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Volume 78, July 8 – July 14, 1937
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Volume 78, July 8 – July 14, 1937
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 78
July 8 - July 14, 1937
Regraded Uclassified
Book Page
Appointments and Resignations
Moore, Carl E. (Collector of Internal Revenue,
Cleveland, Ohio):
Bulkley (Senator, Ohio) reports to HMJr that Moore
is about to resign - 7/8/37
LXXVIII 78
- B -
Brazil
Memorandum on preliminary discussion of problem with
Brazilian Finance Minister - - 7/8/37
3
Meeting; present: HMJr, Lochhead, White, Riefler, Viner,
Williams, Gaston, and Feis - 7/9/37
91
a) Williams announces program: see Brazilians this
afternoon, get the answers, thank them, and
suggest 8 date next week for another meeting
Lochhead and White report further to HMJr - 7/12/37
131
Preliminary conference before arrival of Brasilian
delegation - - 9:15 A.M., 7/14/37
204
a) Williams tells HMJr apparently only two things
involved: commitment of approximately $50 million
in gold, and disoussion of Central Bank
Meeting with Brazilian delegation - 10:30 A.M., 7/14/37.
242
Second preliminary meeting - - 2:45 P.M., 7/14/37
256
Second meeting - - 3 P.M., 7/14/37
265
Meeting with Brazilian group at 8:30 P.M., 7/14/37
281
a) Joint statement
307
Budget
HMJr and Bell confer with FDR relative to "recent action
taken toward effecting savings in the fiscal year 1938"
7/8/37
42,49
- C -
China
See chronology of important events: Book LXXXVII, page 264
Conference with Chinese delegation - 7/8/37
12
a) HMJr notes that "the part about the stabilization -
Tripartite Agreement" has been dropped
b) Discussion as to whether the terms shall be "thirty
days terminable or thirty days fixed"
e) Proposed agreement read to Chinese representatives
d) Program started last year has worked BO successfully,
it is now agreed to take one more step forward
e) Meeting recesses BO that both groups may work on the
announcement to be made
f) HMJr reports on meeting to Hull - - 7/8/37
35
Meeting; present: HMJr, Loohhead, White, Riefler, Viner,
Williams, Gaston, and Feis - - 7/9/37
89
a) FDR and Hull have both approved joint statement
today
Regraded Uclassified
- C - - (Continued)
Book Page
China (Continued)
Joint statement issued at 3:30 P.M., 7/9/37
LXXVIII 101,113
a) Copy of statement
102
b) Report of press conference
104
Resume of conversations between HMJr and Chinese
delegation
190
Letter of authorization to Federal Reserve Bank of
New York with regard to purchase of Chinese yuan -
7/14/37
318
- E -
England
See Great Britain
If
Stabilisation: Great Britain
- F -
Financing, Government
Sinking Funds Bell tells HMJr that Ogden Mills is about
to issue a statement that the Secretary of the Treasury
has no discretion in the matter of the sinking fund-
that it is mandatory; Bell and HMJr decide to ask
Oliphant to look into it and possibly get an opinion
from the Attorney General - 7/8/37
1
Foreign Capital: Restriction of Inflow
See Taxation
France
See Stabilization
- G - -
Gold
See U.S.S.R.
Great Britain
Butterworth reports on Chamberlain's first important
public speech as Prime Minister - 7/8/37
120
- J -
Japan
American Embassy, Tokio, reports on Japan's exchange
position - 7/10/37
126
Regraded Uclassified
- II -
Book Page
Mills, Ogden
See Financing, Government: Sinking Fund
Moore, Carl E.
See Appointments and Resignations
- N -
Narcotics
Wait (Supervising Treasury Attache, Paris) reports on
investigation of smuggling in Europe
LXXVIII 179
- R -
Robinson, Joseph (Senator, Arkansas)
Death on 7/14/37
203
Russia
See U.S.S.R.
- S -
Stabilization
France:
Cochran and Butterworth report on adjournment of
French Parliament - 7/8/37
61,64
Cochran reports on new financial measures scheduled to
appear in Journal Officiel 7/10/37 in a decree
comprising about sixty articles
116,130
Butterworth reports on Simon's reply concerning
suggestion that Bonnet visit London - 7/14/37
335
Great Britain:
Butterworth reports on Chamberlain's first important
public speech as Prime Minister - 7/8/37
120
Sir Frederick Phillips to visit Washington on his way
to Canada; HMJr tells Butterworth to make all
arrangements so that he will be in this country at
same time - 7/12/37
136,146
Switzerland:
Conference concerning Secretary of Treasury's answer
to letter of 6/17/37 signed by Bachmann and Schnyder -
7/14/37
323
a) Copy of message for Cochran and Butterworth
327,328,329,
332
Switzerland
See Stabilization
Regraded Uclassified
- T -
Book Page
Tax Evasion
Hamilton Fish requests permission of Treadway (Joint
Congressional Committee on Tax Evasion and Avoidance)
to present evidence of use of loopholes by members of
Roosevelt family, HMJr, and HMSr - 7/8/37
LXXVIII 11
HMJr and Doughton again confer - 7/8/37
38
a) Doughton reports that FDR is thoroughly upset
HMJr discusses with Doughton ticker report that Fish
expects to bring certain charges against his father
and himself - - 7/8/37
69,81
HMJr also consults Vinson (Kentucky)
72
"
If
If
Capper (Kansas)
74
#
If
.
LaFollette (Wisconsin)
76
"
"
W
Cooper (Tennessee)
83
If
If
If
Cullen (New York)
85
HMJr thanks Vinson for his courtesy - - 7/9/37
98
11
#
Doughton # If
-
- 7/12/37
141
Taxation
Plan proposed by Haas, Opper, Riefler, Viner, White,
and Zucker for taxing non-resident aliens and non-
resident foreign corporations - 7/8/37
7
- U -
U.S.S.R.
For resume of conferences on gold, 4/11/37-7/17/37,
see Book LXIV, page 79
Further conference with Oumansky concerning gold - -
7/12/37
149
Regraded Uclassified
1
July 8, 1937
10:04 a.m.
H.M.Jr:
Hello.
Bell:
Good morning.
H.M.Jr:
Hello, Can.
B:
I thought it was rather important that
you get this dope. Ogden Mills called
me this morning and I had quite a long
talk with him over the telephone -
H.M.Jr:
Yes.
B:
About the sinking fund. He's maintaining
that the Secretary has no discretion in
the sinking fund and that it is mandatory.
H.M.Jr:
Yes.
B:
I argued quite a bit with him. He's gone
out to see Parkson who drafted it originally
and Gilbert and one or two others, who had
a lot to do with it and they all take the
view that it's mandatory, and apparently
he'll come out with some statement shortly.
H.M.Jr:
Yes.
B:
I think that it is probably important that
Oliphant look into it and maybe talk to the
Attorney General about it and get some opinion.
H.M.Jr:
Yeah, all right.
B:
Don't you?
H.M.Jr:
Yep.
B:
Cause I have an idea that he's going to
issue quite a blast.
H.M.Jr:
I see, He says we're not maintaining the
principal in fairness to the bondholders
and all that business.
2
- 2 -
B:
I tried to argue him out of it but -
it is quite important that you have the
flexibility and financing operations -
H.M.Jr.:
Is he in town?
B:
No, he's in New York -
H.M.Jr.:
Oh, I see.
B:
Called me from New York.
H.M.Jr.:
I see.
B:
But I do tink we ought to have Oliphant
look into it and -
H.M.Jr.:
I'll do it right away.
B:
All right. I'll do it if you want me to.
I just thought that you ought to know about
it.
H.M.Jr.:
No, definite I'll call him and - have you heard any-
thing/from the White House?
B:
Nothing more than two o'clock and all I
can get out of it is that it is the inde-
pendent agency.
H.M.Jr.:
Well -
B:
And not the Cabinet.
H.M.Jr.:
All right. I'll -
B:
Yeah, I understood he was going to have
the Cabinet on Friday separately.
H.M.Jr.:
Well, I'll get hold of Oliphant right away.
B:
Thanks.
H.M.Jr.:
All right.
oo0oo
July 8 ?
3
MEMORANDUM FOR THE SECRETARY
The Brasilian Problem
We have had a preliminary discussion of the Brazilian problem
with the Brasilian Finance Minister, and have submitted to him B.
series of questions which he has promised to discuss with us Friday
afternoon at 3:30 p.m. These fall into three groups:
(a) The economic and financial situation of Brazil.
(b) The advisability of establishing a new central bank as a.
substitute for the Bank of Brazil.
(o) Questions relating to gold. The main questions are:
1. Advisability of a commitment by us to supply gold
to Brazil in some definite amount, the gold to be
actually acquired by Brazil in installments over a
period of time.
2. Dollar credits to be furnished to Brasil against
gold collateral, purposes of such credits, rate of
interest, etc.
3. The question of what is an adequate gold reserve for
Brazil, having in mind the instability of her exports,
etc.
4. Annual Brazilian production of gold.
After our conference with the Brazilians, we conferred with
Dr. Feis. We all believe that this Brasilian problem, taken in its
Regraded Jclassified
4
- 2 -
entirety, is too large and presents too many uncertainties to permit
of speedy handling. There are, however, some points on which fairly
prompt agreement could probably be reached. We suggest as a working
program that we attempt to reach such an agreement now, and that we
leave for continuing study, extending probably over a period of months,
both in Brazil and here, the larger aspects of the problem.
By way of illustration, we could perhaps now reach an agreement
to the following effect:
1. We are mutually interested in questions of trade development.
2. We are mutually interested in the question of debt service
settlement. (We understand that these two questions have
been handled by the State Department.)
3. We are also mutually interested in doing everything possible
at this time to promote stability in our monetary relations.
To this end:
(a) The United States is prepared:
(1') To sell gold to Brazil in exchange for the
foreign currency balances Brazil now has, (which
we understand amount to $8,000,000).
(2') To accept Brazil's domestic gold supply (now
10 metric tons, approximately $30,000,000).
(3') To agree to sell gold to Brasil in the future
in such amounts and at such times as Brazil
may have exchange to pay for it.
5
- 3 -
(4') To supply, at a rate of interest, dollar
balances to Brazil against earmarked gold as
collateral, such dollar balances to be used
exclusively for exchange stabilization.
(b) The United States is further prepared to undertake
continuing collaboration with Brazil in the explora-
tion of the larger questions raised:
(1') It will be glad to give technical assistance
and advice if desired, in connection with the
question of establishing a central bank in
Brazil.
(2') It will be glad to explore further the desir-
ability of a commitment to supply gold to
Brazil in some definite amount.
Regraded Uclassified
6
1. The United States is prepared now:
(a) To sell gold to Brazil in exchange for the foreign currency
balances Brazil now has (which we understand amount to
L8,000,000).
(b) To accept Brazil's domestic gold supply (now 10 metric tons,
about $30,000,000) for earmark.
(c) To agree to sell gold to Brazil in the future in such amounts
and at such times as Brazil may have exchange to pay for it.
(a) To supply, at a rate of interest, dollar balances to Brazil
against earmarked gold as collateral, such dollar balances
to be used exclusively for exchange stabilization.
2. The United States is further prepared to undertake continuing
collaboration:
(a) It will be glad to give technical assistance and advice
if desired, in connection with the question of establishing
a central bank in Brazil.
(b) It will be glad to explore further the desirability of a
commitment to supply gold to Brazil in some definite amount.
Regraded Uclassified
I
7
Regraded Uclassified
July 8, 1937
Mr. Magill
Mr. Seas, Opper, Rieffler, Finer, White, Inster
Subject: Proposal for taxing nonresident alims and nonresident foreign
corporations.
For yurposes of instituting proper and equitable taxation, at this
time, applicable to nonresident aliens and nouresident foreign corpora-
tions, the following tax proposal is recommended:
1. Increase the present 10 percent and 15 percent withholding rates
on fixed and resurring item of income to 22 percent, for both nonresident
aliens and nonresident foreign corporations; permit nonresident aliens only
to file tax returns showing all income from American sources including net
capital gains; allow earned income credit, $1,000 personal exemption, and
the regular credit for dependents to nonresident aliens from contiguous
countries; subject the net income to the present rates (normal tax and our
tax) applicable to American Nationals and grant refunds in those cases
where the tax liability so determined is less than the withheld 22 percent,
the refund, however, to be limited ao that in all cases there shall be
retained as final tax at least a ann equal to 10 percent of the net income.
2. Impose & 5 percent excise tax, denominated as & Speculative
Profits Thx, computed on profits from sales or other dispositions of anuity
securities by nonresident aliens and nonresident foreign corporations. The
5 percent tax is to be withheld by the selling broker, nominee, or purchaser,
in cases of enles in the United States effected for foreign account.
the 5 percent tax is also to be withheld by transfer agents in cases
where American equity securities held abroad are returned to the United
States by nonresidents for transfer of record ownership and issuance of
new certificates. The tax in this instance is on an mount ressured by
the difference between stanped purchase price when security was expatriated
or value as of basic date, as hereinafter provided, and last selling price
or anrket value, in case of disposition other than by male, at which
rity is being repatrinted, irrespective of the mmber of intervening trans-
notions.
All equity securities bought for foreign memori, after the effective
date of the not are to be stamped by the broker 07 foreigner's nominee to
thes purchase price. Stamped securities are to be delivered to the selling
broker for foreign account who will the be sublet to compute the 5 persont
orig to pee 7/8
8
Mr. Magill . 2
- ⑉ the difference between the selling price and the stemped purchase
price shown - the fase of the certificate. In the - of securities
asquired prier to the effective date of the mt, maket value as of a
basts date (December 32, 1937). in lieu of purchase price, is to be used
in determining profit on which to Levy the 5 persent withholding tax.
However, the foreign over will be permitted to prove cost of wash -
rity and, if greater than value M of basic date. will be allowed a
rebate accordingly.
In the case of a neuresident alien filing an income tax return,
there will be allowed as & deduction se mush of the 5 percent speculative
profits tax as - actually paid by him through the withholding agents.
The 5 persent speculative profits tax is to apply also to short sales
and to transactions consumnated through margin account tradings.
BECEIAED
BECEINED
TEE! X JUL
veet AT JUL
sill la sallio
consitete bna to naisiving
question
Security saboU all to soillo
JEStlms
7/8/37
Regraded Uclassified
ADDRESS OFFICIAL COMMIBECATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
Noted
HX.
L.
9
A. Lochhead
DEPARTMENT OF STATE
3121
WASHINGTON
In reply refer to
July 8. 1937
Eu 861.51/2761
My dear Mr. Secretary:
With reference to my letter of June 24, 1937,
forwarding for your information a copy of the
telegram from the Embassy in Moscow concerning the
Soviet gold industry, I am enclosing as of possible
interest another telegram from the Embassy on the
same subject.
Sincerely yours,
Enclosure:
Paraphrase of
telegram as
stated above.
The Honorable
OBVIED
Henry Morgenthau, Jr.,
Secretary of the Treasury.
TERIS, JAR
-
1
Regraded Uclassified
Department of State
REAU
Eu
VISION
ENCLOSURE
TO
etter drafted
July 7, 1937
ADDRESSED TO
Secretary of the
Treasury
1.1. COVERNMENT PRINTING orrice
1-1087
Regraded Uclassified
TELEGRAM RECEIVED
10
Moscow
Dated July 7, 1937
Rec'd 10:20 a.m.
Secretary of State,
Washington.
153. July 7, 11 a.m.
Embassy's 127, June 22, 11 p.m.
From an additional unofficial source which is con-
sidered to be reliable the Embassy has been informed
that for reasons which were outlined in the Embassy's
telegram under reference in the past six months the pro-
duction of gold in the Soviet Union has not equalled the
planned increase and has in fact been decreasing in many
regions.
Partial confirmation of this information obtained
from private sources was afforded by an article published
July 5, 1937, in the MOSCOW PRAVDA. This article takes
the party organization, and particularly the director, of
the Chief Administration of the Gold and Platinum Industry
to task for sending Trotskyists to gold camps and for per-
mitting the falsification of the 1936 report of the Orsk
state trust for copper and gold mining. Regarding the work
of the Chief Administration of the Gold and Platinum
Industry, the article concludes with the following state-
ment: "In such a stale atmosphere of undisguised oppor-
tunism and direct complicity with enemies of the people
it is not surprising that the carrying out of the semi-
annual production plan has been disrupted".
DAVIES
Regraded Uclassifie
COMMITTERS
AMILTON FISH, JM.
Dist. NEW Your
Finces AFTAINS
- - Commissioner
Congress of the United States
House of Representatives
lashington, D. C.
11
July 8, 1937,
Hone Allen T. Treadway,
House of Representatives,
Washington, D. C.
Dear Allens
I would appreciate it 1f you would ask the Joint Congress
ional Committee on Investigation of Tax Evasion and Avoidance for
permission for me to appear before them tomorrow, Friday, July 9th,
or any time next week, to present evidence in connection with the
use of loopholes within the income tax law by members of the
Roosevelt family in order to avoid payment of Federal Taxes.
In addition, I want to present evidence that these
loopholes have been used by Henry Morgenthau, Jr., and Henry Morgenthau,Sr.
and to ask that the income tax returns of some of the large Democratic
contributors be investigated by the Committee, which names Iwill
submit, in order to prove that there is no partisanship by the
Treasury Department th the submission of names to the Committee. To
date there have been only two prominent Democrats named, whereas
there have been approximately forty Republican and anti-New Deal
contributors who have been smeared in the public presse
I have no intention of making any charges against the
President or asking for his income tax return, beyond placing
before the Committee & statement made by the President himself I
few years ago in which he admite taking advantage of existing tax
avoidance loophhles.
I understood from Mr. Doughton's statement in the House of
Representatives a few days ago that I would be permitted, as a.
Member of Congress, to appear before the Committee with the consent
and approval of the Republican members. I, consequently, renew
this request and would appreciate it if you would submit it for
favorable action to your Committee.
Sincerely yours,
Hamilton Jish
Regraded Uclassified
12
MEETING WITH CHINESE
July 8, 1937
11:00 a.m.
Present:
Dr. H. H. Kung
Ambassador Wang
Dr. P. W. Kuo
Dr. Lee
Mr. Oliphant
Mr. Lochhead
Mr. White
Dr. Feis
Dr. Viner
Mr. Riefler
Mr. Williams
Mrs. Klotz
H.M.Jr:
Listen, I see you fellows dropped off the part about
the stabilization - tripartite agreement.
Oliphant:
Isn't that your desire?
White:
Herman was of the opinion that's what you wanted.
Oliphant:
Going to use your hunch.
H.M.Jr:
I'm not going to say a word about it. You're clair-
voyant.
Oliphant:
Clairvoyant.
H.M.Jr:
No, I wasn't going to mention it.
White:
There's one other change I want to call your attention
to. We've got the two ways - you going to read it
over now or want me to tell you about it?
H.M.Jr:
Well, what's different?
White:
There are two ways. One is "this arrangement to be
terminable on 30 days' notice," the other
H.M.Jr:
Just one second. - Go on, Harry.
White:
The other was as you have it there, with a fixed
date. That was Clarence's thought, and Herman
thought it was preferable, for reasons of their own.
H.M.Jr:
I want the 30 days' notice.
Oliphant:
It's 30 days' notice, but with a fixed date and 30
days thereafter.
Regraded Uclassified
13
-2-
White:
Fixed date and 30 days. This other is 30 days
without any fixed date.
H.M.Jr:
Where does it say 30? Oh - "To be terminated on
a date mutually agreeable - on at least 30 days'
notice."
Oliphant:
That's the way we did it in the pact.
H.M.Jr:
Well, get hold of that thing. The point is, if we
can have a date, then he can have it. It's got to
work both ways.
These are different?
White:
One says "30 days terminable" and the other says
"30 days fixed."
H.M.Jr:
Which do the lawyers prefer?
White:
The one in your right hand.
H.M.Jr:
"Definite date mutually agreeable, unless renewed
from time to time." That's all right. Have you got
another copy of that? Herbert Feis kind of chewed
this up a little bit.
Oliphant:
Have you another copy of this one, White?
White:
Yes, I'm looking for it.
(The Chinese come in)
H.M.Jr:
Have you met everybody here, Dr. Kung? You know
everybody here.
(Chinese are seated)
H.M.Jr:
Dr. Kung, when you were here the other day, you
reminded me that I sent a message to you once that
we could do business in two hours.
Kung:
Yes.
H.M.Jr:
So I thought I would go at this meeting this morning
in that spirit, and try to make it in one hour.
Regraded Uclassified
14
-3-
Kung:
All right.
H.M.Jr:
And furthermore, rather than - China and the United
States have established such 8 wonderful friendship
now that, rather than try to bargain with you, I
think I'm going to make you a proposition which is
even better than you think.
Kung:
Well, thank you.
H.M.Jr:
And instead of saying, "Now, I want to go so far,"
then go a little better, I'm going to give you the
very best I've got.
Kung:
That's very good.
H.M.Jr:
And I'm doing this after talking with the President
of the United States, and the President said that he
wanted me to do everything possible for China to
continue our very pleasant friendly relations. So
with that in mind I have just written down so much,
see? And this is what we think will be good for your
government and good for us.
What I propose is this, that "The United States
purchase from the Government of China the 62 million
ounces of silver now held in the United States at
45 cents an ounce on terms similar to those applying
to the earlier purchase from China." Be the same
technical arrangements.
"2. That China use the dollar proceeds from the sale
of silver for the purchase of gold from the United
States at $35 an ounce plus one-quarter of one percent,
and agrees to hold such gold under earmark at the
Federal Reserve Bank of New York and to use that gold
only for the purpose of maintaining the stability of
the yuan exchange.
"3. For the purpose of stabilization of the yuan
exchange, the United States Treasury, acting through
its fiscal agent, the Federal Reserve Bank of New
York, will be prepared to provide United States
dollars up to 50 million dollars in exchange for
an equivalent amount of the yuan contingent upon a
repurchase agreement and upon the maintenance in the
United States of collateral to the equivalent amount
Regraded Uclassified
15
-4-
of gold." In other words, we are prepared to loan
you dollar exchange against the gold, just the way
we did against the silver.
"This arrangement to be terminated on a definite
date mutually agreeable unless renewed from time to
time thereafter by an agreement on at least 30 days'
notice." Both ways. "Interest on the amount of
dollars to be given up in exchange for the yuan to
be charged at the rate of one-half of one percent
above the discount rate of the New York Federal
Reserve Bank" - which is one and a half, so today
it would be two percent, you see? That's the whole
story.
Kung:
Well, very well.
H.M.Jr:
Would you like to look at it? There's the whole
story. (Hands statement to Kung, who reads)
Kung:
This is blank? - "Interest to be charged at a rate
of
H.M.Jr:
I only decided that five minutes ago. We wanted to
give you as favorable a rate as possible. That would
be at one half of one percent above whatever the
discount rate of the New York Federal Reserve Bank
would be. Now, at present it is one and a half per-
cent, so that makes two percent.
Kung:
I see.
H.M.Jr:
Now, if money should get dearer, there is a slight
chance of that going up. The chances are, if any-
thing, it might go down. But it would be a half of
one percent above whatever the rate..
Williams,
how long has that rate been one and a half?
Williams:
Oh, it's been there since 133 or "34 - 133, I think.
H.M.Jr:
When, '33?
Williams:
'33.
H.M.Jr:
So for three years or four years the New York Federal
Reserve has had the same discount rate, one and B. half
percent, so the chances of that changing are not very
Regraded Uclassified
16
-5-
great. I mean I wanted to make it as reasonable
as possible and still at a rate which I could
explain.
Kung:
Yes.
H.M.Jr:
And we felt - we put that in feeling that it is an
advantage to you to be able to have that in case of
an emergency. And again, it just doesn't let the
outside world know - you know that some of these
countries that have been so anxious - they have
never yet found out what the arrangements have been
between our governments. Ever so often they have
come in and asked. I remember one Embassy sent
somebody in here who said, "Oh, by the way, what
is that arrangement you have with the Chinese
Government?" I said, "Men have been shot for less
than that." So he said, "All right, forget I asked
the question."
(Hearty laughter)
Kung:
I saw the President yesterday and he told me
H.M.Jr:
He told you about this?
Kung:
He said you had a conference with him, got everything
fixed up satisfactorily. I thought he was very
gracious.
H.M.Jr:
Well, I spoke to him in the morning and asked him,
and he said, "Go the limit."
Kung:
He said he thought I was getting along with the
Secretary of the Treasury, Mr. Morgenthau, very well.
I said, "Oh yes, we're getting along famously."
H.M.Jr:
Well, you see, this silver - of course, a lot of it
isn't even melted down, you know, and we'll take
how many - Archie?
Lochhead:
Probably be six months before it's finally cleared
up.
H.M.Jr:
But if this is agreeable to you we may take the
thing at once, and - I forget - they make certain
allowances, whatever they are, for coins.
Regraded Uclassified
17
-6-
Kung:
Yes.
H.M.Jr:
And we put the gold to your credit right away.
And I should think it would be helpful.
Kung:
Oh yes, and it's very good of you, really.
H.M.Jr:
Pardon me?
Kung:
Very good of you to give us such assistance and
cooperation and further evidence to show American
friendship for China.
H.M.Jr:
Well, that's what we'd like to do.
Kung:
And, of course, the reforms we make are not only
for the benefit of our country alone, but are also
for the benefit of those who trade with China. And
now the American trade, the foreign trade - in China's
foreign trade America comes first; so I think any
system which could make for the stabilization of our
currency means also a good trade for America.
H.M.Jr:
We want to see a strong China.
Kung:
Yes, that's right.
H.M.Jr:
That's what we want to see. And I've said to your
representatives when they were here before that we
were willing to take our chances with the Chinese
people, that your memory would be long, and that has
proved to be so,
And what we'd like to do, Dr. Kung, if you want -
maybe you'd like to leave some of your people behind
here and they can ask some - any technical questions
they'd like to. And then, if this is agreeable, why,
we thought you might like to join us and give out a
statement tomorrow from the two Treasuries.
Kung:
Yes.
H.M.Jr:
And your people could stay behind; they could work
on some sort of statement. Then if you care to come
here tomorrow maybe we could give it out - see the
newspapermen tomorrow.
Regraded Uclassified
18
-7-
Kung:
That would be agreeable.
H.M.Jr:
You going to be here tomorrow?
Kung:
Yes.
Wang:
In the morning he will be occupied.
Kung:
Well, we can come early.
Wang:
Very early, or, if possible, the afternoon - or
noon, be all right?
H.M.Jr:
Unfortunately, we have Cabinet once a week, but
I'll make it any time you say, say, from sun-up;
you couldn't make it the first thing in the morning?
Kung:
Oh yes; 9 o'clock, 10 o'clock, 9:30.
H.M.Jr:
9:30?
Wang:
(Nods yes)
H.M.Jr:
Would that be all right?
Kung:
Oh yes. We're going out to - we're going to honor
soldiers.
H.M.Jr:
What time?
Wang:
Arrange to start from here 8:30.
H.M.Jr:
In the morning?
Kung:
To be at the
Wang:
....Arlington at 11.
H.M.Jr:
Well then, you couldn't get here at 9:30. He
couldn't be here at 9:30. When could you get here,
Mr. Ambassador?
Wang:
I think if 11:30 is convenient for you we can be
here.
H.M.Jr:
11:30 would be fine.
Regraded Uclassified
19
-8-
Wang:
We can start earlier - start at 8 and get through.
Kung:
Would that be convenient for you?
H.M.Jr:
Be fine.
Wang:
Make it 11:30.
H.M.Jr:
I tell you, can you leave some of your people behind?
Then they can ask the questions and work this out.
Then we can get out a joint statement. We'll have
the newspapermen come in and we'll say, "This is
what we have agreed on."
Kung:
Yes, sir.
H.M.Jr:
Then we get our pictures taken.
Kung:
(Laughs)
H.M.Jr:
How's that?
Kung:
All right. Mr. Secretary, I say you are not only
an expert in finance, I say also you are expert in
diplomatic
H.M.Jr:
No, I'm afraid not.
Kung:
You know why I said that. You say you want a strong
China, and that is really a far-sighted statesman's
view. If you have a strong China, you will have
security and peace, and the peace of the Far East.
H.M.Jr:
I know.
Kung:
And that's what you want, and we're interested.
H.M.Jr:
That's what we want.
Wang:
I think Dr. Kung meant to say he is not only the
Secretary of the Treasury but he is a great statesman.
See, that's what he had in mind.
Kung:
That's it.
H.M.Jr:
Listen, Dr. Kung, I bought all your silver; you don't
have to give me anything more.
Regraded Uclassified
20
-9-
Kung:
Well, I sold the silver to you cheap. I sold the
silver to you cheap. I bought your surplus gold.
(Great laughter)
H.M.Jr:
Well, I won't argue with you about that.
Wang:
Well, it would be best for these gentlemen possibly
to stay behind.
H.M.Jr:
Well, it's - you know, things have come so fast, the
improvement in China, that I don't think the people
yet know what is happening. It has come so fast.
Kung:
Yes.
H.M.Jr:
Trade is going up, everything.
Kung:
But we must attribute a large share to your govern-
ment and to the President and to you.
H.M.Jr:
Well, we have helped other people when they couldn't
help themselves.
Kung:
Well, we believe in that slogan, "God helps those
that help themselves."
H.M.Jr:
That's right. And we have tried to help some other
countries, but it wasn't so successful as with
China.
Kung:
Well, I'm glad you're not disappointed in China.
H.M.Jr:
I'm not.
Kung:
I have reason to believe in the future, and probably
you will look upon the days when these transactions
were made with pride, because this is going to help
not only the economic structure of China, which means
benefit for American trade, but also going to help
the security and the peace of the Far East.
H.M.Jr:
I'm sure it will.
Well now, if you can leave whatever people - who
you going to leave behind you?
Kung:
Well, I can leave those two men (Kuo and Lee) here.
Regraded Uclassified
21
-10-
H.M.Jr:
All right. And then they can polish something up
to get it to you this evening, and then you can
make any corrections and I could get it back tomorrow
morning, and so by the time you're here at 11:30
we'll have something which is agreeable to both of
us.
Kung:
Fine.
Well, Mr. Secretary, I wish to thank you.
H.M.Jr:
Not at all; thank you.
Kung:
I notice, Mr. Secretary, you cut it down to half
an hour instead of an hour.
H.M.Jr:
I told him we could.
Kung:
We know how to do business all right.
H.M.Jr:
And I'll see you at 11:30 tomorrow.
Kung:
11:30 tomorrow.
(The Chinese leave)
H.M.Jr:
You (Feis) said
Feis:
May I be excused?
H.M.Jr:
You said you wanted to see me. All right.
Feis:
I'll try to give some background during lunch period.
H.M.Jr:
Fine; all right.
(Feis leaves)
H.M.Jr:
Now I want to talk to you gentlemen a minute.
Oliphant:
I think he's the most considerable personality that
I've ever seen.
H.M.Jr:
(On phone) Secretary of State, please.
I'm just getting Mr. Hull; want to tell him about
this matter. He's (Kung) clever.
Regraded Uclassified
22
-11-
Viner:
20 minutes; you said an hour.
H.M.Jr:
What more is there to say? I gave him the best he
could expect; no use trading. And I honestly
believe that when all this thing blows over - that
ten years from now, maybe the most important thing
that I did when I was here was to save China when
we started a year and a half ago; that over a period
of fifty years that may be the most important thing;
that the French thing may just be insignificant, and
that fifty years from now the fact that China was not
gobbled up by Japan and again becomes a strong nation
may be the most important thing we did here.
(On phone) Hello. - (Conversation with Hull
follows:)
Regraded Uclassified
23
July 8, 1937
11:21 a.m.
Cordell
Hull;
Hello.
H.M.Jr.:
Hello, Cordell.
H:
What's going on?
H.M.Jr.:
Well, plenty.
H:
I guess -
H.M.Jr.:
Well -
H:
I'm sorry to hear that.
H.M.Jr.:
We had this meeting this morning with
the Brazilians in which - Herbert Feis
was here. He just left.
H:
Yeah.
H.M.Jr.:
And the way we looked at this thing -
this is going to be a matter of weeks
of study and we're prepared to give it,
you know.
H:
Yeah.
H.M.Jr.:
This situ - I think it is too important
and too complicated to try to get to
Sousa Costa before he goes back.
H:
Uh-huh.
H.M.Jr.:
And I want to know whether you would be -
I'd appreciate it if you would get Feis
to tell you what happened here this
morning.
Hull:
Yuh. All right, I'll do that right away.
H.M.Jr.:
And the other thing is. I tried to get
you before I saw Dr. Kung. I went over
it with the President yesterday. They've
Regraded Uclassified
24
- 2 -
had 60 million ounces of silver in this
country for some time.
H:
How -
H.M.Jr.:
Now what we've agreed to do is to swap
that silver for gold.
H:
Uh-huh.
H.M.Jr.:
And they could keep the gold ear-marked
in America and to use it only for exchange
stabilization purposes.
H:
Yes.
H.M.Jr.:
The way they have all the other money.
H:
Yeah.
H.M.Jr.:
Now they've kept their faith with us
absolutely.
H:
Well, that's fine.
H.M.Jr.:
And they've never used a dollar of it
except for exchange purposes.
H:
Yeah.
H.M.Jr.:
And that we would need also against this
gold if they have to borrow temporarily
for exchange purposes, we lend it to them.
H:
Yes.
H.M.Jr.:
And that's the whole agreement.
H:
Well, that - that's good.
H.M.Jr.:
And Kung was just tickled to death and
we're going to work out a statement which
we'll give out tomorrow and before we
give it out, I'll submit it to you.
H:
Yeah, sooner or later, when we get a
little further out of the woods, we've
got to talk a little more - some of us
Regraded Uclassified
25
- 3 -
have at least - about international
financing because we have - can't ours
get any more stable and if she keeps
on improving -
H.M.Jr.:
Yep.
H:
The British and these - the Japs and
others would take over all that situa-
tion if we don't keep any too little.
H.M.Jr.:
Well, we're in it now -
H:
Yeah.
H.M.Jr.:
And there's some way out here -
H:
Yeah.
H.M.Jr.:
That has to be considered - the best
planned and that do the most business
with us -
H:
Yeah, well that's good. That's just in
line with what I'm trying to say.
H.M.Jr.:
And no one could feel more friendly than
he does.
H:
Well, that's fine.
H.M.Jr.:
And I wanted to tell you before but -
H:
Well, I -
H.M.Jr.:
None of us get. time enough to -
H:
Yeah.
H.M.Jr.:
I mean I always feel that I never get
time enough to consult -
H:
Yeah.
H.M.Jr.:
But my suspense through the whole thing -
Regraded Uclassified
26
- 4 -
H:
Yes, I'll keep in touch with you.
H.M.Jr.:
And before we give out anything tomorrow,
why we'll send it over to you.
H:
All right, and thank you so much, Henry.
H.M.Jr.:
Thank you.
ooOoo
Regraded Uclassified
27
-12-
H.M.Jr:
He's worrying that the English or somebody might
get into China with their trade before we do.
Well, my good heavens - I mean our position with
China is such that - these fellows will never forget
what we have done for them; I mean I've got great con-
fidence in them. And I always feel that when we take
8 step like this, why not do it gracefully and do it
with an air. And as he says, he's selling us - as
a matter of fact, I'd rather today own silver at
45 cents, I think, than I would gold at $35. I think
it's a darn good swap. I don't know how you feel,
but
Viner:
Both of them are dear.
H.M.Jr:
Both of them are dear - do you really think so?"
White:
Not comparatively, no. I still think silver at
45 cents is better than gold at $35.
H.M.Jr:
You do. Well now, the reason I asked you gentlemen
to stay - am I calling on too much of your time to
stay here tomorrow and then with this thing - then
I don't think that I'll need you people except on
this. I don't know what thing the Brazilians will
bring, but as far as I am personally concerned I
won't need you people any more. What I'd like you
people to do, if you would - if you could stay
tomorrow and then the three of you work out some
sort of arrangement as to how you think we should
handle this Brazilian thing, which is going to be a
matter of weeks. Now, Herbert Feis just caught me
on the run and he says they expect to set up two
joint committees, one in Brazil and one here, that
are going to work continuously on this thing. And
he says they may get out a statement covering the
Treasury - I mean one communiqué covering the whole
thing. But this thing may take several months. And
I jumped on Feis and said, "How can you expect to do
a job in two days that they're here?" and he said,
"Frankly, we only saw yesterday where we were at."
And 30 if you men could contact him and then see -
I go to Cabinet tomorrow, and then before Cabinet
if we could have some idea how we're going to work
this thing out, you see - I mean with Brazil. I
mean just how we're going to plan it, who should
work on it.
Regraded Uclassified
28
-13-
And I told George Harrison - it's all right to
tell him - keep him posted on how this Brazilian
thing develops. And in return anybody we want
from his staff is available to us, see?
Williams:
Sure.
H.M.Jr:
So - I mean that anybody that is - that we should
need in New York to help in the setting up of a
federal reserve is available to us,
Williams:
I should like to venture a little preliminary
statement on this Brazilian thing. It might pos-
sibly clarify our minds, though it is dangerous
because I haven't enough background. But it seems
to me from listening to them this morning that there
is really one main question for us
Lochhead:
(Returning from outside) Excuse me. I have those
four gentlemen - they waited. Dr. Kung and the
Ambassador would like to speak a couple minutes
about the statement.
H.M.Jr:
Why don't you stop this and go into Taylor's office,
and I'll give you a chance with me this afternoon.
Lochhead:
I got them to agree to tack on another couple millions
to make it an even fifty.
H.M.Jr:
Is Kung waiting?
Lochhead:
Yes.
H.M.Jr:
Gentlemen, Kung is waiting outside. Go down to
Taylor's room and I'll see you later on. I'll see
you around - between three and four.
(Group adjourns to Mr. Taylor's office)
(Chinese again present)
Lochhead:
For your information, I will just run through the
general idea. The technical angle of handling this
we will take care of, and what they want to speak of
now is the general form, probably, of a statement
tomorrow.
Riefler:
Technical arrangements are all right.
Regraded Uclassified
29
-14-
Lochhead:
Technical arrangements are all right.
The silver coins that we have gotten from you -
so far we have managed to make 8 fair recovery in
overage. Have you noticed the figures on that?
Kung:
I have not.
Lochhead:
We have managed to get an overage on the silver
coins, as a general rule. And very fortunately
Viner:
The coins are overweight?
Lochhead:
It is a question of fineness, not weight.
and
very fortunately, we have managed - not just melting
it down, but this way, by getting an absolute refining,
we have gotten back something instead of
Kung:
Yes, we give quality and quantity. The coins weigh
more than they should and the quality is very good.
Lochhead:
Well, unfortunately it is very difficult to handle
a quantity like that for refining. Of course, there
are no facilities in any other country to handle a
quantity like that. We've got a very good contract.
The usual charge is one and one-tenth cents an ounce,
and we have managed to get a rate of seven-tenths of
a cent an ounce, which makes quite a difference on a
quantity like that.
White:
Is Herman coming in?
Lochhead:
I don't know. Maybe we better start discussing it.
White:
What did you have in mind, Mr. Minister, with respect
to a statement?
Kung:
I'd rather leave that to the Secretary of the
Treasury; I think he by training is a lawyer.
Lochhead:
Well, may I say in general, to refer back to our
previous operations, we have never made public the
exact amount of any transaction; we have referred to
a purchase of silver to help in the maintenance of
the yuan exchange. We have said that there had not
been a credit, but facilities given by which China
Regraded Uclassified
30
-15-
can obtain dollars in case of emergency. I think
we ought to use that.
Viner:
Could we get a copy of the last statement made
about the last arrangement?
Lochhead:
I'll try Mr. Gaston's office and see 1f we can get
that.
Kung:
Well, at this time you can say an exchange of silver
and gold.
Viner:
Well, we believe in this country those to be separate -
two separate sales transactions. I don't think we
are permitted - I'm not sure, but there is some doubt.
White:
There is some doubt.
Viner:
As to whether the Secretary has legally the power to
make the swap.
Kung:
Trade. He can sell and buy.
Viner:
He can sell and buy, but he can't make an exchange.
Williams:
Perhaps he can; there's just a doubt about the law.
Viner:
No, we're not sure.
White:
I presume you'd like the public statement to be as
much help as possible to China, and that is why it
would be helpful to us if you could - if you have
some ideas on the subject that you would
Lochhead:
I've asked Mr. Gaston to come down, because he handles
that really, and also to bring the last statement.
Kung:
Well, I suppose we could say, by way of introduction,
that arrangements which have been made between the
Chinese and the American governments during the past
have been beneficial to the Chinese currency, also to
the American trade. Huh? And that is taking both
countries in. As a matter of fact, American trade
has been increasing and now has the first place in
China, so that your merchants are making more money.
Viner:
Got good products to sell.
Regraded Uclassified
31
-16-
Kung:
Yes, got good products to sell.
And the American government has been satisfied that
the reform has been successful and is beginning to
extend further cooperation. And we have shipped the
silver to America and are holding it here now, and
some arrangements are being made for facilities for
the Chinese government to get American dollars when
we have the need, and for mutual assistance and help
to each other. That the Chinese government, Chinese
people, appreciate what the American government has
done and I came in person to bring this appreciation
to the government and to the people, and that some
further steps are being taken to increase the
facilities. Something of that sort?
Wang:
Dr. Kung, I would imagine that in the general state-
ment that is going to be made by both of you, you
ought to be as general as possible, and then the
expression of appreciation could be made by yourself
separately when you leave here.
Viner:
The way to do it would be to have first just a formal
statement that the Government of the United States
and the Chinese Government have agreed to - so and
so - and just give whatever information we want.
Then the Secretary, talking to the press, will say
to them whatever nice things he wants to say and you,
talking to the press, will say whatever nice things
you want to say.
Kung:
Yes, formally just say
Wang:
Just a general short statement.
Lochhead:
General statement that you can elaborate orally.
Viner:
This general statement could be handed to the
press - be technical - be given to them; then
there will be oral statements.
Lochhead:
That's why I asked Mr. Gaston to bring down the
previous statement. Mr. Gaston handles the
press relationships. Number One - seems to me the
first part of what Dr. Kung said can go in very
well, that both governments have considered the
32
-17-
agreement made last year to be beneficial.
Viner:
Oh yes. And so it's being extended further.
White:
Extended and amplified.
Viner:
Amplified, yes. Whether we want to say anything
about the transaction or not providing further
facilities
White:
The terms with respect to the extension of dollars,
I think, better be identical or very close to the
last one, because we wrestled with the problem and
it's the same transaction, in effect. The details
are different, but the details didn't appear in
the last statement in any case, so that that portion
of it would be simplified. But I think we do want
to bring out, do we not, the fact that you have
acquired gold.
Kung:
Yes. That's the point.
Lochhead:
I think it may be necessary also to emphasize that
anything additional was not because it is absolutely
necessary at this time; don't want to cast any doubt
that your currency needs the addition, but that it's
just a broader development.
Kung:
This is part of the completion of what was started
last year.
Viner:
Of a program.
Lochhead:
In other words, the program has worked so successfully
that we are able to take one more step forward.
White:
"Further step." It was somewhat in that language
that the previous one was couched also - steps in
the formulation of a program toward - so that this
could readily fall in line as a further step in that
program, which would be particularly pertinent,
because at the time you are now engaged in some
changes in your central bank, so that the program
is continuing.
Kung:
Yes.
33
-18-
Lochhead:
Mr. Gaston is to come in.
White:
Did you get in touch with him personally?
Lochhead:
I spoke to him personally. He's possibly just
getting together the information - the press
release - he needs before he comes down. I think
it is very essential that Mr. Gaston sit in on
this, because after all that's his province.
(Gaston comes in and is introduced)
Gaston:
There's the statement.
(Kung reads statement of May 18, 1936
re Chinese agreement)
Lochhead:
I think you gentlemen (Viner, Riefler, etc.) better
refresh your mind on that.
Kung:
I think maybe they'd better read it out loud.
Viner:
"The representatives of the Chinese Ministry of
Finance who have been in the United States to
make some studies of our monetary and banking
system, and to exchange views on monetary problems
of mutual interest, have completed their mission
and are returning to China.
"Our conversations with them have been mutually
instructive. I feel confident that the monetary
program being pursued by the National Government
of China is not only along sound lines, but con-
stitutes an important step toward the desired goal
of stability of world currencies.
"To supplement their efforts toward that objective
and to cooperate with them in their program of
monetary reform and currency stabilization, and in
accordance with our silver purchase policy, we have
definitely indicated our willingness, under condi-
tions mutually acceptable, to make purchases from the
Central Bank of China of substantial amounts of
silver, and also to make available to the Central
Bank of China, under conditions which safeguard the
interests of both countries, dollar exchange for cur-
rency stabilization purposes.
Regraded Uclassified
34
-19-
"The mission headed by Mr. Chen has been instru-
mental in bringing about a more complete under-
standing of our mutual monetary problems.
"I believe that only through full and frank
exchange of views similar to that which has just
taken place between the representatives of the
Chinese Ministry of Finance and ourselves will it
be possible to improve the internal stability of
national currencies and with this achieve a
greater international stability."
White:
Could it be suggested that we separately work on
preliminary drafts and get together, say, about
three o'clock? Let's say four o'clock. Perhaps
the Minister can have his people work on a draft
and we could work on one here.
Viner:
Would you (Kung) like a copy of this?
Kung:
Yes.
Gaston:
I'll get a - dig up an additional copy.
White:
If we get your ideas and ours, then we'll be able
to combine them; I think we probably can work faster
that way. And then if you
Viner:
Probably there will be some things in yours we'd
like to use and some things in ours we'd like to
use.
Kung:
I think that's best.
White:
Bearing in mind Dr. Viner's suggestion that this
would be supplemented by statements
Viner:
Oral statements.
White:
for the press.
Kung:
If you have another copy, we can take this along.
Well, I know you're busy, and
Lochhead:
We're going to start the machinery working now.
Kung:
Very glad to have met you, Mr. Gaston.
(Chinese leave)
Regraded Uclassified
35
July 8, 1937.
11:21 a.m.
Cordell
Hull:
Hello.
H.M.Jr:
Hello, Cordell.
H:
What's going on?
H.M.Jr:
Well, plenty.
H:
I guess -
H.M.Jr:
Well -
H:
I'm sorry to hear that.
H.M.Jr:
We had this meeting this morning with
the Brazilians in which - Herbert Feis
was here. He just left.
H:
Yeah.
H.M.Jr:
And the way we looked at this thing -
this is going to be a matter of weeks
of study and we're prepared to give it,
you know.
H:
Yeah.
H.M.Jr:
This situ - I think it is too important
and too complicated to try to get to
Sousa Costa before he goes back.
H:
Uh-huh.
H.M.Jr:
And I want to know whether you would be -
I'd appreciate it if you would get Fets
to tell you what happened here this
morning.
H:
Yes. All right, I'll do that right away.
H.M.Jr:
And the other thing is - I tried to get
you before I saw Dr. Kung - I went over it
with the President yesterday - they've
Regraded Uclassified
36
- 2 -
had 62 million ounces of silver in this
country for some time.
H:
How -
H.M.Jr:
Now what we've agreed to do is to swap
that silver for gold.
H:
Uh-huh.
H.M.Jr:
And they could keep the gold @ar-marked
in America and to use it only for exchange
stabilization purposes.
H:
Yes.
H.M.Jr:
The way they have all the other money.
H:
Yeah.
H.M.Jr:
Now they've kept their faith with us
absolutely.
H:
Well, that's fine.
H.M.Jr:
And they've never used a dollar of it
except for exchange purposes.
H:
Yeah.
H.M.Jr:
And then we've agreed also against this gold
if they have to borrow some money temporarily
for exchange purposes, we'll send it to them.
H:
Yes.
H.M.Jr:
And that's the whole agreement.
H:
Well, that - that's good.
H.M.Jr:
And Kung was just tickled to death and
we're going to work out a statement which
we'll give out tomorrow and before we
give it out, why, 1'll submit it to you.
H:
Yeah, sooner or later, when we get a
little further out of the woods, we've
got to talk just a little more - some of us
Regraded Uclassified
37
- 3 -
have at least - about international
financing because we have - China is getting
more stable and if she keeps on improving -
H.M.Jr:
Yep.
H:
The British and these - the Japs and
others would take over all that situa-
tion if we don't keep in it a little.
H.M.Jr:
Well, we're in it now -
H:
Yeah.
H.M.Jr:
And wit Kung way out here -
H:
Yeah.
H.M.Jr:
He says he considers it the best plan and
he does business with us -
H:
Yeah, well that's good. That's just in
line with what I'm trying to say.
H.M.Jr:
And no one could feel more friendly than
he does.
H:
Well, that's fine.
H.M.Jr:
And I wanted to tell you before but -
H:
Well, I -
H.M.Jr:
None of us get time enought to -
H:
Yeah.
H.M.Jr:
I mean I always feel that I never get
time enough to consult -
H:
Yeah.
H.M.Jr:
But Feis has been through the whole thing -
Regraded Uclassified
38
July 8, 1937
11:48 a.m.
H.M.Jr.:
Hello.
