel much better satisfied myself
on it.
H.M.Jr:
I had time to think it over and I - - while I was
shaving.
L:
(Laughter) I see.
H.M.Jr:
And, while I was shaving, I thought the thing over
and decided that I'd only buy if there was any
weakness and then buy very hard.
L:
Fine. Well you didn't shave yourself into a lather
anyway. (Laughter)
H.M.Jr:
What?
L:
Well you didn't shave yourself into a lather anyway.
H.M.Jr:
What?
229
- 4 -
L:
I say you didn't get yourself into a lather on it
anyway.
H.M.Jr:
No, and I didn't cut myself.
L:
(Laughter)
L:
Mr. Taylor is giving me an awful boo on that pun.
H.M.Jr:
An awful boo?
L:
Boo he says. (Laughter)
H.M.Jr:
What about the market tomorrow?
L:
The market tomorrow? The market tomorrow - France
will be closed and the United States will be closed
but Great Britain is open.
H.M.Jr:
Well then, Archie, what I would suggest is that you
work until one.
L:
Yes, well I think we want to watch the silver market
tomorrow.
H.M.Jr:
That's all right.
L:
Yes, well O.K. then, we'll plan to do that. We'll
work up till one o'clock and everything will be
closed by then.
H.M.Jr:
Right.
L:
O.K. sir. Now Mr. Taylor is here. Do you wish
to speak to him a moment?
H.M.Jr:
Just tell him what I said and see if he has any
comments.
K:
He's been listening.
L:
All right, sir. I'll - I'll tell him everything
on that.
H.M.Jr:
See if he has any comments.
G
Right.
X
(Aside to Mr. Taylor: "Have you any comments?")
230
- 5 -
H.M.Jr:
Wait a minute - I'm waiting
L:
Yes.
K:
Just right.
L:
He says, "Just right".
H.M.Jr:
Just right.
L:
Yes sir.
H.M.Jr:
And (pause)
K:
Are you waiting?
H.M.Jr: Yes.
H.M.Jr:
Hello
L:
Yes.
H.M.Jr:
Let me talk to Mrs. Klotz a moment.
L:
O.K.
231
November 10, 1936
Mr. Bewley came in to see Mr. Taylor at 11:30.
Mrs. Klotz and Mr. Lochhead were also present.
The following conversation took place:
Mr. Bewley: Well, the first thing was that the
Chancellor wants to tell Mr. Morgenthau that he had no
suggestion to make on the new draft announcement which
seems fully to meet the case. If Mr. Morgenthau will
tell Mr. Chamberlain when he 18 going to issue his an-
nouncement, Mr. Chamberlain will issue a statement at
the same time in the terms which he has already told
you. I think you have got more or less a draft of it.
And Mr. Chamberlain is telling the French Government
the same thing.
Mr. Taylor: We haven't heard back yet from the
French Government, because we were not going, as you
recall, we were not going to discuss it further with
Belgium, Holland and Switzerland until we had your answer
and the French answer. We rather expect that sometime
today.
Mr. Bewley: Yes.
Mr. Lochhead: Probably it will be tomorrow, be-
cause he is just going to be back today.
Mr. Bewley: You can always take it for granted
they have no observations. I can't imagine they would
have.
Mr. Taylor: Not entirely sure about that.
Mr. Bewley: Oh, well, there may be something.
Mr. Taylor; Some technicalities are involved in
there.
Mr. Bewley: Then I suppose, in fact this -- the
issuance of an announcement 18 likely to be at least A
week off still?
Mr. Taylor: Yes.
232
-2-
Mr. Locnhead: Possioly more.
Mr. Taylor: The preliminary impression we got, which
isn't the official one, was that they question whether any
change in the October 13th announcement might not be inter-
preted to have an unfortunate interpretation in France.
Mr. Bewley: Oh, I 800.
Mr. Taylor: Not a question anywhere else. They
are having their troubles, as you know.
Mr. Bewley: Yes.
Mr. Taylor: And they had that a little in mind.
I don't think it means anything, 80 we will see how it
turns out.
Mr. Bewley: Wait and see. Anyhow there is no
reason to keep Mr. Chamberlain on his toes? There will
be reasonable delay?
Mr. Taylor: It certainly will not be before next
week and Just what part of next week, we don't know.
Mr. Bewley: Then the other telegram 1s in answer
to the Secretary's question whether we had any special
information about France -- why the franc was BO weak.
The reply to that 18 that they have no special information
only they say in most European centers there 18 a marked
feeling of pessimism about the immediate future of the
franc. They think this 10 based partly on French internal
political differences, whether correctly judged or not,
and partly on the unsatisfactory Budget position and remark
that return of confidence 18 a slow process, which hardly
seems necessary. On the other hand, they think that eco-
nomic condition of France really 1s improving, in their
view. Wholesale prices have risen from 80 to over 100
during the last calendar year and have risen 10 points
since devaluation. Costs have increased, but they think
the 40-hour week 18 only very partially in operation in
fact and they offer that it is obvious that devaluation
will make all the difference to tourist trade, which is
very important to balance of payments, and their general
233
-3-
conclusion 1s they see no reason why the Bank of France
could not hold its position.