Representa- Hello, Mr. Secretary.
tive Doughton:
H.M.Jr.:
How are you, Bob?
D:
I'm all right, thank you. How are you?
H.M.Jr.:
Oh, pretty well.
D:
You told you that we had called for the
President's tax returns?
H.M.Jr.:
Who had told me?
D:
Yeah.
H.M.Jr.:
Why, it came through Magill.
D:
Why, Magill - he says there's a mistake
about that. Well, we never called for
the President's tax returns. We never
thought about calling for them. We had
a little conference up here of the Demo-
cratic members to discuss what - all this
discussion that's been coming up but we
wouldn't think about calling for the
President's tax returns without conferring
with him.
H.M.Jr.:
Well, my informant is Magill.
D:
Well he said you misunderstood him.
H.M.Jr.:
Was he there with you?
D:
He was a while - he's gone now. Why we
never thought about calling for the
President's - I might of thought about
it but if it ever got to doing it, why
I wouldn't think about - I wouldn't at-
tempt to do, you know. I'd love to talk
Regraded Uclassified
39
- 2 -
to the President about it - I've been
awaiting till he gets back to have a
conference with him about the situation.
There's so much in the papers one way
and another to bring it to our attention
so it is a matter that we will have to
deal with in some way.
H.M.Jr.:
Well I -
D:
We want to discuss with him - I -
H.M.Jr.:
I -
D:
Some of them said down here the other
morning I think - maybe I didn't say
that even. There's no official action
taken - maybe they better be looking
over it and see if it's ready for any-
thing that comes up so that they'd know
the situation.
H.M.Jr.:
Well, that's where I got it from.
D:
Yeah, but we never called for 'em or
thought about 'em.
H.M.Jr.:
Well, then he must have misunderstood
it but that's the word that I got.
D:
Well, he'll tell you that the President's
as mad as a wet hen about it.
H.M.Jr.:
What's that?
D:
I say the President's mad about it. He
says surely he couldn't see why we'd
call for his tax returns without giving
the President of the United States the
courtesy to discuss the matter with him -
of course, I wouldn't attempt to -
H.M.Jr.:
The President is mad about it?
Regraded Uclassified
40
- 3 -
D:
That's the way he talked over the phone
to me - like he was pretty hot.
H.M.Jr.:
Did he call you?
D:
No, I was calling this morning - I was
calling him and then he brought the
matter up. See when we could see him.
But we talked about the whole situation.
And we can't go on down here until we
see his viewpoint apaying about how we
should. handle the matter.
H.M.Jr.:
Well -
D:
Till we discuss the matter with him.
H.M.Jr.:
Magill just came in the room. As I say -
D:
How's that?
H.M.Jr.:
Magill - he's in the room now.
D:
I didn't get that?
H.M.Jr.:
Magill has just come into my room now.
D:
Well, I'think he'll tell you very plain
that we never called for the President's
tax returns.
H.M.Jr.:
Well - there must be a misunderstanding
and -
D:
Well, you call me back here after you talk
with him.
H.M.Jr.:
I'll do that.
H.M.Jr.i D
All right, thanks, Mr. Secretary.
H.M.Jr.:
I'll do that.
D:
Goodbye.
oo0oo
Regraded Uclassified
41
1. The United States to purchase from the Government of
China 62,000,000 cunces of silver now held in the United States
at 45# an ounce, on terms similar to those applying to the
earlier purchases from China.
2. China to use the dollar proceeds from the sale of silver
for the purchase of gold from the United States at $35 an ounce,
plus ± of one percent, and agree to hold such gold under earmark
at the Federal Reserve Bank of New York, and to use that gold only
for the purpose of maintaining stability of yuan exchange.
3. For the purpose of stabilization of yuan exchange the United
States Treasury, acting through its fiscal agent, the Federal Reserve
Bank of New York, will be prepared to provide U. S. dollars up to
$50 million in exchange for an equivalent amount of yuan contingent
upon a repurchase agreement, and upon the maintenance in the U. S.
of collateral to an equivalent amount in gold. This arrangement
to be terminated on a definite date mitually agreeable unless
renewed from time to time thereafter by agreement on at least 30
days' notice. Interest on the amount of dollars given up in ex-
change for yuan to be charged at the rate of
percent
per annum.
Regraded Uclassified
42
July 8, 1937
HM,Jr and Bell conferred with the President at
12'30 today on the attached memorandum.
Regraded Uclassified
6 see 43
025 the 12:30
214,8
MEMORANIUM RELATIVE TO RECENT ACTION taken TOWARD
EFFECTING SAVINGS IN THE FISCAL YEAR 1938.
1. General Reserve. On June 23, 1937, B. circular letter
was addressed to the heads of all departments, establish-
ments and agencies by the President requesting reserves be
set up of not less than 10% of the total amount of all
funds properly susceptible to the establishment of reserves.
Such items as the services of the public debt, payment of
compensation, pensions and retirement annuities, social
security grants, investments in the old-age reserve account,
refunds of taxes and a number of smaller items are in the
nature of fixed charges and are not subject to administra-
tive control. These fixed charges, in their aggregate
amount to almost $3,000,000,000 and necessarily must be
eliminated from any estimate of savings which might be
affected by the circular letter. In addition, letters
were sent to certain agencies where the nature of the
problem demanded special treatment, such as those agencies
administering relief, the postal service and several others
which are set forth below. Eliminating these special items
and fixed charges, the amount susceptible to the establish-
ment of reserves of 10% is about $2,800,000,000. Assuming
that the actual saving under this reserve will be approxi-
mately 25%, it is believed that the amount of the reduction
in deficit can be estimated at
$70,000,000
2. Postal Deficiency. The Postmaster General was
advised on June 29, 1937, by the President, that it was
his desire that the Post Office Department should eliminate
or defer all expenditures not absolutely necessary in order
to hold the total expenditures of the Post Office Depart-
ment within the amount of the postal revenues. This would
result in a saving of
$30,000,000
3. Agricultural Adjustment Program. The Secretary of
Agriculture was advised on June 29, by the President, that
he should make every effort to reduce the Soil Conserva-
tion and Domestic Allotment program to $440,000,000 or
$60,000,000 less than the available appropriation of
$500,000,000. In the budget, it was estimated that
$470,000,000 would be spent for this program and thus the
saving accomplished by this additional reserve will be
$30,000,000
The Secretary was also requested to hold the cost
of this program for the future to this sum.
Regraded Uclassified
44
- 2 -
4. Rivers and Harbors. On the same date, the President
addressed to the Secretary of War a request that he set
up in reserve $30,000,000 of the appropriation of
$90,000,000 for improvement of rivers and harbors. Since
the estimated expenditure in the Budget was approximately
the same amount as the appropriation, this entire reserve
will reflect a saving which will thus be
$30,000,000
The Secretary was also requested to hold all future
annual expenditures (including maintenance) for rivers
and harbors to $65,000,000, in order that an increase
may be allowed for flood control.
5. Reconstruction Finance Corporation. This corporation
was requested, by the President, to make every effort to
facilitate the liquidation of loans and to so arrange the
program for the fiscal year 1938 as to deposit in the
Treasury excess credits of $300,000,000 during the year.
Since the Budget estimates anticipated an excess of repay-
ments of $150,000,000, the accomplishment of the objective
set by the President would result in decreasing the
estimated deficit by.
$150,000,000
6. Commodity Credit Corporation. At the same time, the
President has requested the Commodity Credit Corporation
to make every effort to liquidate their current loans as
speedily as possible without unduly affecting commodity
markets and use the proceeds to retire the notes due to
the Reconstruction Finance Corporation. The Budget esti-
mates contemplated an excess of repayments by the
Commodity Credit Corporation of $30,000,000 in 1938,
but due to the President's request, it is anticipated
that there will be additional repayments in the amount
of
$20,000,000
7. Federal Housing Administration. The President
advised the Administrator, on June 29, of his desire that
the additional appropriation made by Congress over and
above the Budget estimate be placed in reserve together
with 10% of the amount originally approved by the Budget.
This excess in appropriation was $1,500,000 and the 10% of
the original Budget estimate is $850,000. Thus, the saving
expected to be accomplished will be
$2,350,000
8. Relief. The President has informed the heads of the
principal agencies administering work relief that no
additional funds will be provided for 1938 beyond the
$1,500,000,000 appropriation plus unobligated balances of
about $110,000,000 made available by the Emergency Relief
Appropriation Act of 1937.
Regraded Uclassified
45
- 3 -
He has informed the Administrator of the Works
Progress Administration that he may apportion not to exceed
$1,200,000,000 for current operations and that there will
be a reserve established of $100,000,000 to meet emergencies.
Thus, the total limit on funds for the Works Progress Admin-
istration for 1938 will be $1,300,000,000.
The Resettlement Administration has been advised that
the total amount which will be made available during 1938.
for that administration for all purposes is $118,000,000,
of which $13,000,000 has been put in reserve.
Of the remaining $192,000,000 available for relief,
$112,000,000 (including reserves of $17,000,000) has been
set aside for administrative expenses, other than those
of the Works Progress Administration and the Resettlement
Administration, and work projects under the various Govern-
ment departments and agencies, and $80,000,000 has been set
aside as a general reserve.
Thus, of the total sum of $1,610,000,000 available for
relief, the apportionment of $1,400,000,000 has been author-
ized, and $210,000,000 has been set aside in reserve.
Total estimated savings
$332,350,000
Regraded Uclassified
46
Regraded Uclassified
MEMORANDUM FOR THE PRESIDENT:
Subject: Conference with chief administrative officers
of Independent Establishments and other Agencies
relative to your letter of June 23, 1937, in
which you express the desire that . where possible,
savings of not less than 10 percent be made in the
1938 appropriations.
Attached is a table showing by agencies the amounts appro-
priated for the fiscal year 1938 and anticipated expenditures.
Briefly, it 18 anticipated that the heads of the agencies
attending the conference will be informed that the Budget must be
balanced in 1938. Therefore, it would probably be desirable to
refer to your message to Congress of April 20, 1937, in which you
stated that the prospective deficit for 1938 would be $418,000,000
and that you proposed to eliminate this by (1) withholding from
apportionment for expenditure a substantial percentage of funds
available for that year, and (2) by increasing the receipts of the
Treasury through the liquidation of assets of certain emergency
agencies.
In order to eliminate the deficit each agency, regardless of
size, must make every effort to comply with the request contained
in your letter of June 23, 1937 in order to, if possible, save
more than 10 percent. In some cases it probably would be extremaly
difficult to save the full 10 percent, particularly in the cases
where estimates which you approved were reduced by the Congress.
However, in every case savings say and should be accomplished by
refraining from filling vacancies, from making administrative
promotions and by eliminating all unnecessary travel and other
expenses incidental to the operations of the respective agencies.
In some agencies expenditures may be substantially ourtailed
by reducing or entirely eliminating expenditures now being made
on sducational and promotional programs which though no longer
needed were very necessary at the time these agencies were
originally established. This would refer to Federal Housing
Administration, Savings and Loan Division, and probably Federal
Savings and Loan Insurance Corporation under the control of the
Home Loan Bank Board, Rural Electrification Administration,
Electric Home and Farm Authority and possibly a few other
agencies.
47
- 2 -
Regraded Uclassified
It might be desirable also to make & general reference to
the failure of certain agencies to Comply with Budget Circular
No. 336 under the terms of which the departments, establishments,
and agencies are required to clear through the Bureau of the
Budget all reports and recommendations on proposed or pending
legislation. This comment would be of value as certain agencies,
even though their estimates of appropriations must be approved
by the President, have taken the attitude that they are responsible
to the Legislative rather than the Executive Branch and fail to
comply with the Circular. In particular this refers to the Inter-
state Commerce Commission which has always contended that they are
not required to comply with this Circular, and the Railroad Retire-
ment Board which recently reported directly to the Senate Committee
on S. 2700, informing the Bureau of the Budget that they could not
clear this report through the Bureau without first obtaining the
consent of Senator Robinson. In addition, other agencies occasion-
ally try to get away from the procedure of making such reports,
but as a result of a telephone conversation or a letter these
agencies again start submitting the required reports. In this
connection, it might be well to emphasize the fact that the
President can not exercise control over expenditures if agencies
fail to clear their reports in order that they may be informed
whether or not the proposed or prospective legislation is in
accord with the President's program.
You may also wish to comment on suppliental estimates now
under consideration and indicate that even in the case of these
every effort should be made to save & portion of the amount
finally appropriated. Further, it might be desirable to state
that where new legislation is passed expenditures relative
thereto should not be incurred until AD appropriation has been
made.
Acting Director.
18h/mab
BUREAU OF THE BUDGET
Office of the Acting Director
48
To The Secretary
Here are capies
of letters referred to
yrsterday in conversation
with President.
swB
7-10
MR. BELL
Regraded Uclassified
49
THE WHITE HOUSE
WASHINGTON
July 8, 1937
My dear Mr. Secretary:
As under the provisions of the Emergency Relief Appropriation
Act of 1937 no additional funds will be made available for relief
or work relief during the fiscal year 1938, it will be necessary
to make the appropriation contained therein last during that
entire fiscal year. To accomplish this, activities of the Resettle-
ment Administration must be ourtailed sufficiently to bring the
total obligations incurred by that Administration during the fiscal
year 1938 under $118,300,000, exclusive of expenditures on land
utilization projects which, as heretofore, will be financed from
funds reserved for the Works Progress Administration.
I wish you to direct the Resettlement Administration to limit
its obligations for 1938 for the following purposes to the amounts
indicated:
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Total
Administration
$ 6.0
X
8 5.1 y
$ 4.2
X
$ 3.0
X
$ 18.3 X
Relief
7.0
1.0
-
-
8.0
Loans
11.0
14.6
19.2
12.3
57.0
Projects
11.8
9.2
1.0
-
22.0
$35.8
$29.8
x
$24.4
X
$15.3
X
$105.3 x
This will leave a reserve of $13,000,000 which will be avail-
able for any additional work I may subsequently authorize or to
meet any emergency.
I wish it clearly understood, however, that none of the fore-
going funds for projects are to be used to start any new unit not
now under actual construction, In the case of units where the
foundations are already in, the unit may be finished. In the
case of units where the foundations are not already in, no
further work is to be undertaken except necessary regrading.
Furthermore, I desire to have the work so planned that there will
be no incomplete units on April 1, 1938.
Regraded Uclassified
50
- 2 -
I fully realize the program I have outlined will mean a
frastic ourtailment in certain activities of the Resettlement
Administration. However, I believe that sufficient funds have
been made available 80 that this can be accomplished gradually
without causing any undue hardship.
Sincerely yours,
(signed) Franklin D. Roodevelt
The Honorable,
The Secretary of Agriculture.
Regraded Uclassified
C
51
0
P
THE WHITE HOUSE
Y
WASHINGTON
My dear Mr. Administrator:
As under the provisions of the Emergency Relief Appropriation
Act of 1937 no additional funds will be made available for relief or
work relief during the fiscal year 1958 and no portion of the funds
may be used for any purpose except to provide relief or work relief
for persons in need, it will be necessary to curtail all activities
being carried on with relief funds in order to comply with the fore-
going requirements.
I have allotted $7,000,000 for obligation by the National Youth
Administration during the first quarter of the fiscal year 1938. Of
this sum $1,000,000 is for student aid projects and the balance,
$6,000,000, for other work relief projects of that Administration.
Will you please see that no obligations in excess of those amounts
are incurred prior to October 1, 1938. For the balance of the fiscal
year obligations should be held to the following amounts:
Student Aid
Other Work Relief
Total
Projects.
Projects
Second Quarter
$ 7,000,000
$ 5,000,000
$12,000,000
Third Quarter
7,000,000
5,000,000
12,000,000
Fourth Quarter
5,000,000
4,000,000
9,000,000
Total
$19,000,000
$14,000,000
$33,000,000
Add First Quarter
as stated above
1,000,000
6,000,000
7,000,000
Total for N.Y.A.
-1938
$20,000,000
$20,000,000
$40,000,000
As no portion of the foregoing funds can be used for any purpose
except to provide relief or work relief for persons in need, you are
requested to limit payments under student aid projects to yound persons
who come from families certified as in need of relief.
Sincerely yours,
Harry L. Hopkins, Administrator
Works Progress Administration
Washington, D. C.
Regraded Uclassified
52
JUL 1 1937
tty dear Mr. Administrator:
As under the provisions of the l'arrgency Relief Appropriation
Act of 1937 no additional funds will be made available for relief
or work relief during the fiscal year 1938, it will be necessary
to make the appropriation contained therein last during that
entire fiscal year.
1 an reserving therefrom $1,500,000,000 to provide for all
obligations to be insurred for the administration and work relief
projects of your Administration, including the National Youth Adminis-
tration, as well as the land utilisation projects of the Resettle-
ment Administration, In addition to the foregoing amount, I an
prepared to approve direct allocations, not to exceed $38,000,000
during the first half of the fiscal year, to Federal agencies to
provide employment on work relief projects for such numbers of
certified workers as you recoment.
You are directed to so administer the funds made available
to your Administration that obligations incurred shall not exceed
the following amounts for the periods indicated:
First quarter
0 $50,000,000
Second quarter
$00,000,000
Third quarter
300,000,000
Fourth quarter
250,000,000
This will leave a reserve of $100,000,000 to be allocated by
me to your Administration to neet any unforeseen emergency which
may arise during the fiscel year.
In order that you may be able to sake sufficient funds avail=
able to the state administrators to erable them to plan their work
more efficiently, I have allocated the following amounts for the
first quarter of the fiscal years
Regraded Uclassified
53
as 8 9
For obligations insurred under limitation a
8 8,000,000
#
.
-
-
b
12,000,000
-
.
"
-
.
e
17,000,000
-
#
-
-
#
d
7,000,000
4
on projects approved
under the Emergency Relief Appropriation
Act of 1935 and the Emergency Relief Appro-
priation Act of 1986
260,000,000
For obligations incurred for Administration
General
10,000,000
Supervisory
5,400,000
Total allocated
$319,400,000
This leaves $30,600,000 for allocation including funds for
land utilization projects of the Resettlement Administration within
the $350,000,000 for the first quarter.
Should it be found that the foregoing distribution does not
provide enough funds in some ascounts and provides surplus funds
in other accounts an adjustment may be made about the middle of
August when I allocate funds for obligation in October.
Sincerely yours,
(Signed) FRANKLIN D. ROUSEVELT
The Honorable,
The Administrator,
Works Progress Administration.
Regraded Uclassified
54
y
June 29, 1937
Honorable Jesse H. Jones,
Chairman, Reconstruction Finance
Corporation,
Washington, D. C.
My dear Mr. Jones:
In my message to Congress of April 20, 1937, I stated that I
proposed to use every means at my command to eliminate the prospeo-
tive deficit in the coming fiscal year and that this would be 60⑉
complished in part by an increase in the receipts of the Treasury
through the liquidation of assets of certain of the emergency
agencies.
Accordingly, you are instructed to have the Board of Directors
of the Corporation make every effort to facilitate the liquidation
of loans in order to arrange your program for 1938 so as to deposit
with the Treasury excess credits of at least $300,000,000 rather
than $150,000,000 as originally estimated.
In order to assist in accomplishing this objective, no new
loans should be made or old loans extended or renewed unless the
Board is convinced that such action is absolutely necessary. In
this connection, it is my desire that the Board carefully review
all outstanding authorizations and cancel those which are not
likely to be utilized, or where the necessary financing may be
arranged between borrowers and commercial institutions. The Board
should also take advantage of any repayments prior to the maturity
which borrowers may desire to make.
The attention of the Board is directed to the Corporation's
portfolio of securities purchased from the Federal Emergency Adminis-
tration of Public Works and unless there is some very vital objection,
these securities should be disposed of as rapidly as possible and the
proceeds transferred to the Treasury in exchange for & like amount of
the Corporation's notes. Furthermore, any additional marketable
securities which the Corporation may purchase under the authority
contained in the Act of June 19, 1934, as amended by Sec. 202 of
H. J. Res. 361, approved June 29, 1937, should likewise be disposed
of as rapidly as possible.
It is assumed that in executing the program outlined above,
the Board will soon be in a position to make substantial reductions
Regraded Uclassified
55
o
P
- 2 -
y
in personnel and other expenses. Accordingly, it is not expected that
you will have any difficulty in maintaining the reserve of at least
ten per cent on this item as requested in my letter of June 23, 1937
to the heads of the executive departments, establishments and agencies.
In order that I may be kept informed of the action taken to
carry out the proposed program, progress reports should be prepared
monthly and transmitted to the Acting Director of the Budget. I
would also like to have a report from the Board as to whether credit
is available, under the conditions specified in the Act of January 26,
1937, for any class or classes of borrowers to whom the Corporation
is authorized to make loans.
Sincerely yours,
(Signed) Franklin D. Roosevelt
Regraded Uclassified
56
P
y
June 29, 1937
Mr. Lynn P. Talley,
President, Commodity Credit Corporation,
Washington, D. C.
My dear Mr. Talley:
In my message of April 20, 1937 to Congress, I stated
that it was my purpose to use every means possible to elim-
inate the apparent deficit for the fiscal year 1938, and
that I proposed to adcomplish this, in part, by increasing
the receipts of the Treasury through the liquidation of
assets of certain of the emergency agencies.
Accordingly, it is my desire that you make every effort
to liquidate current loans on all commodities as expeditiously
as may be possible without unduly affecting the commodity
markets. The proceeds obtained from the liquidation of assets
should be used in the retirement of your outstanding notes
due the Reconstruction Finance Corporation.
With regard to administrative expenses, the Corporation
should establish and maintain 8. reserve of not less than ten
percent of the amount appropriated for this purpose in accord-
ance with my letter of June 23, 1937 to the heade of all exec-
utive departments, establishments and agencies.
In order that I may be adequately informed of the prog-
ress made in liquidating the assets of the Corporation, it
is requested that you prepare appropriate progress reports
and transmit such reports to the Acting Director of the Bureau
of the Budget at the end of each month.
Sincerely yours,
(Signed) Franklin D. Roosevelt
JJL/ot
Regraded Uclassified
57
o
o
P
Y
June 29, 1937
My dear Mr. MoDonald:
In my letter of June 23, 1937, to the heads of the
executive departments, establishments and agencies, I ex-
pressed the desire that, in preparing apportionments of
funds available for the fiscal year 1938, there be set up
reserves of not less than ten percent. In reviewing the
Independent Offices Appropriation Bill for 1938, I noted
that the amount appropriated for the Federal Housing Ad-
ministration was $10,000,000 or $1,500,000 more than I had
recommended. Under the circumstances, it is my desire that
you place this additional amount inreserve, together with
ten percent of the $8,500,000 which I originally approved.
In order to accomplish the above, it may probably be
necessary to make unequal apportionments. If, after every
reasonabel effort is made, you find that you cannot keep
your obligations within such approtionments, I will consider
such modifications as may be justified. It is hoped, however,
that you will endeavor to discourage the incurring of all ob-
ligations which are not essential to your insurance program.
I also wish to call your attention at this time to the
estimates, which are to be submitted for the fiscal year 1939,
and to ask whether it would be practicable to charge all field
costs in 1939 against the Mutual Mortgage Insurance Fund, thus
limiting the direct appropriation in that year to central office
costs.
Sincerely yours,
(Singed) Pranklin D. Roosevelt
Honorable Stewart MoDonald,
Administrator, Federal Housing Administration,
Washington, D. C.
Regraded Uclassified
FEDERAL RESERVE BANK
w Laphead
OF NEW YORK
58
FFICE CORRESPONDENCE
DATE July s, 1987.
CONFISTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W, Knoke
DM
WITH BANK OF ENGLAND.
I called Mr. Bolton at 10:02 today. It was rather diffi-
cult to try and give an indication of the markets, he saids nothing
had settled down yet; there had been some bear covering in france,
not very extensive nor strong. After succeeding in selling some
£,000,000,000 franes up to Tuesday noon, the French Fund had bosn
able to do little more. This afternoon the market had turned
around the other way, with the fund doing some buying of france.
The reason for this reversal probably was threefold: (1) New de-
crees were expected tonight or tomorrow) (a) There were rumors of
8 strike among bank employees protesting against the high cost of
living, and (8) There were rumors of dissension in the cabinet
over the decrees to be issued.
I asked Bolton whether he still felt as depressed about
the French situation as early in the week. He replied that it was
difficult to find any real reason for optimism, that so for in the
course of one week very little had really been accomplished and
nobedy knew how the whole thing would pan out. Chentemps had such
a sixed stable to run, with the socialists all the time tending to
pull away.
do regards the Lendon gold market, yesterday's fixed price
at a premium Over shipping parity was due to technical conditions
primarily, to the mall assues on offer. The London market we
prectically cleaned 4, barring, of course, smother gold seare; so-
cording to their calculations the gold hearded in Leadon could not
be very such more then £80,000,000 at the outside, a large mount of
Regraded Uclassifie
- WM 1-37
FEDERAL RESERVE BANK
59
OF NEW YORK
FFICE CORRESPONDENCE
DATE July 8, 1937.
CONFIDENTIAL vilms
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF INGLAND.
DM
- 2 -
which was in the hands of trust companies, lawyers, etc. and in all
probability would never come out. Under the circumstances, it
looked as though the only gold that hereafter would be available in
London would be newly mined gold. The Bussians were no factor;
they had nothing done in the London market in months; they had not
approached the British on gold nor had the British approached them.
The London stock exchange had brightened up considerably due to 8
number of factors: the disappearance of the gold scare, some very
good employment figures for England and a feeling (although it was
difficult to put one's finger on any particular spot) that the
political situation in Europe was a little bit better.
I asked how he explained the extravagent action of the
pound sterling-dollar rate in the last few days and Bolton suggested
that it might wall, is part at least, be due to the continuation of
rumors from New York and in the Paris press that Bonnet had fixed up
some arrangement with Mr. Morgenthen enabling the two treasuries to
trace amounts held by their nationals in the other country, as a PO-
sult of which Frenchmen had preferred to go out of the dollar into
starling. I reminded Belton that we had discussed this before and
no
that, although I know nothing definite, I continued to take/stock
in these rumors. Belten suggested that it night also be due to
continued Japanese buying. I suggested that the latter reason was
more convincing, particularly since we know that the Japanese were
continuing their gold shipments to this country on a very substantial
scale. (The total shipped since the beginning of the year, or going
Regraded Uclassified
60
COM 1-37
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
DATE July 8, 1937.
CONFIDENTIAL FILES
SUBJECT:
TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF ENGLAND.
DM
- S -
to be shipped in the next few days, being $05,000,000 yen accord-
ing to information just furnished us by the representative of the
Bank of Japan in New York.) I also mentioned that the Japanese
continued to emphasise their previous statement that all these
gold shipments were made entirely and solely for the purpose of
straightening out & very unfavorable trade balance. Bolten replied
that there was plenty of evidence in London that the Japanese were
in a very tight way for money. There was a lot of Japanese paper in
London which, however, me not particularly welcome.
Bolton stated that he was going away on his holiday tomight
and would be gone until early August and suggested that, if I wanted
to call them on the telephone, I talk to Mr. Hawker, his deputy, who
would attend to everything while Bolton was away. Bolton wanted to
know whom he could speak to when I was away in August and I suggested
that he call Mr. Sproul.
LUK:KNC
Regraded Uclassified
61
RB
GRAY
London
Dated July 8, 1937
Rec'd 2:25 p. m.
Secretary of State
Washington.
452, July 8, 6 P. m.
FOR TREASURY FROM BUTTERWORTH.
At the meeting of the British Treasury today
Sir Frederick Philipps said that he was glad to see
that the French Parliament had been dismissed this
morning and that Rowe Dutton, British Financial
Attache at Paris, believed that the French Government
would be safe until the autumn if it weathered the
period of the Socialist Party meeting.
I referred to the unfavorable Bank of France
statement and the fact that it had produced such a
bad impression on the market as to reverse the exchange
trend and that the French authorities had since midday
been forced to buy francs and sell dollars and sterling.
Phillips said that he hoped this might prove a transient
flurry and that due to covering operations and the short-
age of funds in Paris that the French fund might (*)
although gaining some thirty or forty million pounds.
Phillips
Regraded Uclassified
62
RB
-2-#452, July 8, 6 P. m. from London
Phillips said that the only new development was
that Bonnet had now indicated that he wished to pay a
visit to London if possible in the near future. To my
query as to the purpose of such a visit Phillips wryly
replied that Bonnet had stated to them that he wished
to "salute the Chancellor", At the same time Bonnet
had indicated that he welcomed the pressure which the
British Treasury had brought to bear on him in the matter
of a balanced budget for he maintained that that enabled
him in turn to represent its desirability to his colleagues.
Phillips intimated that he did not welcome such a visit
from Bonnet at this time but that since they saw no way
of appropriately preventing it they had acquiesced in the
idea. Phillips also referred to the "rude note" which
had been sent Bonnet (that based on the draft contained
in my 424, June 30, 11 P. m.) and implied that that in
itself compelled them to agree to seeing Bonnet if he
wished to discuss the position.
In the course of the conversation Phillips
also (*) that he had heard that Bonnet's "American
visit had been good for him and that he had improved
since the World Economic Conference",
I took this occasion to pass on the substance of
Sproul's
Regraded Uclassified
63
RB
-3-#452, July 8, 6 p.m. from London
Sproul's talk with Araki on June 23 and Phillips again
referred to the Japanese position in much the same terms
as quoted in the second paragraph of my 301, May 21, 7 p. m.
In this connection Waley mentioned the new Japanese
regulations tightening their exchange control system and
remarked that "the Japanese seemed to have blackballed
themselves from the club before they were proposed".
BINGHAM
HPD 03V12037
(*) Apparent omissions
T831
-
Regraded
Uclassifie
64
JR
GRAY
Paris
Dated July 8, 1937
Rec'd 2:45 p.m.
Secretary of State,
Vashington.
939. July 8, 4 p.m.
FROM COCHRAN.
Sarly this morning Parliamont adjourned until perhaps
November. Today cabinot is discussing Bonnet's financial
decroo laws and tho Counsel of Ministers is examining them
at 9 o'clock tonight with hope that they may be promulgated
Friday morning. The fact that Rist conforred with
Chautomps last night is giving rise to gossip that he and
Baudain may again act in somo advisory capacity.
Spoculation 28 to a successor for Governor Laboyric at the
Bank of France continues with Fournior, Baudoin, Quesnay
and Boisangor mentioned C.S the most likely prospects.
Bank of France statement as of July 1 was bad. It
showed = loss of six billion francs gold (which went to
the stabilization fund); discounts up 758 million francs;
advances against socurities up 450 millions; 30 day
advances up six million millions; advances to State under
Articlo throo up 800 millions (which completed the
(END SECTION ONE)
BULLITT
LJV:WWC
Regraded Uclassified
65
MJP
GRAY
Paris
Dated July 8, 1937
Rec'd 2:40 P. m.
Secretary of State,
Washington.
939, July 8, 4 P. m. (SECTION TWO)
utilization of the old tEn billion credit); advancement
of 1,760,000,000 to the state under a new itEm envisaged
by convention of June 30; circulation up 2,700,000,000;
deposits down 3,800,000,000; coverage 47.53 versus 52.80.
This statement revealing how serious the situation
of the Treasury and of the stabilization fund had bE-
come before the new finance law was passed shocked the
market severely today. There was also rumor that
ministers are in disagreement over Bonnet's proposals;
furthermore, hotEl strikes still threaten. All of this
had depressing Effect on market. Control offered at
opening a price for sterling which was below that which
market itself was willing to pay. Later, with above
developments and disclosure of bank statement, control
had to SEll sterling importantly to check serious decline
in franc, For the day the control undoubtedly lost
quite an amount of foreign Exchange on balance and the
franc, both spot and forward, weakened in a discouraging
manner.
Regraded Uclassified
66
MJP -2- No. 939, July 8, 4 P. m. from Paris
mannera RENTES unchanged to a little up.
BULLITT
WWC
ODVITION
TOW
will Inc
the social
Regraded Uclassified
67
8.20
JUL 8 1937
BANK OF FRANCE STATEMENT
PARIS - STATEMENT AS OF JULY 2 SHOWS GOLD
48 859 000 000 FRANCS vs 54 859 000 000 JUNE
25 - CIRCULATION 88 686 000 000 FRANCS vs 85
985 000 000 RATIO 47 53 PC vs 52 80 PC
-0-
JUL 8 1937
BANK OF FRANCE
PARIS- CURRENT STATEMENT OF CONDITION
1244
OF BANK OF FRANCE SHOWS FRENCH STABILIZATION
FUND TOOK 8 500 000 000 FRANCS OF GOLD FROM
THE BANK BETWEEN JUNE 17 AND JLY I AND THAT
THE TREASURY BORROWED 2 500 000 000 FRANCS
FROM THE BANK
THUS THE JUNE FINANCIAL PANIC REDUCED THE
RESERVE OF THE BANK BY 11 PC AND INCREASED
THE STATE-S TEMPORARY DEBT TO THE BANK BY
20 PC- DESPITE THIS INCREASE THE TREASURY-S
BALANCE AT THE BANK WAS DOWN TO ONLY 6 000 000
FRANCS AT THE MONTH END
TOTAL SIGHT LIABILITIES WERE BELOW THOSE
OF PRECEDING WEEK OWING TO SHARP SHRINKAGE
IN PRIVATE DEPOSITS INCLUDING THOSE OF THE
STABILIZATION FUND- OWING HOWEVER TO THE
GOLD LOSSES THE GOLD COVER DROPPED TO 47 53
PC WHICH COMPARES WITH OVER 60 PC AFTER THE
AURIOL DEVALUATION AND 52 80 PC THE PRECEDING
Regraded Uclassifie
WEEK- THUS IT IS LOWER THAN AT ANY TIME SINCE
THE AURIOL DEVALUATION
UNDER THE POINCARE FRANC REGIME THE
COVER STARTED AT 40 PC AND THE LOWEST WAS
38 PC- IT REACHED ITS HIGHEST FIGURE AT
81 PC AT THE END OF 1934- WHEN THE BLUM
GOVERNMENT TOOK OVER 13 MONTHS AGO IT STOOD
AT 61 PC
THE PRESENT COVER HOWEVER IS RECKONED
ON BASIS OF A FRANC AT 49 MILLIGRAMS OF GOLD
WHEREAS ON THE BASIS OF THE FRANC- DOLLAR RATE
THE FRANC NOW IS EQUIVALENT TO ABOUT 34
MILLIGRAMS OF GOLD- COVER PERCENTAGES THEREFORE
ARE ON A FICTITIOUS BASIS AND MUST REMAIN SO
UNTIL THE FRANC AGAIN IS ANCHORED TO GOLD
IT IS TRUE HOWEVER THAT THE GOLD RESERVE
WHICH WAS OVER 5 000 TONS IN 1934 HAD SUNK TO
3 600 TONS A YEAR AGO AND IS NOW 2 500 TONS
APART FROM WHAT GOLD IS HELD BY THE STABILIZA-
TION FUND BUT ALSO EXCLUDING PROSPECTIVE* REPAY-
MENT OF THE 40 000 000 PDS STERLING CREDIT
WHICH IS EQUIVALENT OF ABOUT 200 TONS
-0-
69
July 8, 1937.
4:08 p.m.
H.M.Jr:
Hello.
Operator:
Congressman Doughton.
H.M.Jr:
Hello.
Operator:
Go ahead.
H.M.Jr:
Hello.
Rep. Robert
Doughton:
All right.
H.M.Jr:
Henry Morgenthau, Jr., talking..
D:
All right Mr. Secretary.
H.M.Jr:
I have read on the news ticker that Mr. Fish
expects to bring certain charges against my
father and myself tomorrow, before your
committee. I would like to ask you as Secretary
of the Treasury that before the Committee ad-
Journs tomorrow I have an opportunity to answer
any charges that Congressman Fish may make.
D:
That's what I thought you would want to do.
That's what I - as far as I was concerned, I
thought that if you would want to make them it
would be Just as well
as you could on the floor of the House
where you could make them. I'm sure if you
will sit there tomorrow you'll have & chance to
answer any charges he makes.
H.M.Jr:
I'll be sitting on the front row.
D:
You'll be right there.
H.M.Jr:
I'll be right there.
D:
That's where I thought you'd want to be.
H.M.Jr:
And I just want to make sure that you won't
let that committee adjourn without giving me a
chance to answer them.
D:
I won't
if my vote will prevent
it. I'm sure they won't.
Regraded Uclassified
-2-
70
H.M.Jr:
Uh-Huh.
D:
I'll do all I can to keep
both by
my influence
and vote.
H.M.Jr:
All right.
D:
glad that you asked me.
H.M.Jr:
All right, that's all that I want.
D:
Well, that's quite all right. Thank you very
much.
H.M.Jr:
What's that.
D:
I say I'll be right with you.
H.M.Jr:
Thank you.
D:
All right.
H.M.Jr:
Goodbye.
D:
Goodbye.
Regraded Uclassified
71
July 8, 1937.
4:10 p.m.
H.M.Jr:
Connect me with Cooper.
Operator:
Of where?
H.M.Jr:
Congressman Cooper of Tennessee.
Operator:
Right.
H.M.Jr:
And Congressman Cullen of New York.
Operator:
All right.
H.M.Jr:
If you can't get one, get the other and then
Senator Walsh of Massachusetts.
Operator:
Right.
H.M.Jr:
Senator LaFollette of Wisconsin.
Operator:
Right.
H.M.Jr:
Senator Arthur Capper of Kansas.
Operator:
Right.
Regraded Uclassified
72
July 8, 1937.
4:12 p.m.
H.M.Jr:
Hello.
Operator:
Congressman Vinson of Kentucky.
H.M.Jr:
Thank you.
Operator:
Go ahead,
H.M.Jr:
Hello.
V:
Hello.
H.M.Jr:
Henry Morgenthau Jr.
V:
This is Vinson, Kentucky.
H.M.Jr:
Yes, sir. The reason I am calling up, I read
on the news ticker that Congressman Fish was
going to make certain charges against my father
and myself tomorrow.
V:
Yes, sir.
H.M.Jr:
And I thought I'd like to tell you that as
Secretary of the Treasury that I am going to be
up there tomorrow.
V:
Well, that's fine.
H.M.Jr:
Sitting in the front row, and I'd like to have
the opportunity to answer any charges that Mr.
Fish makes personally.
V:
Well, that's fine.
H.M.Jr:
And I just want to make sure that they don't
adjourn the committee on me, before I have B.
chance to answer Congressman Fish.
V:
Well, I don't think there'll be any trouble
about that, if we have to keep the committee
there until midnight.
H.M.Jr:
Well -
V:
And I think - I think that's splendid and I
think the reaction is going to be wonderfully
fine.
H.M.Jr:
Well, thank you very much.
Regraded Uclassified
73
V:
And my understanding was that every precaution,
not only your own inherent integrity, but that
you had taken every precaution at all in regard
to the matter. My idea of it was and 16 that
it will be a boomerang that will be of real
benefit to the Administrative program.
H.M.Jr:
I am sure it will, because I am sure Mr. Fish
1s Just on a fishing expedition.
V:
That's right.
H.M.Jr:
And I think he 1s just going to make a sucker
out of himself.
V:
Well, I certainly will do everything I can to
see that you get the chance to follow him.
H.M.Jr:
Well, that's - I'd appreciate that very much.
V:
Have you talked to Mr. Doughton.
H.M.Jr:
I called him first.
V:
I Bee,
H.M.Jr:
Mr. Doughton said that he was delighted, that
he would do everything he could as a chairman
and an individual, but -
V:
I don't think there will be any trouble about
that, it's just fair playing you know.
H.M.Jr:
Well I was just fearful. Someone told me that
Treadway was going to get that 12 o'clock train.
V:
Well, he can leave. He can leave whenever he
gets ready, as far as I'm concerned.
H.M.Jr:
Thank you very much.
V:
All right.
Regraded Uclassified
74
July 8, 1937.
H.M.Jr:
Hello.
4:19 p.m.
Operator:
Senator Capper of Kansas.
H.M.Jr:
Thank you.
Operator:
Go ahead.
Sen. Arthur
Capper:
Hello.
H.M.Jr:
How's Arthur Capper?
C:
All right. All right Henry.
H.M.Jr:
How are you?
C:
Fine.
H.M.Jr:
Now, you sit on this committee on tax evasion
and tax avoidance.
C:
Yes, I am sorry to say I do. Yes sir, in fact
that's one of the most embarrassing Jobs I have
had.
H.M.Jr:
Well, you've had a lot of them, Bo it must be
terribly embarrassing.
C:
Yeah.
H.M.Jr:
Now I tell you, I read on the news ticker that
Congressman Fish 1s going to make certain charges
against my father and myself, and as Secretary
of the Treasury I am going to be sitting up in
that front row tomorrow.
C:
Yeah.
H.M.Jr:
And all I want is Just a chance to answer
Congressman Fish before the committee adjourns.
C:
Yeah.
H.M.Jr:
That's all I'm asking.
C:
Well, you're entitled to that and nobody else
can convince me that you'd do anything or done
anything that isn't absolutely straight and
what you thought you were entitled to do under
the law.
Regraded Uclassified
75
H.M.Jr:
Well, if you'll just give me a chance to
answer them, Arthur, that's all I want.
C:
All right, I'll be for that.
H.M.Jr:
Thank you.
C:
I'll welcome any suggestions from you.
H.M.Jr:
Well all I want 1s Just a chance to answer.
are
C:
Well, you sure/entitled to that, and you'll get
that from me.
H.M.Jr:
0. K.
C:
All right. Goodbye.
Regraded Uclassified
76
July 8, 1937.
4:19 p.m.
H.M.Jr:
Hello.
Operator:
Senator La Follette.
H.M.Jr:
All right. Hello.
L:
Hello Henry.
H.M.Jr:
How are you?
L:
Fine.
H.M.Jr:
Bob, I read on the news ticker that Congressman
Fish tomorrow 1s going to make certain charges
against my father and myself.
L:
That's right.
H.M.Jr:
And I Just want to let you know that as
Secretary of the Treasury I am going to be
sitting there in the front row.
L:
Well, I am glad of that.
H.M.Jr:
And I want a chance to answer Mr. Fish before
that Committee of yours adjourns.
L:
O.K.
H.M.Jr:
All I am asking for, that I have a chance to
answer him in person.
L:
That's fine, Henry. I'm glad your coming up.
H.M.Jr:
I'll be there.
L:
I just felt this way about it Henry, that if
we didn't let that fellow come in there he
would be talking on the floor from now until
the end of three years, making charges that he
had been denied his opportunity, and that he
had certain facts and the Committee wouldn't
consider them. I think the best myself,
along with some of the other House members
like Doughton and the rest, the thing to do 1s
to get that fellow in there and make him put up
or shut up.
H.M.Jr:
Well, it's all right with me because my personal
Regraded Uclassified
77
financial affairs and the affairs of my wife
can be examined by anybody.
L:
You don't have to tell me that, I knew it.
H.M.Jr:
But I'll be there to answer in person.
L:
Fine, Henry.
H.M.Jr:
Thank you Bob.
L:
Thank's for calling.
H.M.Jr:
Thank you.
L:
Goodbye.
Regraded Uclassified
78
July 8, 1937.
4:29 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Bulkley, Ohio.
H.M.Jr:
Thank you.
Operator:
Go ahead.
H.M.Jr:
Henry Morgenthau, Jr.
B:
Hello Mr. Secretary.
H.M.Jr:
How's Ohio?
B:
Oh, Ohio's getting along pretty fair.
H.M.Jr:
That's good.
B:
And I think making some progress.
H.M.Jr:
Yes.
B:
Now about the interesting thing that I think
will be good news for you.
H.M.Jr:
I can take a little good news.
B:
Your friend Moore is resigning.
H.M.Jr:
Well, I don't know that that's good news.
B:
I thought you would be glad to have him out.
H.M.Jr:
No, he's a friend of yours.
B:
We are working on another thing for him.
H.M.Jr:
I see. No, I wouldn't - I don't. After the
last letter he wrote me. - In the letter I got
from him, why, pretty much closed book as far
as I was concerned. But if he's out ...
B:
Well, I tell you what we are working on, the
Coal Commission wants him to be manager of
their Cleveland office.
H.M.Jr:
I see.
79
- 2 -
B:
And he has got a wide acquaintance among coal
people, and is outstandingly able to do that
job, but at the same time he has no interest
in the coal business.
H.M.Jr:
I see.
B:
So it makes a particularly good appointment.
H.M.Jr:
And you are going to make darned sure that he
doesn't get into the coal business.
B:
Oh yes, he won't get in the coal business.
H.M.Jr:
You're going to take care of that.
B:
He won't get in the coal business.
H.M.Jr:
Well, it's darned nice of you to call me and
I appreciate it very much. It will make the
thing easier for me, and all of that.
B:
Yes, I think maybe it will. Now, I have talked
to Senator Donahey, and he is quite in accord
with that switch, and we are both very much in
accord on the man that we want to recommend to
you next.
H.M.Jr:
All right.
B:
And I think that you will of course want to
investigate him and that'll take a little time,
especially because he is off on a fishing trip
now and can't be reached right away.
H.M.Jr:
Is he a good fisherman?
B:
I think SO.
H.M.Jr:
All right.
B:
Now, Helvering says that it will be no embarrass-
ment to leave the office in charge of the chief
Campbell, an experienced man.
H.M.Jr:
Fine.
B:
Until we have time to turn around on the new
appointment.
Regraded Uclassified
80
- 3 -
H.M.Jr:
Give you all the time you want.
B:
Well, we know what we want and Senator Donahey and
I are addressing a letter to the President, which
I think is correct form and sending a copy to you
recommending Frank Gatz, who is a lawyer there that
both of us have known for a great many years.
H.M.Jr:
Well, we'll be glad to look him up when we get the
name.
B:
Fine, thank you ever so much. I am certainly
delighted to have your cooperation.
H.M.Jr:
Thank you.
B:
Good luck.
Regraded Uclassified
81
July 8, 1937.
4:32 p.m.
H.M.Jr:
Hello.
Operator:
Congressman Doughton calling you.
H.M.Jr:
All right.
Operator:
Go ahead.
H.M.Jr:
Hello.
Rep. Robert
Doughton:
Secretary?
H.M.Jr:
Talking.
D:
Bob Doughton.
H.M.Jr:
Yes suh.
D:
What I want to ask you is this, if you are
going to give to the press the fact that
you'll be there tomorrow and that if your
name 1s brought out you'll make a statement
about
if we should do it or
should not do it?
H.M.Jr:
Well I wasn't going to say anything. What
do you think?
D:
Well Frank and I were talking. Frank
thought it all right to give a statement at
this time, but I told him I wouldn't do it.
The statement that you were going to be there
may concern me but I won't do it without your
consent unless you think it's the proper thing
to do, I don't have any preference about it.
H.M.Jr:
Well, I think it might tip Ham Fish off.
D:
Well ....
H.M.Jr:
Don't you think it would be Just better to let
me walk in there without his knowing I'm coming.
D:
I wouldn't be surprised that's the better way
to do 1t.
H.M.Jr:
I think Bo, he might change his statement if he
thought I was coming.
Regraded Uclassified
82
-2-
D:
He might change his statement if : - better to
take him unawares.
H.M.Jr:
I think I'll Just walk in there without him
knowing it.
D:
All right. Are you going to say why you thought
better - whether you are going to give it out
or what you thought it best for him?
H.M.Jr:
Oh no, I never give out any statements.
D:
Well, I wouldn't give it out that you thought
it the wise thing to do.
H.M.Jr:
Well if you don't mind, I think if I can walk
up there without his knowing it I think it
would be the best thing.
exactly
D:
Well - all right, that's/what we'll do and we'll
see that you get in here.
H.M.Jr:
Thank you.
D:
I think it's & fine thing to do.
H.M.Jr:
I'll be there.
D:
All right, thanks.
Regraded Uclassified
83
July 8, 1937.
4:35 p.m.
H.M.Jr:
Hello.
Operator:
Congressman Cooper, Tennessee.
H.M.Jr:
Thank you. Hello.
Rep. Jere
Cooper:
Hello, Mr. Secretary, how are you?
H.M.Jr:
How's Jere Cooper?
C:
Fine, thank you. How are you?
M.M.Jr:
Oh, I'm never better.
C:
Fine.
H.M.Jr:
I read on the tape that this fellow Congressman
of yours Hamilton Fish is going to make certain
charges against me and my pappy.
C:
Yes, I voted against that.
H.M.Jr:
I know.
C:
I didn't believe in letting him use our committee
as a sounding board to get & lot of publicity and
come along with a lot of insinuations and get B.
lot of stuff off his chest so to speak. I just
don't believe in recognizing him that much.
H.M.Jr:
Well, what I'm going to do as Secretary of the
Treasury, I'm going to be sitting in the front
row tomorrow.
C:
Fine.
H.M.Jr:
And all I'd like to ask of you is that I get a
chance to answer Hamilton Fish before the committee
adjourns.
C:
You can sure do that with my vote and all the
help I can give you.
H.M.Jr:
Well, that's all I want.
C:
Fine. Then listen any - if you have anything
you want him asked or anything else you get it
to me and I will help any way I can.
Regraded Uclassified
84
-2-
H.K.Jr:
Well, you'll have to use your imagination.
C:
Well, I'll be glad to help you any way I can.
Sure will.
H.M.Jr:
All right. Fine. Thank you.
C:
You're welcome.
Iclas
85
July 8, 1937.
4:37 p.m.
H.M.Jr:
Hello.
Operator:
Senator Walsh of Massachusetts has gone for
the day.
H.M.Jr:
Yes.
Operator:
And Congressman Cullen 1s in committee meeting,
he is going to call you.
H.M.Jr:
All right.
- Operator:
That's everybody.
H.M.Jr:
Well I think you've done enough. If you can get
Cullen, all right and send me up Harrison's
telephone number at his home, I want to call him.
Operator:
Governor Harris.
H.M.Jr:
No, Pat Harrison.
Operator:
Pat Harrison, all right.
H.M.Jr:
And I think that's all.
Operator:
All right.
H.M.Jr:
Hello - Hello.
Rep. Thomas H.
Cullen
Hello,
H.M.Jr:
Henry Morgenthau, Jr.
C:
Hello Mr. Secretary.
H:M.Jr
Congressman Cullen.
C:
Right.
H.M.Jr:
Congressman Cullen I've read about Congressman
Fish going to make certain charges against my
father and myself tomorrow.
C:
Yes.
H.M.Jr:
And I've decided as Secretary of the Treasury
I am going to come up there and sit in the front
row tomorrow.
86
-2-
C:
That's fine.
H.M.Jr:
Now, what I'd like to ask and all I ask is
that I have an opportunity to answer Congress-
man Fish before the committee adjourns tomorrow.
C:
Of course, you are entitled to that.
H.M.Jr:
That's all I want to ask.
C:
You're entitled to that - no fireworks. You
wouldn't announce that to the press, would you?
H.M.Jr:
No. I think - I talked to Mr. Doughton on
that.
C:
Yes.
H.M.Jr:
I think it much better than I walk in without
giving him advance notice.
C:
That's fine.
H.M.Jr:
Because otherwise he might change his statement.
C:
I think you're right about that.
H.M.Jr:
I just want to walk in there hoping that he won't
know about it and then when he makes his state-
ments, well, I'll be there to answer them.
C:
Yes. Well that's fine. You walk in there with-
out any fireworks. You'll be there.
H.M.Jr:
I'll be there.
C:
And you'll have the opportunity.
H.M.Jr:
And all I am asking for is a chance to answer them.
C:
O.K. Thank you Secretary.
H.M.Jr:
Thank you.
Regraded Uclassifie
87
July 9, 1937.
11:02 a.m.
H.M.Jr:
Hello.
Operator:
Secretary Hull coming on.
Secy. Hull:
Hello.
H.M.Jr:
Hello.
H:
All right Henry.
H.M.Jr:
How are you.
H:
All right. What's going on?
H.M.Jr:
Well I Just came down from the Hill listening
to Ham Fish for an hour and a half.
H:
Well he ought to be thrown off the Hill.
H.M.Jr:
Attacking Mrs. Roosevelt, the Roosevelt family
and my wife and myself.
H:
Yes, he is the worst radical I know of
anywhere.
H.M.Jr:
I know he 18. He had nothing but hearsay, he
had no evidence.
H:
Well of course, that's all he wants.
H.M.Jr:
Yes. Cordell, if you could help me out and send
over this morning a proposed communique between
the
and myself.
H:
Yes.
H.M.Jr:
I'd like to know very much if it meets with
your approval.
H:
Well, I'll take it up and Feis
or one or the
otherswill call you back in two minutes.
H.M.Jr:
I'd appreciate that.
H:
Yes,sir. Be glad to do it Henry.
H.M.Jr:
Thank you.
Regraded Uclassifie
88
July 9, 1937.
11:11 a.m.
H.M.Jr:
Hello.
Herbert
Fies:
This is Herbert Fies.
H.M.Jr:
Yes.
F:
The Secretary has a delegation and asked me
to call and say -
H.M.Jr:
Talk a little louder.
F:
That's O. K.
H.M.Jr:
O.K.
F:
He's got a delegation, that's why he's not -
H.M.Jr:
But he's satisfied.
F:
Yes. O.K.
H.M.Jr:
Are you going to be over here later or not?
F:
You mean, the Brazilians?
H.M.Jr:
Well, I haven't seen our boys, I don't know what
is happening. I'll call you back later.
F:
All right, I'm ready to - and one or two aspects
to that, perhaps, give me a minute on it this
afternoon.
H.M.Jr:
Well I won't have any chance this afternoon. If
you want to see me, the only time I can see you
would be at quarter to twelve.
F:
Quarter of twelve.
H.M.Jr:
Yes.
F:
Gosh, I am shelled in here by the
Want me to give them to you now over the phone?
H.M.Jr:
No, I can't do it now, I'm -
F:
All right, I'll be there at quarter to twelve,
H.M.Jr:
Thank you.
Regraded Uclassif
89
RE CHINESE AND BRAZILIAN MONETARY
July 9, 1937
AGREEMENTS
11:45 a.m.
Present:
Mr. Lochhead
Mr. White
Mr. Riefler
Dr. Viner
Dr. Williams
Mr. Gaston
Dr. Feis
H.M.Jr:
Now, Mr. Feis called me up to say that Mr. Hull
approves the joint statement for this afternoon.
The President has seen it and said he approved it,
subject to Mr. Hull's approval. So that's all
cleared. so, Herbert, if you'll go ahead and have
a press conference at 3:30 - and I happen to know
that Mr. Kung likes to have a picture taken.
Lochhead:
That was apparently their own man he had with them
yesterday. de went out with the Chinese. He spoke -
Kung said, "No pictures today."
H.M.Jr:
When I had him at dinner at the Metropolitan Club,
he had this man with him. He said, "Is it all right
to have our pictures taken?" I said, "If you don't
mind, let's wait." So these Chinese - they travel
in style, but we're just a little behind; we haven't
yet got to have a personal photographer as an aide.
Now, what about the statement that we give just as
a working memorandum, as to how we buy - we gave one
before - unsigned, just on a piece of paper?
White:
Well, that would be the legal one.
Lochhead:
That's the legal document.
H.M.Jr:
Now, just like we said, we're going to - you going
to give them something?
White:
"ell, you gave them 1, 2, 3.
Viner:
You gave them that memorandum.
H.M.Jr:
Did you keep it?
Viner:
I think he kept it.
90
-2-
Lochhead:
He had that, because they checked that up with me.
H.M.Jr:
Well, is there anything else on that?
Lochhead:
No, there's nothing further. I don't want to send
the bid out for the silver until the thing is entirely
cleared and you have had your meeting.
H.M.Jr:
Now, heretofore I've always told Pittman in advance
of these things. I think I better tell him. I told
Pittman and McNary - they've always gone along. Are
we announcing how much silver we buy?
Lochhead:
No.
White:
No, just an extension.
H.M.Jr:
Suppose Pittman said, "No." Then what?
Lochhead:
Just thinking.
White:
Pittman ob ject?
H.M.Jr:
Would he?
White:
(Nods no)
Lochhead:
Might not. Of course, Pittman is not interested in
buying anybody's foreign silver.
White:
If he has any objection..
Feis:
It's all right to tell him at this time.
H.M.Jr:
He never has objected. I've always told him; it's
always worked all right. But the thing I - we buy
the silver, then sell them some gold; I don't think
he's going to like it.
White:
Why tell him about the gold part?
H.M.Jr:
I think I'll let it ride.
Lochhead:
Mr. Morgenthau, you understand we're buying silver
and selling gold. Technically, to the silver people,
we issue - we're buying silver and not paying for it
with gold, but with silver certificates, which is
proper.
Regraded Uclassified
91
-3-
H.M.Jr:
Now, what else does anybody want?
Lochhead:
You have this question about Brazil.
H.M.Jr:
Well, I'll take it en masse. Who's going to talk?
White:
(Handing papers to Secretary) This is a very brief
outline. This is a little bit broader outline.
Williams would like to preface that.
H.M.Jr:
All right, preface, Williams.
Williams:
It's all written out in that other one. We saw
them yesterday and we asked them certain questions,
which they took down, and Sousa Costa's assistant,
whoever he is, went over the questions with me and
they're going to bring in answers this afternoon.
Now, the questions we asked them are put down on
this other one here. They all relate to three topics.
One is the general situation in Brazil. The second
is the question of central bank. And the third is
the question of gold. And they said they'd bring in
answers.
Then we sat down and talked it over among ourselves
and we talked it over with Herbert, and we came to
the conclusion that the problem as a whole is too
difficult, presents too many uncertainties for
immediate handling, but that there are certain things
we might be able to agree on fairly promptly. So
that we thought that as a working program we might
see what we can agree to now and what we would under-
take to study with them over a longer period, perhaps
a period of months, and you have there the summary of
things we might be able to agree on now and things
that we'd study. If you want me to go over that
H.M.Jr:
I couldn't assimilate it today. I mean I've been
through a terrific nervous strain the last 18 hours.
I couldn't assimilate it. I can't do it. There's a
limit to what any human body can do,
White:
There's no need to assimilate it.
Williams:
No, there's no need really. All we have to do now,
as I see it, is to see these Brazilians this afternoon
and get the answers, thank them, and suggest a date
Regraded Uclassified
92
-4-
next week, about Wednesday, for another meeting.
H.M.Jr:
Is that fast enough to suit the State Department?
Feis:
Oh, we have no independent feeling about that, pro-
vided it doesn't put the Brazilians off more than
they like to be put off.
Williams:
Oh yes, if they want to meet sooner, all right.
White:
We want time to study their answers.
H.M.Jr:
He wants a couple days in New York, he said. That
gives us
Feis:
Later he said he'd postpone the New York trip.
Viner:
If necessary, I suppose.
Williams:
I think we could work out an agreement with them now
that would give them something to take home, be of
some value to them, and probably wouldn't raise any
very important questions for us. Then as to the
other things, which are really two, the central bank
and this question of a gold commitment - that we'd
study those. "e'd say, "On the central bank question,
that's your affair, but we'd be glad to give any tech-
nical assistance and advice that you want and arrange
for study over a period of months." And then the
question of gold commitment, which is the most bother-
some question of all - we'd take that under advisement
also for a period of months. But we can do certain
pretty concrete things right now, if you're willing.
H.M.Jr:
Well, what you people have got to do is let me read
this thing. I don t want to - I'm out. I mean I've
been on my feet.....
White:
When you (Williams) say "now" you don't mean today,
you mean within the next week or two.
Williams:
Within the next week or two.
H.M.Jr:
I'll be back here Monday. By that time I will have
read this memorandum. Now, it suits me and I think
it suits everybody much better if you people are work-
ing on - and then is it the idea that you people be
Regraded Uclassified
93
-5-
back here Wednesday? Is that the thought? I'm
just - I don't know.
Viner:
Mr. Williams will be back.
H.M.Jr:
Well, I'm asking
White:
It will only be necessary for Mr. Williams to be
back on Wednesday, probably, and then later the
others, after the preliminary memorandum is pre-
pared.
H.M.Jr:
All right.
Feis:
I don't want to interfere with anyone's vacation,
Mr. Secretary, but I would like to remind you that
this fellow is up here following conversations be-
tween the Presidents of two governments. He was
invited up here primarily to discuss this gold
arrangement - other matters supplementary. I think
it is highly desirable that we do nothing that would
seem to defer discussion unduly, and that we do not
come out with too trivial an outcome for immediate
action. Otherwise
Williams:
Better show him
Feis:
they will regard themselves as having been misled.
White:
I don't think you'
Feis:
Secondly, I would remind everyone that one aspect of
the discussions between President Roosevelt and
President Vegas had to do with the question of stabili-
zation and entry into the tripartite monetary agreement,
and you'd have to know whether you were going to
default all of this or give it immediate consideration.
By "immediate" I mean in the course of this visit.
Williams:
We see it just the same way you do. Now, the real
question is whether you think we've got enough there
that we can agree on immediately.
Viner:
That was the fall of 1936; it's a long time ago,
Feis:
Surely.
Regraded Uclassified
94
-6-
Viner:
if the thing is important, it requires careful
study.
H.M.Jr:
The only point - I want to say that these men have
been here for two weeks and the State Department
tied them up for ten days, never let us take a look
at them. "hy can't we get a look at them for ten
days?
White:
I don't see how either of those two questions could
be answered
H.M.Jr:
Now look, you people, may I leave it this way. Let
me read this thing and let me talk this thing over
with Herbert Feis Monday afternoon, when I'm a
little bit nearer normal; I'm zero now. If I fel
I need you, I'd like to be able to call each of you
up on the telephone and talk to you; because I'm
definitely leaving Monday a week for Hawaii, so what
we do we've got to do next week.
Viner:
You're leaving about what time on that Monday?
H.M.Jr:
On the train for Chicago, 4:17.
Viner:
4:17. I just want to see - if this Brazilian thing
shouldn't require my presence here next week, I think
I would like to be here before you leave, in case
H.M.Jr:
Jake, you
Viner:
If I come in on Monday, assuming this Brazilian thing
H.M.Jr:
This Monday?
Viner:
No, no, next Monday, a week from Monday - the day
you're leaving; is there any use in that?
H.M.Jr:
Then go out to Chicago?
Viner:
No, no, no.
H.M.Jr:
I don't know. Unless there's something that you
men know - you know what this thing is; you're just
as much interested in this thing as I am, and you know
whether we need it or not. Now let me read this thing.
And I'll call you up on the telephone if....
Regraded Uclassified
95
-7-
Viner:
May we also leave with you two other memoranda
to take home with you over the weekend?
H.M.Jr:
Please.
Viner:
One is the Yugoslavian letter.
H.M.Jr:
Archie, you see that I get it.
Viner:
And the other one is the Swiss thing. We're working
out a suggestion for you on both.
White:
The Swiss is particularly important.
Viner:
Important because we
White:
Matter of policy.
Viner:
We have some ideas on that.
H.M.Jr:
And as I say, I don't know what's in here, Herbert
Feis doesn't know; I'll be back here Monday.
Viner:
Also, Mr. Secretary, I see in one of the newspapers
this morning that there is a Nicaraguan mission on
the way to see you.
H.M.Jr:
They'll have to come to Waikiki.
Viner:
Do you (Feis) know about that?
Feis:
No.
Viner:
they mentioned Secretary Hull and Secretary Morgenthau.
They're coming up to see Secretaries Hull and Morgen-
thau.
Lochhead:
Incidentally, Export-Import Bank
H.M.Jr:
Was Mr. Hull - what was his reaction to that memoran-
dum - the Chinese?
Feis:
Oh, completely all right. It wasn't Mr. Hull at all;
it was Far East that fussed around with it for a while.
H.M.Jr:
But he personally
Regraded Uclassified
96
-8-
Feis:
Oh yes.
H.M.Jr:
And you?
Feis:
No observation.
H.M.Jr:
And evidently the President's all right on it. How
long did he take?
Lochhead:
Oh, it only took five minutes of his time. I went
in and came out.
H.M.Jr:
Now, as I see it - I hate to keep saying I'm so tired,
but I can't help it; I am - everything else, and then
to have this thing go up and be attacked by Hamilton
Fish, and everything else; it's a....
The thing came
out beautifully though.
Viner:
Yes.
H.M.Jr:
so if you men will let me call you up some time
Monday... I'll read this thing by then. And will
I see you (Viner) before you go or not? When do
you leave?
Viner:
Late this afternoon - 4:35.
H.M.Jr:
And you don't fly, do you?
Viner:
No.
H.M.Jr:
So I can't help you. You (Riefler) do, so you be
available from 3:30 on with your satchel.
Riefler:
Yes.
H.M.Jr:
We'll leave about a quarter of four.
Riefler:
And what time do you think we'll be there, about?
H.M.Jr:
I would say four or five hours. I can just run you
in about 8 o'clock daylight saving; take about three
hours.
Riefler:
I'll telegraph them to be there.
H.M.Jr:
We'll just about make it in around three hours. Huh?
Riefler:
Thanks.
Regraded Uclassified
97
-9-
H.M.Jr:
Well, that's about all, I guess.
Feis:
I take it the idea then is to suggest to the
Brazilians when they return their replies that
this is a weekend and then there will be some
necessity for further discussion, and suggest to
them Wednesday as the date for resuming discussions,
with the idea that that will give them time to con-
tinue their conversations.
H.M.Jr:
And if you can check and find out if that will be
the time that the President sees them, you can put
it, "As long as you are coming down to see the
President, we'll make it that time." Huh? So that
will make it kind of sound a little better, won't
it?
Feis:
Yes.
White:
Will you let us know?
Feis:
I think I'll come over here and defend my Portuguese
friends against this lustful vacation.
Regraded Uclassified
98
July 9, 1937.
12:57 p.m.
H.M.Jr:
Connect Congressman Vinson of Kentucky, please.
Operator:
Right.
H.M.Jr:
Hello.
Operator:
Congressman Vinson.
H.M.Jr:
Thank you.
Operator:
Go ahead.
H.M.Jr:
Hello.
Rep. Fred M.
Vinson:
Hello.
H.M.Jr:
Morgenthau talking.
V:
This is Fred Vinson.
H.M.Jr:
Well, I Just wanted to say thank you.
V:
Well.
H.M.Jr:
I thought you put up a beautiful Job today.
V:
Thank you, sir.
H.M.Jr:
And if I'd be Ham Fish, I think I'd go soak my
head in the coldest tub of water I could find.
V:
Well, he was in a very ridiculous position,
wasn't he.
H.M.Jr:
And the thing that interested me particularly
was the way the Republican members jumped on him
at the end.
V:
Yes.
H.M.Jr:
Eh.
V:
Yes, they were alright.
H.M.Jr:
Yes.
V:
We've been - in fact we've beenprepared for this
sort of thing for some time
keep them in
& good humor.
H.M.Jr:
Well you've given him a chance now to complete
99
-2-
V:
Yes, and it looks to me like that there wasn't
anything to it whatever. The man couldn't even
substantiate from whom he got the information.
H.M.Jr:
No.
V:
It's really a pathetic situation.
H.M.Jr:
Yes, the fact that he wouldn't name the man.
V:
That's right. Well that's a cowardly thing,
it seems to me, when you get right down to it.
H.M.Jr:
Well, I admired you the way you went at him and
I just wanted to tell.
V:
Well, I appreciate that
It's a right difficult thing because you're in
enemy country and you've just got to kind of feel
your way and I really felt like we got a lot of
admissions out of him.
H.M.Jr:
Oh, it was marvelous.
V:
I felt -
H.M.Jr:
Oh, it was wonderful.
V:
Well, thank you sir, I am glad that you appreciate
it.
H.M.Jr:
Goodbye.
V:
Goodbye.
Regraded Uclassified
100
July 9, 1937
12:59 p.m.
H.M.Jr:
Hello.
Operator:
Congressman Doughton is not in his office,
they are trying to locate him for you.
H.M.Jr:
Well, I'll be back up at ten minutes of two, I
can talk to him then, tell him.
Operator:
All right.
H.M.Jr:
Anything else?
Operator:
No, that's all. Mr. Farley has gone to lunch.
H.M.Jr:
Oh. Well I'll see him again.
Operator:
No other calls.
H.M.Jr:
Thank you.
Operator:
Right.
Regraded Uclassified.
101
July 9, 1937
The proposed joint statement of the Secret ary of
the United States Treasury and the Minister of Finance
of China to be issued at 3:30 this afternoon was returned
by Secretary Morgenthau to Mr. Lochhead this morning.
The Secretary said in general this met with his approval;
that he did not have time this morning to handle it him-
self, and that he wished Lochhead to clear it with the
State Department, the Chinese Minister of Finance and the
President and to have it ready for 3:30 this afternoon.
Lochhead got in touch with Dr. Kuo who stated that
the message as it stood met with the approval of Dr. Kung.
Dr. Feis of the State Department stated he was doing his
best to have it cleared through his Department, but owing
to the situation in the Far East he wanted it clearly un-
derstood that we would not release the statement until
it had received the approval of the State Department.
Mr. Lochhead assured him on this point, but drew his at-
tention to the fact that it had already been approved by
the Secretary of the Treasury and the Chinese Minister of
Finance and it would not be possible to wait for the State
Department's approval before it was submitted to the Pres-
ident. Dr. Feis promised that he would use every effort
to expedite its clearance.
At 9:30 a. m., Mr. McReynolds, Dr. White and Mr. Loch-
head went to the White House with the statement and Mr.
McReynolds ex lained to Secretary McIntyre the reason for
bringing this statement to the President's attention.
McIntyre took the sta tement to the President. He returned
with the information that the President approved of the
statement in its present form and that it was all right
to release it, provided we secured the State Department's
approval.
Regraded
Uclassified
102
The monetary cooperation which resulted from the conference of the
Secretary of the Treasury of the United States of America with represente-
tives of the Chinese Ministry of Finance in May, 1936, has contributed to the
very successful functioning of the new Chinese monetary system with benefits
both to the internal economy of China and to American trade.
We are now able to announce further progress in monetary cooperation
between the two countries in pursuit of the understanding reached a year ago.
At that time the Secretary of the Treasury, in a public statement, said:
"I feel confident that the monetary program being pursued by
the National Government of China is not only along sound lines,
but constitutes an important step toward the desired goal of
stability of world currencies.
"To supplement their efforts toward that objective and to
cooperate with them in their program of monetary reform and cur-
rency stabilization, and in accordance with our silver purchase
policy, we have definitely indicated our willingness, under con-
ditions mutually acceptable, to make purchases from the Central
Bank of China of substantial amounts of silver, and also to make
available to the Central Bank of China, under conditions which
safeguard the interests of both countries, dollar exchange for
currency stabilization purposes."
At the same time, the Minister of Finance of China in a public state-
ment expressed the firm belief that the new measures of monetary reform which
were then being adopted by the Chinese Government, and the arrangements made
with the United States would insure the stability of the Chinese currency,
Regraded Uclassified
103
- 2 -
and this would inevitably lead to greater economic improvement and prosperity
of the Chinese people.
Arrangements have now been made through which the Government of China
will purchase from the United States Treasury a substantial amount of gold. To
aid the Chinese Government thus to augment its gold reserves, and in accordance
with the terms of the United States Silver Purchase Act of 1934, the United States
Treasury will purchase an additional amount of silver from the Chinese Government.
The United States Treasury will also broaden the scope of the arrange-
ments under which the Central Bank of China has been enabled, under conditions
which safeguard the interests of both countries, to obtain dollar exchange for
currency stabilization purposes.
Both the Secretary of the Treasury and the Finance Minister of China are
greatly gratified by the beneficial results to both countries which have been
the consequence of their understanding reached last year, and they are equally
gratified to be able to announce further progress in their cooperation. It is
a source of satisfaction to them that the program of monetary reforms and cur-
rency stabilization in China has been carried out with great success and has been
accompanied by an increase of trade between China and other nations, particularly
the United States, which occupies the first place in China's foreign trade.
Because of his desire to express the appreciation of the Chinese Govern-
ment and the people of China, the Chinese Minister of Finance came in person to
the United States to conduct the negotiations which have just been concluded.
The Secretary of the Treasury greatly appreciates having had this
opportunity for personal contact with the Finance Minister of China and of
undertaking in conference with him to further the welfare of both countries.
-000-
104
REPORT OF SECRETARY MORGENTHAU'S
PRESS CONFERENCE, JULY 9, 1937:
Present:
Dr. H. H. Kung, Vice-President of the Executive
Yuan and Minister of Finance of the Republic of
China.
Dr. Chengting T. Wang, Ambassador of the Republic
of China.
Mr. P. W. Kuo, Director of the Bureau of Foreign
Trade, Ministry of Industry, Republic of China.
H.M.Jr.:
You gentlemen all know Dr. Kung and the Chinese
Ambassador, and Dr. Kung and myself asked you
people to come in today 80 we could give out this
joint statement. Would you like me to read it
out loud or would you people like to read it?
Q.
I'd like to have a moment to read it or someone
to read it to us. (Dr. Kung poses next to the
Secretary for photographers).
A.
I'd be glad to read it if you want me to. It
would just take a minute to run through it.
(Reads mimeograph statement 10-71). We'll shake
hands on that (shakes hands with Dr. Kung).
Q.
Mr. Secretary, does this mean that gold will be
sold to China for the first time for purposes
other than exchange stabilization?
A.
No.
Regraded Uclassified
105
- 2 -
Q.
I mean, it says they "will purchase from the
United States Treasury a substantial amount of
gold." Now is that gold for the purpose of
exchange stabilization?
A.
For the purpose of exchange stabilization.
Q.
Solely?
A.
Solely.
Q.
Will you say anything about the amount?
A.
Well, Dr. Kung and I would rather not--is that
right?
Dr. Kung:
That's right.
Q.
Could you say if it is to be done at regular
intervals or at those intervals convenient to
each government?
H.M.Jr.:
This particular transaction has been concluded
and the actual exchange of the silver and
purchase of gold will take place just as rapidly
as the documents and the checks can be drawn.
Is that right?
Dr. Kung:
That's right.
Q.
Will that be reflected in any figures that are
available to us-that movement?
A.
Yes, it will show up in a reduction in the
sterilized fund. In other words, it's part of
the sterilized gold and an increase in the silver
certificates.
106
- 3 -
Q.
This is purely an internal matter, but since
the money is going to be withdrawn from that
sterilized fund, will you buy up bills?
A.
No, it's an exchange--the mechanics of the
thing is paid for out of the general fund.
Q.
I just remembered that when you set up that
fund you said as gold came in you'd issue bills
and as it went out you'd buy bills.
A.
Perfectly true.
Q.
You didn't have to?
A.
No, the necessary adjustment will take place
but the amount is not sufficient that it will
make any difference in the program which we
announce on Monday.
Q.
Will the gold remain in this country?
Dr. Kung:
Yes, I will deposit the gold here.
&
Could you say, Dr. Kung, what this would do to
the silver reserves in the Chinese banks, what
change it will make in the ratio?
Dr. Kung:
It will simply increase our gold reserves a
little more and decrease our silver.
Q.
I think just one interpretation should not be put
on this: The Chinese reserves of gold and foreign
exchange have not been depleted?
107
- 4 -
Dr. Kung:
No, no, no.
Q.
This isn't to bolster them?
Dr. Kung:
Yes, to increase them. We had too much silver
reserve, but we think we ought to have more
gold reserve.
Q.
I understand, sir, the gold would remain in this
country.
Dr. Kung:
Yes, the gold will remain here. Of the silver that
was sold last year and the year before all the
money still remained in your banks, and without
interest, BO it's a little money for your banks.
Q.
Do you intend to transfer some of those credits
then to some other place?
Dr. Kung:
No, I've got credit elsewhere: I want to keep the
American credit here in America.
Q.
I thought this new gold perhaps might substitute
for some previous silver credits you had here.
Dr. Kung:
The gold will remain here. What we want is a
reserve fund against our issue. We circulate
paper money in China--we have to keep the reserve.
&
Where do you keep the reserve?
A.
We keep reserve in New York, Washington, or
Shanghai, Nanking--it doesn't make any difference.
Regraded Uclassified
108
- 5 -
Q.
This is behind the internal note issue and is
not an international exchange as was the
previous arrangement?
Dr. Kung:
The reserve, whether we have gold or silver,
that's all against the issue.
&
What is your proportion of silver and gold reserves
now?
Dr. Kung:
That I am not prepared to answer just now.
Q.
The figure was given out at the time of the silver
agreement last year, I believe; as I remember, it
was about 1/3rd.
Dr. Kung:
Our cash reserve is sixty per cent and security
reserve is forty per cent against the circulation.
Q.
Mr. Secretary, do you plan to transfer any sterilized
gold to any other country in a similar manner?
H.M.Jr.:
Well, you know me by now; we only make announcements
when we conclude agreements, and we have no other
agreement which is concluded except this one with
the Chinese Government.
&
Could you elaborate, Mr. Secretary, on what you say
here about "the United States Treasury will also
broaden the scope of the arrangements under which
the Central Bank of China has been enabled .... to
obtain dollar exchange?"
109
- 6 -
A.
It's simply the arrangements which Dr. Kung
has made with us, through our fiscal agents--
your agent is the Bank of China.
Dr. Kung:
Yes. Central Bank of China.
H.M.Jr.:
And ours is the Federal Reserve, and he keeps
B. certain amount of dollars and gold and silver
on deposit with them and these moneys, whether
they are gold or silver or actual dollars, are
a part of his monetary reserve against his
currency.
Q.
Is that the "broadening of scope?" You see we
never did know what the scope was, so we can't
tell.
A.
Well, I won't be mean enough to call on the man
who wrote it, but I think you'll just have to
take it in your stride.
Q.
Can it properly be said that this is a broadening
of the stabilization policy involving France,
England and ourselves? The tripartite agreement.
Can they bring them in?
A.
No, this is an agreement between the Chinese
Government and the United States and it has
nothing to do with the tripartite agreement.
Q.
It strengthens it though, doesn't it?
110
- 7 -
A.
Anything that strengthens the ties between
China and the United States helps strengthen
all foreign exchange.
Dr. Kung:
Yes. That's right.
Q.
Mr. Secretary, would you expect to issue a
statement similar to this on the conclusion of
the discussions with the Brazilian Ministry of
Finance?
H.M.Jr.:
If you don't mind--ask some of the men who cover
the Treasury regularly--. (Flashlight bulb
explodes).
&
Mr. Secretary, may we ask you a question about an
internal affair?
A.
I don't mind, if Dr. Kung doesn't mind.
&
It's reported that during the past week, among
other things, you considered the issuance of gold
certificates to the Federal Reserve Board in
exchange for securities which they hold.
A.
Well, I read that story and I thought that those
stories were only weekend stories.
Q.
Wasn't it a good weekend story?
A.
Well, I'd rather not comment on it, but as I say,
I don't know who wrote the story, but those stories
usually are written over weekends--hot weekenda.
I don't think he got it out of the Treasury.
Regraded Uclassified
111
- 8 -
Q.
Mr. Secretary, will you tell us about your
visit with George Harrison yesterday?
A.
My visit with George Harrison was this: I wanted
to explain to him how we expected to handle the
gold and silver for the Chinese Government. As
he is the head of the Federal Reserve of New York,
which is our fiscal agent, we talked about that.
Q.
But that other plan was discussed at the conference
here yesterday, wasn't it? The issuance of gold
certificates against government securities?
A.
Shall I surprise you?
Q.
Yes.
A.
You always believe me, don't you?
&
Surely, I do.
A.
Well, we didn't discuss it--we did not.
Q.
I'll pin you down a little more and ask if you
discussed it in the past week.
A.
That's enough. You know when you say you believe
me I only tell the truth.
Q.
I'd like to ask Dr. Kung if this concludes his
negotiations here.
Dr. Kung:
Yes, as far as Mr. Morgenthau.
Q.
I wondered if you were seeing any other departments.
112
- 9 -
Dr. Kung:
Well, I'm seeing people every day.
Q.
Are you leaving tomorrow, sir?
Dr. Kung:
No.
Q.
Mr. Secretary, since this figure will show up
eventually in the gold sterilization fund
figures, could you give us a general idea of the
amount?
A.
No, I'm sorry. I think you'll have to be a little
patient and then do a little guessing.
Q.
Could you say if it compares roughly with the
transaction a year ago?
A.
No, Dr. Kung and I agreed that we wouldn't make any
comments.
Dr. Kung:
It may affect the price of gold and silver on the
world market and we don't want anybody to speculate.
ooOoo
TREASURY DEPARTMENT
113
Washington
FOR IMMEDIATE RELEASE
Press Service
Friday, July 9, 1937.
No. 10-71
The following joint statement is made by the Secretary of the Treasury
and the Minister of Finance of China:
The monetary cooperation which resulted from the conference of the
Secretary of the Treasury of the United States of America with representatives
of the Chinese Ministry of Finance in May, 1936, has contributed to the very
successful functioning of the new Chinese monetary system with benefits both
to the intornal economy of China and to Amorican trade.
We are now able to announce further progross in monotary cooperation
botwoon the two countries in pursuit of the understanding reachod a year ago,
At that time the Socretary of the Treasury, in a public statomont, said:
"I feel confident that tho monotary program boing pur-
suod by the National Government of China is not only along sound
linos, but constitutos an important stop toward the dosirod goal
of stability of world currencios.
"To supploment thoir efforts toward that objectivo and to
cooporato with thom in their program of monotary roform and
curroncy stabilization, and in accordance with our silver purchase
policy, wo have dofinitoly indicated our willingnoss, undor con-
ditions mutually acceptable, to mako purchases from the Central
Bank of China of substantial amounts of silver, and also to make
available to the Contral Bank of China, under conditions which
safeguard the interosts of both countries, dollar exchange for
currency stabilization purposes."
At the samo time, the Minister of Finance of China in a public statement
expressed the firm belief that the now measures of monotary reform which were
114
- 2 -
then being adopted by the Chinese Government, and the arrangements made with
the United States would insure the stability of the Chinese currency, and this
would inevitably lead to greater economic improvement and prosperity of the
Chineso people.
Arrangements have now been made through which the Government of Chine
will purchase from the United States Treasury a substantial amount of gold.
To aid the Chinese Government thus to augment its gold reserves, and in
accordance with the terms of the United States Silver Purchase Act of 1934,
the United States Treasury will purchase an additional amount of silver from
the Chinese Government.
The Unitod States Treasury will also broaden the scopo of the arrango-
nents under which the Central Bank of China has been enabled, under conditions
which safeguard the interosts of both countries, to obtain dollar exchange for
currency stabilization purposes.
Both the Secretary of the Treasury and the Finance Minister of China
are greatly gratified by the beneficial results to both countrios which have
been the consequence of their understanding reached last year, and they are
oqually gratified to be able to announce further progress in their cooperation.
It is a source of satisfaction to them that the program of monetary reforms
and currency stabilization in China has been carried out with great success
and has been accompanied by an increase of trade botween China and other
nations, particularly the United States, which occupies the first place in
China's foreign trade.
Because of his desire to express the appreciation of the Chinese Govern-
ment and the people of China, the Chineso Minister of Finance came in person
to the United States to conduct the negotiations which have just been concluded.
115
- 3 -
The Secretary of the Treasury greatly appreciates having had this opper-
tunity for personal co itact with the Finance Minister of China and of under-
taking in conference with him to further the welfare of both countries.
---00-
116
JR
GRAY
Paris
Dated July 9, 1937
Rec'd 2:27 p.m.
Secretary of State,
Washington.
946, July 9, 5 p.m.
PROM CO CHRAN,
The following is a brief survey of official communique
published in AGENCE ECONOMIQUE outlining the new financial
measures which are scheduled to appear in the Journal
Officiel tomorrow in a decree comprising about sixty
articles. It appears that further decrees to be published
in the near future will embody measures to be taken to
annixed
balance the so-called annerations budgets (Postal Administra-
tion, Mint, et cetera) and the budgets of the state
monopolies.
The measures as a whole are expected to add 10,500
francs to the annual revenue of the State (eight billion
for the State proper and two and one-half billion for the
railways).
Measures against speculation, fraud and fiscal
evasions provide for a special tax equal to 100% on
exceptional profits realized by speculators on forward
purchases of gold or foreign exchanges between June 10 and
30. It appears that normal commercial operations in
merchandise
117
-2-
JR #946, July 9, 5 p.m., from Paris,
merchandise or foreign securities will not be liable.
The general income tax is increased by 20% for
taxable amounts over 20,000 francs. Inheritance duties
as concerns transfers of real property are increased from
8 to 12%. The tax on income from registered securities
is increased from 12 to 15 per cent and from 18 to 24
per cent on bearer securities. The same tax is increased
from 25 per cent to 30 per cent for foreign securities.
As concerns fiscal adjustments the Cedular tax
is increased as well as the cost of certain stamp duties.
The production tax is increased from 6 to B per cent.
In order to equalize rail and road transport charges,
taxes or. gas, oils and petroleum used by trucks are
increased.
The above any measures concern the general budget.
In addition postal, telephone and tolegraph rates
are increased. Tobacco prices are raised by about 20%.
Furtheimore through immediate reorganization of the
railways an increase of the railway tariffs will provide
at once for additional annual receipts of two billion
francs and a further increase of six hundred millions
before August 15.
Please inform Commerce. With reference to customs
changes see 948, 7 v.m.
BULLITT
HPD
COPY FOR SECRETARY
118
RB
GRAY
Paris
Dated July 9, 1937
Rec'd 2:30 P. m.
Secretary of State
Washington.
947, July 9, 6 P. m.
FROM COCHRAN.
Yesterday's downward trend in the franc was
reveresed today after it became realized that the bad
statement of the Bank of England which was released
yesterday covered a period which included only one day
of the new financial policy. Today's press gives official
communique summarizing Bonnet decree laws but JOURNAL
OFFICIEL containing them will not appear before tomorrow.
In cablegrams 946 and 948 the main items of the communique
are published. Too early to judge full market reaction.
Initial feeling is one of relief that nothing more
immediately detrimental to the exchange and stock markets
has been included. On the other hand there is skepticism
as to the actual amounts that will be collected through
the new levies and consequently a doubt as to the effective-
ness of the Government's program. Securities which are
subjected to higher taxes naturally did not react well
today.
119
RB
-2-#947, July 9, 6 P. m. from Paris
today.
French control had a fair day acquiring sterling
although rate varied considerably and control was not
able to operate steadily. One Paris American bank pur-
chased today approximately one million dollars for the
control at 25.85. Rumor current that Soviets contem-
plate early sales of dollars against sterling. Forward
franc not holding earlier recovery. Hotel and
restaurant situation continues unhappy.
BULLITT
KLP
WWC
COPY FOR SECRETARY
120
RB
GRAY
London
Dated July 9, 1937
Rec'd 2:30 P. m.
Secretary of State
Washington.
455, July 9, 6 P. m.
FOR TREASURY FROM BUTTERWORTH.
Chamberlain made his first important public
speech as Prime Minister last evening in the course
of which he stated: "Every measure by which you can
estimate prevailing trends tells the same tale, whether
it be notes in circulation or the returns of trading
companies or the traffic on the railways or the retail
sales or the savings of the people. I hear occasionally
from our opponents that all this activity is simply due
to the Government's rearmament program. That allegation
will not bear a moment's investigation.
There have been, I think, two main factors in
that policy which produced these results and they are
sound finance and the change in our fiscal system. Sound
finance has given us balanced budgets; balanced budgets
restored confidence and enable us to carry through the
great
121
RB
-2-#456, July 9, 6 P. m. from
London
groat conversion operations. These operations enable
us to establish the regime of cheap money and cheap
money has encouraged the expansion of trade".
The French tax and economy decrees, details of
which have not yet been received in London, seem to
have concentrated somewhat the unfavorable impression
made by yesterday's Bank of France statement and con-
sequently the franc has remained steady and slightly
bid today.
BINGHAM
KLP
WWC
DESIRTMENT
PROBLIME
-
Regraded Uclassified
trench setuation
122
PARIS.-FRENCH TAXPAYERS TODAY RECEIVED DETAILS OF THE BILL THEY
MUST PAY IN THE GOVERNMENT'S FIGHT TO SAFEGUARD THE CURRENCY AND
RESTORE FINANCIAL NORMALTY.
DRASTIC TAX INCREASES WERE APPROVED BY THE GOVERNMENT IN A FORMAL
COUNCIL OF MINISTERS AND PROMULGATED AS OFFICIAL--HIGHER INCOME TAXES,
HIGHER REAL ESTATE TAXES, NEW STAMP TAXES, HIGHER PRODUCTION TAXES,
HIGHER TARIFFS, HIGHER GASOLINE TAXES, HIGHER POSTAGE AND TELEPHONE
RATES, HIGHER TOBACCO PRICES AND HIGHER RAILROAD FARES.
THE GOVERNMENT'S DECREES WERE MUCH MORE DRASTIC THAN EXPECTED.
THE TAX INCREASE WAS ESTIMATED TO TOTAL 10,500,000,000
FRANCS ($420,000,000).
INCOME TAXES WERE BUSTED TO 20 PER CENT ON INCOMES ABOVE 20,000
FRANCS (S80O)-PRETROACTIVE FOR 1937,
A 100 PER CENT TAX WAS PUT ON PROFITS FROM SPECULATION IN GOLD AND
FOREIGN ECCHANGE DURING THE PERIOD BETWEEN JUNE 10 AND JUNE 20.
IT WAS ANNOUNCED THAT MEASURES WOULD BE TAKEN TO PREVENT FUTURE
EVASION OF TAXES BY SECURITY HOLDERS, AND SECURITY TAXES WERE INCREASED,
INCLUDING A RISE FROM 25 TO 30 PER CENT IN THE TAX ON DIVIDENDS FROM
FOREIGN SECURITIES.
DETAILS OF STAMP TAX INCREASES WERE WITHHELD. THE GENERAL PRODUC-
TION TAX WAS INCREASED FROM 6 TO 8 PER CENT EXCEPT FOR FOODSTUFFS.
TARIFFS ON PRODUCTS CONTROLLED BY QUOTAS WERE RESTORED TO LEVELS
EXISTING BEFORE LAST OCTOBER.
GASOLINE TAXES WERE INCREASED ON BUSSES AND TRUCKS, WHICH ALSO
WERE SUBJECTED TO LICENSING FEES.
INCREASES WERE MADE IN TELEPHONE AND POSTAGE RATES AND TOBACCO
PRICES WERE RAISED BY 20 PER CENT.
THE HIGH RAILROAD COUNCIL DECIDED ON FREIGHT INCREASES OF ABOUT 18
PER CENT, WITH LESSER RATES ON AGRICULTURAL PRODUCTS, EFFECTIVE JULY
22.
7/9--R944A
Regraded Uclassified
FRENCH TAX DECREE 7.15 JUL 9 1937
12.
PARIS - DIRECT AND INDIRECT TAXES TO
YIELD 8 000 000 000 FRANCS IN THE CURRENT
YEAR THUS COVERING THE ORDINARY BUDGET
DEFICIT HAVE BEEN ENACTED INTO LAW BY THE
SIGNING OF A GOVERNMENTAL DECREE - A RESUME
ISSUED BY FINANCE MINISTER BONNET STATES
THAT THE LAW 1- IMPOSES A 100 PC TAX ON PROFITS
DERIVED FROM SHORT SELLING OF FRANCS
BETWEEN JUNE 10 AND JUNE 30 - = 2- OBLIGATION
IS LAID UPON BANKS TO REGISTER THE NAMES
AND ADDRESSES OF ALL PERSONS CASHING COUPONS
IN ORDER TO SUPPRESS EVASION OF COUPON TAXES -
3- A PRODUCTION TAX IS SUBSTITUTED FOR THE
TURNOVER TAX IMPOSED UNDER THE AURIOL FISCAL
REFORM WHICH IS EXPECTED TO YIELD I 400 000 000
FRANCS - - 4 - CUSTOMS DUTIES ARE RESTORED TO THE
LEVEL WHICH PRECEDED THE OCTOBER DEVALUATION
AND ARE EXPECTED TO YIELD 500 000 000 FRANCS
IN THE CURRENT YEAR AND I 000 000 000 IN
1938 - 5- 1938 I NC OME TAX ASSESSMENTS ARE
RAISED TO YIELD 500 000 000 FRANCS
POSTAL TELEPHONE AND TELEGRAPH RATES ARE
INCREASED TO YIELD 700 000 000 FRANCS -
TOBACCO PRICES ARE BOOSTED 20 PC - A SPECIAL
MINISTERIAL COMMISSION WHICH WAS APPOINTED
TO CONSIDER REORGANIZATION OF RAILWAYS
IMMEDIATELY RAISED RATES TO PRODUCE 2 600 000
000 FRANCS ANNUALLY
THE NEW TAX DECREE INCLUDES A RISE
FROM 25 TO 30 PC IN THE TAX ON DIVIDENDS
FROM FOREIGN SECURITIES - THE GENERAL
PRODUCTION TAX WAS INCREASED FROM 6 TO 8
PC EXCEPT FOR FOODSTUFFS
-0-
Regraded Uclass
124
ADD NEW FRENCH TAXES
901
9
PARIS - UP - - THE HIGH RAILROAD COUNCIL
1937
DECIDED ON FREIGHT INCREASES OF ABOUT 18
PC WITH LESSER RATES ON AGRICULTURAL
PRODUCTS EFFECTIVE JULY 22
-0-
NEW FRENCH TAXES
930 JUL 9 1937
PARTS - THE REACTION TO THE FISCAL
MEASURES ALL THE DETAILS OF WHICH HAVE NOT
YET BEEN PUBLISHED APPEARS TO BE FAIRLY
FAVORABLE IT IS NOTED THAT THE GOVERNMENT
AVOIDED INCREASING TAXATION OF FOODSTUFFS
WHICH ALREADY ARE EXEMPT FROM THE 6 PC PRO-
DUCTION TAX AND REMAIN EXEMPT FROM THE NEW 8
PC RATE AND ON WHICH RAILROAD RATES WILL BE
ONLY MODERATELY RAISED - - NE VERTHELESS IT is
THOUGHT INEVITABLE THAT THE COST OF LIVING
MUST RISE OWING TO THE NEW FISCAL BURDENS
-0-
4,33
JUL 9 1937
ADD NEW FRENCH TAXES
PARIS- AMONG OTHER OUTSTANDING FEATURES
ARE THE 20 PC INCREASE IN GENERAL OF THE FLAT
INCOME TAX APPLYING TO ASSESSMENTS ALREADY
I SSUED OR ISSUABLE THE CURRENT YEAR INCREASE
IN THE COUPON TAXES OF 12 PC TO 15 PC ON
NOMINATIVE SECURITIES 18 PC TO 24 PC ON
BEARER AND 25 PC TO 30 PC ON FOREIGN SECURITIES
AND THE TAX ON DIRECTORS FEES OF 24 PC TO 27 PC-
ALL OF THESE ARE EXPECTED TO YIELD I 000 000
000 FRANCS FOR THE FULL YEAR
125
ADD NEW FRENCH TAXES
935 JUL 9 1937
PARIS- THE 100 PC TAX ON SPECULATIVE EXCHANG
-E PROFITS ON RECENT FRANC DEPRECIATION IS NOT
EXPECTED TO YIELD MUCH AND NO ESTIMATE OF THE
YIELD IS GIVEN WHILE IT IS POINTED OUT THAT
SPECULATION IN SECURITIES AND COMMODITIES IS NOT
AFFECTED
-0-
JUL 9 1937
ADD NEW FRENCH TAXES
943
PARIS- CONTROL OF COUPON PAYMENTS THROUGH
BANKS IT IS ESTIMATED WILL BRING IN 630 000
000 FRANCS ANNUALLY BUT WILL BE INEFFECTIVE
AGAINST EXTENSIVE FISCAL EVASION THROUGH THE
PRACTICE OF DEPOSITING SECURITIES ABROAD
A TOTAL OF 8 000 000 000 FRANCS IS
EXPECTED ANNUALLY BUT ONLY 4 000 000 000
DURING THE BALANCE OF THE CURRENT YEAR
-0-
Regraded Uclassified
126
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
FE 611 9431/152
July 10, 1937
CONFIDENTIAL
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
for the confidential information of the Treasury Depart-
ment a copy of a paraphrase of the essential portions of
a telegram dated July 8, 1937, from the American Embassy
at Tokyo in regard to Japan's exchange position.
Enclosure:
Paraphrase of telegram
No. 184, July 8, 1 p.m.
from Embassy Tokyo.
Sing
Regraded Uclassified
Department of State
B
U
}
FE
DIVISION
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
Treasury.
V.S PHINTING OFFICE
1-1000
Regraded Uclassified
127
PARAPHRASE
The essential portions of a telegram (No. 184) of
July 8, 1937, from the American Ambassador at Tokyo, read
substantially as follows:
There set in toward the latter part of 1936 a marked
increase in Japanese purchases of certain articles which
it was anticipated might be affected by any of the three
following factors (1) Japan's program for the replenishment
of armaments, (2) an anticipated upward revision of the
Japanese import tariff in accordance with announcements by
the Minister of Finance, and (3) rising prices in world
markets.
There ensued a general wave of speculation as manifested
by a gain during the last semester of 95 percent in the ware-
house stocks of raw cotton alone. Alarmingly heavy purchases
have been made of other essential commodities, particularly
steel. While the purchases made by individual merchants
have been of a speculative character the fact that there have
been larger importations of primary commodities used in the
production of articles for export and of commodities needed
for the armament program shows that it is the deliberate
policy of the Japanese Government to promote such importa-
tions in the pursuit of certain fixed policies. It would
appear very doubtful from available evidence that Japan can
go on financing such imports unless either it curtails
drastically the export of capital to Manchuria or reduces
the importation of commodities which are non-essential.
The
Regraded Uclassified
128
- 2 -
The recent revision of the existing exchange control
regulations in the direction of more rigid and thorough
control indicates that even though the exchange position
has not only not improved but has probably shown retrogression
since last January, the Japanese Government will try to
regulate the exchange situation by imposing restrictions upon
the importation of commodities which are either unconnected
with the armament program or which are not used in the pro-
duction of goods for export in preference to the modifying
of governmental policies which contribute in large measure
toward the creation of such a situation.