Mr. Taylor: Fine.
Mr. Bewley: I imagine you knew pretty well all
that before, but that's their view.
Mr. Taylor: Very helpful to have that point of
view. That tourist effect won't take effect ...
Mr. Bewley: Until Spring, I imagine.
Mr. Taylor: Yes, not until the Spring. But it
certainly should be a very important factor.
Mr. Bewley: It certainly should, later on.
Mr. Taylor: I don't think there is anything to
add to that, except thanks very much, as usual. We
have been watching your silver market with considerable
interest.
Mr. Bewley: I was going to ask you about that.
Is there anything more about that? It 18 not a mystery,
1s it? I suppose it 18 Just speculation that Mr. Pittman
is calling a meeting?
Mr. Taylor: That might be one of the reasons.
Mr. Lochhead: I think it 18 your Indian friends
who have started all the fund. The price rise started
on Bombay.
Mr. Bewley: Started on Bombay?
Mr. Lochhead: It does not take much to start a
rumor.
Mr. Taylor: Has Hong-Kong cleaned up their stocks?
Mr. Bewley: I have not been told at all.
Mr. Taylor: I know they have sold quite B. bulk,
but I haven't the least idea how much.
234
Mr. Lochhead: If anybody pays a premium for silver
they can withdraw it from the United States. It has all
happened in a couple of days. It Just shows they still
want to speculate,
Mr. Bewley: Yes, quite. There is nothing in their
agreement which forces them to send it to you? They can
send it where they like?
Mr. Lochhead: No; nothing. They can take advantage
of the best market.
Mr. Taylor: It may be simply a reflection of
general industrial recovery.
Mr. Lochhead: I do think the buying of commodities
Mr. Taylor: Commodity prices have been pretty generally
strong.
Mr. Bewley: Yes, quite.
Mr. Taylor: It may be 8. reflection of this.
Mr. Bewley: Well, I suppose before election there
was a certain amount of fear that the Republicans, if they
got in, would abolish legislation altogether.
Mr. Taylor: Yes; silver was a little weaker than
reasonably during that period.
Mr. Lochhead: Yes; went down to 43 cents in the
London market just before election.
Mr. Bewley: I imagine there was nervousness.
Mr. Lochhead: Yes; some nervousness.
Mr. Taylor: This probably isn't nervousness, but
it may be the Chinese and Mexicans can take advantage of
that market. I think they would be very foolish if they
didn't.
Mr. Bewley: When does the Silver Agreement run
out? Next year, sometime?
235
-5-
Mr. Lochhead: Two years or more,
Mr. Bewley: Two years. I was only guessing,
because the Agreement was only made in 1933 and I thought
it was sometime before it was ratified.
Mr. Lochhead: The only outside influence on that
is the Indian Government's agreement not to sell more
than their amount. They are the only ones, as far as
you can see, there. Spain has never sold any silver, but
had the right to. We are taking care of our own people
and that was the main part of the Agreement as far as I
can see. The United States was committed to purchase up
to 25,000,000 ounces & year and as long as we are purchasing
50 to 60,000,000 million ounces
...
Mr. Bewley: The Canadians are buying a lot and
the Mexicane?
Mr. Lochhead: Canadians are buying under their
agreement and the Mexicans are buying under the agreement.
But that is comparatively small. The Bank of Canada, I
think, has to take that over under their laws. They are
responsible for silver purchased in Canada, you remember.
Mr. Bewley: Yes.
Mr. Taylor: We may have to split our Government
bonds up four to one!
Mr. Bewley: I think that is all, isn't it?
236
JR
GRAY
London
Dated November 10, 1936
Rec'd 5 p.m.
Secretary of State,
Washington.
523, November 10, 4 p.m.
FOR treaSury.
The British economic position now shows too noteworthy
features: with production Booming in the heavy industries
and with a noticeable picking up in textiles and on consumer
goods industries, the general rise in world prices and the
British trade balance position assume a new importance.
Home Production: Iron and steel output showed a
marked recovery last year and continues to mount. Taking
193 monthly averages as 100 the pig iron production index
stood at 126 for September as compared with 103 in
September 1935 and the steel output index stood at 168
as compared with 140 in September 1935. Even in the coal
industry with its curtailed export markets production
ahoad of a year ago ns is shipbuilding activity.
Seanwhile, the delivery of raw cotton to mills on the
basis of 1930 averages stood at 110 in September as
compared with 97 in the same month last year; and rayon
production
237
U ⑉2⑉ "523, Nov. 10, 1 p.m. from London
production at 326 of the 1930 average 8.3 compared with
240 in September 1935.