It is roughly estimated that the capital transferred
annually to Manchuria for military expenditures and for the
economic and industrial development of that region amounts
to about Yen 400,000,000 yearly. There is no evidence that
this amount is being substantially ourtailed in spite of the
very great difficulty of the present exchange position of
Japan.
While it is true that the present adverse trade situation
in Japan has been brought to a head by speculation consequent
to certain economic factors such as anticipated upward revision
of Japanese import duties and rising world prices, it is
primarily due to heavier imports of articles required for the
carrying out of national policies. An integral factor in
Japan's economic position is the degree of dislocation in
Japan's international trade position which can be ascribed
to
Regraded Uclassified
129
- 3 -
to such purchases heightened as the dislocation is by the
continued export of capital to Manchuria and to that extent
may be considered as a matter of calculated and deliberate
policy.
16EV265
1121 30/- IS WW 0.00
DERICE DE NEVERUA
Regraded Uclassified
130
JR
GRAY
Paris
Dated July 10, 1937
Rec'd 9:50 a.m.
Secretary of State,
Washington,
950. July 10, 1 p.m.
FROM COCHRAN.
"/ith Paris markets and banks closed today it is
impossible to judge further reaction of financial
community to Bonnet's decree laws. The French General
Confedoration of Labor has however come out with a series
of recommendations.for financial measures which appeared
in this morning's press. These envisage control of
foreign operations of French banks, reorganization of
Paris money market and institution of "open" policy,
nationalization of insurance business, heavier taxes
on wealthy, suspension of amortization of public debt,
reorganization of banking and credit system and similar
measures, For organized labor to advance this
formidable program just at the time the Government is
introducing its new projects planned with idea of
encouraging return of capital to France will undoubtedly
be interpreted as a continuing menane to capital and a
handicap to Bonnet. More serious aspect of hotel and
restaurant strikes is also discouraging.
Proceeding to Basel tonight and returning Tuesday
morning.
BULLITT
HPD
131
RE BRAZILIAN AGREEMENT
July 12, 1937
9:10 a.m.
Present:
Mr. Lochhead
Mr. White
H.M.*r:
Harry, now when Taylor comes back - I've read this
thing very quickly, this answer to Bachmann and
Schnyder, see, but I understand, going up on the
plane with Riefler, that this isn't polished and
finished.
White:
Possibly could be polished a little more.
H.M.Jr:
well, I'm not ready now, but I want - who wants to
be custodian of this?
Lochhead:
Well, I think Harry better be custodian.
H.M.Jr:
If I get a chance I may want to sit down and kind
of talk about it this evening, you see. I don't
know yet - I mean my time is short - but I think
I got it, and I think it soundsall right.
Now, where are we on this Brazilian thing?
White:
The Brazilians returned at four o'clock, and much
to the surprise of everyone, I think, what they
asked for was merely the privilege of purchasing gold,
and as they paid for it it would be theirs; they would
not include it in their statement until they had paid
for it. However, they were of the opinion that the
most desirable thing - psychological effect would be
given if a definite amount were to be indicated that
they could buy. In other words, if you were to say,
"We stand ready to sell 50 million dollars of gold,
to be paid for over a period of possibly a year or
two or three" - however, the gold would not be theirs
until they paid for it in foreign exchange. Which
was a little contrary to what we had been led to
believe.
Lochhead:
The situation cleared up very quickly when we found
out what they wanted.
White:
And Sousa Costa appears to be a very intelligent
person, a man whose ideas are very sympathetic to
Regraded Uclassified
132
-2-
what ours are. They're coming back Wednesday
morning, at which time we will presumably have read
over their answers to the questions which we sub-
mitted. I have already read them over. They are
very simple statements without - there would be
no question at all, I think, of our willingness to
meet their request. I think you can give them every-
thing they want.
H.M.Jr:
What time they coming back Wednesday?
White:
10:30 Wednesday morning.
H.M.Jr:
All right. You (Lochhead) get word that I want
Riefler, Viner, and Williams here.
White:
I think probably you'd better get them on the phone;
don't you think so?
H.M.Jr:
Well, I'm on this Swiss thing. Let these fellows
come back.
White:
+hey hate to come back.
H.M.Jr:
I know. They get the honor; let them get a little
work.
Lochhead:
When do you want them back?
H.M.Jr:
I want them here in the office at 9:15 Wednesday
morning.
White:
Williams is coming anyhow.
H.M.Jr:
Well, let these birds come. Viner gets home from
Friday night until Tuesday night; he comes down
here. And tell them I want them here for two days.
Lochhead:
Two days. O.K.
White:
Yes, and I think another reason you'd want them -
there's a letter from Senator Wagner and I prepared
a letter to
H.M.Jr:
Well, tell them I want them here two or three days at
the most.
Regraded Uclassified
133
-3-
Lochhead:
That will give them off a weekend.
White:
Remember I spoke about a letter from Senator Wagner
and a reply by us? I prepared a draft of something,
if you want to go forward on it.
Lochhead:
I honestly feel that this Brazilian situation has
cleared up tremendously in the short talk we had
on Friday afternoon. The only thing that might
stand in the way of giving them what they want is
the possibility that you may be tying in for some
future undertaking with Brazil. I don't feel that
way. I know there is some feeling that way. I
feel we must take our chances. In other words, if
we give them a commitment to sell 50 million and
they can't take it up, they might come to us and
say, "Make us a loan to carry this out." But I
think in any agreement you run the same danger.
White:
This is interesting. When someone mentioned a
hundred million dollars, he said, "Oh no, that's
too much." He's very moderate.
H.M.Jr:
"nybody say anything about silver?
White:
No, and that's one thing to which Williams is
averse. But I think we can work up some
H.M.Jr:
What would it be - one-quarter of 50 million,
123 million?
White:
That would be as much as you could hope for.
H.M.Jr:
Mathematically, what would it be? If they had 50
million, one-quarter
White:
At $1.29
H.M.Jr:
45 cents.
Lochhead:
I think you'd have to sell them on the one-quarter
monetary basis at $1.29, which would make about ten
million ounces. Otherwise, it would have to be over
25 million ounces.
H.M.Jr:
What would it be on 8 $1.29 basis?
Regraded Uclassified
134
-4-
White:
At $1.29, four million dollars in bullion value.
Lochhead:
About ten million dollars.
H.M.Jr:
It's one-quarter of the gold - and then together
makes one-third of each? Is that right?
Lochhead:
One-third of gold; one-fourth of the total monetary
stock.
H.M.Jr:
One-third of the gold should be silver; then it's
more than 12%.
White:
It's 50 million altogether.
H.M.Jr:
Work it out mathematically.
Lochhead:
$1.29 is as high as you can ask them to go.
White:
It is your thought that we ought to open that
field of discussion?
H.M.Jr:
Absolutely.
White:
I don't know if they
Lochhead:
I think that it was part of it.
H.M.Jr:
Well, who was at the meeting?
White:
Williams and myself - Archie stepped in for part of
the time - and Feis and Livesey, and Dousa Costa,
the Ambassador, and his interpreter.
H.M.Jr:
Now, when you do this, Sousa Costa - does he under-
stand English?
White:
Ae understands English very well, better, I think -
as well as the Ambassador.
Lochhead:
He knows enough to sit quietly and take it all in.
White:
When he wants to answer, he answers. When the other
person gives a wrong answer, he interrupts. And he
is a very able man, he's a very shrewd man - very
Regraded
Uclassified
135
-5-
competent.
Lochhead:
But I think he's so competent that he's not asking
impossible things.
White:
Herbert Feis was there, very eager to push this thing
and get over with it as rapidly as possible. He
will doubtless object to silver. Nothing was said.
But he was very pleased and he said he doesn't - he
told them personally he doesn't see any reason why
there should be any obstacle.
H.M.Jr:
Couldn't we get word to these fellows, so they could
be thinking about it, that we have silver in mind?
White:
Pousa Costa isn't here. We can find out - I don't
think it does any good to talk to anybody but
Sousa Costa.
H.M.Jr:
Find out when he gets back. Maybe I can see him
before.
White:
It would be a very good idea.
Lochhead:
Did you see about my interview with the Brazilians?
Some fellow from the Havas News Agency called me up.
Now they say you got your staff so intimidated that
they won't talk at all for publication. He asked
whether I had seen the Brazilians. I said, "I don't
talk for publication. Then he asked 1f I was going
to see them. I said, "I don't talk for publication."
de said, "Is your name Lochhead?" I said, "I don't
talk for publication." That's the way Drew Pearson
got it.
But I do feel we can clean that up this week.
H.M.Jr:
I can have Aieley find out - (to Kieley) find out
when Dr. Souse Costa, the Finance Minister, will
return to Washington. I'd like to know. Call up
the Brazilian Embassy.
Then we can wait; just hold up on Viner and Williams
until we hear.
Lochhead:
I won't put that call in then.
H.M.Jr:
Well, isn't that about all?
White:
That's all.
Regraded Uclassified
136
July 12, 1937.
9:57 a.m.
H.M.Jr:
Hello.
Operator:
Ready.
H.M.Jr:
Yes.
Operator:
Go ahead.
H.M.Jr:
Hello.
Wm. W.
Butterworth, Jr:Hello.
H.M.Jr:
Butterworth.
B:
Yes, sir.
H.M.Jr:
Good morning.
B:
Yes,sir.
H.M.Jr:
Butterworth I can't remember whether the message
came through you or through the Embassy here in
Washington, in regard to Sir Frederick Phillips
going to Canada.
B:
No, it must have come through Washington.
H.M.Jr:
Well, do. you know about it?
B:
No, I don't.
H.M.Jr:
Well, I don't like to rub it in but the impossible
has happened, see.
B:
Yes.
H.M.Jr:
And he wanted to know whether I'd like to see
him.
B:
Yes.
H.M.Jr:
And of course I sent back word I'd be delighted
to. Now the word I'd like you to get today is - be-
causel want to have you over here when he's here.
B:
Yes, sir.
H.M.Jr:
I'd like you to go over there and tell him that
I'm going to expect to be gone the end of this
Regraded Uclassifie
137
-2-
month until the second of September.
B:
Until the second of September.
H.M.Jr:
And if he could get to Washington about the
13th, you see, I would see that there's no
other - I mean, I'd sort of save that week,
be ready for him.
B:
The week of the 13th of -
H.M.Jr:
September.
B:
of September.
H.M.Jr:
The 13th is a Monday.
B:
Right.
H.M.Jr:
You see - and you might ask them and then get
word back to me.
B:
I will indeed.
H.M.Jr:
But they told me that - well, I needn't go all
into it, but
B:
No.
H.M.Jr:
They sent word, I couldn't remember through
whom, it must have been here, the British
Ambassador, would I like to see him, he was
going to be in Canada the middle of September.
B:
Quite.
H.M.Jr:
The answer was, of course, that I'd be delighted.
B:
Quite.
H.M.Jr:
So, if he could get here about the 13th., I'd
like it.
B:
Quite.
H.M.Jr:
And then if I know that, then I'll have the
Department give you instructions to come over
and be here at the same time.
B:
Thank you, sir.
Regraded
Uclassifie
138
-3-
H.M.Jr:
And by the way, if I don't get a chance to
get it, you come, Take any boat, it doesn't
make any difference.
B:
All right, sir.
H.M.Jr:
Get any boat. Take American boat if you can,
but if you can't get accommodations why then
take an English boat.
B:
All right, sir.
H.M.Jr:
Or a French one.
B;
All right, sir.
H.M.Jr:
Now.
B:
I was talking to the British Treasury about the
communique about the Chinese -
H.M.Jr:
What's that.
B:
I say, I gave the British Treasury communique
joint statement issued in Washington about your
discussion with the Chinese Minister of Finance.
H.M.Jr:
Yes.
B:
Are there any other details that are to be
communicated to them, or is that all?
H.M.Jr:
That's all there is.
B:
That's all there 1s. Right.
H.M.Jr:
Did they have any comments?
B:
No, they didn't. They Just said they'd - I don't
think they objected a bit.
H.M.Jr:
Well, why should they?
B:
No. I mean, I thought that they were rather
pleased about, I mean they were all for China
pulling itself together.
H.M.Jr:
Well, I think they should be pleased, because
Uclassifie
139
-4-
here, for instance, with the Japanese war scare
in China, the Chinese foreign exchange hasn't
hardly varied a fraction.
B:
Yes, I know.
H.M.Jr:
Now, unless they had 8. considerable sum of money
here with us, they couldn't keep their exchange
80 stable.
B:
No, I understand.
H.M.Jr:
And the only statement that I made, they asked
me was this in any way related to the tri-partite,
and I said no, it had nothing to do with it, other
than that if the Chinese and ourselves, I put it,
had a strong currency -
B:
Yes.
H.M.Jr:
Why, it meant that the repercussions on our
own tri-partite agreement would be that much
less.
B:
Of course.
H.M.Jr:
And I should think -
B:
The statement was published over here.
H.M.Jr:
Oh, was it?
B:
Yes.
H.M.Jr:
And there's nothing - if you know when I make
these arrangements, I mean there are no trade
favors that go with it. It's strictly financial.
B:
Purely financial.
H.M.Jr:
Purely financial, as all of mine are and there's
no side bets.
B:
Right, sir.
H.M.Jr:
See.
B:
Yes, sir.
Uclassifie
140
-5-
H.M.Jr:
But the main thing I wanted you to find out
was to get word to Sir Frederick Phillips 80
that if he wouldn't come at a time - you might -
I have my financing Just before the 13th.
B:
Yes.
H.M.Jr:
And then by the 13th, I'd have my desk clear.
B:
Right.
H.M.Jr:
And - I want to be able to give him plenty of
time.
B:
Right, sir. I'll get word back to you immediately
about it.
H.M.Jr:
All right.
B:
Thank you very much. Goodbye.
141
July 12, 1937.
10:57 a.m.
H.M.Jr:
Hello.
Rep.Robert
Doughton:
All right, Mr. Secretary.
H.M.Jr:
How are you Bob Doughton?
D:
First rate, thank you. Are you well?
H.M.Jr:
I'm all right.
D:
I missed getting you the
other day, on Friday.
H.M.Jr:
Well, I called you up simply to say thank you.
D:
well, that's all right. You needn't have done
that.
H.M.Jr:
I thought you handled a very difficult situation,
extremely well.
D:
Well, I thank you very much. We're doing the
best we could about it.
H.M.Jr:
And that's what I wanted - that's
D:
I think it's just as well that fellow has blown the
wind out of himself to show - to show
breezy
issue on the floor of the House and in the
Congressional record.
had some
evidence.
H.M.Jr:
Well, I think the way it worked out - I know as
far as I am concerned I am entirely satisfied.
D:
Well, I thank you very much. I think now, when
the matter comes up properly for debate on the
floor of the House, we can just show him up in
the right light.
H.M.Jr:
Uh-huh.
D:
Whereas, if we had shut him off and never gave
him a chance to say anything, he'd always claim
he had evidence, hadn't had a chance to show it
and we suppressed him.
H.M.Jr:
Now, he's shot everything he's got. He's got
nothing left.
Uclassifie
142
-2-
D:
Nothing left, and had nothing.
B.M.Jr:
Well, I think even Treadway was disgusted with
him.
D:
Oh, undoubtedly. Treadway and
was very gentlemanly about it.
H.M.Jr:
Yes.
D:
Well, I appreciate your calling and 1 want you
to know that we want to cooperate the best we
can, and let us know if there is anything more
we can do any time.
H.M.Jr:
When do you have your next session?
D:
Tomorrow - we'd ought about probably wind up
tomorrow. we meet tomorrow again on the Treasury
-Doctor Magill and the Bureau bring in what
additional evidence they have.
H.M.Jr:
Is that public or executive?
D:
It's public tomorrow.
H.M.Jr:
I see.
D:
After tomorrow they'll be probably - unless
something more than that comes up that I don't
know about, if we get through, we get through
we'll be able then to go into executive session
decide what we'll do.
H.M.Jr:
Well I expect to leave Monday a week on my
vacation.
D:
Well, I wish you would tell us when we can leave.
H.M.Jr:
So if there's anything that you want of me will
you keep that in mind.
D:
Yes, I certainly will.
H.M.Jr:
All right.
D:
Certainly will.
H.M.Jr:
Thank you.
D:
Goodbye.
Regraded Uclassifie
143
July 12, 1937.
10:59 a.m.
H.M.Jr:
Hello.
Operator:
O.K. Go ahead.
H.M.Jr:
Hello.
George
Harrison:
Hello, Henry.
H.M.Jr:
Good morning.
H:
Henry, I'm planning to go to Chicago this
afternoon.
H.M.Jr:
Good.
H:
And just want to let you know that I'm off,
unless there is something, you think I ought
not to go.
H.M.Jr:
Oh no, no, no. No, I think everything look's
fine.
H:
But I think everything looks pretty quiet.
H.M.Jr:
Well maybe that's - well I think it does by com-
parison.
H:
Yes.
H.M.Jr:
People around the office. Say if they could only
get me out of the Treasury, they know things will
stay quiet.
H:
They don't think what?
H.M.Jr:
If I - If they could only get out of the Treasury
quickly enough they know things will stay quiet.
H:
Well, I think that's
If we
could both go up together it would be fine.
H.M.Jr:
What do you want - don't you think I earned a
holiday?
H:
Is anything going to happen about the legislation
before you go, Henry?
H.M.Jr:
Not as far as I can see.
Uclassifie
144
-2-
H:
Uh-huh.
H.M.Jr:
My understanding 1s that there's nothing to
be done until the Court bill is passed. But
your guess 1s as good as mine.
H:
Yes.
H.M.Jr:
There's been nothing since and I haven't talked
to Eccles.
H:
I see,
H.M.Jr:
So, that's my understanding now. So....
H:
Yes. Well you're going this week and I think I'll
go and I'll be back, well - before you go -
I'll be back early in August.
H.M.Jr:
Are you going to San Francisco or Los Angeles?
H:
No, I'm going to San Francisco. I'm going out
to Chicago.
H.M.Jr:
Oh.
H:
But, I'm having a meeting tomorrow.
H.M.Jr:
Yes.
H:
And then I'm going to San Francisco, and I might
come back by way of the Northwest.
H.M.Jr:
Uh-huh.
H:
Then come back to Minneapolis if I've got time.
San Francisco, and I'd like to come back by way
of the Northwest.
H.M.Jr:
Uh-huh.
H:
Then come back to Minneapolis if I've got time.
H.M.Jr:
Uh-huh.
H:
Just depends upon whether we are going to have
an open market meeting on August 5 or not.
H.M.Jr:
Uh-huh.
H:
I don't see any occasion for it, I don't think
Regraded-Uclassifie
145
-3-
we ought to do anything until after you're back,
and into September anyway.
H.M.Jr:
Well, I - I don't Bee what you want one for, but
that's - unless you fellows like to see each other.
H:
Well, I didn't want to run off without calling
you.
H.M.Jr:
I appreciate that. Well, get some fun. I know
I'm going to have some.
H:
Well, I'm going to try to.
H.M.Jr:
All right.
H:
Where are you going? Are you going to San
Francisco?
H.M.Jr:
We're going to Hawaii via Los Angeles and the bat t
lands coming back at San Francisco,
H:
Uh-huh, I see.
H.M.Jr:
But I'm not doing business.
H:
No, but I won't bother you.
H.M.Jr:
No, I didn't mean that. I didn't mean - as a
matter of fact, the only person I'm taking with
me, I'm taking a lieutenant coast guard as a
code officer.
H:
Yes.
H.M.Jr:
That's the only thing I'm going to take care of.
H:
All right, if there's anything I can do, let me
know, Henry.
H.M.Jr:
Thank you,
H:
And I hope you have a good rest, a good vacation.
H.M.Jr:
Thank you very much. Goodbye.
H:
Goodbye.
H.M.Jr:
Goodbye,
Regraded Uclassifie
146
July 12, 1937.
11:26 a.m.
H.M.Jr:
Wait a minute, what is it Butterworth?
Butterworth:
I went over to the Treasury and I explained the
position as you had stated it to me.
H.M.Jr:
Yes.
B:
And he said he'd be -
H.M.Jr:
What's that?
B:
The 13th was agreeable to him.
H.M.Jr:
Yes.
B:
I said if it suited your convenience. I also
asked him that if it was a matter of his personal
comfort -
H.M.Jr:
Now, wait a minute. Butterworth, we have a very
bad connection. Say it over again.
B:
He said that the 13th was perfectly agreeable,
H.M.Jr:
Yes.
B:
But that he had a preference for the 20th,
because he wanted to meet his sister during the
week of the 13th, but that that was completely
unimportant.
H.M.Jr:
No.
B:
the 20th, but not as agreeable to you,
H.M.Jr:
The 20th is just as agreeable to me.
B:
But I said I thought it would be, but he left
it to me to decide.
H.M.Jr:
Well, the 20th 18 just as agreeable, I didn't
want him to get here, say between 6th and the
13th, being all tied up.
B:
Well I told him that I thought that the 13th
was the first possible time when you could see
him and have your desk clear for him.
H.M.Jr:
That's right.
Regraded Uclassified
147
-2-
B:
So, we will make it the 20th then.
H.M.Jr:
That's right.
B:
And I will pass it on to him.
H.M.Jr:
That's right. Did you see him?
B:
Yes, I did.
H.M.Jr:
I see. Where does his sister live, in Canada?
B:
Don't know where she lives.
H.M.Jr:
I see.
B:
He said that that was one of the reasons that
he had to - that he was going. Would like to
be with her that week.
H.M.Jr:
That's quite all right. You might, if you
could-sort of without making any - discreetly
find out who his sister is and where she lives.
B:
I will indeed. I'll do my best on that.
H.M.Jr:
What!
B:
I'll do my best on that.
H.M.Jr:
The 20th is quite all right.
B:
Good. -
H.M.Jr:
Are they at all excited over there over the
Japanese-Chinese things.
B:
Are they.
the reports
that they've got from their people in the Far East
are not very satisfactory.
H.M.Jr:
I see.
B:
I mean the situation actually is not very
clear.
H.M.Jr:
Uh-huh.
B:
And I think they are somewhat disturbed about it.
Iclassifie
148
-3-
H.M.Jr:
I see. And how does the Spanish thing look
today?
B:
Well, the Spanish thing is no better or no worse.
H.M.Jr:
Uh-huh.
B:
has been given a mandate. He
signed a compromised proposal.
H.M.Jr:
Uh-huh.
B:
And he is still considering ways and means
H.M.Jr:
I see.
B:
And our intimation is that nothing very much is
going to come out before the end of the week.
H.M.Jr:
I see. Do you know that I'm planning to leave
Washington a week from today?
B:
Yes, sir.
H.M.Jr:
And to sail from Los Angeles on the 24th.
B:
You are going where? To Honolulu?
H.M.Jr:
Honolulu.
B:
Fine business. Didn't know you were going there.
H.M.Jr:
Yes. Mr. Taylor will be here.
B:
Good.
H.M.Jr:
Yes. All right.
B:
Thank you, sir, very much.
H.M.Jr:
Goodbye.
Uclassifie
149
RE RUSSIAN GOLD DEALINGS
July 12, 1937
11:30 a.m.
Present:
Mr. Oumansky
Mr. Lochhead
Mr. White
Oumansky:
Mr. Secretary, to go back to our questions.
H.M.Jr:
Please.
Oumansky:
I wanted to tell you the following. The first
step in what we were trying to do, as you suggested,
is achieved in the sense that the State Bank of the
U.S.S.R. has established normal relations with the
Federal Reserve.
H.M.Jr:
Right.
Oumansky:
Those were settled very smoothly, and the State
Bank has made the usual deposit and the banks know
the necessary information about each other, so that
this is achieved.
Unfortunately, one of the first actual operations
didn't work. On the 7th of July, the State Bank
asked the Federal Reserve Bank by telegraph to acquire
from it ten thousand kilograms of gold bars which are
on the London market, suggesting that this gold, as
it was suggested by you in our very first conversation,
must not necessarily actually be shipped to the United
States.
H.M.Jr:
I think you're wrong.
Oumansky:
No.
H.M.Jr:
You're wrong.
Oumansky:
Am I? Well, that was a suggestion of the State Bank.
H.M.Jr:
No, I'm sorry, you're wrong, and I tell you why.
Oumansky:
I see; it's all right,
H.M.Jr:
Because I tell - am I - I'm correct, am I, on that,
that exactly the same thing was put up to us by
150
-2-
Switzerland?
Lochhead:
(Nods yes)
H.M.Jr:
I just want to let you know - they asked us to buy
Swiss gold for delivery in London and we told them,
"Very sorry, no." So - I mean it's been our policy
that we would buy gold delivered in New York at $35
an ounce less one-quarter, but it must be delivered
in New York at the risk of the owner. Did exactly
the same thing how long ago with Switzerland?
Lochhead:
Oh, a couple months ago. It's a policy, not a
question of
H.M.Jr:
What you asked us to do - not only have we turned
Switzerland down, but it's absolutely against our
policy. I was terribly sorry that the first thing
you asked, you couldn't do it.
Oumansky:
You're informed about it, are you?
H.M.Jr:
Oh yes, I'm entirely informed; and we thought that
rather than make it diplomatic, since the telegram
was from your central bank to our fiscal agent -
your telegram came down and I said, well, I thought
the most courteous way was simply to let the Federal
Reserve of New York send a cable that we were very
sorry, we couldn't do it, because we haven't done
it and we don't want to do it. But we do stand
ready to buy from you any gold that they would ship
directly to us. You see?
Oumansky:
I see.
H.M.Jr:
Now, what they ask - I'm sorry 1f at the time I
didn't make myself clear. But all I can tell you -
normally I wouldn't say, and it's for your information,
that there had been another request from another
country, but to assure you of our sincerity I want
to let you know that we had exactly the same request
from Switzerland, which is a member of the tripartite
agreement and we might stretch a point for them; but
we told them "No," and I want you to tell your govern-
ment so they know that, see?
Oumansky:
I see.
Regraded
Iclassifie
151
-3-
B.M.Jr:
But the point is if they will simply send us a
new cable in which they say that they are advising
us - that's all they have to do - simply advising
us
Lochhead:
The Federal Reserve.
H.M.Jr:
the Federal Reserve that they are forwarding
ten thousand kilograms of gold, that it is going on
such and such a boat and will arrive at such a time -
that's all there is to it; that's all they have to
do. Am I right, Archie?
Lochhead:
That's right.
B.M.Jr:
They simply have to say, "We are forwarding -
according to our understanding, we are forwarding
to you, on such and such a date, on such and such a
boat, ten thousand kilograms of gold to be consigned
to the Federal Reserve of New York." That's all.
Lochhead:
They can do it directly with the Federal; don't have
to go through any intermediary of a commercial bank -
do it direct with the Federal.
Oumansky:
That's exactly what I wanted to ask; perhaps they
could do it in such a way that they ask the Federal
Reserve
H.M.Jr:
Now look, if the gold is in your country they can
ship it direct from your country to here. If it is
in London, they simply put it on the first boat they
can, and as soon as the gold arrives - I mean you
have to arrange all the shipping and insurance and
all that - as soon as it arrives and it is in our
assay office, why, we pay - deposit to your account
$35 less one quarter.
Lochhead:
Just a little thing - they deposit about 98 percent
to your account in the Fed, until - but they treat
the others exactly the same.
H.M.Jr:
That's what we do for everybody - 98 percent.
Lochhead:
Not for everybody; don't give 98 percent except to
people we know are all right.
Regraded Uclassifie
152
-4-
H.M.Jr:
I mean we don't do any better for anybody.
Lochhead:
We don't do any better for anybody.
H.M.Jr:
What I am suggesting is the way we treat Great
Britain or France of Switzerland or Belgium.
Lochhead:
That's right.
H.M.Jr:
Any of the tripartite countries are treated exactly
that way.
Lochhead:
That's right.
H.M.Jr:
No better or worse.
Oumansky:
Between the European central banks there seems to
be a different arrangement in the sense that, for
instance, country X can sell gold to the Bank of
France, depositing it at the Bank of England.
Lochhead:
I don't know; there are certain arrangements,
probably, between other central banks between
themselves; we don't know that, but we know our
own policies.
H.M.Jr:
I want - because it's very important - because
this whole thing is a question of building up
Oumansky:
Exactly, and I approach it in the same way, and I'm
disappointed that the first thing didn't work.
H.M.Jr:
I don't think it was our fault.
Oumansky:
Yes.
H.M.Jr:
But I want you to know that what we are saying here
is that we treat any other central bank exactly the
same, and if the French would call up - "Will you
pay us for gold delivered in London?" - "No, we
don't do business that way. Now, what they do I
don't know; I know for instance the International
Bank of Basle - they do all kinds of things.
Oumansky:
Yes.
H.M.Jr:
To tell you - you'd be interested in this, for
instance. If the International Bank of Basle
Regraded
153
-5-
wants, for instance, to sell us & million dollars
worth of gold, we make them tell us who it belongs
to; otherwise we won't buy it. If it isn't their
own golá, unless they tell us whose gold it is
we won't buy it. And in any case we won't take it
until it arrives here in our assay office.
Lochhead:
May I ask this question?
Oumansky:
Yes, please.
Lochhead:
It might help you clear up. What advantage would
there be to the State Bank
H.M.Jr:
Excuse me, Archie - I don't want to take that angle.
Lochhead:
All right.
H.M.Jr:
If you and Oumansky want to go outside afterwards
and talk about it - but I don't want to ask him that,
because that's none of my business. I don't care what
their reason is or what they do. I want Mr. Oumansky
to go out of this room knowing that I say that if they
did certain things we would do certain things. And
we are ready to do that, because it is terribly impor-
tant, in a transaction like this - after all, it's one
word against another. But you know we're ready and
want to treat your government just as well as we are
treating anybody else.
Oumansky:
I'll transmit that statement.
H.M.Jr:
And if Lochhead has some technical thing he wanted
to ask, that's his business.
Oumansky:
We discussed
H.M.Jr:
I'm not interested. That doesn't interest me,
Archie, what their reasons are. All I want to
know is that Russia has ten thousand kilograms
of gold, and what they want is the answer, see? -
am I ready to buy it? They went around it, from
our standpoint, the wrong way. Now, what other
questions have you got to ask?
Oumansky:
The other question will be just about the same
subject, so....
Uclassifie
154
-6-
H.M.Jr:
Please. Are you satisfied on this?
Oumansky:
I am satisfied, but my government will not be.
H.M.Jr:
Yes, they will be.
Oumansky:
Because
H.M.Jr:
Yes, they will be, because I have
Oumansky:
I feel absolutely the spirit of your statement.
H.M.Jr:
They'll be satisfied, because all they can ask, Mr.
Oumansky, is that we treat them just the same way
as anybody else
Oumansky:
There is a suggestion to make, and that is that the
State Bank offers gold in London which is going to
the Federal Reserve Bank, and the Federal Reserve
Bank gives an order to the Chase National Bank,
for instance - the commercial bank - to buy it for
the account of
H.M.Jr:
We don't do that.
Oumansky:
You don't.
H.M.Jr:
No, we only have one formula.
Oumansky:
And the formula is actual shipment to the United
States.
H.M.Jr:
I'm just trying to convince you that we only do
business one way.
Oumansky:
Yes, I see.
H.M.Jr:
We only have one way of doing business.
Oumansky:
I see, I see. Well, I'll transmit that and then
we'll just find another
There was 8 definite
misunderstanding.
H.M.Jr:
There must have been.
Oumansky:
A definite misunderstanding, because the thought was
that - it was part of my impression too, from our
Uclassifi
155
-7-
first talk, that - I understand you this way, that
the suggestion was that, after direct relations
between the State Bank and the Federal Reserve
are established, the gold must not necessarily
be physically shipped to this country.
H.M.Jr:
I think you must have misunderstood it, because
we have worked this thing out most, most carefully -
the technique.
Oumansky:
I see.
H.M.Jr:
Now, it's - we've had - it's been working this way
now for quite a while, and it's impossible for us....
Oumansky:
I see.
H.M.Jr:
....to treat any one country different.
Oumansky:
The Ambassador had the same impression in his most
recent talk with you, when, if I'm not mistaken, you
discussed the question of depositing gold on the
account of the Federal Reserve in one of the European
central banks. Did you mention Switzerland at that
time?
H.M.Jr:
Archie?
Lochhead:
I wasn't at the meeting.
H.M.Jr:
I don't remember.
Oumansky:
The question was, among other things, depositing
the gold in the State Bank of the U.S.S.R. for the
account of the Federal Reserve Bank.
H.M.Jr:
Oh, that's 8 different thing.
Oumansky:
I know.
H.M.Jr:
That's different.
Oumansky:
I know, I know. ....and receiving the equivalent
in dollars when we need them in this country.
H.M.Jr:
That's something different.
156
-8-
Oumansky,
If I'm not mistaken, you suggested Switzerland
H.M.Jr:
(Nods no) You're
Oumansky:
I was not present myself.
H.M.Jr:
The last talk I had with the Ambassador?
Oumansky:
The very last, yes.
H.M.Jr:
(On phone) Miss Chauncey. - - Miss Chauncey,
the last time the Russian Ambassador was in to
see me - may I have the notes please.
That's one of the reasons I don't trust my memory,
and therefore so much happens every day here that
I have stenographic notes made of whatever I say,
so that - I can't - I mean I'm dealing in such vast
sums, so many countries, so much is at stake, and
I don't trust my memory; therefore I make a steno-
graphic report which goes in my safe.
Oumansky:
I am prepared to admit, after all, that it can be
a pure misunderstanding, too, because I do know your
law passed in 1934 which specifies, if I am not mis-
taken, that gold should be shipped to this country.
Isn't that right?
Lochhead:
(Nods yes)
H.M.Jp:
I'm glad this happened, so that you find out we
treat everybody the same - see that we treat every-
body the same.
(Miss Chauncey brings in notes of
meeting with Russian Ambassador
of June 15, 1937)
H.M.Jr:
(After reading) Here is this one thing; this is
your Ambassador speaking: "And we are ready to
sell to your Government 1f you want the dollars.
We are interested in the price of gold - the better
the price, the higher the price, the better for us,
of course, and we are ready to discuss any possible
agreement in this way, in this line, but we are ready
to sell to your Government the gold for dollars even
if you don't want to have gold exported from our
country. We are ready to discuss the possibility
157
-9-
of deposit of gold in some place without exporta-
tion. Any agreement.
"HM, Jr: Let's see if I understand. What you are
suggesting 15 that you are ready to discuss the
question of selling the gold to us direct for
dollars?
"Ambassador: Yes. And we are ready to discuss the
possibility not to export gold, but to make deposit
of gold in certain place, in our bank, in your name,
and to get the dollars if you want, of course,
without sending the gold to the world market.'
Oumansky:
I understand.
H.M.Jr:
"HM, Jr: I see. In other words, earmark the gold in
Russia?
"Ambassador: Yes, in Russia. We can put it in your
name or any agreement that you want in order to
regulate the movement of the gold.
"HM, Jr: The movement of the gold." And I say, "Any-
thing you want to ask, Dr. Feis?
"Feis: No, sir."
Now - "Taylor: I suppose that would apply to some
third country. . It would be a transfer of earmarks to
some place else. This question of earmark either in
Russia itself or in, let's say, Switzerland."
Oumansky:
Who's speaking now?
H.M.Jr:
That's Taylor.
"HM, Jr: You mean Russian gold?
"Taylor: Yes. I did not mean that you meant to
confine that
"Ambassador: It is not necessary. I understand
you can transfer it to any place you want." That
means that we can transfer it to any place we
want.
"HM, Jr: Would that also include bringing the Russian
gold - depositing it here and earmarking it here?
Regraded
158
-10-
"Ambassador: Yes, yes, of course.
"HM, Jr: Bringing it here also?
"Ambassador: Yes.
"Dr. Feis: I have one question. Did I understand
the Ambassador to say his government regards the
question of gold production - well, that's some-
thing else.
I'm going to read that over again. Here's the
thing which doesn't make sense to me. I'll read
it again. But now I see where he.got this idea
from. It doesn't - it just doesn't make sense to
me. I'll read it again.
"HM: I see. In other words, earmark the gold in
Russia?
"Ambassador: Yes, in Russia. We can put it in your
name or any agreement that you want in order to
regulate the movement of gold."
Well now, that's clear. I mean we talked about if
we wanted to buy five million dollars worth of
gold; he suggested that they'd earmark it in
Russia.
Oumansky:
Correct.
H.M.Jr:
"HM, Jr: The movement of the gold. Then I ask Feis
if he wants to say anything and he says, "No." Then
comes Taylor: "I suppose that would apply to some
third country."
Oumansky:
That means earmark it in the central bank of a
third country.
H.M.Jr:
"It would be a transfer of earmarks to some place
else."
White:
Mr. Secretary, may I interpose that....
H.M.Jr:
Just a minute. "This question of earmark either in
Russia itself or in, let's say, Switzerland." Now,
what did Taylor mean?
Regraded Uclassified
159
-11-
White:
He meant this, that if you wished to buy gold in
Russia and purchase that gold in Russia, for which
you gave them dollars here, they could either place
that gold on earmark for you in Russia or if you
prefer you could say, "I would like that gold to
be held on earmark in a third country." It has
nothing to do with what - the transaction that you
were talking about before.
Oumansky:
I think it is absolutely correct - what you (White)
just said.
White:
In other words, I think you (H.M.Jr) were right in
your statement and there was no misunderstanding.
H.M.Jr:
Yes, but I can see where it would lead to a misun-
derstanding, because if after my reading Taylor I
don't understand, how, after the Ambassador translates
into Russian what he thought I said and it gets over
there to the Foreign Office - how should they have
understood?
Lochhead:
I think when you referred - he had in mind an earmark
of gold in the United States, that you'd be willing
to earmark gold for Russia in the United States.
H.M.Jr:
This is confusing, but the thing that I keep repeat-
ing again - because all of this stuff is a matter of
good faith, and I want to assure you that, having
entered this thing, we will treat you just the way
we want to be treated - exactly as well as we treat
any other country, and you can explain
Oumansky:
I will.
H.M.Jr:
And that doesn't - I'm willing to say this, that
due to that remark of Mr. Taylor I can understand
that it might have led to a misunderstanding.
Oumansky:
I see.
H.M.Jr:
Now, you can report that, you see,
Oumansky:
I will. But isn't that suggestion of earmarking in
Moscow or - which would probably be preferable - or
in 8 third country - is it something which interests
you?
Regraded Uclassified
160
-12-
H.M.Jr:
Not particularly, not particularly, because, again,
just ES soon as we do it for you we have to offer
that to every other central bank and every other
government with which we have an agreement.
Oumansky:
Would it not affect favorably the movement
H.M.Jr:
Excuse me?
Oumansky:
With reference to your domestic situstion, would it
not affect favorably the movement of gold?
R.W.Jr:
Well, Mr. Oumansky, on these gold things, before we
decide sometimes just a slight infinitesimal change,
we sometimes go day and night discussing it for three
or four weeks. Why? Because what we are trying to do
here is to convince the world that gold is the best
medium for exchange, for goods and services.
Now, we here in America, as far as the buying and
selling of gold, have had to do all the thinking, be-
cause when you get all through and done - our own
people even admit it - we are fixed to gold at $35
an ounce. England isn't fixed, and now France is
no longer fixed, and we have become the only country
that is fixed to gold at $35. Now, before we make
the slightest little adjustment, we weigh the thing,
we argue, we discuss it; and we have just gone through
this whole period of nervousness about gold. They've
had this Imperial Conference and the speculators in
these gold stocks are - have been whispering around,
and they know so much more than I know myself. Now the
thing is just quieting down, end frankly, we don't want
to do anything at this time that would again S tart
rumors that America is going to do something, as they
say, about gold, and you can understand
Dumansky:
I understand.
H.M.Jr:
...it creates nervousness, and
Oumansky:
Yes.
H.M.Jr:
now the people are just beginning to quiet down.
Oumansky:
Yes.
161
-13-
H.M.Jr:
And again, I'm not asking you why - that's your
business.
Oumansky:
And you do not mind more gold coming?
H.M. Jr:
No. No. But that's important. We stand ready
to buy
Oumansky:
More.
H.M.Jr:
..more. That's important.
Oumansky:
I see.
H.M.Jr:
I mean - in other words, the fact that we say we
don't take it in London is not a device to make
it difficult for you to sell; it is simply a policy
which we have been following, which we think is a
good policy for us.
Oumansky:
I see, I see.
H.M.Jr:
But I'll buy your gold right now, this minute - sold! -
if you tell me it's going to be delivered in New York.
Oumansky:
In New York.
H.M.Jr:
In New York, see?
Oumansky:
I see.
H.M.Jr:
Does that....
Oumansky:
I understand perfectly.
H.M.Jr:
You understand?
Oumansky:
Yes. Now, I don't think that I should repeat what the
Ambassador probably has already told you, answering
your suggestion about exchange of information.
H.M.Jr:
Yes.
Oumansky:
If you want, I can say just a few words.
H.M.Jr:
I'll appreciate it.
162
-14-
Oumansky:
I have had in the meantime more correspondence
with Moscow on that question, and the spirit of
it is that of real preparedness for constructive
cooperation. The reaction to your suggestion has
come quickly and
H.M.Jr:
Pardon?
Qumansky:
The reaction to your suggestion has come quickly.
H.M.Jr:
Seems to come very quickly.
Dumansky:
One point they always try to make as clear as
possible, and this is that we want the United
States to understand the particular characteristics
of our national economy.
H.M.Jr:
Particular what?
Oumansky:
The particular characteristics of our national
economy, which exclude absolutely any speculative
movements on the gold market in the world. Every-
thing is regulated in our country; we export gold
only to the amount we need dollars, pounds, and
other foreign currencies for our import trade. So
that under these circumstances, - it 1s something
like our international agreements about sugar and
timber and wheat and others which we entered and
entered voluntarily. When we discussed those
agreements, we always made it clear that the amount
of our home production of wheat, of timber, of other
goods, is of no real importance for our partners
abroad, but what can interest them 1s the actual
export of those goods, and here we are prepared to
cooperate in establishing
H.M.Jr:
Well, I understand that. Now, I'm not going to
argue with you at this time
Oumansky:
Yes.
H.M.Jr:
whether you can consider gold in the same class
that you can lumber, see?
Oumansky:
Yes.
H.M.Jr:
If you don't mind, I differ with you, but that's my
private
Oumansky:
Yes.
163
-15-
H.M.Jr:
I think there is a difference. I think the visible
and the invisible supply of gold have a direct
bearing on the price of gold. How much lumber
you cut at home and how much you sell in Seattle or
Boston or New York - they pay you so many dollars
per thousand feet for your lumber in Seattle and
New York, end how much you cut at home has no
practical relation to the price that you receive
at Seattle or Boston.
Oumansky:
Correct.
H.M.Jr:
But I don't believe that that is true of gold. Now,
you may say, "Well, Mr. Morgenthau, that's our policy,"
and as I say - but I think I don't agree with you.
Qumansky:
I see, I see.
H.M.Jr:
And I think it's all the difference in the world
whether it's lumber or coal or something else. I
mean if Russian coal is delivered at Norfolk, it
is worth so much a ton to the Chesapeake & Ohio
Railroad as against our domestic coal; it's a question
of its having just as many units of heat; and they're
buying a commodity which is used up and gone. Now, the
invisible supply of gold at home in Russia, I think
Oumansky:
does affect
H.M.Jr:
It does, and I think possibly some of your economists
might study what has happened to platinum. I think
there's a pretty good lesson there. And - but far be
it from me to
Oumansky:
I'm interested, of course, to know your point of view.
H.M.Jr:
I think there is all the difference in the world. But
I at this time don't particularly care to push it.
But I would be pleased if they would think about it.
Oumansky:
I see.
H.M.Jr:
I mean to have your students in international finance
study that fact, that there is a difference. I've
just gone through two or three years on silver. I
went through hell on it, and the whole question was,
how much floating silver is there in the world? Some
164
-16-
said 10 million ounces, some said 20 million ounces;
nobody knew. And they went back and they traced the
production of silver since the time - way back. Now,
the statistics on gold and the production and all
that, and this question of how much the world supply
is, and in connection with production; it's an entirely -
if we're going to use it as a medium of exchange, all
the difference in the world, I think. As I say....
Dumansky:
With the very important amendment that our country,
considering its using gold as a main means of our
foreign trade, is of course interested in stable
prices in gold.
H.M.Jr:
Of course.
Oumansky:
It is very important.
H.M.Jr:
It's just as important for you. But I wish they
would reexamine this thing and simply say, "Is
Morgenthau right, that there is a difference between
a monetary metal and copper?" Are they the same, or
are we right? Now, after all, we've been wrong and
you've been wrong on other things. Is that right?
Oumansky:
Yes.
H.M.Jr:
So I mean it's just this question: Can you think of
gold as you would of copper, or as you do of oil?
Oumansky:
The implication of different letters I receive is
that we are prepared to discuss the export of gold,
you see; we do not want to in any way disrupt inter-
national markets. But our domestic output is some-
thing which, due to the particular character of our
economy, must not necessarily interest our foreign
partners. That's the point of view.
H.M.Jr:
Well, what you say is that you people are interested
in keeping the foreign market stable; it is of tre-
mendous importance to us to know that.
Oumansky:
Yes.
H.M.Jr:
As I told the Ambassador when he brought this message
that you were ready to discuss the amount of gold
exported - I told him that you people moved too fast
Regraded Uclassified
165
-17-
for me, I couldn't keep up with you. I needn't
tell you - I mean I don't know how it is - the
human brain can do just about so much - I'm
talking for myself - and assimilate SO much. I've
been up to here (chin) with some of these things,
and I haven't been able to concentrate on this
question do I or don't I want to continue this very
generous suggestion that the Ambassador made - I
mean very honestly. And this situation in the
international monetary field with France - I mean
just a matter of seconds, you see: When they make
this new move, what will we do, etc., etc. Well,
unfortunately here we always have the emergency,
but when it comes down to thinking of the things for
two or three years, we don't get time.
Oumansky:
I see.
H.M.Jr:
And to do the thinking which 8. subject like this
deserves - but we're thinking about 1t. But I
wanted to be - I'm being very honest with you now;
if Mr. Chautemps and Mr. Bonnet will be successful,
that may throw an entirely different picture; can't
tell. I feel - it seems as though nothing will happen
over the summer; be quiet enough that I can go away.
Oumansky:
And enjoy yourself.
H.M.Jr:
I haven't been away in a long time. And just stop
worrying. And then if we can come back in September
I'll take this thing up fresh. But right now the
important thing that seems to have happened - it's too
soon - is that the flight of capital from France is
stopped. They're gaining, gaining considerably; they
have the courage to put into force their tax measures,
which they never have so far, BS you know - I mean
they passed these laws but they never enforced them.
And if they tax their profiteers in gold and exchange
and go through and raise their price on their railroads,
why - and capital goes back, this whole thing - these
things change so fast that where two weeks ago every-
body was worrying about gold, today if I should speak
to some New York bankers and ask him about gold, why,
he has a new worry; and the picture has changed so
fast.
But I still believe that the time must come next fall
Regraded Uclassified
166
-18-
whenever we are ready, whenever we get around to
it, or when anybody else gets around to it, and we'll
have to sit down and - the large producers of gold -
and talk this thing over. The reason I'm not doing it
is because I've been through a terrific strain; my
batteries are exhausted, my brain is exhausted. We've
got our own house in as good a shape as can be; looks
as though we're going to come practically to balancing
our budget. And so I'm asking everybody to give me....
Oumansky:
A breathing spell.
H.M.Jr:
breathing spell.
Oumansky:
Yes.
H.M.Jr:
And the Ambassador moved quicker than I was ready.
Now, can I be any more frank than that?
Oumansky:
No, I realize your great frankness.
H.M.Jr:
I mean there is nothing - no hidden secret motives
or anything else.
Oumansky:
Yes.
H.M.Jr:
I think we have just done something that will be good
for China last week.
Oumansky:
Unfortunately, very dramatic events followed immediately
that agreement.
White:
Didn't follow - preceded.
Oumansky:
Preceded. They coincided.
H.M.Jr:
I don't think they had any relation.
Oumansky:
No, I don't think so either.
H.M.Jr:
But the interesting thing is here that, according to
our newspapers, it looks as though Japan was going to
do something, and the Chinese currency is practically
stable. Now, that couldn't have happened a year ago.
I mean their foreign exchange hasn't felt the impact of
that at all; is that right?
Lochhead:
That's right.
167
-19-
H.M.Jr:
Practically stable.
Oumansky:
Very important.
H.M.Jr:
What?
Oumansky:
Very important.
H.M.Jr:
Oh, it is very important for them if they can keep
the yuan stable.
Oumansky:
No doubt your agreement with China is of great impor-
tance.
H.M.Jr:
I told Dr. Kung that fifty years from now it may
seem a great deal more important than the tripartite
agreement.
Oumansky:
I think you're right.
H.M.Jr:
Fifty years from now I think it may be a great deal
more important than the tripartite, because it gave
them just what they needed in the monetary field.
FEDERAL RESERVE BANK
m Grehhead
OF NEW YORK
FFICE CORRESPONDENCE
DATE July 12, 1957. 168
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
L. W. Knoke
DE WEDERLANDSCHE BANK.
I called Mr. de Jong at 12:05 today and discussed the
French situation with him; the franc was a little better but there
had as yet been very little repatriation of capital; buying 20 far
had been nostly for the purpose of covering short positions. To-
morrow vas a critical day in France because of the meeting of the
Socialist Congress. Nobody knew what was going to happen. Early
last week there had been a rumor to the effect that this Congress
would pass a resolution which would compel the socialistic ministers
to resign but of late that rumor had died dom. He did not think
anything untoward would happen and expected the French franc to be
better.
I them referred to his cable request for an offer of
$10,000,000 Treasury bills. I teld him that it would be difficult
for us to make my firs offer m/v good overnight because dealers
were hesitent to bind themselves for that length of time in view of the
very substantial demand for this kind of paper, that had come into
this market from abroads however, I could offer him now fire, good
for reply here at me o'clock today, our time, $5,000,000 Treasury
bills naturing September 18 and $5,000,000 Treasury bills naturing
September 17 at .285 net. I added that it was difficult to got
longer term bills at the moment. If to months naturities did not
interest him, I suggested that he leave an order with us for 6 comple
of days at .20% not, thus giving us a fair chance to pick them up.
de Jong replied that he would rether do the latter because the payer
1-37
169
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE July 12, 1937.
To.
CONFIGUETIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
FROM
L. V. Knoke
DE BANK
- 2 -
which they had already purchased was mostly September maturities
and two months paper therefore did not wet him particularly. What
he was interested in were October naturities. As I finally under-
stood it, today being too late for him to do anything, he would try
to give us an order tomorrow or the following day along the lines
suggested.
I then made reference to his cable of June 20 in which he
requested us to open on our books in the name of the Notherlands
Bank a special dollar account designated wgs and asked whether (in
line with the last sentence of our cable No. 62 of November 24, 1988)
it was to be understood that all transactions booked over this new
account " were conducted under the September arrangement of the
treasuries. de Jang answered very emphatically that this was BO and
explained (but I did not understand entirely) that account ⑉8⑉ rep-
resented equalisation fund meney and that the account was opened in
connection with the September agreement. In reply to my question he
also stated that his cable of June 20 dealt only with his dollar no-
count, not with the geld account.
LUK:KMC
170
July 12, 1937.
2:16 p.m.
H.M.Jr:
Hello.
Knoke:
Yes, Mr. Secretary.
H.M.Jr:
Knoke.
K:
Yes, sir.
H.M.Jr:
What do you mean by selling so much sterling,
gold and all that stuff.
K:
Well, don't you believe in giving the people
what they want.
H.M.Jr:
Yes. Well now - why - what's the explanation
why the New York banks want it?
K:
The explanation has been two-fold for the last
few days, none of the two reasons being very con-
vincing.
H.M.Jr:
That's why I'm calling Mr. Knoke because I'm
not convinced either.
K:
Well, he is no better than the rest.
H.M.Jr:
Well now listen -
K:
The reason people are - the rumor in the British -
in the French press that the
are off
between the Treasury here and the Treasury in
Paris with a view to giving to each other informa-
tion as to each national holdings in the other
countries.
H.M.Jr:
well, if that'll make them buy gold, I'll ...
K:
has supposedly ditched the French
out of dollars into sterling.
H.M.Jr:
well, if that's the reason can't we give them a
little foundation.
K:
Well, of course I - I told
as late as last
Thursday that from my personal - from my own
contacts I didn't believe there was any such
negotiations on.
H.M.Jr:
Well, don't discourage it too much, because if it'll
help us unload the gold why maybe I can start a
rumor.
Regraded Uclassified
-2-
171
K:
Yes, that's - I wouldn't suggest that.
H.M.Jr:
What!
K:
I wouldn't suggest that.
H.M.Jr:
Why not?
K:
Because there are some rumors on the market
already.
H.M.Jr:
Listen, don't you want to sell a little gold?
K:
Why, certainly.
H.M.Jr:
Well.
K:
Certainly.
H.M.Jr:
Well, I'll - I wish - I've been joking up to
now, I wish you'd really give me an explanation,
which is reasonable, see - I mean, I'd like to
know. Nothing that I've heard so far, makes
more sense you know.
K:
Yes.
H.M.Jr:
And I keep digging at these things until I do
know.
K:
Well,I have - I thought
but I swear
so far nobody has been able to explain it
satisfactorily.
H.M.Jr:
Now - listen - What does the Bank of Manhattan
want to buy sterling for?
K:
They say commercial demand. And I think commer-
cial demand is primarily for an order from abroad.
Now that brings me to the next point that although
our figures here don't show it, the world is
convinced that there has been a heavy short
division in sterling.
H.M.Jr:
Now, let me ask you. What's the name of the
foreign exchange Vice-President of Bank of
Manhattan?
K:
Schubart.
H.M.Jr:
Yes, well he's a smart fellow.
Regraded Uclassified
172
-3-
K:
He's what?
H.M.Jr:
He's a smart fellow. Have you talked to him?
K:
Why, no, I haven't talked to him on this yet.
H.M.Jr:
Would he tell you?
K:
Yes, - he would tell me something, Mr. Secretary.
I don't know to what extent I could get the
right dope. .
H.M.Jr:
Well - I don't want to - I've got to rely on
you, you know.
K:
Yes.
H.M.Jr:
So you keep plugging on 1t, and see if you can't
get an answer which satisfies you.
K:
Yes.
H.M.Jr:
Will you?
K:
Yes, certainly I shall.
H.M.Jr:
Well - with these new movements I keep asking
until I got something. Now, I mean I'm delighted
to see it but I just like to be fairly intelligent
about it, that's all.
K:
Well, I'll ask
.
I don't know.
H.M.Jr:
I don't - I Just - I don't.
K:
It's always - you Bee, it's a little delicate
to ask.
H.M.Jr:
Well, I'll leave it to you.
K:
Yes.
H.M.Jr:
Use your own connections.
K:
All right, sir. I'll try and call you back a
little later.
H.M.Jr:
All right.
Regraded Uclassified
173
July 12, 1937.
3:56 p.m.
H.M.Jr:
Hello.
Knoke:
Yes, Mr. Secretary. I spoke to Schubart
H.M.Jr:
Yes.
K:
He said he had at noon time today sent a
cable to his friends in London from whom he
had been getting the order telling them that
he can't understand the strong demand for
sterling and would they please explain.
H.M.Jr:
Yes.
K:
He has received no reply so far.
H.M.Jr:
Yes.
K:
His orders have been coming in regularly from
London and he thinks it's the French movement
of capital through London for the reason that
I suggested before making negotiations between
Washington and Paris.
H.M.Jr:
I see.
K:
I checked with all the others, and find that
Yokohama has been a buyer - he has been a
steady buyer, we know why - that's the proceeds
of the gold.
H.M.Jr:
Who has?
K:
Yokohama -
H.M.Jr:
Oh yes.
K:
The Jap. Then the Manhattan's orders had been
from London, 8.8 I said before, and he thinks
it's French movement.
H.M.Jr:
Do these people want to get out of dollars?
K:
Pardon me.
H.M.Jr:
Getting out of dollars.
K:
Yes, sir.
H.M.Jr:
Uh-huh. It's all right -
Regraded Uclassified
174
-2-
K:
The Guarantee has an order from Brazil for
a hundred thousand and so has the Chemical.
H.M.Jr:
A hundred thousand what?
K:
Pounds.
H.M.Jr:
Uh-huh.
K:
So has the Chemical, about a hundred and
fifty thousand pounds.
H.M.Jr:
I see.
K:
On the other hand the Guarantee had an order
from the Argentine to sell a hundred thousand
pounds.
H.M.Jr:
They'd better get together.
K:
Yes - well, he did. At least he could sell
that to Commercial company.
H.M.Jr:
I see.
K:
But, generally speaking the market is convinced
rightly or wrongly that this is a repatriation
of French, also Dutch and Swiss money because
of the
H.M.Jr:
I see.
K:
Now, because of the strength of sterling and
then the market also brings, as I said before,
that there is a short position which we cannot
prove here.
H.M.Jr:
All right, well keep at it.
K:
Yes, sir.
H.M.Jr:
Thank you.
Regraded Uclassified
175
July 13, 1937.
After 8:15 a.m.
H.M.Jr:
How is business today?
Knoke:
Well, everything 1s up again, sterling, par-
ticularly also the old
that's the
guilder and the Swiss franc and the belga.
H.M.Jr:
Uh-huh.
K:
Which would indicate - of slides of capital
into those currencies or repatriation of money.
H.M.Jr:
Uh-huh. I see,
K:
Which would be - which I would consider a very
helpful sign.
H.M.Jr:
Oh, yes.
K:
Gold again is fixed slightly above New York
shipping parity 74.78. The Bank of France 18
still trying to hold the franc down.
H.M.Jr:
My thought is not to touch our gold in London,
but to bring back our gold from Belgium.
K:
Why - I think we only have a million dollars
in Belgium.
H. M. Jr:
No, we've got about eight in Belgium.
K:
No, seven is on the way.
H.M.Jr:
Yes. But I mean -
K:
The other would have to us if we could have
had insurance at the time.
H.M.Jr:
That's right, but we thought we'd clean up our
Belgian gold.
K:
Yes.
H.M.Jr:
And we got it roughly, they tell me a hundred
million of English gold. We'd thought we'd
leave that with the hopes that we could sell it.
K:
Leave it in London.
H.M.Jr:
Yes.
K:
Well, I'm heartily in favor of that.
Regraded Uclassified
176
-2-
H.M.Jr:
Yes, but clean up the Belgian gold.
K:
Yes. Yes, we have in London about a hundred
and I think the Belgium probably -, shipment
is being arranged now.
H.M.Jr:
Yes.
K:
Of course, it always takes a few days there
because they haven't the -
any boats -
American boats.
H.M.Jr:
But you agree with that?
K:
Oh, yes. Yes, I think gold in London is
always handy.
H.M.Jr:
But clean up the Belgian gold.
K:
Yes.
H.M.Jr:
I'm glad we've got as much gold as we have in
London.
K:
Well, that might come in very handy.
H.M.Jr:
Yes. Have a couple of more days like yesterday.
K:
Yes - yes, yes.
H.M.Jr:
Well keep at - inquiring, will you?
K:
Yes, I shall.
H.M.Jr:
Thank you.
Regraded Uclassified
1 COPY FOR SECRETARY
177
LMS
GRAY
Paris
Dated July 13, 1937
Rec'd 4:25 P. m.
Secretary of State,
Washington.
966, July 13, 4 P. m.
FROM COCHRAN.
Paris exchange market and all banks closed this
afternoon and 14th. Late yesterday evening French control
had to yield sterling which left little 3ain of foreign
exchange on balance for the day. Paris American Bank
bought one and one fourth million dollars for control
yesterday. This morning control acquired fair amount of
sterling. Feature of exchange has been heavy sale of
dollars by Japanese. French hotel and restaurant situation
unsatisfactory and atmosphere tense. This is not condu-
cive to capital return or to rise in Government securities.
BULLITT
SMS:NPL
Regraded Uclassified
178
July 13, 1937.
Dear Mr. Wait:
Thank you for your letter of Ime 26th and for
sending me a copy of the memerandum dealing with
the investigation of aarcotic sungeling in Murope.
I was gind to have your viewpoint on the whole
situation as well as your praise of Mr. Scharff
personally.
Mrs. Klots saile from New York on July 14th,
and I know that this year, as in the past, you
and your staff will extend has every courtesy,
both personal and efficial.
with all good wishes,
Sincerely,
(Signed) H. Morgenthau, Jr.
Nom. Bernard Wait,
Attach, I Information
United States Fabesay,
2 Avenue Gabriel,
Paris, France.
Regraded Uclassified
179
EMBASSY OF THE UNITED STATES OF AMERICA
OFFICE OF THE TREASURY ATTACHÉ
CUSTOMS
CABLE AND TELEGRAPH ADDRESS
SPAGENT, PARIS
2 AVENUE GABRIEL
PARIS. FRANCE
June 26, 1937.
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury.
PERSONAL
Dear Mr. Secretary:
Herewith 1s a copy of a letter addressed to the
Commissioner of Customs relative to the investigation of narcotic
smiggling in Europe, as I Bee the situation at the present time.
Commander Thompson probably has discussed the matter with you
since his return to Washington, and my impression is that our
views are quite similar both as to the present situation and
what should be done in the future.
The question of personnel is of the utmost impor-
tance. Many discouraging things are met with in trying to get
information, and under the conditions in which work has to be
done in foreign countries, it 18 absolutely necessary to have a
dependable personnel, trained in investigative work, with a good
working knowledge of 8. foreign language. I trust the suggestions
in my letter to the Commissioner, especially those concerning
the men now having a clerical status, will receive favorable
consideration.
May I add something about Mr. Alvin F. SCHARFF,
Customs Agent detailed to this office for the past four months.
He has had full charge of the narootic activities since his
arrival, as I have been absent from Paris and engaged on other
work. He has shown great ability in handling the situation,
has devoted bis entire time to the matter, experimenting with
new methods to produce better results, end now has an organization
functionning which, I believe, in time will produce results.
I am glad to bring his work to your attention, as I believe he
merits favorable consideration when be returns to the U.S.A.
with kindest regards, I am
Respectfully,
Bennard wait
BERNARD WAIT
BW/RS
Supervising Treasury Attaché
Regraded Uclassified
180
COPY
Bureau of Customs,
Investigative Unit,
Treasury Department,
Washington, D. C.
Sir:
Under date of June 23, 1937, I forwarded a memorandum prepared by
Acting Treasury Representative Scharff, relative to conducting nar-
cotic investigations in Europe. With respect to general conditions,
the following additional observations are submitted.
When this office took over the narcotic investigative work in Europe,
on November 1 last, five men were assigned to the work, Messrs. Reers
and Brumer, treasury representatives, and Messrs. Dyar, Vachon and
Violett, detailed from the Bureau of Narcotics. The problem confront-
ing the office was discussed and it was decided that one of the prin-
cipal things to do was to contact police officials and to malos arrange-
ments for their cooperation. At the same time informers were to be
contacted for information concerning shipments, carriers and sources
of supply, and American embassies, legations and consulates were to
be visited for the purpose of securing their cooperation..
It was presumed at this time that official notice would be given the
American embassies, legations and consulates in Europe, as well as
the foreign governments, of the new arrangements of the Treasury
Department in handling narcotic work. Officials in France, Belgium,
Germany and Great Britain were contacted immediately, but some time
Regraded
181
- 2 -
was lost in contacting other governments waiting for such notice to
be sent out.
When it was apparent that the notice referred to would be delayed,
other officials were contacted, with some confusion and embarrassment,
as it was not apparent to some why they had received no notice of a
change in practice.
During the first week in May I learned unofficially that the American
embassies, legations and consulates had been notified in April of
the change in organization of the Treasury offices in Europe. So
far as I know, no foreign government has been so notified, but this
office is left free to contact foreign officials with respect to
narcotic work.
By the middle of February contacts had been made with the principal
government and police officials who could be of assistance in narcotic
work. Mr. Violett had been working in southeastern Europe; Mr. Dyar
had been stationed in Antwerp, to cover Holland also; Mr. Beers was
working in the German ports, while Mr. Brumer and Mr. Vachon were in
Paris and also covering French ports.
About this time Commander Thompson arrived accompanied by Messrs.
Scharff, Christides and Stuhldreher, the latter three being assigned
temporarily to this office. With the permission of the Bureau, Mr.
Scharff was placed in charge of the direction of narcotic work, in
which he had a free hand until about two weeks ago. Mr. Stuhldreher
was sent to Hamburg, and Mr. Christides to Athens and Istamul.
Regraded Uclassified
182
- 3 -
For the past three months Mr. Scharff has followed quite closely
suggestions made by Commander Thompson, as well as initisting many
new practices for the investigative work. Many experiments have been
made, all looking toward a solution of the problem confronting the
office, that is, the best way to use the men available to obtain
the most and best information. The experiments have been followed
by me with great interest, for I am as anxious as anyone to find a
method of operation that will produce results.
Without discussion of the experiments made to obtain information,
I would like to state my own ideas of what should be done in the
future.
The chart submitted with Mr. Scharff's memorandum shows the situa-
tion in Europe. Paris undoubtedly is the key point of control;
Vienna B secondary point from which to contact the police and other
officials in eastern and southeastern Europe.
With respect to the various ports, Marseilles is extremely important
and an agent should be stationed there. Shipping from Nice would be
covered from Marseilles.
Athens and Istambul are good listening posts that may give informa-
tion as to source of supply; perhaps of smuggling, and both should
have an agent at the present time. The permanent assignment of
Mr. Christides would fill one place, provided he desires to live
in Europe. His knowledge of the Greek and Turkish languages makes
him valuable. With training, he should be a most useful officer
in southeastern Europe.
Regraded Uclassified
183
- 4 -
One narcotic agent probably is sufficient for Italy at the present
time. Mr. Paterniti would be desirable for narcotic work, but some-
one else would have to be appointed for customs work. Mr. Paterniti
was detailed to narcotic work for one month, showed considerable
ability, but it was necessary to return him to his regular duties
on account of the large number of cases pending. All Italian ports
are easily reached from Milan. Two men at Milan, one for customs
cases and one for narcotics, is my idea of what is needed at the
present time,
The outlet for Germany is Hamburg. Mr. Beers has the situation well
covered and, further help is not necessary there as long as Mr. Beers
is available.
Belgium and Holland can be covered by an officer stationed at Antwerp.
Mr. Dyar is there at the present time, working in close cooperation
with the consul general.
Havre, Cherbourg, Dunkirk and Calais can be covered from Paris. Havre
probably is the worst spot and it might be feasible to have Mr.
Vachon at Havre most of the time.
At Paris one man is needed to do desk work and two to be free to go
anywhere in Europe as may be necessary. It is my intention to put
Mr. Butler on desk work as soon as he returns from vacation, to re-
place Mr. Scharff who is due to return to the United States this fall.
For a free man to travel where necessary, Mr. Brumer will meet all
requirements. He knows several languages, is an excellent investi-
gator, and he can be depended upon to do the work assigned to him.
Regraded Uclassified
184
- 5 -
Either Mr. DeLagrave or Mr. Schlager might be assigned to narcotic
work for the other man, provided a replacement is furnished for market
value work.
Vienna is important and a good agent is required for the post. Mr.
Violett is now stationed there and he has made contact with many of
the police officials in the surrounding territory. It has been dif-
ficult to judge the value of his work. If he should be left in Mar-
seilles, it seems to me the situation would be well covered by return-
ing Mr. Beers to Vienna, and by giving him Mr. Poglies as an assistant,
with a clerical status.
The above plan would require additional men as follows:
Place
Language
1 Athens or Istambul
French, Greek or Turkish
1 Milan
Italian
1 Hamburg
German
1 Paris
French
1 Vienna
German
It seems to me to be advisable that the Bureau decide immediately
the status to be required for investigators on narcotic work.
Treasury Representatives are required to have a civil service status,
and positions are filled only from civil service registers or transfer
after five years customs experience.
Messrs. Dyar and Violett are American citizens but they have no civil
service status. Both are on temporary detail from the Bureau of Nar-
cotics until July 1, 1937.
Messrs. Paterniti, Vachon and Poglies are not American citizens. The
Regraded Uclassifie
185
- 6 -
first two are clerks, both with the government many years, both reli-
able and valuable investigators. Due to civil service requirements
and their alien citizenship, they cannot be given the title of Treas-
my Representative. Regardless of future policy, it is my belief
that they should be retained in the service. Mr. Poglies is an alien,
rated as a messenger. He is well educated, has excellent connections,
speaks several languages, and probably would be very valuable as an
assistant to an agent stationed at Vienna. If given such & status,
I believe he should be made a clerk with 8 salary of $1700 and author-
ized to travel. If this is done, it will be necessary to employ
another messenger at a salary of about $50 per month.
It is my opinion that the entire European staff should be built up
of trained investigators, having a civil service status, who can do
both narcotic work and other customs work. A man may spend days in
a place primarily interested in a narcotic case, with nothing to do
while waiting for something to happen. In such instances his time
could be used to advantage on work in connection with other smuggling,
undervaluation or market value work.
It has been suggested to the Bureau that in the future clerks assigned
to the Berlin, Paris and Vienna offices be young men who have passed
8. suitable civil service examination (probably that of junior civil
service examiner), that they be selected with the view of making them
customs agents and treasury representatives, that they be required to
live with a native family for two or three years to become fluent in
a foreign language, that after being abroad two or three years they
Regraded Uclassified
186
- 7 -
be appointed assistant customs agents in the United States. This
suggestion, if adopted, would build up in the United States a corps
of trained investigators, speaking a foreign language, available to
fill vacancies in the foreign service.
At the present time there are eight men clerks in the European of-
fices without civil service status. Any ambitious young man will
not be satisfied to remain in a clerical capacity indefinitely. Those
that are satisfied are not the kind of men the service needs.
Mr. Allen, when in the United States, took the Junior Civil Service
Examiner examination. He passed with a very good rating. He speaks
both French and German and in my opinion is good material for the
investigative service. It is recommended that every effort be made
to give him a classified status in his present position and as soon
as this is done that he be transferred to the United States as an
assistant customs agent. After training in the agency service at
home, he will be ready for transfer abroad,
Mr. Griffin has passed a typist examination. This should be used to
ive him a classified status, with the view of returning him to the
United States as an assistance customs agent, and later returning
him to Europe. He is proficient in the French language and I be-
lieve him to be good material for the agency service.
Mr. Henderson took the Junior Civil Service Examiner test recently in
Washington. He has not received his ratings. I do not know whether
Regraded Uclassified
187
- 8 -
the other clerks have taken or passed examinations. Messrs. Burton,
Hall and Roach look like good material. It might be feasible to have
them classified by executive order,
Work in a foreign country is quite different from that in the United
States. Knowledge of a foreign language is essential. It is more
expensive for an American to live in a foreign country, according to
our standard of living, than it is for a foreigner to live in his own
country, For that reason the salaries should be liberal. Investi-
gators assigned abroad should have at least $3200 per annum, with
yearly increases of $100 for the first five years. At the present
time in Europe in the $3500 class is one man who entered the customs
service in 1923, one in 1924, two in 1927, four in 1930, three in
1931, and one in 1936. Some of these men are discouraged at the
outlook for the future and they get no encouragement from the fact
that new men receive the same salaries they were given six or seven
years ago. A greater spread in salaries is necessary to make a well
balanced organization and to encourage those who have rendered of-
ficient service for several years.
The Bureau was telegraphed several weeks ago that more men were needed
for narcotic work, and that if it was not feasible to send trained
narcotic men, treasury representatives would be acceptable who could
do market value work and relieve some of the present staff for nar-
cotic work. To date no appointments have been made.
Narcotic work 18 very difficult, inasmuch as there is no definite
Regraded Uclassifie
188
- 9 -
information on which to work. No one knows the quantity of narcotic
drugs smuggled into the United States although estimates run up to
15 or 20 tons annually. The few seizures made indicate certain
points of origin and these places must be worked in the hope of get-
ting information. Reliable informers are difficult to find-the
business itself is such that few people know what is going on. Some
informers make wild guesses, in hopes of getting awards, but such
guesses seldom produce results. Informers should be paid liberally,
but in my opinion only when results are produced. Subsidizing in-
formers in the hope that some day they will produce results seems to
me unsatisfactory. To my mind it seems better to let them know they
will be paid liberally for any information proving to be of value,
but not to pay until the information is delivered and proved.
Police cooperation is essential and at times it is worth while to
furnish police officials with money for the assistance they give. Es-
tablishing this cooperation, in order to get information and to follow
up cases, along with trying to find and interest informers who may
be in a position to give valuable information, seems to be the best
lines along which narcotic work in Europe is to be conducted. It is
a difficult task, requiring men of unusual intelligence and ability.
Great care should be taken in choosing men, as the question of per-
sonnel is of the greatest importance.
Respectfully,
Bernard Wait,
Supervising Treasury Attache.
Regraded Uclassified
189
MEMORANDUM OF THE DAY'S ACTIVITIES
July 13, 1937
To:
Secretary Morgenthau
From:
Mr. Magill
1. Undistributed Profits Tex
Senator Glass called me this afternoon to make an appoint-
ment for me to see Mr. Vance McCormick relative to proposed changes
in the Undistributed Profits Tax. Mr. McCormick proposed (1) that
corporations whose current assets were less than twice their current
liabilities should be permitted to accumulate earnings to restore
this ratio; and (2) that the first 20 or 25 percent of undistributed
earnings should not be subject to the tax. He wanted to know whether
the Treasury would oppose the adoption of these emendments as part
of the revenue bill which will result from the present hearings. I
told him that we would and pointed out that the President had
specifically stated that amendments of this character were not to be
considered at this time. Mr. McCormick said be had talked to Senator
Harrison and Mr. Parker, both of whom had told him that no such emend-
ments would be adopted now without Treasury approval.
2. Tax Investigation
Mr. Irey has a number of suggestions to make for improve-
ment of the efficiency of the Bureau administration, arising out of
his observations during the current investigation. I have asked him
to prepare a detailed set of recommendations to he presented to a
meeting Thursday afternoon which will be attended by the Commissioner,
Mr. Russell, Mr. Oliphant, Mr. Shafroth, Mr. Irey and his assistant
Mr. Burford.
Rm
Regraded Uclassified
-
130
INDEX OF EVENTS
IN CONNECTION WITH
CONVERSATIONS BETWEEN SECRETARY OF THE TREASURY
AND CHINESE DELEGATION
Patnin PAX with July,1937
Regraded Uclassified
191
NOTE: FIRST REFERENCE TO POSSIBILITY OF CHINA SENDING REPRE-
SENTATIVE TO UNITED STATES TO DISCUSS SALE OF SILVER AND CHINA'S
MONETARY PROBLEMS WILL BE FOUND IN CONFERENCE BETWEEN SECRETARY
MORGENTHAU AND AMBASSADOR SZE ON
February 10, 1936
President told HM, Jr there 1s no objection to Chen coming to US
February 10, 1936
Cable from Nicholson giving background of K.P. Chen who will
head Chinese delagation.
February 10.
Cable from Buck giving his appraisal of K. P. Chen.
February 10
Cable to Treasury Attache Nicholson instructing him to accompany
K. P. Chen to the States.
February 11
Cable from Secretary Morgenthau to Buck instructing him to advise
Kung or Soong that Kung will be acceptable to Treasury Department
as Chinese representative.
chen
February 17
Cable from Secretary Morgenthau to Buck advising him that he,
the Secretary, will be on short vacation from March 20 to
April 5 and that Nicholson should arrive the same time as Chen.
February 18
Cable from Muck advising Kung requests detailed statement on
nature of matters to be discussed by Treasury and Chen, Bo
Chen may be instructed accordingly. Chen has changed sailing
date to March 24 to arrive San Francisco April 8.
February 19
Cable from Buck that Kung again appreciates support of China's
monetary system.
March 4
Cable to Buck instructing him to suggest to Kung that it will
be helpful to both Chen and Secretary Morgenthau if Chen is
instructed to confine conversations while in United States to
monetary subjects only.
Regraded Uclassified
192
-2-
March 14, 1936
Cable from Buck advising that Chen sailed last night on the
PRESIDENT PIERCE; Kung's attitude one of hearty cooperation
with United States Treasury; brief statement of China's
monetary program.
March 16
Cable from Buck that HM, Jr's cable of March 4 helpful to China.
April 1
Cable from Buck transmitting message from Kung that China is
in great need of further financial support and Secretary's
statement on success of monetary policy helped tremendously;
desires United States buy more silver at prices advantageous
to China.
April 4
Memorandum from Mr. Lochhead to Secretary, outlining possible
objective of Chen's visit and methods by which Chinese may be
able toutilize silver in their monetary system to obtain foreign
funds.
April 4
Memorandum from Johnson, U.S. Treasury Attache, Shanghai.
(1) A General Survey of the Latest Political Situation in
Nanking; (2) Nanking's Position with USSR and Japan, dated
April 7.
April 8
First formal conference with Chen, at which Chen presented
letter to Secretary from Dr. Kung, Chinese Minister of Finance,
dated March 11. HM, Jr. asked for detailed information concern-
ing financial picture of banks of China.
April 8
Memo to Secretary from Mr. Haas, "Condition and Status of
loans to the Government of China made by the Grain Stabiliza-
tion Corporation in 1931 and by the RFC in 1933.
Regraded Uclassified
193
-3-
April 9, 1936
Conference with Chen, who presented second letter from Kung,
dated March 9, with two memoranda, "Financial Position of
Chinese Government" and "China's Monetary Policy." Discussion
included following topics: Chinese policy on use of silver
in yuan and half-yuan; metallic reserves of China; China's
commercial relations with Germany, France and Russia; Russian-
Japanese situation, and Japanese activities in North China.
April 10
Memorandum to Secretary from Mr. Haas, "Chinm's February
foreign trade."
April 12 (See April 13)
Secretary Morgenthau entertained at stag dinner at his home
in honor of K. P. Chen and Chinese delagates accompanying him
April 14
Conference with Mr. Chen in Secretary's office, Chen pre-
sented Secretary with memoranda on the Bank of China, Central
Bank of China, Farmers Bank, Bank of Communications, funds
of the Boxer Indemnity and agreement with Otto Wolff, in
answer to request of April 8, Matters discussed: possi-
bility of China operating between sterling and dollar, rather
than being linked to sterling; possibility of China's sending
silver to San Francisco or New York and their borrowing
against that silver, similar to Mexican arrangement; possi-
bility of U S buying 5,000,000 ounces a month, beginning with
May; again discussed quantity of silver in Chinese coins.
April 17
Memorandum to the Secretary from Mr. White, "China - Her
Exchange Situation."
April 18
Cable from Buck that Kung appreciates time given to Chen
and that anything done to help China 16 also help to United
States and world.
Regraded Uclassified
194
April 20
Cable from Buck giving results of London sales by China, as
suggested by Secretary Morgenthau.
April 20
Memorandum from Mr. knoke, New York Federal Reserve Bank, of
luncheon to be given tomorrow to Mr. Yutaro Tomita, Financial
Commissioner of the Imperial Japanese Government.
April 20
Memorandum giving background and duties of position of Financial
Commissioner Yutaro Tomita.
April 20
Memorandum from Mr. White - "China - Monetary Situation. If
April 20
Conference with Mr. Chen in Secretary's office. Mr. Chen pre-
sented two memoranda, "Memorandum on Increasing the Liquidity
of the Cash Reserve Against Note Issues of the Chinese Govern-
ment Banks, and "Memorandum on the Question of the Independence
of the Chinese Currency," as requested in conference of April 14.
April 21
Conference in Secretary's office with Mr. Chen, who asked about
sale of silver to the United States. Secretary asked definite
reply to suggestion that China would free her currency from any
other currency, and amount of silver to be put in China's sub-
sidiary coins.
April 21
Cable from Buck. Kung gives reassurance that China has no in-
tention of selling all her silver and that she will use silver
in 50 cent token coins and as reserve, but another sale of silver
is necessary for larger foreign exchange stabilization fund,
April 21
Memorandum from Dr. White to Secretary, "China - New Silver Coins.
Regraded Uclassified
195
-5-
April 24
Memorandum to the Secretary from Mr. Taylor reporting on
conference of Chinese representatives with Mr. Taylor, Mr.
Lochhead and Mr. White, on April 23. Summary: Proceeds
of sale of silver by China; New silver coins; Increased
use of silver in the arts; Silver reserve against note
issue; Fixing of the yuan exchange rate.
#
April 27
April 28
Chen met with Secretary. Secretary advised Chen that he
had received message that Kung was disturbed over prospect
of National City Bank making loan to the Canton Government.
Secretary advised Chen he could cable Kung no loan would be
made by National City Bank.
April 30
Cable received at Customs from Buck inviting Dr. Warren to
come to China to advise on monetary and agricultural problems.
April 30
Cable to Buck from Secretary Morgenthau advising such a trip
would undoubtedly be intrepeted as having great monetary sig-
nificance and unofficially suggesting it be postponed.
May 1
Memorandum from Mr. Taylor to Secretary reporting on confer-
ence held in Taylor's office with Mr. Chen. Subjects dis-
cussed: Industrial use of silver; Silver coins; Silver
reserves; Yuan-dollar-sterling exchange rate.
May 2
Memorandum to Secretary from Dr. Viner stating his personal
comments on pending conferences.
May 6
Memorandum from Mr. Taylor to Secretary analyzing memo of
Chinese representatives on increasing the use of silver,
independence of Chinese currency and increasing liquidity
of cash reserves against note issue of Chinese Government
banks.
May 12
Conference with Chinese delegates to discuss draft of
April 27, Taylor and Lochhead's conference with HM, Jr to discuss cable
rom Buck re rumor Carton Govt will ask Nat'l City Bank for loan with
ailver 18 security.
Regraded Uclassified
196
-6-
Chinese announcement to the press. At this meeting Chen
proposed US increase its purchase of silver to 75,000,000
ounces. HM,Jr. took matter under advisement.
May 14
Memo to Secretary on final steps in concluding conferences
with Chinese.
May 14
Memo dated May 15 from Taylor to Secretary on meeting held
with Chinese at Secretary's home, evening of May 14.
May 15
Memo from Taylor to Secretary on meeting held with Taylor,
Lochhead and White, 12 o'clock, May 15 in Taylor's office.
May 18
Announcement of Chinese Minister of Finance, of Chinese
measures of monetary reform.
May 18
Press conference at which Mr. Sze read announcement of
Chinese Minister of Finance and Secretary Morgenthau read
Treasury announcement.
May 18
Cable from Buck advising Kung anxious to give Secretary
distinct recognition for friendly and helpful cooperation.
May 18 (and 19)
Various ticker services reports of announcements to the
press by Chinese and U. S. Treasury.
May 22
Chen's two letters to Secretary outlining proposals of
Chinese Minister of Finance for further measures in con-
nection with China's monetary reform. (See May 27)
Regraded Uclassified
197
-7-
May 19 - May 23
Foreign press comment on silver agreement with China.
May 25
Letter to Federal Reserve Bank of New York inclosing author-
ization, as fiscal agent of Treasury, to write to Central
Bank of China and to carry out instructions in regard to
purchase of silver.
May 27
HM,Jr's acknowledgment of Chen's two letters of May 22.
HM,Jr. is forwarding instructions to Federal Reserve Bank
of New York.
May 28
Letter from Secretary to Mr. Chen advising him Federal
Reserve has been instructed to act for Treasury and ex-
pressing gratification at successful outcome of conversa-
tions.
May 29
Telegram from Chen announcing he is sailing on Bremen and
expressing appreciation for kindnesses while in Washington.
June 12
Editorial, Washington Herald, "Morgenthau's Wise Pact,'
commending HM,Jr. for intelligent handling of the Chinese
currency situation.
June 19
State Department transmits portion of cablegram from American
Consul General at Canton that reports from bankers and very
reliable sources indicate much progress in Nanking's negotia-
tions for adoption at Canton of national currency.
July 27
Ambassador Sze's letter transmitting confidential memo from
Dr. Kung to Secretary -- General Outlook of the Charter of
the Central Reserve Bank of China.
Regraded Uclassified
198
-8-
July 28, 1936
Ambassador Sze's letter transmitting copy of letter from
Dr. Kung to Mr. Cyril Rogers urging him to extend his stay
in China for three to six months in connection with estab-
lishment of Central Reserve Bank of China.
Sept. 5
State Department encloses copy of letter, dated August 3,
1936, from Chen, expressing appreciation of courtesies and
facilities extended to him by Treasury Department.
Oct. 1
Newspaper Comment on the Recent Monetary Agreement between
the United States, Great Britain and France. (Filed
Stabilization Folder)
Oct. 2
Request from Central Bank of China for withdrawal of lump
sum of $7,000,000 from their account at Federal Reserve Bank
of New York to replenish its working balance.
Oct. 3
HM,Jr's instructions to Lochhead to send cable to China
authorizing Central Bank of China to withdraw $7,000,000 in
lump sum with understanding that proceeds of silver sales
are to be used only for stabilizing Chinese currency.
Dec. 10
Nicholson's letter to Mr. Lochhead including memorandum from
Central Bank of China explaining their reasons for wishing to
sell silver in London through an intermediary.
Dec. 17
Haas' memo "Recent Political Developments in China". (This
memo given to President for his information.)
Jan. 22, 1937
HM,Jr's cable to Buck, in Shanghai, informing him of Ambassador
Sze's call and instructing Dr. Buck to see General Chiang Kai
Shek to inquire his internal and external policy for China
during 1937.
Regraded Uclassified
199
-8A-
Jan. 25, 1937
Ambassador called to give HM, Jr. answers to his questions
asked in the meeting of January 22. Sze says attached
article in New York Times of January 11 from Hong Kong is
authentic.
Jan. 27
HM, Jr instructed Taylor to tell Chinese Ambassador he will
extend borrowing privileges only for month of February;
also to tell Ambassador HM, Jr wants General Chiang Kai-
Shek to see Professor Buck. Buck's cable: time not aus-
picious.
March 24
Letter from State Department transmitting Cable 127 from
American Embassay, Nanking, that Kung is going to England
as special envoy to attend Coronation. Unconfirmed reports
that T. V. Soong also will go. If this is true, may be
some conversations on financial matters.
Regraded Uclassified
200
-9-
March 26, 1937
State Department's letter transmitting Cable 133 that Kung
and Admiral Chen are leaving China for London on April 2.
Chiang Kai Shek will head Finance Ministry during Kung's
absence; while financial conversations would be held in
London, result would probably be that China would merely re-
ceive large credits and a quantity of "war Juuk".
March 26, 1937
Nicholson's cable that Central Political Council has approved
plan for reganization of Central Reserve Bank.
April 3, 1937
Nicholson's biographical sketches of those who will accompany
Dr. Kung.
April 6, 1937
State Department letter transmitting cable 151 and cable 152;
rumors that Dr. Kung hopes to obtain sizeable loan from Great
Britain; T. K. Tseng did not accompany Kung and party; Tseng
is considered important member because of expected financial
conversations.
May 11, 1937
Ambassador Sze's call on HM, Jr reporting cable from Dr. Kung in
London that he will be in Washington to personally thanks the
President and HM, Jr and inquiring if US is interested in buying
Chinese silver on deposit with Federal Reserve. HM, Jr says he
has no ideas of buying the silver.
May 27, 1937
State Department transmitting cable 219 of May 26 from American
Embassy, Nanking, that Kung plans to confer with the American
authorities regarding the Chinese-American silver agreement.
June 4, 1937
State Department transmitting cable 734 from American Ambassador,
Paris, reporting his conversation with Dr. Kung on Chinese loan
negotiations with Great Britain.
Regraded Uclassified
201
-10-
June 10, 1937
State Department transmitting part of No. 356 from American
Ambassador at London relating to Chinese loan negotiations
with Great Britain.
June 21
Cable from London Embassy re Kung's loan negotiations in
London.
June 30
Chinese Ambassador and Dr. Kung call on the Secretary. Dr.
Kung referred to a previous request for permission to invest
Chinese funds in American (US Govt) securities. HM, Jr said
Federal Reserve will do it for China just as they do for other
Central Banks.
Dr. Kung broached subject of purchase by US of two lots of
silver held on deposit in this country. HM,Jr said he would
take it under consideration.
July 6
Taylor's memo to the Secretary reporting several conversations
with Dr. Kuo regarding silver held in this country by China.
They wish to convert 50 to 60 million ounces of silver into
gold.
July 6
Taylor, Viner and Lochhead met with the Secretary. Secretary
said as a starter he was willing to buy the 12,000,000 if he
will convert proceeds into gold and 1f President wants to treat
the Chinese extra nice, HM, Jr is willing to buy all provided
they take it in gold earmark.
July 7
HM,Jr's telephone conversation with the President. HM, Jr told
him the Chinese are coming in to see him tomorrow and that he
will swap the 62,000,000 ounces of silver for gold to be left
in the US, earmarked in the Federal Reserve with an agreement
that China can borrow dollars against that when they need it.
President thought it was a grand arrangement.
Regraded Uclassified
202
-11-
July 7, 1937
Meeting in Secretary's office with Treasury officials, to
consider draft of agreement between US and China.
July 2, 1937
Meeting in Secretary's office with Treasury officials and
Chinese representatives, to discuss agreement, prior to arrival
of Chinese, tomorrow morning.
July 8, 1937
Chinese representatives meet with Secretary and Treasury rep-
resentatives. Agreement accepted and both sides will work
on draft of public statement.
July 9, 1937
Both sides agreed on draft of statement. McReynolds, Lochhead
and White took copy to White House. President approved but
asked it not be released without State Department approval.
July 9,3 1937
Press conference at which joint statement W8S released.
July 14, 1937
Letter of Secretary of Treasury to Federal Reserve Bank of NY
authorizing and requesting them to carry out transactions as
fiscal agent of US.
Regraded Uclassified
203
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 14, 1937
TO
Secretary Morgenthau
FROM
Mr. Magill
Joint Committee on Tax Evasion and Avoidance
Mr. Doughton informed me over the telephone that Senator Harrison
had asked that tomorrow's meeting of the Committee be called off.
Mr. Doughton said that he did not suppose that the Committee would meet
again until after Senator Robinson's funeral and the return of the
Congressional delegation from Arkansas. He said he himself was a member
of the delegation from the House, and he supposed Senator Harrison would
be from the Senate.
I told him that we would proceed with the drafting of the legisla-
tion and go over it with the Committee at the next meeting. He said he
contemplated merely a report by the Joint Committee and that the drafts
of legislation should be considered by the Ways and Means Committee.
Rm
Regraded Uclassified
204
RE BRAZILIAN AGREEMENT
July 14, 1937
9:15 a.m.
Present:
Mr. Lochhead
Mr. Riefler
Mr. White
Mr. Williams
Dr. Viner
Dr. Feis
Mr. Opper
H.M.Jr:
Well, let's start on Brazil. They're coming in at
10:30, aren't they?
White:
Yes, sir.
H.M.Jr:
Does Feis know it?
White:
He did know it, and said he would be here.
H.M. Jr:
(On phone) Remind Dr. Feis that the Brazilians are
coming in at 10:30 and I want him here, and it's up
to him to bring anybody who he wants to. If it's
O.K., don't call back; don't call me back.
I thought we could have a dress rehearsal. Where are
we at?
Williams:
Well, we saw them again Friday afternoon, and we had
what we all thought to be a very satisfactory talk
with them. Apparently their expectations are moderate.
We thought they might be wanting a commitment for a
hundred millions of gold, and they said right away,
"That's too much." I think we got the impression they
wanted about half that, didn't we, Harry?
White:
That's what it was.
Williams:
I don't know whether they actually said....
White:
Judging from the figures they gave in that report,
it would be between 50 and 60 million.
Williams:
So that the thing really boils down to two points.
They want to talk over their idea of the central bank
with someone, although they point out to us that the
decisions will all have to be theirs; of course we
agreed to that.
Regraded Uclassified
205
-2-
The other point is whether or not we should give
a commitment in advance to supply the gold up to
50 million dollars, and we pointed out
H.M.Pr:
Excuse me a minute. (on phone) Have you talked
to Dr. Feis? - I'd like to talk to him.
Williams:
We pointed out there were two ways to do it, to
accomplish their purpose. One was for us to give
the commitment, then they could announce that at
home, which apparently they are very anxious to do.
The other is for them to make their announcement and
for us to give an indefinite commitment, simply saying
that we give them gold when and as they have the
exchange wherewith to buy it. Last week I thought I
favored that second course pretty strongly; this week,
after thinking it over, I don't know that it makes a
whole lot of difference; it is such a small amount,
and there are some advantages in the commitment.
H.M.Jr:
That's where I come in.
Williams:
That's what it boils down to, wouldn't you (White)
say?
White:
Yes.
H.M.Jr:
Well, here's the point. I'm tickled to death that
they only want the gold as they pay for it; in other
words, that they are not going to do a Ponzi scheme
on us.
Williams:
Yes, they covered that very carefully in their
memorandum.
H.M.Jr:
That makes it easier for us, It isn't nice to have
to call down another country.
The other thing is this. I'd be perfectly willing
to agree to sell them 46 million dollars in gold
and 4 million ounces, is it, of silver?
White:
Well, it would be 43 and 7 million, if you want it
to bring their silver up to their - including the
gold they already have.
H.M.Jr:
Yes, it would be how much?
Regraded Uclassified
206
-3-
White:
And if they wanted to spend 50 million dollars,
then it would be about 43 and 7.
H.M.Jr:
How much in ounces of silver?
Lochhead:
I don't know. I was figuring on 50 million and if
you figured at $1.29 an ounce, it would be roughly
about 13 million ounces of silver.
H.M.Jr:
All right. Well, I don't for a moment
White:
Exactly 7 million dollars worth of silver, 45 cents
an ounce.
H.M.Jr:
The point I think I don't want to do is to give them
a call on us beyond one year for gold at $35 an ounce,
because I think that I'd be subjecting myself to
Hello, Jake?
(Viner comes in)
We just got to the silver stage. You haven't missed
anything yet. I mean we're just talking about this
Brazilian thing. The only thing, unless they have -
they told it to us after, I think, you left. They
say they only want to buy gold that they can pay for,
which makes our job very much easier.
Now, the question is about a contract, and the question
I raise at this stage, should I as Secretary of the
Treasury commit myself too far in advance to sell
anybody gold at 8 fixed price?
White:
They didn't mention - the fixed price wasn't mentioned.
Viner:
At the price prevailing - at the legal price at the
time.
Lochhead:
We have more or less had that same question on the
Chinese agreement.
H.M.Jr:
What I wanted to say is this. If we could have
something - and I want to clean this up. I don't
object to saying that I am ready to sell X million
dollars of gold to these people, but I think we ought
to have a time limit; then use Viner's suggestion -
at whatever the legal price is at that time.
Regraded Uclassified
207
-4-
Lochhead:
In the Chinese agreement, when we tried to draw it
up, the question came as to how we would lend them
against the gold; and the Legal Division had it
written up for $35 an ounce minus a quarter, and
we questioned whether or not the contract extended
to the end at that price and whether we wanted that;
and we checked back and said we'd make it with refer-
ence to the Gold Act, which does not specify a price,
but just
(Gaston comes in and speaks
to the Secretary)
H.M.Jr:
Just B. second. You'll have to do it, Herbert. I
mean I can't think straight.
(on phone) With the exception of Herbert Feis, no
calls for half an hour.
Now, where was I?
Lochhead:
About the question about giving them a price or just
leaving the price open.
H.M.Jr:
Well, let's leave the price open. But for now long?
Somebody make notes, because I'd love to have something
on a piece of paper here, a tentative plan, at 10:30,
that we could propose.
Riefler:
We could give them a one-year thing with 30-day
renewable clause - both parties.
White:'
One year is a little short to buy 50 million. They
may be able comfortably to buy it, or they may like
two years. Two years may be the outside.
(Opper comes in)
H.M.Jr:
I don't want to give them more than one year. That's
the longest I've ever given any money.
White:
They might like a shorter term, because it may put more
pressure on them and they may, be able to make more of
it at home.
Williams:
Of course, on the other hand, if they fall down it
will be bad at home for them.
Regraded Uclassified
208
-5-
H.M.Jr:
What's that?
Williams:
If they fall down.
White:
They've got a lot of foreign exchange already.
Williams:
Of course, they can always buy gold with the exchange
that they have.
White:
They've got 50 million dollars worth of foreign ex-
change now which they could use if necessary, if they
wanted to maintain their contract.
H.M.Jr:
You see, what this is, evidently, from what you gen-
tlemen tell me, is that they've got the ides that
if they can say at home, "We're in this, we've got an
agreement with the United States,' it helps them tre-
mendously. Now, it's pure window dressing.
Now, why not let's start and say that we give them
an agreement that we'll sell them up to 50 million
dollars worth of gold and silver - I'll give you a
chance to argue that - 50 million dollars worth of
gold and silver, of which roughly 46 million dollars
would be gold and 4 million dollars would be silver.
That isn't - I don't know whether that's right.
White:
43 and 7.
H.M.Jr:
43 and 7. You (Opper) making notes?
Opper:
No.
H.M.Jr:
Well, somebody is.
....st a price - at whatever -
well, as to gold, whatever the legal price is as of
that date; and the silver, the average price for the
previous 15 days. How's that?
(On phone) Hello. Herbert? - Good morning. -
Herbert, I'm working on the Brazilian thing. They're
going to be in at 10:30. We're trying to draw up a
rough memorandum in advance. So if you can get over
a little early it will help. We're on it from now
until 10:30. Pick up any cables you got on China,
will you, if there's anything in that's new. Do you
mind? If there's anything, just let somebody hand it
Regraded Uclassified
209
-6-
to you. - - They were helpful. - Yes,
Well, we'll talk about a 12 months contract.
"This contract" - I don't know what the legal
language - "to be taken up 30 days before it
expires."