All these increases are reflected in larger railway
revenues profits, bankers clearings, Employment and retail
sales. The building boom continues, the figures of plans
approved bEing WEll in advance of 1935 through August and
though the September figure, so far available, shows a
slight drop on last year, this is not Expected to indicate
a general trend and in any CASE the general lEVEl of
building activity remains high and is Expected to con-
tinue to do so with slum clearance programs and industrial
construction rapidly taking the place of the slightly
slackening private construction of houses.
Export Trade: That the further recovery in 1936 is
EVEN more an internal recovery than in the two previous
years is obvious from the fact that the first nine months
of 1936 showed a total Export gain over the corresponding
period of 1935 of only 2.6% whereas in both the previous
years the corresponding gains were of nearly 8%. Several
significant features EMERGE on analysis.
The metal and Engineering trades which contributed the
greater part of the eight per cent increase in total British
domestic exports in both 1934 and 1935 are now busy, in
some Cases overwhelmed, with work involved in meeting home
demand for their products due to the general industrial re-
covery and recently to the great stimulus of the rearmament
program
Regraded Uclassified
238
-3- JR #523, November 10, 4 p.m., from London.
program. These industrios only show an increase of one
per cont in the first nine months of 1936 as compared with
the corresponding period of 1935; they have censed to push
on the export recovery at the pace which they set early in
1934 when they showed an export gain of fourteen por cent
over the first nine months of 1933, and in 1935 the gain
was one of 161 por cent over the first three-quarters of
1934. The quostion arisos will British exporters in their
prooccupation with home orders lose some of their hold on
exports markets to competitors in other exporting countries,
or will they, if and when the abnormal rearmament demands
subside, be in a better position than ever to push once more
into the export field?
Heanwhile, the equally important textile and clothing
group which lagged in the export revival in 1935, gaining
less than two per cont on the previous years first three
quartors, have this year increased by four per cent on the
same poriod of 1935. This improvement is due probably in
large part to the increased purchasing power in important
export markets resulting from the rise in the prices of
primary (#) and foodstuffs. The Trade Balance Position:
/hile total exports have gained only by 2.6 per cont on the
first 9 months of 1935 imports have increased by eleven por
cent over the same period. The growing home industrial
production necossitates increasing raw material imports,
while
239
-4- JR #523, November 10, 4 p.m., from London.
while higher purchasing power resulting from fullor
employment tends to increase food imports. Furthermore,
imported raw materials and foodstuffs have rison more in
price than export commodities. This change in terms of
trade combined with the proportionately larger eventual
home consumption of the goods imported has a marked effect
on the trade balance position. Though the professed policy
of the British Government is to foster just such n
readjustment of price lovels, in order to thaw the
financial position of some of the dominions and certain
foreign countries important as field of British invostment
and as export markets (as well as to have the British
farmor) the now evident signs of a degree of achievement
of this adjustment are coming at a time and in circumstances
which mako thom not too welcome for throc reasons :s
follows: (one) because it is adversely affocting the
British trade balance position whon export expansion is
slackoning largoly for international reasons and imports are
increasing; (two) because of the effect on production costs
(directly through the cost of raw materials and indox in the
offect on the cost of living and possible pressure for wage
increases) at a time when dovaluation in gold bloc countries
is expected to docroase the competitive advantago which
British
240
-5- JR #523, Novomber 10, 4 p.m., from London.
British exporters have beon enjoying; (three) because the
British Government is to be a heavy spender on rearmament
projects. If the general riso in prices of primary products
and foodstuffs should develop speculative positions (now
not outside tho roalm of possibility) there will be some
anxioty hore, though the former gold bloc countries will
also have to pay the higher prices for matorials and the
increased purchasing power in countries producing primary
goods and foodstuffs will tend to stimulate British exports
especially of goods outside the rearmament field.
NPL:EMB
BINGHAM
241
JR
GRAY
Paris
Dated November 10, 1936
Rec'd 6:47 p.m.
Secretary of State,
Washington.
1098, November 10, 5 p.m.
FROM COCHRAN.
The pressure on the franc which marked Thursday,
Friday and Saturday of last week was somewhat lighter
yesterday but is significant again today. Sterling is
much in demand here and the Bank of France is providing
it. On the other hand, the Bank of England is said to be
selling dollars in London. French rentes are down about
one franc. Purchasing of international shares is so heavy
as to be interpreted as being 2 flight from the franc.
Market operators find the atmosphere very pessimistic and
think that the Bank of France can not long afford to
surrender such important quantities of currencies as have
been required the past few days. Various rumors have
circulated to the effect that the franc would be permitted
to move directly to the maximum legal limit of devaluation.
Now there is even some gossip as to the possibility of
exchange control.
BULLITT
NPL:TMB
242
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 10, 1936, 7 p.m.
NO.: 1100
FROM COCHRAN. FOR THE SECRETARY OF THE TREASURY.
With regard to the final sentence of my telegram
No. 1092 of November 7, 2 p.m., Minister Auriol has
asked me to come to see him on Thursday, the twelfth,
at noon.
BULLITT.
EA:LWA