Opper:
The extension of it?
H.M.Jr:
Yes.
Could you put it something like this: "with a right
on both sides to renew for one year," but make it so
we could - so we don't have to - I mean make it read,
"We will discuss at the end of 11 months the renewal
of this contract." I mean something to make it look
as though it's a two-year contract but it's really only
one year. I mean "At the end of 11 months Brazil and
the United States will discuss the renewal of this
contract."
Viner:
Is this to be a contract to purchase or a contract
whereby you give them the right to purchase but they
are not obligated to purchase?
H.M.Jr:
It's a one-way
Viner:
It's the second, isn't it?
H.M.Jr:
It's the second. It gives them the right - it gives
them a call on us for gold and silver, the price of
the gold to be the price of that day, the price of
the silver to be the average price for 15 days
previous.
Williams:
May I interject a word? We have been searching for
the possible outs. Of course, one obvious one was
that they might want to count the gold as reserves
before they paid for it. They said - say that's out.
Now, there is another Question that we have discussed
a little, and that is the relation of this to the debt
service.
H.M.Jr:
whose debt service?
Williams:
Theirs.
210
-7-
Williams:
The debt service settlement. You see, it would be
B. rather awkward thing from our point of view to put
the Brazilians in a position to say, "Well, we're
sorry, we can't pay any more on our debt, because
we're obligated to buy this gold from the American
Government." The American Government wouldn't like
that. So I think we ought to cover that.
H.M.Jr:
How?
Williams:
And make sure that the debt service settlement is
satisfactory at this moment.
H.M.Jr:
No, now look, do you mind my talking very plainly,
because
Williams:
I just want to raise the question.
H.M.Jp:
Raise enything you want. But you want to know how
I feel, see. Now mind you don't mind - please remember
I don't feel particularly well, so - I mean I may sound
a little bit more stern than I feel normally.
That concern is not mine - example: any more than you
or the Federal Reserve have raised that question of
the debts owed by the old Russian Government to the
Singer Sewing Machine when we agreed that the Russian
State Bank could open an account with the Federal
Reserve. You didn't - I'm talking to you now as the
Federal Reserve of New York - didn't raise the question:
when the Russian State Bank deposits five million dollars
with the Federal Reserve of New York, does that in any
way jeopardize what the Singer Sewing Machine has due
them?
Williams:
Yes.
H.M.Jr:
Am I right? Did the Board raise that question?
Williams:
No.
H.M.Jr:
What?
Williams:
No.
H.M.Jr:
No. And the point is this. The President permits
me, as Secretary of the Treasury, to go ahead with
these negotiations on the straight financial basis.
Regraded Uclassified
211
-8-
We don't ask for - we won't let any other branch
of the Government use us to get any special favors,
either trade treaties or concessions or anything
else, or debts. And all of the things that I have
done here up to now are on a straight financial
government-to-government basis. Any more than the
five million dollars that the Continental Bank owed
the old Russian regime; the State Department made
those poor fellows - I mean China; the old government,
15, 20 years ago, owed the Continental Chicago five
million dollars and, by God, Hornbeck made the Chinese
come through, and was willing to sacrifice his whole
picture of China for five million dollars owing the
Continental of Chicago 15, 20 years ago.
Williams:
There is this about it. This is current, you see;
they're up
H.M.Jr:
I know. I'm going to say one more thing I said to
them. Now, you could also say, "You've got no right
to make an arrangement with England and France as
long as they owe us the war debt." I mean I'm just
throwing all of these things in. And if - I mean the
pattern, which isn't appreciated and isn't understood,
is that all of these things that we do, the only thing
that we're interested in - What is my policy? My
policy is here that if one country after another we
can take them up and help them get a stabilized
exchange in the world, that gradually we'll bring
about an exchange stabilization.
Williams:
Oh, I agree with you entirely.
H.M.Jr:
But I want to get that over; and if we had to stop
and consider private debts, trade agreements, tariffs,
anything else, I wouldn't be anywhere today.
Now, don't misunderstand me. The reason I ask you
in is to bring up everything. But I don't see any
more, when "ussia deposited five million dollars in
the Federal Reserve of New York that we should have
said, "Does that mean the people are going to get
less?" or whether in any case we should consider
these foreign debts - those things as more important.
Now, I wouldn't knowingly be a party to help Brazil
cheat the American bondholders. Knowingly, see, I
wouldn't want to be a party to that. But if I stop
Regraded Uclassified
212
-9-
to consider their private debts, then I better not
go into any agreement at all.
Now you fellows can all take 8 crack at me.
Williams:
The only point I had - I might as well finish - I
understand one of the reasons they up here is
they want to negotiate a renewal of the debt ser-
vice settlement for three years, and they're talking
that with the State Department and Reuben Clark, the
bondholders. Now, I think it would be good procedure
to
H.M.Jr:
Excuse me?
Williams:
.....good procedure to let that thing terminate,
come to a head, then have it followed by this rather
than for them to be able to use this as an argument
when they come to do their debt service.
White:
Pousa Costa said that they absolutely - this is a
statement, but whether he means it I don't know -
absolutely they will not alter- - they will not
exceed the total amount of payments which they are
now making on these foreign debts, the Aranha debt.
He said they may alter the interest payments or
principal payments, but the total of foreign exchange
that they're going to use will not be changed. It
isn't as important as it might seem.
Williams:
Now, maybe Herbert Feis knows that that's all set-
tled now; I don't know.
H.M.Jr:
Just a second. Riefler wants to
Riefler:
It seems to me there are two points there. One is
that this government isn't a debt-collecting agency
and hasn't been; I think that's correct. The second
thing is, however
H.M.Jr:
You mean the Treasury isn't.
Riefler:
Yes. The second thing is, we shouldn't
H.M.Jr:
Excuse me; I make a distinction between the Treasury
and making it all-inclusive governmental.
Riefler:
Yes.
Regraded Uclassified
213
-10-
H.M.Jr:
Because the Government has been active.
Riefler:
That they are not a debt-collecting agency. The
other thing is, however, I don't think we should -
the Treasury should be an excuse for not paying
their debts. I mean we didn't say to Russia, "We'll
make an agreement with you provided you won't pay up
your debts, or give them anything of that order.
H.M.Jr:
No, here's the point. Don't worry, the State Depart-
ment will take damn good care of Reuben Clark and his
committee, see? They always have and they always will.
They're in here.
Viner:
I think that's the answer.
Williams:
That's the answer, sure.
H.M.Jr:
They'll take damn good care. That's the reason I
make the distinction when you say the Government
isn't El debt-collecting agency, and I interrupted
you by saying, "The Treasury isn't." Now, the State
Department will take damn good care. Because I've
had this thing out and the State Department still
hold that, through their diplomatic representatives
abroad, that it is their job to see that American
citizens abroad who are owed money by foreign countries
receive as good treatment as other nationals; and my
understanding with the State Department is that in con-
ducting these negotiations for exchange stabilization
with various countries, I take no interest in money
owed our nationals by the particular government we are
doing business with. Now, I - I think that that's 8.
pretty clean-cut thing.
Williams:
I think that's the answer.
H.M.Jr:
Now, as a matter of fact, I don't know yet where this
thing - I use another case; take Mexico. There's a
law firm here, Rigby and something - Owen - they've
got all this stuff; in all this thing I've done with
Mexico we've never raised this question of what they
owe us. And, if I say so myself, I've made more
friends for the United States through the way we've
handled it than we could any other possible way, and
I can get anything within reason out of the - (Eduardo)
Suarez, Minister of Finance in Mexico.
Regraded Uclassified
214
-11-
Williams:
Of course, it is to the interest of the bondholders
in the long run.
H.M.Jr:
Of course. I don't want to brush it aside, but have
I explained
Williams:
Yes.
H.M.Jr:
Have I explained how I feel?
Williams:
Yes.
H.M.Jr:
And how I approach this thing. At the same time,
the State Department always knows what I'm doing
and if they wish to notify the bondholders that's
their job.
But, to use another example, Spain two years ago
wanted five million dollars loan against their gold
to free their foreign exchange; it was six months
behind. It was a cinch. The State Department said,
"No, we ask you not to do this until our trade treaty
is through, because that will establish the precedent
that these countries get a loan in connection with
the trade treaty." And by the time they got their
trade treaty through, it was too late. I had Cochran
down there and he made a report. They had all their
gold, all their silver, and all they wanted it for
was three years. So I mean I've had - and all they
needed was five million dollars, and they had their
gold and silver as collateral.
So I say now that if this is all Brazil wants, it
looks like 8 cinch to me.
Williams:
It does to me too.
Lochhead:
As a matter of practical fact, if we give them
an option
H.M.Jr:
And you understand, please always when you come in
here say what you think and don't mind if I
Williams:
No, I think we ought to explore the possible outs,
but as a matter of fact I don't see any real outs.
White:
Moreover, this isn't a loan really. It is merely an
option to purchase. I don't see how the bondholders
could possibly object.
Regraded Uclassified
215
-12-
H.M.Jr:
Jake, am I all right, on safe ground?
Viner:
All right. The State Department will take care of
that side. It is not your problem.
H.M.Jr:
But am I on safe ground?
Viner:
I think you are on safe ground.
H.M.Jr:
Riefler?
Riefler:
Yes.
H.M.Jr:
I'm glad to have had a chance to explain how I feel.
Opper:
I'd like to ask a few questions, Mr. Secretary.
H.M.Jr:
You would, would you?
Opper:
I don't know whether I'm as familiar with this as the
other gentlemen; I want to be sure about a few things
here. In the first place, it is not to be required
that they take the same proportion of gold and silver
each time, is it - I mean that they can't get the gold
unless they take the silver?
H.M.Jp:
Well, we haven't had B chance to talk about that.
You run through your stuff.
Opper:
That's the first thing.
H.M.Jr:
Let's argue about that. My thought is this: Under the
Silver Act we are obligated to keep buying silver until
we either have one-quarter as much silver as we have
gold, or silver reaches $1.29. Now, if you look over
some of the statements of the President, going way
back, I don't know how far, you will find he more or
less laid down this thing that if we are going to start
now with South America and if we want people to keep
some interest in silver - I think that when we estab-
lish this thing with Brazil, this is the time to say,
"We have this policy up here, Canada has it, Mexico
has it, and throughout North and South America let's
agree that one-quarter - we'll try as near as possible
to keep one-quarter of our monetary stock in silver."
I don't know any other way tokeep this large volume of
silver we have at some basis of monetary value other
216
-13-
than - if we don't do this, it just becomes 8
commodity. Somebody says it's a commodity anyway.
Well, I don't look for much support; if I get it
from any of you people, I'll be surprised. I'll
let you (Williams) talk last
Williams:
(Laughs)
H.M.Jr:
...because you're agin' it.
Williams:
I'm agin' it.
Riefler:
I don't see how you're going to get them to do it
in the first place.
H.M.Jr:
What?
Riefler:
I don't see how you're going to get them to do it.
H.M.Jr:
I'm going to ask them. If I'm turned down, I'm
turned down.
Viner:
Ask them to buy silver from you.
H.M.Jr:
Yes.
Viner:
Are you going to sell silver - the only way to do it
is out of the Stabilization Fund.
H.M.Jr:
What we're starting to do is - you see, as against
this, is to build up some silver in the Stabilization
Fund. Archie's going to take some in.
Lochhead:
Of course, the argument for this is that we did use
this pattern with China.
H.M.Jr:
Just let me put it this way. I'm going to be a little
unfair. Don't let's argue for the minute - then we
can come back - whether the Silver Purchase Act is
good or bad. I got it, see? I'm under a mandate; I
can't get it changed. Take it this way - I'll go
with Williams - considering that the Silver Purchase
Act is a fact - we're not discussing should we have a
Silver Purchase Act, but we've got it; having it,
would you still argue with me that I shouldn't, in
dealing with South American countries, try to gt them
217
-14-
to take some of this silver and share our burden?
Williams:
Well, yes, I would argue that you shouldn't, on
several grounds. One is the magnitude. You
wouldn't get rid of a great deal of silver on this
basis; it wouldn't make any essential difference in
your own position, it seems to me.
Then it comes down to the question of future of
monetary arrangements, monetary stability. I think
that you would have a simpler system if you used
gold and dollars supplied against gold for stabili-
zation purposes. I think that would meet with a
better reception in the world, be better understood.
The other raises the question of whether we are not
really trying to move toward a bimetallic system,
which is in a great many minds, and the repercussions
of that on Europe I don't believe would be favorable.
And the only thing we could say in justification of
it is, "Well, we've got a law." Now of course we have
a law, and we have to recognize that. If you are in a
position to induce the world to take a large amount of
silver and help you carry that burden, that would be
different, but I don't believe you are. You see, in
this example the amount of silver is comparatively
small, and that would continue to be the case.
If you apply this to other nations - I don't think
the Chinese case is a good analogy, because of course
they've got a silver problem too. I imagine the
Brazilians would simply raise their eyebrows and say,
"But we don't want silver; we want to stabilize on
the dollar and we want to use gold 8.S a counterweight,
same as you do."
H.M.Jr:
Well, that's their privilege, and I'm not going to -
I can't force anything on them.
White:
I think there is more to be said, possibly, for
this silver
H.m.Jr:
Do you mind holding your fire, because I know you're
for this. Just hold it. I'd like to hear what Viner
and Riefler have to say.
218
-15-
Viner:
Well, I'd say that it is all right to ask them if
they would be interested in it, because they might
conceivably regard silver at 45 cents as good a buy
65 gold at $35 an ounce, for reserve purposes.
But I don't see how you could make it a condition.
In the first place, the Silver Purchase Act is a
buying act and not a selling act. In the second
place, if you ask them to introduce silver in some
role into their currency system which it hasn't got
now, you're making a major request of them as a con-
dition to a very minor concession to them, if it is
a concession at all.
H.M.Jr:
Well, Jake
Viner:
Then third, I'd say if you ask them - they can turn
it down - I'd say ask them in a very cautious way,
so it isn't a formal request, so they don't get it in
writing, and so 1t isn't a part of the publicity.
H.M.Jr:
Now wait a minute; I wish you for a minute would take
a broader aspect. Just let's - I got time - I mean
don't let's - this particular thing. Am I - I mean
I've been terribly careful and very proud of what I
have done up to now, with the help of everybody, and
is this - am I continuing to make a step forward where
I don't have to make a step backward? I mean is this
something I should do looking one, two, three years
ahead? I mean what I - the conception that I have -
I haven't got an awful lot, but the conception I have
is that this might be something for North and South
America and China as a dollar bloc area, as opposed,
possibly, to the rest of the world, leaving Russia
out.
Viner:
I think you'll make it harder to attain if you intro-
duce the silver complication.
H.M.Jr:
Make what harder?
Viner:
To obtain anything like a dollar bloc, because each
time one of the countries is approached it is conditions
that we attach rather than something they seek; and I
don't see that you can get any important advantage in
it, because, as Williams said, I don't think there is
213
-16-
any prospect of getting them to take up a substan-
tial amount of silver, so that it doesn't reduce
our load. And I'd just simply say that the silver
you have is a price paid for something or other, and
that
H.M.Jr:
Well, you're not quite - I mean let's just say that
Brazil would accept it - I mean that they want this
thing so badly that they will do anything we ask.
Just let's say - I mean it means so much to them they
say they'll accept 1t. Now, that pretty well adver-
tises - that's a signal to the world that we really
mean that we want bimetallism, and do we want that?
Williams:
Well, I think that raises a very large issue, but rather
unnecessarily; I think that is my principal ob jection.
I don't know how bimetallism would work, but the larger
immediate question is whether you get enough acceptance
for it in the world at large, whether it would be a
step forward in your program toward monetary stability,
or whether it would be raising an additional obstacle
that we'd have to get over in getting other nations to
see it that way; that's the thought.
Then, when you go beyond that, the old argument for
bimetallism was that there wasn't enough of the one
metal. Well, that isn't like so true now, when the
world is faced with 8 superabundance of gold. It is
the problem of distribution now.
Viner:
This would intensify the excess monetary metal problem
of the world; but in any case I'd say that is B very
big problem. The world would show no enthusiasm for
it now - less than ever; nobody's interested in it
any more. There was China; there was a silver remnant;
that is destroyed.
H.M.Jr:
There was a silver what?
Viner:
A remnant of silver-using countries; that's all over.
Williams:
I think that from the diplomatic or public opinion
side, whichever it is, there is a great deal of
support for what we are trying to do through the
medium of gold - work out some sort of scheme that
will be more or less stable. I think outside - now,
220
-17-
I was in South America in 134; our silver program,
frankly, was not well-regarded down there. I hap-
pened to be down there just at that time and they
were raising all sorts of questions about it. Now,
I think there is a general approval of what we are
doing with gold and through gold, and a desire on
their part to tie up. Now, I'm afraid that the men-
tion of silver might give it all a setback, because
I think their reasoning would be, "Well, the United
States is in a rather embarrassing position by reason
of the Silver Purchase Act, and obviously they are
trying to get us to carry the load to nelp." Now,
the amount that they could help would be so slight
that I don't believe it is worth risking that unfav-
orable opinion.
H.M.Jr:
What Viner said, I think, is the meat of the cocoanut,
and that is this. As he put it, my problem right now
is we've got too much gold and we're trying - I mean in
the back of the head - I talk in front 85 though -
reduction of gold production and that sort of thing.
Now, say we want to add an additional monetary metal
to the stocks we already got.
Williams:
Yes.
Viner:
There is this added point - and if the world were
really to move toward bimetallism, that would mean a
higher value for the silver than it now has in terms
of gold, so it wouldn't be merely the new production,
but you'd get some value - more value in the world
stock of monetary metals than you have now, and that
certainly is
Williams:
I should think it would make your excess reserves
problem greater in time - large supplies of both
metals.
Opper:
I think there is even a further possible difficulty
there, Mr. Secretary. I am wondering whether it's
even been considered what the effect on this problem
and the London silver agreement may be. True, that
expires in December, but at the moment it is still
in existence.
H.M.Jr:
Well, we've sold foreign excess.
White:
We've bought foreign excess.
221
-18-
H.M.Jr:
"e've bought so much more than that.
Opper:
Theoretically, the indication is that we don't
sell any no matter how much we buy. Some bridges
there that we haven't crossed yet.
Lochhead:
Mr. Morgenthau, approaching it from another angle -
I think I agree pretty much with some of these things
that have been said - but on the other hand, we have
the Silver Purchase Act, and there have been certain
plans drawn up for these South American countries for
a gold-silver bloc. Now, if something comes up -
Brazil is the first country that's approached us on
it; if we make no mention of silver to Brazil, I don't
know how you're going to explain letting that drop that
way. I think it should be at least mentioned, so that
we get their reaction. I think if we got their reac-
tion on record it might be all right.
After all, you know, on this silver program we had
other things about China; we had to test things out
to prove things. Now, I think that you do not make
this a condition when you issue them an invitation to
take some silver and get their reaction. You have a
record then to guide you, and, you might say, as a
defense for any attack you might have.
Williams:
That's true; still a question.
Viner:
Raise an issue with them in an informal way.
Lochhead:
Not as a condition. What you want is their reaction -
what do they think about it?
Riefler:
On the contract it simply could read gold or silver.
Lochhead:
Wouldn't want to go as far as that. I simply want
in the conversation to get their reaction to some
proposition.
H.M.Jr:
Let's give Riefler an opportunity.
Riefler:
It seems to me that these moves for stabilization
that you have been making have been received by
everybody as being not political and not just from
the American point of view, but from a very broad
222
-19-
world point of view. Now, if you bring the Silver
Act into this group, it will be taken 69 something
that is motivated not entirely by broad considerations,
but by your personal difficulties in carrying out
the Silver Purchase Act, and it will detract from the
plan at which you have been working. And I personally
don't see anything to be gained by it, except the
answer to Congress. I mean it's
H.M.Jr:
Well, I can tell you that as far as Congress is
concerned on silver, it's "sleeping dogs." I mean
1
just couldn't get over the fact that Key Pittman
didn't call up after this Chinese- thing - "What do
you mean by selling them gold?" I haven't had 8
word from them.
White:
He wouldn't be apt to object to your buying silver.
H.M.Jr:
But from that agreement you couldn't tell - you
couldn't tell but what I might have sold them 20
million dollars worth of gold and bought a million
dollars worth of silver.
Viner:
You'd think he'd want to know in any case.
H.M.Jr:
I was afraid to call him up to tell him, for fear
he'd say, "No." Be certainly would have said "No"
in 134,
Since the first time I talked, the way I feel - I've
never done anything in the monetary field unless I -
even one-tenth as important as this - without thinking
it over and having lots and lots of time. I haven't
thought this thing through and I just wonder if I
want to do as important a move as this without having
time to think it over. And my brain is in no condi-
tion
Williams:
You can't tell what the implications of this might
turn out to be. One thought that we have discussed
occasionally is, "Well, the United States is still
far from bimetallism. We have a fixed price for gold,
but we buy silver at market price. Shouldn't there
be a devaluation of silver to the same extent 89
gold, etc.?" But now, if you try to make arrangements
with these nations whereby you furnish them certain
proportions of gold and silver and create a supply
of dollars against either gold or silver, one might
223
-20-
well raise that whole question of what our own
metallic basis is, and whether there wouldn't need
in the course of time to be some change. Now, I
don't know about that, but why raise it at this
time, when you are going along with a program that
everybody accepts as being in the interest of the
world at large?
H.M.Jr:
You've been very good, Harry.
White:
Well, I feel this way about silver. Not only do
we have a Silver Purchase Act, but we have two
billion ounces of silver. Two billion ounces
of silver, rather than the Silver Purchase Act,
plus the fact that recent developments have altered
my position on silver, either from the point of view
of other countries or this country. Whereas at one
time silver didn't look so good, now, compared with
gold, it is not a bad investment at all at this
price, so that I don't think we would be putting one
over on Brazil if we should sell her some. But let's
get that out of the way; I don't think we are doing
something necessarily bad for her.
Secondly, I do have in mind possibly that we don't
want to do anything now which would congeal a pattern
which we are not yet ready to definitely decide upon.
In other words, I have in mind the possibility - very
definitely one of the considerations - of moving
toward, or at least of considering moving toward,
international bimetallism, st a ratio however which
wouldn't raise all the difficulties which have been
advanced in the past. I don't think we have settled
that issue yet; I know we haven't. I mean it hasn't
received the attention or the consideration, as the
Secretary has indicated, that that important problem
merits. But it is for that reason that I don't want
us to proceed in such a way as to make it more difficult
if we should wish to do something later, rather than
easier.
Now, there is China - has silver; Cuba is going to
have silver; Mexico would be for silver; Chile, Peru
would be for silver; Canada would be for silver; the
United States would be for silver. If we can get
a few of these smaller countries who do not have an
224
-21-
intimate interest in silver - like Brazil, probably
a couple of the others - get them to purchase 6
little silver, so that they have it in there, the
transitional period becomes easier.
And I don't think the Secretary had in mind to make it
B condition; didn't have it in mind. In fact, we
studied the question as to what inducement was there
for them to accede; we couldn't find them on the basis
of what they asked; there may be some other inducements
in other directions that we don't know. But a request
that they purchase silver so that they have 8 similar
proportion such 89 we have, I think, could be legiti-
mately made. If they did take it, I don't see any of
the repercussions on international action that you
speak of. It would merely be that they have decided
to include silver in their - in their monetary reserves;
it's a small amount. And they got two million ounces;
it would be about triple the amount of silver
H.M.Jr:
Have they some silver there?
White:
In their coins, not monetary stock.
Lochhead:
It would allow them to take silver as monetary stock.
H.M.Jr:
Harry, look. Let me just say - I haven't done a single
thing here that I look back and can't say that I've
given this thing careful thought. This doesn't close
anything. But, on the other hand, this thing has to
be published, and anything that we do now here - I
mean every country in the world is watching it, and
they put all kinds of innuendoes and meanings, and
this and that and the other thing, and this would be
a definite signal to the world that we're going in
that direction. I don't know whether I want to go in
that direction; I may. Now, not having made up my
mind and not having decided that that 1s the thing
which is best for the United States and for the
position and influence which we bear
And the Silver Purchase Act, as far as I'm concerned
right now, no one bothers about the thing; no one
calls me up; nobody kicks just as long as I pay the
78 cents.
I think the thing to do, as a matter
of giving this thing 24, 48 hours' consideration, and
that's - I couldn't take up the question of bimetallism
and its influence on the world. As you gentlemen know,
225
-22-
we've got to - I mean we've got this whole thing
(Feis comes in)
Hello, Herbert.
Feis:
Good morning.
H.M.Jr:
Sit down.
So my inclination is to postpone that thing at this
time, because I haven't digested it.
Now let's look at the other thing.
We're talking about whether we should include in this
thing silver.
Feis:
In Brazil?
H.M.Jr:
Yes. And I've just come to the conclusion that I
haven't had time to study it, you see. Saved you a
lot of - I mean you would have had a good time for
the last 40 minutes if you'd been here.
Feis:
Not if it was about silver.
H.M.Jr:
Yes, you would, because I'm just going to postpone it.
Anybody think I make a mistake by postponing it?
White:
Certainly not a serious one. But I think a request
might well be made, because - you say you're postponing
it; you're not postponing it if you're proceeding on
a pattern. It isn't 8. question of postponing 1t;
you're adopting a pattern.
H.M.Jr:
No, I haven't got a pattern yet, as far as that goes;
I haven't had a chance to think this thing through.
White:
Well then, why commit - aren't you committing yourself
in one direction as well as the other?
H.M.Jr:
No.
Feis:
May I ask, Mr. Secretary, you meant you're explaining
the whole formulation of your proposals?
226
-23-
H.d.dr:
We're talking about whether - should the agreement
include 50 million dollars worth of silver - I mean
50 million dollars worth of gold, or should it read
43 million of gold and 7 million of silver, see?
Opper:
Mr. Secretary, may I
Feis:
The reason I ask - you possibly have this information -
their plan was to take a plane tonight and go down to
Dallas, Texas, and return - I think it's Friday.
They're just going down there for one day. So I
thought you might want to know that.
H.M.Jr:
No. Of course, this whole thing - I mean it's the
most unsatisfactory thing I've ever had, and I'll
never again be put in this position, because - I
mean I absolutely have not had time to think on this
thing. When this thing next time comes up, I'm going
to take it up in writing with Mr. Hull; ridiculously
unfair to Brazil and unfair to the United States
Treasury - I mean the way this thing has been handled -
and I'm not going to be put in this position again.
Feis:
For your information, they have just made that plan;
there was no way of knowing. They probably would change
it if you want them to change it.
H.M.Jp:
Well, I'm ready today. I don't know when that plane
leaves, but they better cut that Dallas trip out 1f
they want to settle this; they better work with me
today and tomorrow.
Feis:
Well, I think
H.M.Jr:
The hell with this Dallas trip if they want to do
business with me. What they going to go down there to
see, 8. fan dance?
Feis:
Yes, 8 Panama fan dance.
H.M.Jr:
Is that what it 1s?
Feis:
Yes, Panama Day down there.
H.M.Jr:
Let Aranha go down there.
Feis:
But I - I'm almost sure
Regraded Uclassified
227
-24-
Williams: You might do this today on the lines that have been
outlined.
White:
May I raise just one more question? When Cuba
wished to buy silver from us, which she did, and
borrowed to purchase it, I don't think we felt
or anybody felt at the time that we were intro-
ducing all these larger problems, and it appears
to me that it could be properly done so that you
wouldn't be introducing them now.
Viner:
I think there is a difference. Cuba wanted to buy
silver.
White:
The assumption is that Brazil will wish to.
Williams:
There's a difference; we're going to ask her.
Viner:
I say if Brazil wants to buy some, I don't object.
Williams:
If they come up here and say, "We want some silver."
White:
I say merely that the Secretary might suggest it
not as a condition, but as a
H.M.Jr:
Now look, I can't here as Secretary of the Treasury
of the United States Government say, "Do you want
to buy some silver?"
White:
Would you put it that way? Merely say that they
might consider that possibility.
Viner:
Have to make up your mind.
Williams:
Cross a big bridge.
H.M.Jr:
I don't want to make up my mind. I don't want to
make it up. I don't want to close it up. I don't
want to operate. I can't do as important a thing
as this in 48 hours; I just can't do it. Now here's
the State Department laying more stress on this than
anything else that we have had anything to do with
with them. They say this is - they've never laid as
much stress on anything as they have on this.
White:
Have they told us why?
Regraded Uclassified
228
-25-
H.M.Jr:
Yes, they've told me why. And I - I'd have to post-
pone it and sit down and argue and discuss this thing.
Now, you raise Cuba; we didn't insist that Cuba take
gold either. I think we better - after all, I told
Aranha that if they cared to come up here and dis-
cuss this thing, we'd discuss it. I don't want to
write their ticket for them. If they want an agree-
ment on gold, fine, we'll give them an agreement on
gold.
And what we're talking about now is this, Herbert -
along these lines - that if we enter an agreement with
them for 12 months, at the end of 11 months - we'll
work it out something like that - that we'll discuss
again another agreement for another 12 months, which
gives it the appearance of a two-year agreement, see?
I don't want - and we agree to sell them up to 50
million dollars worth of gold any time during that
12 months at the then - at the legal price of that
day, see? But I can't agree to sell gold at - we're
on a 24-hour basis on the price - and whatever the
legal price of gold is that date, see?
Williams:
There's another question, Mr. Secretary.
Feis:
May I
H.M.Jr:
Go ahead, Herbert.
Feis:
The only thought I get is that to get the full psy-
chological effect for which they are striving, just
to set a maximum for their own economy to strive for
and to carry through in their own internal politics
and affairs, I think if they could get something that
covered, say, three years rather than two years, it
would be worth more to them. They want a long-run
program to put before their country.
H.M.Jr:
Is it all right for us to say - we'll put it this
way - I don t want to be bound - put it this way,
try to work it out so it looks pretty: a 12 months'
agreement with the understanding that at the end of
the first 11 months we discuss extension for another
12 months, and at the end of 23 months we again dis-
cuss it.
Williams:
You could work that out.
Regraded Uclassified
229
-26-
Viner:
Why not say a three-year agreement? What is it
you're giving them if you say the legal price of gold?
H.M.r:
Jake, I don't know! Neither do you.
Viner:
I'd say there's nothing in sight.
H.M.Jr:
O.K., I could have talked a month ago to you and
you would have bet me 50 to 1 that there was nothing
in sight which would turn this gold flow around. You
don't know - I mean it may sound perfectly ridiculous -
we may be short of gold three years from now.
Viner:
Even if you're short, you'd still be willing. to sell it
at the legal price.
H.M.Jr:
I don't know. I mean you can't
anything that turns
as fast as this
Viner:
In two years they may have used 28 million; it would
leave 22 million. It looks small, you see. It looks
small. You're protecting yourself otherwise; you've
got safeguarding clauses, etc. And I still don't know
what - it still is a puzzle to me, what are they getting
out of this?
H.M.Jr:
They are just getting one thing, window dressing for
them at home, that they've got a monetary agreement
with the United States Government. Is that right?
Viner:
Why not give it to them? If you have hedges and so
on, 11 months' agreement - agreement to buy an over-
valued commodity at its regular price, I don't see....
H.M.Jr:
All right, if you want it, I'll do it that way, or
give them a three-year agreement which can be broken
on 30-days' notice.
Feis:
That would be much better.
Lochhead:
Give them more freedom.
H.M.Jr:
Three years' agreement subject to 30 days' notice.
All right, I'm willing to do it that way - a three-
year agreement subject to 30 days' notice.
Regraded Uclassified
230
-27-
Feis:
You dress up your 30 days in the form of a provision
for mutual consultation in case any question should
arise - there would be mutual consultation; if by
means of such mutual consultation the matter was not
the subject of agreement, then either party is free -
or something of that sort.
Opper:
Can't do that.
Feis:
No?
Opper:
I'm just saying it doesn't seem to me that will give
you the thing you're looking for.
H.M.Jr:
We give them their choice of extending this each year
up to three years, or three years subject to cancella-
tion by either side on 30 days' notice - whichever
they like.
Feis:
I think you probably thought my phraseology was im-
pairing its legal form. I didn't mean to. If you
study some of our agreements, you will find we have
framed them without impairing the legal form, and
yet it doesn't make it an abrupt termination clause.
Viner:
So there shan't be termination without previous notifi-
cation - I suppose that's the one thing that shuts out -
you have to tell them beforehand, you see?
H.M.Jr:
Am I right that they want this, that they feel that it
is useful to them to have some kind of a monetary
agreement with the United States, and that's what you
want?
Feis:
(Nods yes)
H.M.Jr:
Huh?
Feis:
And while - that's the one ob ject, and the other
one - while in one sense window dressing is a correct
characterization, in another sense it will be for them
more than window dressing; it will become a commitment
on which they can move affairs within their own country;
they will keep presenting it as a commitment to their
own people.
(Miss Reynolds comes in with
press dispatches)
Regraded Uclassified
231
-28-
Williams: Help them with their budget and help them with any
trade control they think is necessary.
H.M.Jr:
May I have just a minute please.
Archie, take a minute; go outside and get the last
on foreign exchange, will you please.
Williams:
May I raise one more question about the Brazilian
matter? It is a question that Opper will want to
raise; I'm not interested primarily in that aspect.
That is the question of the terms on which they get
their gold and the time of delivery. They said some-
thing the other day that I didn't understand about
when they would get the gold. It is true that they
don't expect to be able to count the gold as reserves
until they pay for it, but the question is whether
they are expecting in advance to get the gold now and
pay for it through the year, that sort of thing. I
think that ought to be covered with them very care-
fully, because two or three times Aranha said something
about the terms on which they'd get the gold, the time
period, the payment, things like that. Now, he
probably doesn't mean a thing by that. What he is
really referring to is that he wants to be able to
buy the gold in annual installments. It ought to be
covered.
H.M.Jr:
Why don't I ask Sousa Costa to I" eview for me just
where we stand now?
Viner:
On the delivery?
H.M.Jr:
No, on this whole question. Would he mind that? I
haven't sat in on these conferences, and after all
where does he consider we are now? '
Feis:
That is not an easy question to ask him, because of,
first, his language handicap. Secondly, he will say
that your staff asked him a list of questions that
he tried to give adequate answers to, and he believes
he has; and the little I saw of the memorandum, it
was an exceptionally adequate one, lacking in
ambiguity all along the line; I mean it was clear.
And on the basis of that he is waiting to see the
United States Treasury.
Regraded Uclassified
232
-29-
White:
Well, Herbert, he hasn't specifically asked for
what he wants, and I think it would be quite in
order.
Feis:
Well, you can't put a Minister of Finance in a
position of coming to you with his hat in his hand.
White:
Why is that a simile? He states what it is that he
wishes. He hasn't specified. How does that
Feis:
Well, he has specified sufficiently clearly in cer-
tain meetings. When we have said a hundred millions,
he said, "No, too much, too much."
Viner:
Did he?
Feis:
Oh yes.
Viner:
I'm just
Feis:
Which meeting was far more satisfactory than the first
one. And while I agree with you, John, that you want
to get rid of all that ambiguity, I didn't find a
single trace of ambiguity
Haven't you seen the
memorandum?
Viner:
No.
Riefler:
No.
(Secretary leaves room)
Viner:
No, we haven't.
White:
Don't exaggerate the specificness of the memorandum.
Feis:
I must say I have the opposite impression of the
Secretary of the Treasury, because I think the
American Treasury is behaving badly. I think it's
fuzzling around, it's raising shadows and shapes,
it's not coming to grips with the issues; it is
obtuse in taking in what is being told to it; that
particularly it is being obtuse
Viner:
I still don't know what it is they're asking of us.
It is difficult to ascertain their purposes.
Regraded Uclassified
233
-30-
Feis:
It would be if you haven't read the original memoran-
dum; it would be if you haven't sat in at the
critical discussions, if you haven't read their sub-
sequent memorandum; it is difficult to, unless you're
good at crystal-gazing. It is difficult to know, but
it is your duty to know.
Viner:
I asked Williams, "Is there anything other than we
worked out before?" He said, "No."
Williams:
The only question now, Herbert, is this. Should we
say, "We understand in general what you want. We
have discussed this, we have read your memorandum;
it is excellent. Now would you make a suggestion to
us as to just how much gold you want and over what
period of time?" You see?
Viner:
What's wrong with that?
Lochhead:
That's different than the other thing, reviewing
the whole question.
Williams:
Then we get right down to an agreement.
Feis:
You don't enhance your authority. These fellows would
actually - they've heard of you fellows, they think you
know something, and they are actually thinking that
maybe you can guide them.
Williams:
Do you think we better advise them how much gold they
ought to take?
Feis:
I think it's a better way, yes. Why do they give
you all the figures of circulation and all that
Viner:
We asked for it.
Feis:
except as an indication of how much gold they
should strive to add to their present foreign holdings.
(Secretary returns)
Feis:
Mr. Secretary, I want to repeat in your presence the
fact that I, despite the State Department's role in
this matter - I don't believe that the Treasury staff
has really yet lived with this problem to the extent
Regraded Uclassified
234
-31-
they might have during the past week. They haven't
studied the memorandum, they have left the vital
discussions; they haven't discussed with Mr. Williams,
who was at the meeting, the real course of the discus-
sions.
White:
Why don't you ask some question and see whether we
could answer? Apparently you have studied it.
Williams:
Before you came in this morning - we started an
hour before you came in.
Feis:
Did you? One could never tell it, 1f White can
say, "What are specific terms?"
White:
I say, specifically what are the things they want?
Feis:
That's one of the things they'll want to discuss.
H.M.Jr:
Listen, you know what I'm doing? If they will stay,
I'll work with them for the next 48 hours personally.
Feis:
I'll - I'm sure they'll stay. This other plan was
made on the supposition
H.M.Jr:
The only thing I've got now - I mean I'm ready to
work on this thing today and tomorrow and clean this
thing up.
Feis:
Well, I'm sure they'll stay.
H.M.Jr:
And I'll work tonight 1f this bird will work tonight.
Has he got something tonight?
Feis:
I'm sure he's got nothing that will stand in the way
of continuing these discussions. This is now the
only thing that is keeping them in this country.
White:
The one sentence that is interesting here is the
very first phrase - "It is an American suggestion
desirable
Feis:
Say that again.
White:
The very first phrase is that it is an American
suggestion.
Regraded Uclassified
235
-32-
Feis:
Well now, let me again - I think this is probably
the fourth time - maybe it will again have to be
explained the fifth time.
White:
You're dealing with pretty stupid people.
Feis:
Yes, you are being so obtuse that I think it is
being persistently obtuse. This thing originated
in conversation between President Roosevelt and
President Vegas.
Williams:
We know that.
Feis:
In which by common agreement - President Roosevelt
said to President Vegas, "We think means can be
arranged by which certain of this gold can be made
available to you." That makes it an American sug-
gestion.
I have not found that Sousa Costa, in any remark
that he has made in the course of three weeks'
negotiations, has twisted a statement by one-tenth
of an inch.
White:
Nobody imputed that he has. But the point I'm
getting at
Feis:
Then why, again, is it
White:
The statement he has here that bears most on the
quantities involved is his question of proportions,
of about approximately what he would want on pro-
portions. Now, if you raise the question as to what
we think he would want, it's a very different thing
from what he might ask for. He has an opinion as to
how much gold he would like to buy; he already
expressed that. I think what he'd like to buy,
commit himself to, is too small a proportion for
his national economy, but that question hasn't
arisen yet because he hasn t specified exactly what
he would like to buy, nor has he asked us, "How much
do you think we ought to buy?"
H.M.Jr:
Harry, just a second, let me get this point; this is
the whole meat of the cocoanut. Is it in this
memorandum that if he buys, as I understand it - that
he wants to pay for what he buys and leave that on
Regraded Uclassified
236
-33-
earmark here, and he doesn't want what we originally
thought, but he wants to buy 50 million dollars and
then give us a note for the full amount?
White:
AS he has it, after he buys it, ne can either leave
it here on earmark or take it with him.
Williams:
the question I am raising is not all-important, but
ought to be covered as a matter of business: whether
he expects to get the gold at the time, you see.
H.M.Jr:
What time?
Williams:
At the time he pays for it, or somewhat in advance
of that, you see. There was some rather vague talk
the other afternoon
Feis:
John, I agree that the thing should be cleared up,
but I disagree that there was vague talk.
H.M.Jr:
Now listen, don't let's get - I think I've got enough
of it - the balance of today and tomorrow we'll get
the thing down. And Feis, you know - you've seen me
now with E number of countries, and I've never yet
had one country walk out of nere with hurt feelings.
Feis:
Right.
H.M.Jr:
And this fellow won't go out of here with hurt feel-
ings.
Now, fortunately, we are in a position to - that
we can concentrate on this, and when we get through
with this we'll take up that Swiss memorandum that's
been waiting so long. But we'll concentrate on this
now; we've got Kung out of the way.
Feis:
Since I've talked so much - I think what continues
to disturb everyone with a technical mind is the
original form in which this was placed, as a highly
baffling thing; the form in which it emerged from
the original discussions had so little significance
that you keep looking for another, an underlying,
significance; but I am convinced, on the basis of
all the subsequent discussions, there is no underlying
Regraded Uclassified
237
-34-
significance except the psychological that they
repeatedly dwell on.
Viner:
This gives the answer as to how much gold they want.
It has to be figured out from the other data, but
they are telling you very precisely what they want,
as the aim toward which they
H.M.Jr:
How much gold?
Viner:
You'd have to figure it out.
H.M.Jr:
Hasn't somebody figured it out?
White:
Well, it's 30 percent; it would be as of
, or
depends on what the latest figures are.
(Sousa Costa and Mr. Carneira,
his interpreter, arrive)
(Balance of transcript written
up separately)
Regraded Uclassified
238
July 14, 1937.
9:22 a.m.
H.M.Jr:
Hello.
Rep. Robert
Doughton:
Hello, Mr. Secretary.
H.M.Jr:
Good morning.
D:
How are you?
H.M.Jr:
I'm fine.
D:
That's good. Too bad about our friend
Robinson - wasn't it.
H.M.Jr:
Oh, I am terribly upset about it.
D:
Oh, it's terrible.
H.M.Jr:
Terrible.
D:
Old man "Work's" dead.
H.M.Jr:
Well, it's -
D:
A terrific strain so long, you know.
H.M.Jr:
Yes.
D:
I reckon that's the way we'll go one of these
days.
H.M.Jr:
Well, it seems that -
D:
What I wanted - what I called you about
Mr. Secretary was this.
H.M.Jr:
Yes.
D:
You remember some time ago, you probably won't
remember but I can refresh your mind. While I
was down there about something else, I mentioned
to you about three investigators who had been -
who had temporary appointments for quite a
while.
H.M.Jr:
Yes.
D:
Mr. Berkshire had been taking care of them, but
they served notice that they couldn't be given
any more temporary appointments.
Regraded Uclassified
-2-
239
H.M.Jr:
Yes.
D:
And you took the matter for consideration, to
see if there was any way in the world we could
get them put on the permanent role, get the
Civil Service Commission to qualify them.
H.M.Jr:
Yes.
D:
They've been in now about three or four years,
and they're men of highest efficiency - turn
them out and put in new men, who know nothing
about it. No quality in it whatever. Looks
pretty bad, and I just wondered if you had
done - or thought anything could be done about
it.
H.M.Jr:
Yes. Well, I went right through with it, but
8,8 I understood it, if we gave them another
ninety days.
D:
Gave them another ninety days, that's right,
with the understanding that I wouldn't ask for
that anymore.
H.M.Jr:
You've got a good memory.
D:
How's that.
H.M.Jr:
You've got B. good memory,
D:
Yes, I remember those things, when I promise
anything I do it.
H.M.Jr:
Yes.
D:
And if they couldn't be put on the permanent
role, why they would have to go.
H.M.Jr:
Well of course, they can't.
D:
How's that.
H.M.Jr:
of course, it's impossible to get them on the
permanent role unless they pass the examination.
D:
Well, isn't there any way the Civil Service
Commission - where men have demonstrated their
efficiency and their qualifications, they can
be given a special examination on the basis of
their qualification for the work.
Regraded Uclassified
240
-3-
H.M.Jr:
Unfortunately, that isn't the way the law
reads. I'm with you on it, - But would it
help you out any if we kept them on until
Congress adjourns.
D:
Oh yes, it'd help me out, of course, Just as
long as they be kept on, but I don't want to
be running two years on special favors.
It's only been about a month now I reckon -
since their last appointment, was it.
H.M.Jr:
But supposing I agree to keep them on until
Congress adjourns, will that help you -
D:
Oh well of course, but I don't want to ask you
to do that unless it suits you. It might
embarrass you somewhere else, you know. I'm
not asking anything - you've already been so
nice you know.
H.M.Jr:
I'll tell you what we'll do. We'll keep them
on - I didn't say until they passed the Court
Bill, I simply said until Congress adjourned.
D:
How's that.
H.M.Jr:
We'll keep them on until Congress adjourns.
D:
And you think there wouldn't be any way worked
out why they can't be put on permanently?
H.M.Jr:
Gosh, I'm :- I'm not smart enough.
D:
We ought to change that law, oughtn't we?
H.M.Jr:
Well, that's up to you gentlemen -
D:
Well, I know but now your experience and your
responsibility in adminstering the law. Well
you've got men that are efficient and qualified
and faithful in every way and diligent - and
have demonstrated they can do the work, but
what about putting some fellow Just according
to standard theoretically examination, it don't
look like good business to me.
H.M.Jr:
Of course it doesn't.
Regraded
Iclassified
241
-4-
D:
You wouldn't run your private business that
way.
H.M.Jr:
I wouldn't - I couldn't stay in business five
minutes.
D:
No, you couldn't or you wouldn't.
H.M.Jr:
No.
D:
Well, we'll talk about it some other time.
But I'll appreciate it - but - I don't want
to - I don't want to put you under any strain
about it anyway.
H.M.Jr:
No.
D:
You've been exceedingly nice about it anyway.
H.M.Jr:
No, there's nobody I'd rather do it for than you.
D:
Well, thank you so much.
H.M.Jr:
Thank you.
D:
Goodbye.
H.M.Jr:
Goodbye.
Regraded Uclassified
242
MEETING WITH BRAZILIANS
July 14, 1937
10:30 a.m.
Present:
Dr. Sousa Costa
Ambassador Aranha
Mr. Carneira
Mr. Lochhead
Mr. Riefler
Mr. White
Mr. Williams
Dr. Viner
Dr. Feis
Mr. Opper
H.M.Jr:
Now, what I'd like to do now, if it is agreeable to
you, is to concentrate on this until we can come to
a happy ending.
Costa:
Yes.
H.M.Jr:
I mean just to work on this steadily now. I'd like
to work with the Finance Minister on our mutual problem
now until we finish it. I mean I'd like to go right
through.
Carneira:
(Explains to Costa)
H.M.Jr:
If we can't finish it today - I understand from Dr.
Feis - he thought that Dr. Sousa Costa may go down
to Texas, but if he could I'd like to work today,
this evening if necessary, and tomorrow, and finish
this.
Carneira:
(Explains to Costa)
Costa:
All right. I think it would be best to wait until
the Ambassador comes, because that idea of Texas is
from the Ambassador.
H.M.Jr:
Well, let the Ambassador go to Texas.
Costa:
Yes, that's better.
H.M.Jr:
You see - I want to tell Dr. Sousa Costa we're so
pleased with the answers which he's given us to our
questions; we're very much pleased with the answers.
Uclassified
243
-2-
Carneira:
(Explains to Costa)
Costa:
I am happy.
H.M.Jr:
And if he will be a little patient with me, why,
I feel that by working on this steadily for two
days
Carneira:
(Explains)
H.M.Jr:
....we can come to a mutually agreeable understanding.
Carneira:
(Explains)
H.M.Jr:
But this is the first opportunity that I will have to
give this problem the time it deserves, you see.
Carneira:
(Explains)
H.M.Jr:
Dr. Kung has sailed and he's happy. So he's gone.
Dr. Kung, the Chinese Minister - he leaves today.
But he came a little bit before Dr. Sousa Costa, I
think, and so - but he's left now and he's gone away
happy, and I hope that Dr. Sousa Costa will also go
away happy.
Costa:
I hope so.
H.M.Jr:
And I wanted him to know that the war between China
and Japan - I had nothing to do with it.
(Hearty laughter)
H.M.Jr:
I think that that started - the war started there
first.
Costa:
I read in the newspapers the notes published about
the agreement with China - between China and the
United States.
H.a.Jr:
Well, that is really more or less of a continuation
of an agreement which we made with them over a year
ago, you see.
Carneira:
(Explains to Costa)
Costa:
Since 1936.
244
-3-
Lochhead:
May.
H.M.Jr:
May, 136. And it's worked out extremely well for
both China and ourselves. I don't know whether it's
by accident, but since that agreement we have become
China's best customer. We're the best customer she
has.
Costa:
And China must be B great market.
H.M.Jr:
But we buy from her; I think we're her best customer.
Costa:
Well, what does the United States buy from China?
H.M.Jr:
Harry, what do we buy from China?
Lochhead:
You've got different things like tung oil, raw silk;
then you've got these ores.
H.M.Jr:
Some special metals, this tung oil - a lot of little
things, but they together amount to a great deal, to
a great deal. It's a very nice business. And of
course, they buy 8 lot from us - automobiles and
automobile trucks, a lot of airplanes, railroad
equipment, locomotives.
(Ambassador Aranha comes in)
H.M.Jr:
Mr. Ambassador, what I suggested, if it is agreeable
to you gentlemen, is this. What I'd like to do - I
told the Minister that we feel that the questions we
have asked him - that we have received most satisfac-
tory answers. What I'd like to do, if it is agreeable
to you gentlemen, is to concentrate on this for the
next two days and do nothing else, so that we could
come to some satisfactory arrangement. Now, I'm free,
with the exception of a lunch appointment, just to
work right straight through on this, work tonight if
necessary. I mean I want to do it myself and just
concentrate on this for the next two or three days,
which is certainly - I think in two days we might
come to an agreement. But I'd like to, if you gen-
tlemen agree, just concentrate on this. It so happens
that at lunch today I have the Finance Minister of New
Zealand, but that's just something - I'll put all other
business aside and I'll Just concentrate on this, if
that is agreeable to you gentlemen, see?
245
-4-
Aranha:
We're entirely at your disposal; we'll fulfill the
program you set.
H.M.Jr:
All right, I want to - you see, not having sat in
on all of these - not having had e chance to, as
they say in school, do my homework, 1f you would
take a little pity on me and could - either you or
the Minister - maybe review just where are we now,
it would help me, be a kindness to me. Just where
are we at this moment, you see - if you could
Aranha:
You mean if - I can tell you this. We had this
last meeting with the technicians and we gave all
details and all these answers, and they promised to
study this memorandum that we gave, and we left them
with the hope that today we could settle something.
That's all we
H.M.Jr:
Well, they've got the answers, but
Aranha:
Yes.
H.M.Jr:
but it's more than that. I mean are we ready to
put down on a piece of paper
Aranha:
what your ideas are.
H.M.Jr:
Mutual
Aranha:
Mutual
H.M.Jr:
mutual ideas. Question of sale of gold - that's
what it amounts to, isn't it?
Aranha:
Yes.
H.M.Vr:
And under what terms and conditions? Aren't we up
to that point?
Aranha:
Yes, we are at just that point.
H.M.Jr:
Now, if I - as I understand it, first, the question
of over now long a period has not been discussed,
has it?
Aranha:
No - we just - it's an open question, the amount and
the period.
246
-5-
H.M.Jr:
Well, would you like to discuss the amount first
or the period first? Which would you
Aranha:
Oh, I think one is depending on the other; the one
completes the other.
H.M.Jr:
Well, have you or the Minister got anything in mind
as to the amount or the period?
(Ambassador and Costa confer in
Spanish)
Aranha:
The Minister says that the interest of his govern-
ment is just to have the longest period that could
be possible, and to reduce the amount but to have
the faculty to buy more if that is in our interest.
H.M.Jr:
Well now, let me just raise up some period, to have
something to discuss, you see. I want to explain;
you see, we have a policy here that we are on what
we call a 24-hour basis, which means that if any
country wants to sell gold to us, we reserve the right
in all of these agreements, the tripartite agreement
and all of them, that anybody can change on 24 hours'
notice. I mean I just want to give that as a back-
ground - because we are the only country in the world
that has 8 fixed price for gold.
Aranha:
Yes.
H.M.Jr:
Now, we don't want anybody to take advantage of us
because we have that, and use us as a springboard.
Therefore, we have always reserved the right to say
that anything that we do is subject to cancellation
on 24 hours' notice.
(Ambassador and Costa confer)
H.M.Jr:
I just wanted to give you that.
Aranha:
Yes, I am just explaining.
H.M.Jr:
Well, what we'd like to do - Dr. Feis has given me
some of this background - there was this thought,
that this would be helpful - now I'm just feeling
my way - that if we could say, first, as to the time,
we'll say, two or three years - I don't know how long
247
-6-
you want it - with the understanding that this
agreement could be broken off by either country
on 30 days' notice.
(Ambassador and Costa confer)
Feis:
After discussion.
H.M.Jr:
Well, whatever the - however the lawyers would have
to word it, I mean.
Aranha:
Yes.
H.M.Jr:
I mean each country, after discussing the matter, could
break off the agreement on 30 days' notice.
Aranhs:
Yes, that's correct.
H.M.Jr:
I mean I don't know whether you'd want it for one
year, two years, or three years. I'm just throwing
this out. I don't expect you to say "Yes" or "No."
Aranha:
Well, we would have to
H.m.Jr:
Think about it. That we would say during that period
we would agree to sell to you, as I understand it - do
I understand you have mentioned the amount 50 million
dollars worth of gold?
Costa:
It's 60 million.
H.M.Jr:
60 million.
...60 million dollars worth of gold at
whatever the legal price is in the United States on
that particular day.
Aranha:
Yes.
(Explains to Costa)
That's correct.
H.M.Jr:
Now, that protects us so that we can say to anybody
that we are not giving you a better agreement than
we are to England or France, but we're giving you
as good an agreement. As a matter of fact, we're
giving you a little bit better agreement, because -
you're getting something, I think, that is a little
bit better than anybody else has, if you
Aranha:
(Explains to Costa)
248
-7-
H.M.Jr:
Now, as I understand, if, let's say - during this
period, let's say, you buy one million dollars worth
of gold. As I understand it, you pay for that gold
and will leave it on earmark at the Federal Reserve
in New York, but the gold belongs to you and we can't
hold you to keeping it there forever, but the under-
standing is that you will try to keep it there.
Aranha:
Yes.
H.M.Jr:
But after ell, it's your property, so that if you
should during that period find it necessary to
transfer it, of course, it being your property, you
would have that right; but I understand that the idea
is that you are going to try to build up a gold fund
in the United States.
Aranha:
That's correct.
H.M.Jr:
And that is why we're going into this agreement.
Aranha:
(Confers with Costa)
Yes, it is exactly that.
H.M.Jr:
Now, I don't know - now I'm on ground I don't know,
because I've been told - has in this discussion been
raised the question of borrowing foreign exchange
against gold they have purchased?
White:
There is 2 statement there that if they wished to at
some time - if they need dollar exchange for certain
brief periods, they could borrow against gold left
here as collateral, at interest.
H.M.Jr:
That against the gold that you have bought and paid
for, if at any time you want to borrow against that -
arrangements which we have just made with the Chinese -
this is for you in confidence - are that if - again
using the figure of a million dollars - if you have
a million dollars worth of gold here, we would stand
ready at any time to lend you against this million
dollars worth of gold 8 million dollars, a full
million, for which we would charge you whatever the
rediscount rate of the Federal Reserve is, plus a
half of one percent. The rediscount rate now is
one and a half percent. We'd charge you whatever the
rediscount rate is of the Federal Reserve, plus one
half a percent. So at present it would come to one
243
-8-
and a half percent plus a half percent, or two
percent.
Aranha:
(Confers with Costa)
That's correct.
After the agreement with the Chinese, I am afraid
of these cigarettes - that they could have opium.
H.M.Jr:
I told Dr. Sousa Costa that our agreement had
nothing to do with the Japanese-Chinese war.
Aranha:
But I think it will have an effect on that.
H.M.Jr:
Well, I don't think it will hurt China.
Aranha:
No.
H.M.Jr:
Gentlemen, have I covered everything? Williams, is
that
Williams:
I think so, in general. There would follow then the
question of now much gold they are interested in.
H.M.Jr:
He said 60 million.
Williams:
And over what period.
H.M.Jr:
Well, we have said that
White:
Is that 60 million definitive or tentative?
H.M.Jr:
Well, this whole thing - without getting down to
details, have I covered the subject as you under-
stand it?
Williams:
Yes.
Feis:
Mr. Secretary, if I may say, I think that phase of
the subject - I think also the question of central
bank stock, which perhaps is a separate subject
H.M.Jr:
Will you hold that a minute? Now, wouldn't it be the
thing, Mr. Ambassador, if I would sort of - see, what
I'm trying to do is sort of feel my way in this.
Before we get on what Dr. Feis says, have I covered
all the points in a general way that Dr. Sousa Costa
250
-9-
has in mind?
Aranha:
(Confers with Costa)
Costa:
I think so, I understand this delay (period) of one,
two, or three days (years) is not an important point
of the matter, because you could give it larger
delay, no?
Aranha:
The Minister is saying that the period - when you
asked these gentlemen, they talked about the period,
and he was saying that the period we have to discuss,
because that depends on the amount and the way in which
you will buy, and that can be more or less; we will
want just certain - more or less a period, an exact
period, because during this period we will be compelled
by ourselves to buy all this gold.
H.M.Jp:
No, no, not in this.
Aranha:
But we will compel - we will compromise ourselves
for our ideas in Brazil, you know.
H.M.Jr:
Yes, but as I understand it, Mr. Ambassador, what
you are getting from us is the right to buy up to
60 million, but you don't have to buy it.
Aranha:
But we'll have to for ourselves, our needs. You're
right, but
Costa:
Three years is too short, in my opinion.
H.M.Jr:
How many?
Costa:
We can not do anything in three years.
H.M.Jr:
How many years would you think?
Aranha:
Well
H.M.Jr:
I don't want
Feis:
Mr. Secretary
H.M.Jr:
Just a second, Herbert, please. If we have covered
all the points, what I would suggest is that you people
take a couple of hours to think this thing over.
251
-10-
Aranha:
Yes.
H.M.Jr:
We can then meet again at three o'clock, you see.
Aranha:
And we will write that
H.M.Jr:
And we will have our people reduce what I have said
into writing. Then we can meet again at three o'clock
and we could again
Aranha:
Fix all details.
H.M.Jr:
talk it over. And then if we don't come to an
agreement again, we will keep this evening open.
Have you any social engagements?
Aranha:
Our idea was to go to Dallas tonight at ten o'clock,
but we will not.
H.M.Jr:
Well, if you could it would be E favor to me.
Aranha:
Yes. No, it's not a favor; we're interested.
H.m.Jr:
It would be a favor to me. "nd then if we are free -
let's say we don't - we see you again at three; then
we can work again this evening and then tomorrow
morning. And by withdrawing a couple hours, giving
you a chance in between and giving us a chance, why,
I think that this is going to be very easy. I mean
I'll keep tonight open if he has no date.
Aranha:
We want to know if you're going to Hawaii or to
Brazil; if you're going to Hawaii, we will go to
Dallas.
H.M.Jr:
No, I tell you, I told Mrs. Morgenthau about your
most kind offer and she wanted me to thank you and
say that
Aranha:
The next year.
H.M.Jr:
but we will consider it very carefully next year,
when we don't take the children, just when she and I
might go, maybe in the winter time. But I'd like to
very carefully think about it, you see.
And then if we could come back about three o'clock.
And our people can put it - you get it - then we'll
252
-11-
see how near we are together.
Costa:
You will see me - I'm in the "hancellory and I'll
come back here about three o'clock.
H.M.Jr:
You'll be back here.
We'll have a draft
Aranha:
Have a definite solution just this afternoon.
H.M.Jr:
We'll make a draft, but we'll have to leave the
number of years blank and that sort of thing.
Aranha:
Yes, that's what
Williams:
Don't you think it would be a good idea if we could
talk a while informally now before you make your
memorandum and we make ours?
Aranha:
Well - yes, we'll go over to your room.
H.M.Jr:
Now, if you don't mind, I say no - if you don't mind.
I dislike to lead these gentlemen, and I'd like to
be at all the meetings from now until tomorrow, and I
can't do it now myself. And so if you don't mind
I'd rather let - we'll have something, and 1f we have
it before three o'clock I'll send it up to the Embassy,
and if not, in any event we'll have it for you at
three o'clock. But I'd like to meet with you gentlemen
personally.
(Brazilians leave)
H.M.Jr:
Do you gentlemen want to sit down?
I hope you don't think I was rude, Williams.
Williams:
I thought I had a suggestion for simplifying
H.M.Jr:
I thought it might be best, if you don't mind, because
I don't see what else there is, and if - Feis agrees
with me we covered everything this morning except the
central bank. I think the thing to do is - where's
Opper? Oh.
Regraded Uclassified
253
-12-
Feis:
I have one point that I'd like to raise among our-
selves about period and amount. If you set an
amount and if you have your 30-day clause in it,
do you need a period? Is there any question of
policy involved? These people plainly want to go
back home; they want to set their own period before
their people as part of their business of creating a
central bank. They may, I think, probably go in for
five years or something of that sort.
Williams:
Yes, five years.
Feis:
That may be longer than you want to write - a five-
year agreement.
H.M.Jr:
With a 30-day cancellation, what do I care?
Viner:
There won't be any difficulties.
White:
Do you want to raise any question with respect to
amount, because I think the amount they suggest is
too small even according to their own figures.
H.M.Jr:
Listen, Harry, if I say so myself I thought I was
pretty good, seeing I hadn't read anything. Were you
through, Herbert?
Feis:
Yes.
H.M.Jr:
Now, can you gentlemen - 296 is where you fellows
hold court - go back there and try to put down what we
have said today and then
Viner:
Have it by noon.
Riefler:
Why not work out & tentative agreement?
H.M.Jr:
I wouldn't be ready at noon. I'll be ready about
2:30.
Lochhead:
Mr. Morgenthau, in connection with the question of a
possible loan on that, the thing - we'd set it up
on the same basis as a repurchase agreement.
H.M.Jr:
And if they bring up the fact President Roosevelt
said one-eighth of one percent, what the President
had in mind was the option to buy, which he is will-
ing to charge them one-eight of one percent. We're
254
-13-
not charging them anything; we're going him one
better.
White:
In other words, their statement misunderstood the
President.
H.M.Jr:
He had the idea that for the right to buy 50 million
he'd charge them one-eighth of one percent. We're
not going to charge them anything.
Williams:
If we - do you want us to put in five years?
H.M.Jr:
I'd make it X.
White:
X amount and X period.
Lochhead:
Right.
Williams:
Because they indicated as they were going through the
door that it was five years they're interested in.
H.M.Jr:
I'd let them come back with that. Right, Herbert?
Feis:
Yes.
H.M.Jr:
Could you be back here about 2:30?
Feis:
Yes, sir.
Opper:
Now, I was just - first of all, this would probably
be the Federal Reserve Bank as our fiscal agent; on
the other hand, we don't know who they're going to
work with on the other side; we'll have to leave that
blank, because they're talking about creating a cen-
tral bank but they haven't got one yet.
H.M.Jr:
May I answer that question? It is between the Treasury
of Brazil and the Treasury of the United States -
through them or whoever they designate. Like the
Belgian thing; make it like the Belgian thing.
Lochhead:
That's all right; we just wanted to get that set-up.
H.M.Jr:
Like the Belgian.
Viner:
Now, this legal price is the price less a quarter of
one percent, or plus a quarter of one percent.
255
-14-
White:
That's the legal price. It isn't the legal price
plus; the legal price includes the plus or minus.
Lochhead:
Opper has the phrases all worked out for that.
H.M.Jr:
Which Opper agrees is all right.
Shall we say definitely 2:30?
Williams: That's all right. Really very simple.
Regraded Uclassified
256
RE BRAZILIAN AGREEMENT
July 14, 1937
2:45 p.m.
Present:
Mr. Lochhead
Mr. White
Dr. Viner
Mr. Riefler
Mr. Williams
Dr. Feis
Mr. Opper
H.M.Jr:
Where is the piece of paper?
White:
We've got one that we made some last minute changes on.
H.M.Jr:
Good God, I'd like once to have a piece of paper that -
they just want to change two words, they say.
White:
This is the meat of it.
Viner:
None of them are ever any good until the last minute,
if then.
White:
This is the meat of it.
H.M.Jr:
Where's the gravy?
White:
It's coming - being warmed up.
H.M.Jr:
What's this?
Opper:
I understood this was the outline of the agreement.
H.M.Jr:
Did Oliphant talk, to you since I've seen him in the
last 15 minutes?
Opper:
Not the last 15 minutes.
H.M.Jr:
You better go out in Kieley's room and talk to him
on the phone.
(Opper goes out)
H.M.Jr:
Don't you think we ought to charge the Federal
Reserve something for the publicity we give them
and all the business we give them? I mean here we
use the rediscount rate and...
Uclassifie
257
-2-
Viner:
For occupying the time of their staff.
H.M.Jr:
Huh?
Viner:
We ought to charge them for giving their staff an
occupation.
H.M.Jr:
Useful occupation.
Williams:
That's a thought - a thought in that.
(Opper returns)
H.M.Jr:
Did you talk to him?
Opper:
Yes.
H.M.Jr:
(After reading draft) O.K. with me.
Feis:
A suggestion. If you're going to show them a copy
of this
H.M.Jr:
Yes.
Feis:
...you might consider this, that last phrase after
the comma in Number One - "the gold will become the
property of Brazil upon sale." I might raise a
slight smile
H.M.Jr:
It's unnecessary?
Feis:
Yes, unnecessary - and it might provoke thought.
Viner:
Of course the agreement will have to say that.
Lochhead:
The agreement will say a lot of things by the time
Mr. Opper gets through.
Feis:
"Undertake to sell it to Brazil." You sell it to
Brazil, it becomes Brazil's property.
White:
I think you're right.
Williams:
That's right; that could go off, I think.
Feis:
Unless you want to say "the dollars to become the
property of the United States and the gold to become
the property of the Brazilians."
Regraded Uclassified
258
-3-
H.M.Jr:
He's in a better humor this afternoon. I felt
sorry the way he went after you this morning for not
having done any homework.
Viner:
He was trying to get back at that lecture we gave
nim last week at catching us cold this way, not even
H.M.Jr:
Be had to wait a week to think up a good answer.
Viner:
It wasn't 8 good one.
H.M.Jr:
It's all right.
Lochhead:
Trouble is, they never should expect a professor to
do homework.
Feis:
Now, Number One begins by saying "The United States
undertakes to sell gold to Brazil a maximum amount
of $
over a maximum period of
years.' Then when you get to Three, you say "This
agreement is to continue for
years." Well,
that's the identical period, isn't it, as in Number
One, and I should think you could cut Three down to
"This agreement is subject to termination by either
party on 30 days' notice."
Viner:
This takes some of that in - 30 days.
Opper:
Not only that; if you want to take it out of any
place, you want to take it out of Number One. Number
Two has no such provision in it.
Riefler:
Eliminate it from Number One, I should think.
H.M.Jr:
Why couldn't you say this - "United States undertakes
to sell gold to Brazil maximum amount of $
over a period of X years subject to termination by
either party on 30 days' notice."
Opper:
Don't you want the same termination under Two, Mr.
Secretary?
Williams:
There's a little difference, though, about Two.
They might set it up in One for a period of years
and plan to use it for a longer period.
H.M.Jr:
I'm surprised you put the word agreement in there.
Viner:
I wondered about that.
259
-4-
Opper:
I think it is clearly an agreement, Mr. Secretary.
H.M.Jr:
Is it?
Is this all right?
Feis:
In substance, yes.
Williams:
I would rather see the reference to the years left
out of Three myself - "subject to termination
It is defined in One. And I doubt if you want to
define it in Two at this time.
Riefler:
If it is subject to cancellation in 30 days
Viner:
Well, are you - is somebody watching those?
H.M.Jr:
I'm watching them.
"This agreement is
"
Feis:
"....subject to termination "
H.M.Jr:
"...subject to termination " - "of any part"? -
can't say that. "This agreement is subject to
termination,
"
Feis:
If you say what is meant by that phrase - "in whole
or in part. IT But I don't think I'd
H.M.Jr:
No.
Feis:
"This agreement is subject to termination by either
party on 30 days' notice."
H.M.Jr:
(Handing revised draft to Miss Chauncey) Bring in
three or four copies please, Miss Chauncey.
Williams:
I don't think it's very good English the way it 1s.
"This agreement is subject to termination by either
party....."
H.M.Jr:
I'm going to tell them this is very rough and you
fellows had a very bum lunch.
Feis:
And we were translating from Portuguese.
Viner:
Of course, this is just the outline of the agreement.
It doesn't
Regraded
Uclassified
260
-5-
H.M.Jr:
Well now, if they agree to this, Mr. Opper, how
long do you want to do your legal work?
Opper:
Well
H.M.Jr:
When would you have something more than this?
Opper:
I think we can have something ready as far as we're
concerned here, depending on how long it takes to
check it around, by tomorrow afternoon.
H.M.Jr:
What? How long since you've worked all night?
Opper:
All night?
H.M.Jr:
Well, half a night. One o'clock in the morning.
Opper:
June 30th.
Viner:
1934?
Opper:
Well, I have a group of witnesses.
H.M.Jr:
June 30th. What's today? Well, it's just about time
you did it again.
Opper:
I was thinking of our checking it in New York.
H.M.Jr:
What?
Opper:
I was thinking about checking it in New York.
H.M.Jr:
Well, I want to get this baby fixed up.
Viner:
Also, if this is acceptable, we ought to start work-
ing immediately afterwards on the public statement,
and we have some things.
Feis:
There is a question - we have & joint statement under
consideration on other matters; now, whether we want
to get out two joint statements or one joint statement
is something we might talk about. And then whether
you'd want it - if you want to get out two, which I
imagine might be best, whether we couldn't arrange to
get them out simultaneously.
261
-6-
H.M.Jr:
That's all right. But, if you remember, up to now
we have kept our financial and trade agreements
separate, and I would lean towards the Treasury
getting out its own statement, if it is entirely
agreeable; and it could get out the statement at the
same time as the State Department
Feis:
Might get them out late in the evening for use in
the morning newspapers.
H.M.Jr:
quite all right. But how long will it be before
you people are ready?
Feis:
I'll be disappointed if we are not ready by tomorrow
night, and seriously disappointed if we shouldn't be
ready by Friday night.
H.M.Jr:
That means you'll be ready Monday. Jake Viner just
can't stick around here that long.
Viner:
waiting for the State Department? I should say not.
Feis:
They've got our text, which they're revising; it
depends on them.
H.M.Jr:
I'd like - now mind you, I'm willing to be overruled,
but I'd much, much prefer to have a separate Treasury
statement.
Feis:
Oh sure, all right.
H.M.Jr:
But more than pleased to do it the same time as the
State Department. How's that?
Feis:
Swell.
Williams:
I think we better put - this Number Two has a funny
sound. Couldn't you say "For purposes of exchange
stabilization the United States agrees to furnish
upon request up to a maximum
"? There's such a
break between "furnish" and what you furnish. I
read it over two or three times to see what it meant.
Viner:
Well, remember, this is just so that they can have
something a little more specific as a basis of talking.
It is not - I don't think it matters much.
262
-7-
H.M.Jr:
Well, would you have a statement as to policy ready
for tonight?
White:
I think SO.
Viner:
We could have it from our side.
H.M.Jr:
I mean show them.
Viner:
Show them.
H.M.Jr:
To show them.
Feis:
Another point you should consider - do you want to
put in a sentence here saying that we are extending
our facilities for earmarking purposes in
White:
Well, they have that already. They have that.
Lochhead:
We extend that to any foreign government or central
bank - government or division.
H.M.Jr:
Over 30 central banks have got that now.
Viner:
I think one thing, too, to tell them is that the
facilities of the Treasury, Federal Reserve Bank in
New York, Federal Reserve Board - technical facilities,
whatever, they may be, are available to them
H.M.Jr:
No charge.
Viner:
...with respect to the central bank business.
H.M.Jr:
You mean we are offering them Williams' services
free.
Viner:
Yes, but we oughtn't to specify because we want to
make it sound big.
Williams:
You better keep that part dark.
Viner:
But you want to protect their sensibilities there,
so we'll shade it - "if you wish - such use as you
wish to make of our technical facilities."
H.M.Jr:
Well, I thought we'd let that go to the last minute,
because we want to hold out the best until the last.
Regraded Uclassifie
263
-8-
That sounds like quite a mouthful - you offer them
all the technical facilities of the Federal Reserve
System.
Harry, have you talked to Marriner Eccles?
White:
I did speak to him. He had been tied up last night
and this morning for very excellent reasons. He was
up on the Hill this morning and last night.
H.M.Jr:
Discussing our sterilization program.
Viner:
What program?
H.M.Jr:
Sterilization.
White:
Steagall called him.
Lochhead:
And inflation.
White:
He promised to call back this afternoon as soon as
he had gone over it.
H.M.Jr:
I know Steagall has had nothing to do, so I guess
he got Eccles up there.
White:
But that Swiss letter - we changed it, added something
to it; so there's nothing else to do if you want to
look at that.
Viner:
It's a good letter now.
H.M.Jr:
Have you people read about the latest Swiss move,
what they're asking?
White:
Yes, it's included in this letter.
Viner:
"e've taken care of it in the letter.
H.M.Jr:
No! You read what Cochran said, but not what the
State Department says.
Viner:
Well, Cochran sends his things here in time to be read.
(Miss Chauncey brings in new draft,
copies of which are distributed)
264
-9-
Feis:
What time are they due here?
H.M.Jr:
Three.
Viner:
Just received all that Canadian tuff, if you want it.
H.M.Jr:
Don't you jinx me, now. The President, as a matter
of fact, ordered me to proceed into the Pacific to
be near the scene of warfare so in the absence of
Dr. Kung, he said, I could become Acting Minister
of Finance of China, so I came back and said, due
to the illness of General Chiang Kai-shek, did Mr.
Roosevelt want to take his place?
(Messrs. Costa, Aranha, and
Carneira arrive; rest of transcript
written up separately)
265
MEETING WITH BRAZILIANS
July 14, 1937
3:00 p.m.
Present:
Dr. Arthur de Sousa Costa
Ambassador Aranha
Mr. Carneira
Mr. Lochhead
Mr. White
Dr. Viner
Mr. Riefler
Mr. Williams
Dr. Feis
Mr. Opper
H.M.Jr:
My experts are not very good this afternoon. They
all had too much lunch.
Aranha:
Yes.
H.M.Jr:
And so we all tried to write something out and it's -
I think it expresses the idea but it may not be very
good English.
(Brazilians read outline of agreement)
H.M.Jr:
That isn't 10 years, that's an X; it isn't a 10.
Aranha:
It's too big to be.
Costa:
I think half X is sufficient. But what do you under-
stand by this expression "to be paid on request"?
At the end of the second
H.M.Jr:
I see what you mean.
White:
It's a demand loan.
Lochhead:
You don't want to put any termination on that; it's
a demand loan, to be terminated on request.
H.M.Jr:
Mr. Lochhead says it will be the same as a demand loan.
Lochhead:
Just keeps running until we decide to terminate it.
You don't fix - no fixed period as a general thing -
those loans don't run for a fixed period.
H.M.Jr:
Put if that isn't agreeable, it can read to run for
a fixed period.
Carneira:
(Explains to Costa)
Regraded
266
-2-
M.M.Jr:
We can change that.
Costa:
It's all right.
H.M.Jr:
This has been done very quickly, just to have something.
I mean the idea is that we will have to have something,
some way of terminating it. Now, you could say for a
definite period, or for a fixed period, or something.
Feis:
would I be wrong in thinking that the period would
naturally be fixed at the occasion of the transaction?
Lochhead:
I doubt it very much. If they needed exchange under
this, it would probably be for some emergency that
came up. It might be three or four days; they might
want to pay it off. Might run for several months.
But they wouldn t - it would keep going until
They get the money right away; they can pay it off
any time they want. And we have to have some way so
we can terminate it some time.
(Brazilians confer at length)
-
H.M.Jr:
This has been done in a hurry, and after you're
through I have all day and up to tonight. I have the
rest of the day and the evening free. I have plenty
of time.
Costa:
That's fine; I have nothing to
Carneira:
Mr. Secretary, may I ask your Excellency what is
the normal period for such
Lochhead:
No such thing as a normal period.
H.M.Jr:
The only time we had anything like that was with
China and Mexico; sometime they might want it for
three days; you might want it for three months.
Viner:
As a demand loan.
H.M.Jr:
As we understand it, it is for foreign exchange
purposes.
Carneira:
Not a fixed period.
Regraded Uclassified
267
-3-
H.M.Jr:
You might have B raid on your exchange over a, say,
the first of January, over the New Year, if that's
the time, or the first of July - I don't know when
your period - and for three days you might need
dollar exchange to tide you over the first of
January. Or you might need it for three months.
The only time we have ever had such arrangements
is with Mexico and with China, and we're working it
out the same way. We don't know, it might be....
Carneira:
The circumstances, yes.
H.M.Jr:
You might just need it over the first of January
on settlement; you might need it for a week.
Williams:
Would they like it better if it were "repayable on
demand"? Is it the matter of words? That would make
it read more like a demand loan.
H.M.Jr:
We have plenty of time.
Viner:
Archie, didn't we once have an arrangement of that
sort for copper dealings with France?
Lochhead:
(Nods no)
Viner:
What was it?
(Lochhead explains to Viner privately)
Feis:
(Jokingly) If the Treasury doesn't want to do it,
bring the gold around to me and I'll loan it.
Aranha:
We have only 'one doubt here, this "to be repaid on
request." That makes us depending on this request.
H.M.Jr:
Well, how else would you say it?
Aranha:
Which is something that would trouble our people.
H.M.Jr:
How would you like to have it?
Aranha:
Oh, that's a question - "to be repaid on understanding"
or "at the time of the end of the obligation."
H.M.Jr:
Clarence, can you say something - "terms to be arranged
at the time"?
268
-4-
Opper:
That can be done very easily.
H.M.Jr:
Would that satisfy you legally?
Opper:
Oh yes.
H.M.Jr:
"Terms to be arranged at the time.'
Opper:
"....time of repayment to be arranged
"
H.M.Jr:
"
time of repayment to be arranged
"
Opper:
11
to be mutually agreed to at the time of the
"
H.M.Jp:
Yes.
Opper:
That can be done.
H.M.Jr:
Write it out and let me see how it looks. "Time of
repayment to be arranged when transaction takes place" -
something like that.
(Opper hands sentence to Secretary)
H.M.Jr:
"Time of repayment to be mutually agreed upon at
the time the dollars are furnished." Well, that -
can't you improve on that?
Opper:
Of course, that isn't the language we'll put in the
agreement.
H.M.Jr:
(Handing to Brazilians) This is what Mr. Opper
wrote; this is the spirit, but not - but not - I
think we'll want to change it.
Aranha:
"Time of repayment to be mutually "
H.M.Jr:
It's not very good.
Aranha:
Yes, that's all right.
H.M.Jr:
Yes, but he'll want to make it....
Costa:
there is a limit for these operations, a legal limit?
H.M.Jr:
Have we any legal limit?
269
-5-
Opper:
No, there would be no time limit required by law.
Aranha:
It's all right. And now we have only to discuss the
amount, and the Minister said 60 million dollars.
Costa:
Well, but you must understand before if these dollars
are gold or not. I think by the - how it is written
that it is gold, a maximum amount of dollars gold.
H.M.Jr:
Gold dollars, yes.
Costa:
And so not so much. When I spoke about 60 million
dollars, I meant 60 million paper dollars.
Williams:
It is covered in the first line, - "sell gold."
Aranha:
60 million dollars now - we'll invest now, buying
gold, and we will have in gold just the conversion
of the 60 million dollars paper in buying gold.
Viner:
You will have 60 million dollars.
Aranha:
60 million dollars gold would be too much.
H.M.Jr:
How much does the Minister
Costa:
what is now the paper
Feis:
That now means what you mean. You've been a little
bit thrown off just by a chance juxtaposition of
words - you know what I mean - but the meaning of
One is the meaning that the Minister has in mind.
Costa:
Yes?
Feis:
Yes.
Aranha:
"The United States undertakes to sell gold to Brazil
to a maximum amount of $60,000,000."
Costa:
Paper dollars.
Feis:
Present dollars.
Aranha:
Present dollars. "...over a maximum period of five
years, as and when requested by Brazil
Costa:
That's all right.
Regraded Uclassified
270
-6-
Aranha:
"....the gold to be paid for in dollars at the
time of sale at the mint selling price prevailing
at that time."
Feis:
When you get the actual phraseology
Aranha:
At the rate now, how much gold will produce 60
million dollars?
White:
$35 an ounce, plus one-quarter.
H.M.Jr:
You mean how many ounces? You want it in ounces?
Aranha:
Yes.
Costa:
Not dollars; we want how many gold dollars.
White:
It's the same thing. It's identical, not more or
less.
H.M.Jr:
Exactly the same. We have only one kind of dollar.
Feis:
By the expression "gold dollar" they mean the
previous
Viner:
They mean the old gold dollar.
White:
That's out.
H.M.Jr:
But, Mr. Ambassador, in talking here it is always
one kind of dollar, 35 ounces of gold to the dollar.
We don't - we only talk - if you say 60 million
dollars, it's 60 million dollars, and whether it's
figuring the dollar at 35 ounces - $35 to the ounce -
we only have one kind of dollar now. We don't talk
of the present dollar and the original dollar. Legally
we only have one kind of dollar.
Aranha:
But you reduced the value of the dollar 40 percent.
H.M.Jr:
That's right. But when you're talking about 60
million, you're talking about 60 million of our paper
dollars, and we're talking the same thing.
Aranha:
That's correct.
Regraded Uclassified
271
-7-
H.M.Jr:
Well then, we'd loan 8 maximum - we loan up to
60 million, don't we?
Viner:
No, it depends on, I should say, what they would
like, because they might acquire gold otherwise
than by this procedure, and there is no reason we
shouldn't lend them for a larger smount of gold.
Do you see? We would here agree to contract to sell
them gold up to 60 million dollars, but they might
acquire gold from other sources for another, say,
40 million dollars. There is no reason why we
shouldn't lend them for a larger amount of gold
than that which they had purchased from us.
H.M.Jr:
I would want & subsequent agreement on that. I
think this agreement should simply cover that we'll
lend them up to the maximum amount that they have
here.
Viner:
Yes, that would be here too.
H.M.Jr:
We'd have to - if they decide - if it comes to the
period
Jake, if it comes to the period that
they have more gold here, we can give them
Viner:
Supplementary agreement.
H.M.Jr:
....a supplementary agreement, because I don't want
it to read for the American public as though we were
willing to loan them - they were going to buy 60
million dollars and we were going to loan them a
hundred million. This makes sense. If they deposit
more gold here, we'll give them a supplementary
agreement.
I mean that's all you can ask for or expect - is that
we would simply loan you one dollar for every dollar
of gold. If what Dr. Viner was saying - you should
decide later, after you bought 60 million, that you
wished to deposit more gold here that you may have
acquired in England or somewhere else, and wished to
have the right to borrow beyond the 60 million because
you have more gold here, why, we'd just give you an
edditional agreement later on. That would be easier.
Aranha:
This is a beginning.
H.M.Jr:
This is a beginning.
272
-8-
Aranha:
Yes, the first step. Afterwards we can do much
more.
H.M.Jr:
The three of us will still be here for a few years.
Aranha:
Yes.
H.M.Jr:
We'll still be here for a couple more years.
Now, is that all right?
Costa:
(Nods yes)
H.M.Jr:
Looks all right.
Aranha:
All right, absolutely all right.
H.M.Jr:
Now, what we'd like to do is to put this now in the
legal language.
Aranha:
All right.
H.M.Jr:
And that - they ought to have something tomorrow
morning - the legal agreement, you see, that you can
sign and I can sign.
Costa:
Yes, yes.
H.M.Jr:
And then in the meantime what we'd like to work on,
with your help, is a communique that we could give
out.
Aranha:
(Explains to Costa)
That's all right.
H.M.Jr:
Now, as I - the matter which we haven't mentioned yet.
is this question of your central bank, and I wanted
to say that in behalf of the Government we are ready
to lend you any experts that we may have in the
Federal Reserve or in the Treasury to assist you -
to go to Brazil to be of any assistance that you may
want.
Aranha:
(Explains to Costa)
Costa:
I thank you so much.
H.M.Jr:
Now, do you gentlemen think you could have something
by this evening in the way of a communique?
273
-9-
(Treasury people nod yes)
Aranha:
We can write it just now - very easy.
H.M.Jr:
These people don't work quite so quickly as that.
You see, they 're all professors, and it takes them -
it takes them a little time, and they have a lot of
fun out of it, you see, and if I wouldn't let them
go into a room and have some fun arguing, why, they'd
stop working for me, you see.
You see, even Dr. Feis enjoys that, because he likes
to get in an argument with people.
Aranha:
Dr. Feis is from the other side.
H.M.Jr:
No, he enjoys coming here and we enjoy having him.
But I don't - I don't think it would go quite so
quickly.
Aranha:
I have one doubt here - "The United States agrees
to furnish upon request
H.M.Jr:
60 million.
Aranha:
60 million. Thank you.
Feis:
I suppose when that is drafted it would read some-
thing like this: "The United States furnishes at
such times and in such amounts as the Brazilian
Government may request up to a maximum of $60,000,000."
I mean that's the way, when we got to actual drafting,
it would read, which would be much clearer than this -
the actual draft.
H.M.Jr:
Would it be agreeable to you gentlemen to come back
at 9 o'clock tonight?
Costa:
Yes.
Aranha:
Yes.
H.M.Jr:
Here?
Costa:
All right.
Regraded Uclassified
274
-10-
H.M.Jr:
And then we'll have something. Do you want to
say about the question of timing - do you want
to talk about that?
Feis:
No, I should think if it's convenient, if we're
going to have a statement to give out at the State
Department and a statement to give out here - if
it 1s convenient, you might give them out at the
same time, but it is not essential.
Aranha:
I just want - now, in our statement, which is more
or less - it is too long.
Feis:
Well, Mr. Hull thought it was too long too, as I
told him.
Aranha:
You know that it's just - we have to transmit to
Brazil and all, and when it's too long - it's too
far, Brazil, and they can misunderstand the thing.
Costa:
This statement is perhaps the most important statement
we have ever made.
H.M.Jr:
Well, would you prepare one too?
Costa:
No, no, I'd like for you to prepare it.
Aranha:
We are all - we're sure that it will improve the
monetary conditions, the same as with the Chinese.
H.M.Jr:
That's why I wanted
Aranha:
One word from you and it's a great help for us.
H.M.Jr:
But - I mean if you have it tonight, then you can
take it back, you see, look at it, work on 1t, you
see, and that's - I want to push so that we can do
it well. You understand?
Aranha:
Yes, I know.
H.M.Jr:
I hate to ask him to give up his trip to Texas.
Aranha:
But we are here; we will go tomorrow night.
H.M.Jr:
We will be through - be finished.
Regraded Uclassified
275
-11-
Costa:
Yes, I like it better.
H.M.Jr:
We'll do it at 9 o'clock. We'll take our time, then
look at it again tomorrow morning.
Aranha:
Yes.
J.M.Jr:
"nd by tomorrow afternoon we ought to be ready to
give it out.
Aranha:
I think maybe we could have something like that
Chinese - a statement like the Chinese will be very
good.
H.M.Jr:
Something like that.
Aranha:
That's correct.
Well, goodbye and thank you, Mr. Morgenthau.
H.M.Jr:
We'll keep at it until we get through.
(Brazilians leave)
H.M.Jr:
Now, do you gentlemen want to go down to 296?
(Gaston comes in)
H.M.Jr:
Herbert, they want to draft a Brazilian communique,
see?
Gaston:
There's a bunch of newspapermen out here. I told
them you're still conferring.
H.M.Jr:
Is there quite a bunch? Say that we're conferring
and we meet again tonight and tomorrow, and we
hope for something by Thursday or Friday.
Uclassified
276
time of repay ment to be hurtually
agreed upon at the time the dollars are
furnished.
Regraded Uclassified
277
1. The United States undertakes to sell gold to
Brasil w a 5 maximum amount of 8 60,millim a maximum
period of years, as and when requested by Brasil, the
gold to be paid for in dollars at the time of sale at the
sint selling price prevailing at that time.
2. The United States agrees to furnish upon request
for exchange stabilization purposes up to a maximum of
$ 60.mil against gold, at rate of interest 1/2 percent
above the rediscount rate of the Federal Reserve Bank of
New York, to be repaid on request.
3. This agreement is subject to termination by either
party on 30 days' notice.
Regraded Uclassifi
278
July 14, 1937.
3:39 p.m.
H.M.Jr:
Hello.
Mr. Constantine
Oumansky.
Hello, How's our Mr. Secretary.
H.M.Jr:
How are you?Mr. Oumansky.
0:
Yes.
H.M.Jr:
I want to ask you to do me a little favor.
0:
Yes, please do.
H.M.Jr:
I am going to need the services tonight of
Dr. Feis, on this Brazilian matter we are
working on.
0:
Yes.
H.M.Jr:
And I wondered if he could be excused and then
if you would like it, why when we get through
here, Mr. Feis and I would be delighted to
drop in and have coffee with you.
0:
That's very good, I regret that you - that it
can't be earlier, but to make a bargain
Mr. Secretary, I accept that - in the case
that you and Dr. Feis will come out for dinner.
H.M.Jr:
Yes.
O:
That's fine.
H.M.Jr:
That's a bargain.
0:
Yes.
H.M.Jr:
Well, then we are meeting here at nine o'clock
and I imagine by ten we'll be through and if
you'd like us to, we'd be glad to drop in and
have -
O:
You'll be most welcome.
H.M.Jr:
It's not a big affair, 18 1t?
O:
No, it's a very informal - well, it will be
Army people, Navy people - some explorer -
you see my guest of honor today 1s the man
responsible for all this flying.
Regraded Iclassified
279
-2-
H.M.Jr:
I see.
0;
Among other things.
H.M.Jr:
I see.
0:
He is the
director of it.
H.M.Jr:
I see.
0:
So that there will be Army people, Assistant
Secretary
, a few Senators and
Congressman - I think you will enjoy it here
and I am looking forward to the pleasure of
seeing you here.
H.M.Jr:
Well, we'd be delighted to drop in around
ten or a little after. - And Dr. Feis is
here and he wants me to say to you personally
he is 80 sorry he can't come.
0:
I see,
H.M.Jr:
But I - I have demanded his services.
0:
Yes.
H.M.Jr:
So, if you don't mind.
0:
All right, thank you Mr. Secretary.
H.M.Jr:
Thank you.
Regraded Uclassified
280
July 14, 1937.
4:19 p.m.
Mr. M.
Eccles:
Good afternoon, are you all tied up?
H.M.Jr:
I'm tired out, but I'm not tied up.
E:
Tired out?
H.M.Jr:
But if it's something I don't have to argue -
E:
No, I won't argue.
H.M.Jr:
I mean - you've got me down.
E:
No, I don't - I won't argue. I Just wanted -
I was up on the Hill this morning and I've
got to go up again in the morning, on one
matter.
H.M.Jr:
Are you coming right over?
E:
Yes.
H.M.Jr:
Right away.
E:
I'll come right now.
H.M.Jr:
All right.
Regraded Uclassified
281
RE BRAZILIAN AGREEMENT
July 14, 1937
8:30 p.m.
Present:
Mr. Lochhead
(At 9:15 - see page 17 -:
Mr. Gaston
Dr. Arthur de Sousa Costa
Mr. Riefler
Ambassador Aranha
Mr. Opper
Mr. Carneira )
Dr. Viner
Mr. Williams
Mr. White
Miss Chauncey
Dr. Feis
H.M.Jr:
Now, have you got something for me? One more word.
changed now?
Lochhead:
Oh yes, a whole lot.
H.M.Jr:
Come on, come on, Clarence.
White:
This is a suggested - this is the draft that we had.
H.M.Jr:
And it isn't agreed on yet?
White:
I'm sorry I haven't the original.
Viner:
It isn't agreed on yet. You haven't attached your
signature - your 0.4. yet, and it won't come out the
same.
White:
And this is a version that Herbert Gaston just pre-
pared.
Gaston:
After leaving those gentlemen, I wasn't entirely
satisfied with the latter half of that, and I
undertook a rewrite of it. That's just the latter
half, it isn't complete.
H.M.Jr:
Now, where does it start? Tell me when to S tart
reading.
Lochhead:
Why don't you read the first one all the way through?
Gaston:
The first one is complete, and then you pick up from
this point on - you pick up there.
H.M.Jr:
"The following joint statement is made by the
Secretary of the Treasury and the Minister of Finance
of Brazil:
Regraded-Uclassified
282
-2-
"The Secretary of the Treasury of the United
States of America and the Minister of Finance
of the United States of Brazil, representing
their respective governments, have entered into
an agreement under which:
"1. The United States undertakes to sell gold
to Brazil, as and when requested by the Brazilian
Government, to a maximum amount of $60,000,000."
That's the
White:
We didn't want to put any sum. They did.
H.M.Jr:
No - "The United States undertakes to sell gold to
Brazil as and when requested
11
-
"requested"?
Riefler:
(Nods yes)
H.M.Jr:
That's a funny - "as and when requested" - that
word "requested" is what I stumble over.
White:
Well, otherwise we either put a time limit in there
Viner:
The word "requested"
H.M.Jr:
No, it's just the word "requested" - "The United
States undertakes to sell gold to Brazil" - I don't
like the word "requested."
Williams:
You might say "at such times as Brazil may request";
give it a different meaning.
Viner:
"....at such times and in such amounts as the Brazilian
Government requests, but to a maximum amount of
$60,000,000."
H.M.Jr:
That's all right, but just that sentence
What did
you say? at such "
Viner:
If
times and in such amounts n
H.M.Jr:
"time" or "times"?
Viner:
".....times and in such amounts IT
H.M.Jr:
"....at such times and
"
Regraded Uclassified
283
-3-
Viner:
".....as the Brazilian Government may request...."
H.M.Jr:
"....and in such amounts...."
Viner:
"...as the Brazilian Government may request..."
H.M.Jr:
Yes.
Viner:
"....to a maximum total amount - a maximum aggregate
amount of $60,000,000."
H.M.Jr:
Is somebody keeping writing this besides me?
Chauncey:
I am.
White:
"...maximum of," I think, is sufficient.
Riefler:
Why not "to an aggregate amount of"? Leave out the
"maximum."
H.M.Jr:
".....may request, to an aggregate amount of
11
White:
That's all right.
H.M.Jr:
"...to an aggregate amount of $60,000,000."
White:
Would you say "up to"?
Williams:
"....up to the maximum...."
H.M.Jr:
"....up to $60,000,000."
White:
That's the simplest way.
H.M.Jr:
"....may request, up to $60,000,000."
Gaston:
That's indefinite; that might indicate they might
buy 60 million at a time. "....up to a total of
$60,000,000."
H.M.Jr:
What?
Gaston:
"....up to a total of $60,000,000."
H.M.Jr:
O.K.
Riefler:
That's good.
284
-4-
H.M.Jr:
"....up to a total of $60,000,000."
"2. The United States will make dollar exchange
available to the Government of Brazil or its
fiscal agent, under conditions which safeguard
the interests of both countries, for the purpose
of promoting exchange equilibrium."
Williams:
The Brazilians are very keen on that last phrase.
Viner:
They are keen against any substitute we can think of.
H.M.Jr:
Well - "under conditions which safeguard the interests
of both countries" - that's the thing I raise.
White:
That's the phrase we used in the Chinese agreements
twice.
H.M.Jr:
O.K.
"This agreement is designed to facilitate the estab-
lishment by the United States of Brazil of a Central
Reserve Bank...." - that's the bunk.
Viner:
No more so than the rest of it.
Williams:
That's their suggestion.
White:
They are very eager to have that.
Gaston:
I don't like the idea of making the primary object
of the agreement a Central Reserve Bank in Brazil.
I think there ought to be some g eneral tatement
affecting both countries, such as I had in my
revision.
H.M.Jr:
I think that's the bunk. I wouldn't sign that.
Viner:
What did I tell you.
H.M.Jr:
Listen, I'm like you; I've got to live up to your
(Viner) expectations.
(Reading Gaston's suggested substitute)
"The agreement is designed to promote the develop-
ment of conditions favorable to the maintenance of
Uclassified
285
-5-
monetary equilibrium between the two countries,
and particularly to facilitate the establishment
by the United States of Brazil of a central reserve
bank as a part of the program of the Brazilian
Government for improving the financial structure
of the nation to meet the needs of its expanding
economy."
White:
That's a non-secular
H.M.Jr:
That's a which?
White:
I don't think the second part followed from the
first.
"illiams:
Say "and also.'
white:
That will do it.
Viner:
How would this change be: "This agreement is
designed, by facilitating the establishment by the
United States of Brazil of 8 central reserve bank,
to promote the development of conditions favorable
to the maintenance of monetary equilibrium between
the two countries."
Gaston:
That puts the whole thing on the central reserve
bank.
White:
This is in deference to their wishes.
H.M.Jr:
But I'm giving it out.
Williams:
Joint.
H.M.Jr:
May I read this through once, to get the sense?
Thank yout
"To further this program the Government of the
United States of America has undertaken to supply
such technical assistance and advice as the Govern-
ment of Brazil may request.
"Both the Secretary of the Treasury and the Minister
of Finance are pleased to have had this opportunity
to extend the field of cooperation between their
countries and both express their gratification that
improvement in the Brazilian economy in the last few
286
-6-
years enables the Government of Brazil to undertake
with confidence the financial measures it has in
view."
That sounds pretty good to me.
"The agreement is designed to promote the develop-
ment of conditions favorable to the maintenance
of monetary equilibrium between the two countries,
and particularly to facilitate the establishment
by the United States of Brazil of a central reserve
bank as a part of the program of the Brazilian
Government for improving the financial structure
of the nation to meet the needs of its expending
economy.
"To further this program the Government
If
(Feis comes in)
Well, we released the statement.
"To further this program
FY
Feis:
Good evening.
H.M.Jr:
What the well-dressed man will wear when he goes to
the Soviet Embassy!
"To further this program the Government of the
United States of America has undertaken to supply
such technical assistance and advice as the
Government of Brazil may request.
"Both the Secretary of the Treasury and the Minister
of Finance are pleased to have had this opportunity
to extend the field of cooperation between their
countries and both express their gratification that
improvement in the Brazilian economy in the last few
years enables the Government of Brazil to undertake
with confidence the financial measures it has in
view."
(Miss Chauncey and reporter leave to
rewrite statement, and return)
Opper:
(Suggests substitution of "are entering" for
"have entered" in second paragraph - suggestion
accepted)
Uclassified
287
-7-
H.M.Jr:
Gentlemen, on this word here, top of page 2 -
please, may I have your attention. "The agreement
is designed to promote the development of conditions
favorable to the maintenance of monetary equilibrium
between the two countries, and to facilitate the
establishment
TT
- just "and to."
Gaston:
That makes them two separate objects, whereas we
want to tie
Viner:
"....and, with this end
"
Gaston:
11
and with this end
ff
H.M.Jr:
"
and with this end
"
White:
They definitely objected to that.
Feis:
11
to this end" is all right in the United States
but not in Brazil.
H.M.Jr:
Why not say "to facilitate"?
White:
"
and also
" - either "and also" or "to
"
Williams:
"
particularly" I think is not bad.
H.M.Jr:
You know the reason he's given. Our only legal
justification for this is the Stabilization Fund,
and Opper doesn't feel that he can justify it
legally.
Gaston:
I maintain that word "particularly" does definitely
hang it on to the maintenance of monetary equilibrium.
Opper:
"
to that end" would take care of it.
Gaston:
If
to that end..."
Opper:
I don't understand the opposition to it.
H.M.Jr:
Anything else?
Opper:
That's all.
Williams:
How about "to this end"? Have you rejected that?
Regraded Uclassified
288
-8-
Viner:
I'd try it out.
Williams:
Why would they object? I don't understand.
H.M.Jr:
(To Kieley) Would you tell them would they mind
waiting for a few minutes? I'm not quite ready.
Williams:
I should think they would welcome it.
H.M.Jr:
Have you tried it? Has somebody tried it - "and to
this end"?
Viner:
I'd try it. They can strike it out.
H.M.Jr:
Do you object to it, Herbert?
Gaston:
No, I want it.
H.M.J.:
O.K. - "and to this end."
"hite:
Now, the last five words of that paragraph.
H.M.Jr:
Yes.
Feis:
I may point out that if you use "and to this end,"
besides the fact that it seems to subordinate the
bank to the object - the purpose of the monetary
stability, you've got a long clause in there in which
you explain this action beginning in one way by the
phrase "and to this end" and you explain it at the
end in another way; you're giving two explanations
of the same action in the same clause.
H.M.Jr:
Well, Herbert (Gaston) wouldn't be satisfied if it
just read "and to facilitate."
White:
Those last five words I'd like to see cut out, because
it isn't true.
H.M.Jr:
"....Brazilian Government for improving the financial
structure of the nation to meet the needs of its
expanding economy."
White:
They needed this central reserve bank and they would
need it if it didn't expand.
H.M.Jr:
Who put it in?
289
-9-
Gaston:
I put it in.
H.M.Jr:
I don't see - what's the matter?
Feis:
Little harmless advertising.
Gaston:
That's what I thought - putting a good face on it
for Brazil.
H.M.Jr:
That's all right; I like it.
White:
O.K.
H.M.Jr:
You say it isn't true that they need it for their
expanding
White:
They need it in any case.
Viner:
What they need is to balance their budget.
Gaston:
They need it even more, as Archie says.
H.M.Jr:
Now, may I read it once.
"The following joint statement is made by the
Secretary of the Treasury and the Minister of Finance
of Brazil:
"The Secretary of the Treasury of the United States
of America and the Minister of Finance of the United
States of Brazil, representing their respective
governments, are entering into an agreement
11
I have never said that in any - about "representing
their respective governments" and - but I'm perfectly
willing. Who put that in?
Riefler:
I guess I did.
Gaston:
That was in the outline of the agreement on the basis
of which we wrote this.
H.M.Jr.
It wasn't in the Chinese.
White:
No.
H.M.Jr:
Herbert, do you think it should be in?
Regraded Uclassified
230
-10-
Feis:
I think it's a matter of indifference.
H.M.Jr:
Or is it a matter of importance?
White:
Somebody mentioned the fact that this was an
outgrowth of a conversation between Presidents,
and so on.
Riefler:
Well, I think the only point would be that with
respect to Brazil this is the Brazilian Government
that is back of it, and not just the credit of the
central bank they may set up. But that isn't
explicit in here.
H.M.Jr:
I'm just raising it because it sort of
Williams:
Sounds better for Brazil if they're thinking of the
effect down there.
H.M.Jr:
I mean did they put it in?
Riefler:
No, I think it was taken over from a draft which I
made, and I didn't have it in there for any particu-
lar purpose at all.
Viner:
Is the word "representing" bothersome? Would "on
behalf of their respective governments" be better?
Feis:
Indifferent.
H.M.Jr:
The question I raise
Feis:
They wouldn't think that the Secretary of the
Treasury has 60 million dollars of gold in his own
account, so I think they would assume it's the
government.
H.M.Jr:
The thing I am raising - doesn't it sort of crowd
the thing? Somebody may raise the point, "Well now,
isn't this something that should be confirmed by
the Senate?" See?
Riefler:
Don't see any reason
H.M.Jr:
That's the reason; you've always kept me away from
that thing.
Regraded Uclassified
291
-11-
White:
I don't see that it's necessary.
Viner:
It's an executive agreement.
Feis:
Every single day in the year, in notes or communi-
cations, we use something similar, because it's
something in the sphere of the executive.
H.A.Jr:
That's different. If I were you in the State
Department, I would object to that. I'm not doing
this representing the Government.
Gaston:
Oh, now
H.M.Jr:
Let me put it this way. Does anybody want to see
it in? Does anybody think it's important? Then I'm
going to take it out. That's fair enough, isn't it?
White:
With this one exception, Mr. Secretary, that hitherto
when you haven't mentioned that fact, it hasn't been
an agreement, it's been either a statement or a declara-
tion of something.
H.M.Jr:
Well, if you don't mind
White:
O.K.
H.M.J.:
I mean if anybody wants to argue that it must go,
I'll listen. Harry?
White:
No, I'd just as soon see it out, 1f it's all right
with the lawyers.
Viner:
It's a lawyer's question.
Opper:
I think it would be all right either way, because
in fact you are entering into it as a representative
of the Government.
H.M.Jr:
But I think it's just as well not to say SO. In-
stinctively I feel I'm getting a little bit beyond
my territory. Now, I can talk for the Treasury.
Now, the next question is, I'm doing this in behalf
of the President. I just instinctively back off,
and as long as I feel that way - Herbert, see what
I mean? - I'm so careful to keep in my own back yard.
292
-12-
When I begin to talk for the Government as Secre-
tary of the Treasury, I don't like it. Now, cer-
tainly nobody can object to that, can they? I
mean it's a sense of
niefler:
Well then, under One and Two, not the United States
undertakes to sell gold, but the Treasury of the
United States undertakes to sell gold.
H.M.Jr:
No, I don't think so; I don't have any objections
"The United States undertakes to sell gold to Brazil
at such times and in such amounts B.S the Brazilian
Government may I' equest, up to 8 total of $60,000,000.
"The United States will make dollar exchange avail-
able to the Government of Brazil or its fiscal agent,
under conditions which safeguard the interests of
both countries, for the purpose of promoting exchange
equilibrium.
"The agreement is designed to promote the development
of conditions favorable to the maintenance of monetary
equilibrium between the two countries, and to facili-
tate the establishment by the United States of Brazil
of a central reserve bank as a part of the program of
the Brazilian Government for improving the financial
structure of the nation to meet the needs of its
expanding economy." My god, that's some sentence.
"To further this program the Government of the United
States of America has undertaken to supply such tech-
nical assistance and advice as the Government of
Brazil may request."
How can you undertake something that they haven't
requested?
Riefler:
It is offered.
H.M.Jr:
ff
has undertaken
"
Gaston:
Well, this is a joint statement; this is a joint
statement; they have indicated - it is quite plain
they have indicated to us that they are likely to ask,
and we say that when they request it specifically we
will give it to them.
Regraded Uclassified
293
-13-
Viner:
We told them our answer would be "Yes" when they
request such assistance.
H.M.Jr:
You say the United States has undertaken to supply
such technical assistance as the Government may -
how can you undertake something that they
You
would say "The United States Government will under-
take
Gaston:
No, no, it's just as if
Viner:
The agreement isn't signed.
Gaston:
It's just as if Clarence said to me, "Now, any time
you want any legal advice, you ask me and I'll give
it to you. " He is undertaking to give me legal
advice whenever I ask for it.
Viner:
I'd say "undertakes" instead of "has undertaken."
H.M.Jr:
I'd say "will undertake."
Viner:
No, "undertakes." The agreement isn't signed yet.
Riefler:
You can say "will supply.'
Opper:
I should think "will supply" would be all right. So
far as I know, there is not going to be a specific
term.
H.M.Jr:
"...will supply O.K., gentlemen?
Williams:
Little weak, though.
H.M.Jr:
No - "will" - that's definite.
Gaston:
I think it is.
H.M.Jr:
Huh?
Gaston:
I think it is.
H.M.Jr:
We'll all get a crack at it. The weak part of the
thing is that Brazil may request; that's the weak
part. We say we will supply, but they only say they
may request.
Regraded
Iclassifier
294
-14-
Williams:
But my point is we ought to indicate not only
willingness, but gladness to help out - B little
additional
H.M.Jr:
Well, "will gladly supply If
Viner:
I think the sentence there in the original draft
was better.
Williams:
How did we have that before?
Gaston:
I don't see that, because I don't think you want to
involve what you are agreeing to do with your
expression of gratification.
Williams:
This is the way we had it before, anyway: "The
Government of the United States is glad to have
this opportunity to indicate its desire to cooperate
with the Government of Brazil, and has offered to
supply such technical assistance as Brazil may care
to avail itself of in connection with the organization
of the bank. If
H.M.Jr:
No, if you don't t mind, I'd like them to say - I don't
like to offer this stuff
Why won't they tell us?
Ask them. "The Brazilian Government has requested
ET
Why not say they have requested?
Gaston:
If
will supply technical assistance and advice
to
II
Opper:
11 as requested by the Government. "
Viner:
" in conformity ff
H.M.Jr:
"
will supply such technical assistance and advice
as the Government of Brazil has requested."
Viner:
11
in conformity with the request of the Brazilian
Government. "
Opper:
"...made by the Brazilian Government."
Viner:
"....made by the Brazilian Government."
H.M.Jr:
TT
will supply such technical assistance and
advice as the
Regraded Uclassified
295
-15-
Opper:
Leave out the word "such" - " will supply tech-
nical assistance and advice in conformity with the
request made by the Brazilian Government."
Gaston:
"
will supply technical advice and assistance
in response to the request of the Government of
Brazil."
H.M.Jr:
If
in response
H
- what did you say, Herbert?
Gaston:
M
in response to the request of the Government
of Brazil."
Opper:
If you say "made by" don't you make it definite that
they have already made it?
H.M.Jr:
Now, the reason I didn't want that "may request" -
this goes out and the Anglish or Germans get busy
and say, "Is this closed? Well, we'll give this to
you. Why take this from the United States?" They
say, "All right, we'll take the gold from the United
States, we'll take the advice of the Germans and the
English, so we'll keep them happy." This closes it.
Williams:
I think this is - that's a good idea.
H.m.Jr:
This closes it. The Germans say, "Gentlemen, this
is terrible." "All right, Schacht, you send us down
advisors. We'll take the gold from the United States
and we'll take the advice from Dr. Schacht."
Feis:
They are sending down there Ritter, who has been one
of Schacht's primary assistants. He's becoming the
new Ambassador to Brazil; it was announced today.
H.M.Jr:
I take it you want to have us get our foot into that
situation, don't you? Well, let's make it definite,
let's close it. Herbert?
Feis:
Yes, sir, very desirable.
E.M.Jr:
Do you see what I'm getting at. This goes out and
the Germans and the Anglish are going to get mad.
"All right, we didn't close that part. We'll take
the advice from you and fix the gold up with the
United States."
Regraded Uclassifie
296
-16-
Opper:
It seems to me, Mr. Secretary, that "made by" makes
it definite that they have already asked; "of" makes
it possible to
H.M.Jr:
"To further this program the Government of the
United States of America will supply technical
assistance and advice in response to the request
of the...."
Williams:
Wait a minute - "which has been made by
Opper:
No, "the request made by the Government of Brazil."
The "request of the Government of Brazil" might mean
the future, but the "request made by..." ....
H.M.Jr:
Now let me read it again. "To further this program
the Government of the United States of America will
supply technical assistance and advice in response
to the request made by the Government of Brazil."
Is that agreeable to you (Gaston)
Gaston:
Yes, that's all right.
H.M.Jr:
What?
Gaston:
Yes, that's all right.
H.M.Jr:
What? Do you want to put it some other way?
Gaston:
I was going to simplify it by saying "will supply
technical assistance and advice as requested by the
Government of Brazil."
Viner:
Doesn't indicate the time.
Gaston:
Yes, all right.
H.M.Jr:
won't you think that's a good point, to close that
thing now? What?
"Both the Secretary of the Treasury and the Minister
of Finance are pleased to have had this opportunity
to extend the field of cooperation between their
countries and both express their gratification
that improvement in the Brazilian economy in the
last few years enables the Government of Brazil to
undertake with confidence the financial measures it
has in view."
297
-17-
Now, you don't want to say something about his
coming here in person, the way we did
No?
Viner:
you can say that to the press if you like.
(Miss Chauncey and reporter leave to
rewrite statement and return, during
which time Brazilians come in)
(Drazilians confer at length re statement)
Aranha:
1 think it would be better to say, "The United States
undertakes to sell gold to Brazil at such times and
in such amounts as the Brazilian Government may re-
quest," and to finish here and say, "The United States
will make dollar exchange available to the Government
of Brazil or its fiscal agent to the smount of
under conditions which safeguard the interests of both
countries"; because that states just the general idea
that you had before.
H.M.Jr:
Well now, in the first place, as I understand, it is
your wish that we state the amount.
Aranha:
Yes, but it wouldn't refer
H.M.Jp:
Gentlemen, please - the first question that the
Brazilian Ambassador raises is this. He raises the
point that where you say "up to a total of
$60,000,000" in Paragraph One, he wants to drop that
down into Paragraph Two.
Aranha:
After "fiscal agent."
H.M.Jr:
"The United States will make dollar exchange avail-
able to the Government of Brazil or its fiscal agent
up to a total amount of $60,000,000" - it would read
that way. of course that changes the whole thing.
Viner:
I think it would be all right if the $60,000,000
appeared in both paragraphs.
H.M.Jr:
Well, let's just think that over; it's terribly
important.
Aranha:
I must clear - just that - that here we did not refer
to five years in the first paragraph and that that is
why I thought it would be better to transfer that to
298
-18-
the other. You say, "The United States undertakes
to sell gold to Brazil at such times and in such
amounts as the Brazilian Government may request."
And your 1dea and the idea of these gentlemen when
we talked to them was just not to fix that (amount).
We said it would be preferable to fix it, because
the psychological effect would be better, in our
opinion, in Brazil and in foreign countries. But
if we will say "Brazil at such times and in such
amounts" and we will not say the number of years,
why will we say here the amount? It would give the
idea that we will have that for 10 years or 12 years
or any other time that
Williams:
You might put in the number of years along with the
amount.
H.M.Jr:
Well, there are two things here, Mr. Ambassador,
which I don't think - I think either we have to put
it in both places or in - or not at all, because we
couldn't make available to you $60,000,000 worth of
dollar exchange unless you first bought the gold.
Costa:
Yes.
H.M.Jr:
So I think that you have to put it either in Para-
graph One and Paragraph Two or in either place - I
mean you first have to buy the gold.
Aranha:
I think we can put it in Two.
White:
Keep it out of Two did he say?
B.M.Jr:
Put it in both.
Feis:
If you put it in both, Mr. Secretary, I think when
you use it in Two you would have to accompany it with
certain other phrases, for the reason you have just
made. Otherwise it would be misleading.
H.M.Jr:
Well, it is pretty important.
Feis:
if you said, "The United States will make dollar
exchange available to the Government of Brazil
or its fiscal agent up to the amount of gold acquired
under their arrangement by the Bank of Brazil
299
-19-
Williams:
=
against an equivalent amount of gold.'
White:
Otherwise it will appear as though you're making
a loan without that collateral.
H.M.Jr:
What's that you say? n against..."
Williams:
"
against an equivalent amount of gold.'
Opper:
Why is it necessary to say that?
Riefler:
Yours (Feis) was better.
Feis:
Now I've forgotten it.
Aranha:
The Minister says to keep it as it is.
Costa:
But "under conditions which safeguard" - and here's
all the measures to safeguard it. I think normally
it would be that if you
H.M.Jr:
"ell, what I am afraid of is if we brought it down
here we'd have to put it
Costa:
I think it's better.
H.M.Jr:
As it is?
Costa:
Yes.
H.M.Jr:
Now, gentlemen, the Minister of Finance says that
he'd like to leave it just as it is.
Williams:
I think that's the best.
H.M.Jr:
He now - you're satisfied the way it's written?
Costa:
Yes.
H.M.Jp:
The way it is there. Well, I am.
Aranha:
And now we would prefer to eliminate this other
chapter here and to go direct to "Both the Secretary
of the Treasury and the Minister of Finance....."
H.M.Jr:
What do you want to leave out, sir?
300
-20-
Aranha:
Just this part here.
H.M.Jr:
Leave out this sentence?
Aranha:
Yes, all of this. And we'd like to convert it in
the way suggested before.
H.M.Jr:
How was it before?
Aranha:
Because that's
a
H.M.Jr:
How was it?
Aranha:
With another wording, but at the end of that.
H.M.Jp:
If we did this, where would you put this sentence,
at the end?
Aranha:
At the end, yes. At the end, because it is just the
end. (Hands Secretary suggested revised paragraph)
H.M.Jr:
What do you think, Herbert? I guess it would be
better at the end, wouldn't it? See, what he wants
to do is lift this paragraph and put this at the
end.
Feis:
I think it's better too.
H.M.Jr:
I think it's better at the end.
Aranha:
That will reflect in our public opinion very well -
your offering and saying that you will do that.
Gaston:
Of course, that in a way repeats what is in there.
Feis:
What's the difference?
H.M.Jr:
Show this down there to those people at the other
end. They want that to come at the end. We have to
give our experts a little time. They want time.
Do you when you're in Brazil, in your own office -
do you have to work in the evening?
Costa:
Yes, sometimes.
(Treasury people confer on
changes in S tatement)
Regraded Uclassified
301
-21-
H.M.Jr:
Are the Minister and I going to see it? I thought
they already cabled it, they work so fast around here.
(Miss Chauncey leaves to rewrite statement)
H.M.Jr:
I think if we're ready for our statement - I don't
like the idea of putting it off until next Monday.
Aranha:
No, we can,
H.M.Jr:
No, I mean if we're ready why should we wait until
next Monday?
Costa:
No, I think it's best to do it tomorrow.
H.M.Jr:
I mean - now the newspapermen are outside now; they
know you've been here three times. If we don't get
together, they'll think something went wrong. Three
times you've been here; now if we can't agree, then
there's something the matter, you know. They'll say,
"What's the matter? Why can't Brazil and America
get together? There's something wrong." Huh?
Aranha:
I think it's good.
H.M.Jr:
And I said this morning I'd work until we got
through.
Aranha:
And we are.
H.M.Jr:
I mean it's the only way to do.
Aranha:
Yes.
H.M.Jr:
Now, I'll show this the first thing in the morning
to President Roosevelt. I mean I'll get him early
tomorrow morning, so that by - I'll have an answer
by 11 o'clock. I'll see him the first thing in the
morning. By 11 o'clock I'll have his answer. I'm
sure it will be all right, but I want him to read it
because it's his 1dea.
Aranha:
We went to see him the other day.
H.V.Jr:
But he's so interested that before I do anything
I'd like to have him read it and see if we have
302
-22-
carried out President Vegas's idea and President
Roosevelt's.
Aranha:
Yes, I think it would be good.
We are producing gold and we have more or less
10 or 12 tons every year that we are compelled to
buy just to help the
H.M.Jr:
Producers?
Aranha:
Yes.
Feis:
(To Aranha) We'll meet at 12 o'clock at Welles'
office and 1 hope we can have both things ready by
tomorrow evening. Is that possible?
Aranha:
Yes.
Feis:
12 o'clock. I may before that call Mr. Carneira
and do some preliminary work on this with him.
Aranha:
I am also available to you.
Feis:
All right, it may be that I'll come out to the
Embassy.
H.M.Jr:
Now, I'll get President Roosevelt to clear this by
11 tomorrow morning. I really think, Herbert -
I said this while you were out - the Minister of
Finance and the Ambassador have been here three
times; if we hold up this announcement until
Monday, it might be misunderstood.
Feis:
Well, Mr. Welles agrees.
H.M.Jr:
It might be misunderstood. They've been here three
times.
Feis:
We've both torn up our calendar of engagements, and
I hope if we start at 12 we can work it out.
We may have to get the joint statement out 20 past 12.
Aranha:
No, 20 past 2.
Feis:
We may have to get out the joint statement and then
there might be a few details about the exchange on the
bank, on the commission, that we might have to leave
until you return.
Regraded Uclassified
303
-23-
H.M.Jr:
Well, if you work the State Department as hard as
you worked the Treasury, you'd get it out.
Feis:
(Laughs) For B man that works as hard as I do, to
get the reputation for idleness - I do not understand
how it comes to me.
H.M.Jr:
I didn't say - I say if you will work - not you
work, but if you work the State Department as hard
as you have worked us - that's what I said.
Feis:
Oh.
H.M.Jr:
I said if you will work, meaning the people in the
State Department, as hard as you work the people in
the Treasury. No, I wasn't implying - after all,
you're here.
(Miss Chauncey brings in rewritten
statement)
H.M.Jr:
Where's the first page?
Chauncey:
No corrections on the first page.
H.M.Jr:
I haven't got any first page. O.K., here we are.
White:
There is a suggestion here as to improvement on
that - simple.
H.M.Jr:
"....in accordance with their conversations" -
cut out this?
White:
No.
H.M.Jr:
This is it. (To Aranha) We have changed this here.
Aranha:
11 their conversation..." - we noticed that.
H.M.Jr:
And cut out
Aranha:
That's correct. We have - we have no fears, you
see; we do not pay attention.
H.M.Jr:
"ll right, I'll read this.
Herbert, I don't like that "at this time the taking
of this important step."
Regraded Uclassified
304
-24-
Feis:
Leave out "the taking."
H.M.Jr:
Leave out the words "the taking" - "makes feasible
at this time this important step."
Aranha:
Yes.
H.M.Jr:
Now is this all right the way I have it written?
I'll have it written once more. Do you mind doing
it a second time?
(Miss Chauncey leaves to rewrite statement)
Costa:
When will we have another meeting? Tomorrow?
H.M.Jr:
Tomorrow with us - 11 o'clock?
Carneira:
to sign the agreement.
H.M.Jr:
Clarence, when do you think you'll be ready with the
legal papers?
Opper:
Well, I hope that we'll be ready with something final
by about noon tomorrow.
H.M.Jr:
"ell, they're going to State Department at 12. Could
you have something at 11?
Opper:
I'll try very hard.
H.M.Jr:
Well, let's say 11.
Opper:
Unfortunately, it is not entirely in our control,
Mr. Secretary, on account of word from New York.
H.M.Jr:
Supposing I call you at 10:30, Mr. Ambassador. You
see, the reason that it isn't entirely in the
Treasury - we have to do it with New York by telephone
and telegraph. It makes it a little bit difficult.
But I'll telephone you by 10:30.
In any event, you (Opper) walk in here at 10:29 and
let me know, see? Are the lawyers up at the Federal
Reserve working tonight?
Opper:
They're not working tonight, no, sir, but I have made
arrangements for them to start work the very first
thing tomorrow morning. Fortunately, they start an
305
-25-
hour before us.
H.M.Jr:
They start an hour ahead.
Opper:
Yes, sir, so I hope we may have something by then.
H.M.Jr:
But surely tomorrow.
Opper:
Yes, sir.
H.M.Jr:
we'll surely have it tomorrow. Maybe we can't have
it by 11; if we cannot have it by 11, then we can
have it right after lunch.
Feis:
They're flying at 2:20.
Aranha:
But we can postpone...
H.M.Jr:
"here are they flying?
Aranha:
I'm going; the Minister will stay if that is necessary.
Costa:
Yes, that's no problem.
H.M.Jr:
Have you done - you have lawyers in Brazil. You
can't hurry them; you can't hurry them, you know.
And if you don't listen to the lawyers
Costa:
Then we send them away as Ambassadors.
Aranha:
*hey cannot live without the lawyers, but that's
why they talk always about and against them.
(Miss Chauncey returns with finally
approved draft of statement)
H.M.Jr:
(To Feis) There's a corrected copy.
Feis:
O.K.
H.M.Jr:
Now we'll leave it this way; if the lawyers have
the dish ready at 10:30, we telephone, but if they're
not ready you'll stay after 2:20, because it's
pretty important.
Costa:
To finish by tomorrow.
Regraded Uclassif
306
-26-
H.M.Jr:
We can finish, but I wouldn't - I wouldn't be
sure that we can be through by 2:20. I wouldn't
be sure. And I'd like very much to do it tomorrow,
because, you see, Friday is Senator Robinson's
funeral and we have Cabinet in the afternoon, and
Friday there will be a lot of different things.
Well, I'll see you tomorrow.
(Brazilians leave)
You've got the correct one now, have you? Does
anybody want a correct second?
Feis:
What's this cable?
H.M.Jr:
It's very simple.
Miss Chauncey has a full thing there. Miss Chauncey
has the correct ones.
Now let's do this Swiss thing now; that's more
important.
(Remainder of conference re Swiss
matter written up separately,
time: 10:30 p.m.)
final
307
The following joint statement is made by the
Secretary of the Treasury and the Minister of Finance of
Brazil:
The Secretary of the Treasury of the United States
of America and the Minister of Finance of the United States of
Brazil are entering into an agreement under which:
1. The United States undertakes to sell gold to
Brazil at such times and in such amounts as the Brazilian
Government may request, up to a total of $60,000,000.
2. The United States will make dollar exchange
available to the Government of Brazil or its fiscal agent,
under conditions which safeguard the interests of both countries,
for the purpose of promoting exchange equilibrium.
The agreement is designed to promote the development
of conditions favorable to the maintenance of monetary
Regraded Uclassified
308
equilibrium between the two countries and to facilitate the
establishment by the United States of Brasil of a central
reserve bank as a part of the program of the Brasilian Govern-
ment for improving the financial structure of the Nation to
meet the needs of its expanding economy.
In recent years there has occurred & notable improvement
of the trade and financial position of Brazil. It is a matter
of gratification both to the Secretary of the Treasury and
the Finance Minister that this favorable development of the
Brazilian economy makes feasible at this time this important
step.
Both the Secretary of the Treasury and the Minister of
Finance are pleased to have had this opportunity to extend
the field of cooperation between their countries and, in
accordance with their conversations the Secretary of the
Treasury stands ready to supply such technical assistance as
Brasil may care to avail itself of in connection with the
organisation of the new bank.
Regraded
309
The following joint statement is made by the
Secretary of the Treasury and the Minister of Finance of
Brazil:
The Secretary of the Treasury of the United States of
America and the Minister of Finance of the United States of
are ing
Brazil, representing their respective governments, have n entered
into an agreement under which:
1. The United States undertakes to sell gold to
Brazil at such times and in such amounts as the Brazilian
Government may request, up to a total of $60,000,000.
2. The United States will make dollar exchange
available to the Government of Brazil or its fiscal agent, under
conditions which safeguard the interests of both countries, for
the purpose of promoting exchange equilibrium.
310
The agreement is designed to promote the development
of conditions favorable to the maintenance of monetary
thisead
equilibrium between the two countries, and par ticulari by to Then
facilitate the establishment by the United States of Brazil
of a central reserve bank as a part of the program of the
Brazilian Government for improving the financial structure
of the Nation to meet the needs of its expanding economy.
To further this program the Government of the United
will
States of America has undertaken to supply such technical
in response to the request - made by
assistance and advice as the Government of Brazil
Both the Secretary of the Treasury and the Minister of
Finance are pleased to have had this opportunity to extend
the field of cooperation between their countries and both
express their gratification that improvement in the Brazilian
economy in the last few years enables the Government of
Brazil to undertake with confidence the financial measures
it has in view.
311
The following joint statement is made by the
Secretary of the Treasury end the Minister of Finance of
Brazil:
The Secretary of the Treasury of the United States
of America and the Minister of Finance of the United States of
Brazil are entering into an agreement under which:
-
1. The United States undertakes to sell gold to
Brazil at such times and in such amounts as the Bresilian
Government say request, up to a total of $60,000,000.
2. The United States will make dollar exchange
available to the Government of Brazil or its fiscal agent,
under conditions which safeguard the interests of both countries,
for the purpose of promoting exchange equilibrium.
The agreement is designed to promote the development
of conditions favorable to the maintenance of monetary
Regraded Uclassified
312
equilibrium between the two countries and to facilitate the
establishment by the United States of Brazil of a central
reserve bank as a part of the program of the Brazilian Govern-
ment for improving the financial structure of the Nation
to meet the needs of its expaning economy.
In recent years there has occurred a notable improvement
of the trade and financial position of Brazil. It 1s a matter
of gratification both to the Secretary of the Treasury and
the Finance Minister that this favorable development of the
Brazilian economy makes feasible at this time the taking of
this important step
Both the Secretary of the Treasury and the Minister of
Finance are pleased to have had this opportunity to extend
the field of cooperation between their countries and, in
their
accordance with his conversations with the Minister of Finance
the Secretary of the Treasury stands ready to supply such
technical assistance as Brazil may care to avail itself of
in connection with the organization of the new bank.
Regraded Uclassified
313
:
The following joint statement is made by the
Secretary of the Treasury and the Minister of Finance of
Brazil:
The Secretary of the Treasury of the United States of
America and the Minister of Finance of the United States of
Brazil, representing their respective governments, have entered
into an agreement under which:
1. The United States undertakes to sell gold to
Brazil at such times and in such amounts es the Brazilian
Government may request, up to D. total of $60,000,000.
2. The United States will make dollar exchange
available to the Government of Brazil or its fiscal agent, under
conditions which safeguard the interests of both countries, for
the purpose of promoting exchange equilibrium.
Regraded Jclassified
314
Regraded Uclassifie
The agreement is designed to promote the development
of conditions favorable to the maintenance of monetary
equilibrium between the two countries, and particularly to
facilitate the establishment by the United States of Brazil
of a central reserve bank as & part of the program of the
Brasilian Government for improving the financial structure
of the Nation to meet the needs of its expanding economy.
To further this program the Government of the United
States of Americanhas undertaken to supply such technical
assistance and advice as the Government of Brazil may request.
Both the Secretary of the Treasury and the Minister of
Finance are pleased to have had this opportunity to extend
the field of cooperation between their countries and both
express their gratification that improvement in the Brasilien
economy in the last few years enables the Government of
Brasil to undertake with confidence the financial neasures
it has in view.
315
1
The following joint statement is made by the Secretary of
the Treasury and the Minister of Finance of Brasil:
The Secretary of the Treasury of the United States of America
and the Minister of Finance of the United States of Brasil,
out
(are intering)
representing their respective governments, have entered into an
agreement under which
at such times and tin such amount
1. The United States undertakes to sell gold to Byasil, w and
as
may
- requested by A the Brasilian Government to of
to atotal $80,000,000.
2. The United States will make dollar exchange available to
the Government of Brasil or its fiscal agent, under conditions
which safeguard the intereste of both countries, for the purpose
of premoting exchange equilibrium.
This agreement is designed to facilitate the establishment by
the United States of Brasil of & Central Reserve Bank, and to
promote the development of arrangements favorable to the attaiment
of emchange equilibrium.
In resent years there has occurred 8. notable improvement of the
trade and financial position of Brasil. It is a matter of gratifica-
tion both to the Secretary of the Treasury and the Finance Minister
that this favorable development of the Brasilism economy nakes
feasible at this time the taking of this important stop.
316
- 8 -
The Government of the United States is glad to have this
opportunity to indicate its desire to occporate with the Govern-
ment of Brasil, and has offered to supply such technical assistance
as Brasil may care to evail itself of in connection with the organise-
tiem of the - bank.
Regraded Uclassified
317
The agreement is designed to promote the development of conditions
favorable to the maintenance of monetary equilibrium between the two
countries, and particularly to facilitate the establishment by the United
States of Brazil of a central reserve bank as a part of the program of
the Brazilian Government for improving the financial structure of the
"ation to meet the needs of its expanding economy.
To further this program the Government of the United States of
America has undertaken to supply such technical assistance and advice as
the Government of Brazil may request.
Both the Secretary of the Treasury and the Minister of Finance are
pleased to have had this opportunity to extend the field of cooperation
between their countries and both express their gratification that improve-
ment in the Brazilian economy in the last few years
enables the
undertake
Government of Brazil to
with confidence
the financial
measures it has in view.
Regraded Uclassified
318
JUL 1 4 1037
Dear Sires
Inclosed is I form of letter, which I have approved, respecting
the purchase of Chinese yuan and which I authorize and request you,
as fiscal agent of the United States, to write to the Central Bank
of Chine, Shanghai, China. I also authorise and request you, as
fiscal agent of the United States, to carry out the transactions
contemplated by such letter.
It is understood that the terms of the Department's letter to
you of September 4, 1934, regarding dealings in foreign exchange for
the account of the fund established in section 10 of the Gold Reserve
Act of 1934, shall apply to the action taken by you pursuant to the
foregoing.
The transactions contemplated by the enclosed form of letter have
been approved by the President.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The Federal Recerve Bank of New York,
New York, New York.
Inclosure
JWP:ldh 7-10-37
Regraded Uclassified
319
Dear Siret
The Secretary of the Treasury of the United States hos, as &
result of recent communications and conversations with representatives of
the National Government of the Republic of Chins, authorised us, no fiscal
agent of the United States, to enter into the following rrangement with
you, for the purpose of supplying the Republic of China with United States
dollar exchange, from time to time, as may be required:
1. Ee, as fiscal agent of the United States, will purchase
from you, from time to time as requested by you, Chinese yuan,
the yuen DO purchased to be credited to us (== fineal agent
of the United States) on your books in 0 special account to be
opened in the name of "Federal Reserve Bank of Now York AE
Fiscal Agent of the United States." Upon receipt by us of
advice from you by cable that this account has been credited
with & stated amount in Chinese yum, we shell in turn credit
you on our books in a special account to be opened in the asse
of f'Central Bank of China, Special Account in an amount in
United States dollars equal, at the then previlling buying rete
of exchange in New York for cable trensfers in yuan on Shanghai,
to the amount in yuen 60 credited to us on your books. Interest
on such special yuan account is to be credited thereto monthly
at & rate per ennus one-helf of 15 above the average of the
Federal Reserve Bank of New York's rediseount rate during the
sonth immediately preceding.
320
- 2 -
2. The total amount of yuan purchased by us from you and standing
to our credit on your books as aforessid, together with the interest
accrued thereon whether credited or not, shall not at any time 02-
osed in the aggregate the equivalent of United States $50,000,000,
computed at the rate at which such yuan ATO to be repurshesed from
us pursuant to the provisions of the next succeeding peragraph.
3. You agree that any or all yuan purchased by us from you and
standing at eny time to our credit on your books 10 aforessid,
shall be repurchesed (in United States dollars) by you from us at
any time, and from time to time, upon our request, end within 120
hours of the dispatch of our cable containing such request, at the
care rate or rates of exchange et which such yuan were purchased
from you by us. Yusn 1n the amount of the interest sccrued on,
and whether or not credited to, much special yuan account shell
be purchased (in United States dollars) by you from us at my
time, and from time to time, upon our request, at the same rate
or rates of exchange at which the yuen upon which such interest
bas scerued were purchased from you by us. In the absence of
any such request yuan in the amount of such secrued interest
shall be purchased (in United States dollars) by you from us at
said rote or rates of exchange at the end of each successive
minety day period from end after the date hereof end upon the
termination of this arrangement.
40 As sccurity for the performance of your agreement hereinabove
set forth you agree that en amount of gold at all times equal
(when calculated at the price from time to time set forth in
section 42 of the Provisional Regulations hereinefter referred
Regraded Uclassified
321
- 3 -
to) the doller equivalent of the yuse credited on your books es
purchases by us, together with the interest thereon, and computed
at your repurchasing rete specified above will be and hereby is
pledged to us by you and will be left by you in our custody free
of any lien or encumbrance other then that herein net forth and
you agree that you will and you do hereby authorise and request
us to set sside such gold from time to time and to hold It subject
to the terms of this agreement.
The cost of insurance and any other ressonable and necessary
expenses incurred by us with respect to any gold :ledged to us
under this paragraph 4 (including, but without limitation thereto,
transportation end storage expenses) will be charged by us to
your account on our books under advice to you.
In the event of your feilure to repurchase such yuan (includ-
ing interest) as hereinalove provided, you do further authorize
us, as pledgee aforessid, to sell to the United States, at the
price provided by section 42 of the Provisional Regulations
issued under the Gold Reserve Act of 1934, is the same say be in
effect et that tine, BO such of such gold so held under pledge
at any time, and from time to time, and to apply the proceeds
thereof, less any ressonable end necessary expenses incurred by
us in respect of such gold (includings but without lisitation
thereto, expenses of sale, transportation, storage, end insurance)
in such menner, as my be necessary to save us, M fiscal agent
of the United States, and the United States, harmless from any
Regraded Uclassified
322
- 4 -
loss by retson of any failure on your part to repurchase said
yuen (including interest) ce hereinabove provided.
It is understood and agreed that our obligation, 08 fiscal
agent of the United States, to purchase any amount of yuan pup-
suant hereto shall be conditional and dependent upon the prior
performance by you of the obligations and things to be performed
and done by you under this paragraph 4.
5. It is understood that you will take such further setion is
may be reasonably requested by us to effectuate the purposes
and intent of this arrangement.
6. Our obligation to purchase yuan hereunder shall terminate
on our December 31, 1937, unless an extension has been agreed
upon before that time, end it is understood that In the event
that you wish an extension of this arrangement you will give
us notice to that effect, in writing or by cable, so that such
notice shall be received by us at least thirty days prior to
our December 31, 1937. Such termination, however, shall not
affect any of our rights or any of your obligations hereunder,
all of which shall continue in effect until you shell have
fully performed your said obligations.
7/14/37
323
RE SWISS GOLD DEALINGS
July 14, 1937
10:30 p.m.
Present:
Mr. Lochhead
Mr. Gaston
Mr. Riefler
Mr. Opper
Dr. Viner
Mr. Williams
Mr. White
Dr. Feis
Miss Chauncey
H.M.Jr:
Now important. let's do this Swiss thing now; that's more
Herbert, if you don't want to wait....
Feis:
Is this Swiss thing going to go on cables tonight?
H.M.Jr:
Yes. Now what we got on the Swiss? Now, this is
gone. Where's the introductory
Viner:
We have separate messages to the Minister of Finance
and the Chancellor of the Exchequer.
H.M.Jr:
You mean to Simon?
Viner:
Yes. One dispatch to the Chancellor of the Exchequer
and another to the Minister of Finance.
H.M.Jr:
Why not simply put in the same one, and the one to
London says Chancellor of the Exchequer and the
French one says Minister of Finance.
Viner:
"The Secretary of the Treasury is considering the
dispatch of the following reply to the letter of
June seventeenth of Bachmann and Schnyder in which
they explained the purposes of the Swiss sales of
gold in the American market in recent months. Before
proceeding further, the Secretary of the Treasury
would welcome any comments which the Minister of
Finance may care to make with regard to the monetary
principles formulated in the contemplated communica-
tion."
H.M.Jr:
It's all right.
White:
I think that's June 17th.
324
-2-
Viner:
Well, that'll have to be checked.
White:
Did Eccles return the original letter?
H.M.Jr:
Yes, here's the whole business. I tell you what I'll
ask you to do. Here's the whole thing, so as to make
it easier for you, and may I ive this responsibility
to White; and why don't you (Feis) call up the
Code Room and tell them that when Dr. White comes
over there with a cable will they please send it,
and you don't have to sit here while it's all typed.
Feis:
They'll say to me they won't; that's the trouble.
I'll have to put my signature on the bottom of B
piece of paper.
H.M.Jr:
They will if I call up.
Viner:
de can put his signature on a sheet of paper.
Feis:
And the text of this letter to Bachmann.
Lochhead:
Livesey took care - I called Livesey and sent a
memorandum over to him.
Feis:
It's all perfectly simple; have that typed up.
Don't have to give any instructions.
H.M.Jr:
Yes, you do, because the previous thing said to
hold it. There's the one to write. Want to dictate
it to Miss Chauncey?
(Feis dictates to Miss Chauncey)
Lochhead:
I sent that over to Livesey quarter of seven.
H.M.Jr:
Now are you people ready - Harry, you ready?
White:
Just to have it typed.
H.M.Jr:
Well, we're waiting. He dictated it because he's
got to sign it.
"hite, want to go in with Miss Chauncey?
(White and Miss Chauncey leave)
325
-3-
H.M.Jr:
(On phone) Mrs. Spangler, will you call up the
Russian Embassy and say is it too late if Dr. Feis
and I should arrive about quarter of 11? Is it too
late, and we can get there between quarter of 11
and 11 - is that too late? We can arrive there
between quarter of 11 and 11.
Feis:
Better ask Oumansky.
H.M.Jr:
(On phone) Better ask for Mr. Oumansky. I mean
whoever answers the phone, would they please ask
Oumansky is it too late that Dr. Feis and I should
arrive at that time - but they should ask that
question of Mr. Oumansky.
This Swiss thing is very important. I can't let
caviar and vodka come between the Swiss cheese.
Viner:
Mr. Secretary, how do you plan to handle the Swiss
affair? The replies will come in, you see, a fter
you're gone.
H.M.Jr:
Oh, if they're favorable, just shoot it out, that's
all. And I'll get - I mean I'm here Monday. I think
what I'll do is
Viner:
They won't be here by Monday. This is a weekend in
England, you see.
Opper:
"ould you want to leave a signed copy?
H.M.Jr:
Just telephone Cochran to take it to Switzerland.
(White and Chauncey return with cables)
Viner:
Shouldn't Butterworth be told that Cochran has a
copy of this?
H.M.Jr:
Yes, they have that "a similar message is being
sent to Mr. Simon."
Viner:
No, a copy of the letter we send to the Swiss.
Lochhead:
Butterworth clears his correspondence with Cochran.
H.M.Jr:
Supposed to. If he can't, he'll call him up.
Are you all
Regraded Uclassified
326
-4-
White:
That goes to Cochran and this goes to Butterworth.
H.M.Jr:
Now, where's Feis?
Chauncey:
He's telephoning in Mrs. Klotz's office.
(Feis returns)
H.M.Jr:
This is all ready for you now. Think it's all right?
Feis:
Yes, yes.
H.M.Jr:
Well, Dowling knows where to take it.
Feis:
Yes, perfectly.
H.M.Jr:
"owling, we want this to go to the Code Room,
State Department.
(On phone) Get the Code Room, State Department.
Dr. Feis wants to talk to whoever is there, please.
-
-
-
-
egraded Uclassified
327
American Embassy
Paris For Cochran
From Secretary of the Treasury
Please give to Minister of Finance the text of the
contemplated communication to Bachmann and Bohnyder which
was communicated to you earlier today with the following
introduction quote
The Secretary of the Treasury 10 considering the
dispatch of the following reply to the letter of June
seventeenth of Bachmann and Schnyder in which they explained
the purposes of the Swiss sales of gold in the American
market in recent months. Before proceeding further, the
Secretary of the Treasury would welcome any comments which
the Minister of Finance may care to make with regard to
the monetary principles formulated in their contemplated
000 unication.
A similar message is being sent to Mr. Simon.
Regraded Uclassified
328
American Embassy
London for Butterworth
From Secretary of the Treasury
Please give to Chancellor of the Exchequer the text
of the contemplated communication to Bachmann and Schnyder
which was communicated to you earlier today with the fol-
lowing introduction quote:
The Secretary of the Treasury 1s considering the
dispatch of the following reply to the letter of June
seventeenth of Bachmann and Schnyder in which they explained
the purposes of the Swiss sales of gold in the American
market in recent months. Before proceeding further, the
Secretary of the Treasury would welcome any comments which
the Chancellor of the Exchequer may care to make with regard
to the monetary principles formulated in their contemplated
communication.
A similar message is being sent to Monsieur Bonnet.
Regraded Uclassified
JR
PLEASE RETURN TO MR. COCHRAN
329
SPECIAL GRAY
July 14, 1937
9 p.m.
AMEMBASSY
LONDON (ENGLAND).
300,
For Sutterworth from Secretary of the Treasury.
PLEASE hold following letter in strict confidence, not
using it in any manner until further instructions.
QUOTE, Messrs. Bachmann and Schnyder:
Please accept my thanks for your letter of June 17,
1937, giving information with respect to your foreign exchange
and gold policy, Such Exchange of information and opinion
concerning these matters, conforming as it does with the
spirit of Section 3 of the tripartite declaration of
September 25, 1936 to which your Government had declared
its adherence on November 21, 1936, constitutes gratifying
proof of the development of international cooperation in
monetary affairs.
While our reply was in preparation WE received, under
date of July 13th, a telegram from Mr. Cochran, transmitting
your quEry concerning your letter of June 19th and your
telegram of June 30th, and also your statement to him that you
had stopped shipping gold to NEW York and had not been
converting into dollars any more of the gold held on
tarmark for you at the Federal RESERVE Bank of NEW York.
WE
Regraded Uclassified
330
EDA - 2 - #300, July 14, 9 p.m. 1 to London
WE appreciate very much your procedure in this matter.
At the present time, WE who have joined in the tripar-
tite accord are Engaged together in an attempt to bring a
greater measure of stability and of genuine Equilibrium into
the market for fortign Exchanges. This market has, as you
know, in recent years bEEn characterized by EXCEPTION-
ally large movements of capital, many of which do not
represent normal financial or commercial transactions.
Under these circumstances, some of us are likely to bE called
upon, at least temporarily, to hold exceptionally large
quantities of gold. I do feel, however, that the central
banks and treasuries of these countries which have declared
their adherence to the tripartite accord should refrain
from increasing these movements by unilateral decisions to
transfer their gold reserves into foreign currencies.
In our opinion, the normal function of international
(old movements is to liquidate international balances of
payments arising from the natural flow of international
commercial and financial transactions. Governments and
central banks should, WE bEliEVE, in their own operations
conform as closely as possible to this general principle.
WE believe that this principle makes it incumbent upon the
adherents of the tripartite declaration to hold their
reserves in the form of gold either at home or farmarked
abroad
Regraded Uclassified
331
JR -3- #300, July 14, 9 p.m., to London.
abroad, and where a central bank deems it desirable to
maintain foreign balances, such balances should in the
main bE kept with the Central Bank of the selected country
and should, furthermore, bE maintained Essentially as
working balances. WE further feel, and Especially in the
Case of those countries that have adhered to the tripartite
declaration, that central banks or governments should make
investments in other countries only after consultation
with, and perhaps only at the invitation of, the government
concerned.
WE suggest that an acceptance of the above principles
would bE a constructive development of the spirit of
monetary cooperation envisaged in the tripartite declaration,
and would contribute toward Enduring stability in the
international monetary field. % hope that the other
adherents to the tripartite declaration share this
interpretation of its implications. End quote.
HULL
(FL)
Send same telegram to Amembassy Paris as No. 339 For
Cochran from Secretary of the Treasury.
Copy for Secretary
332
JR
TELEGRAM SENT
GRAY
July 14, 1937
11 p.m.
American Embassy
London for Butterworth
From Secretary of the Treasury
301.
Please give to Chancellor of the Exchequer the text
of the contemplated communication to Bachmann and Schnyder
which was communicated to you earlier today with the fol-
lowing introduction quote:
The Secretary of the Treasury is considering the
dispatch of the following reply to the letter of June
seventeenth of Bachmann and Schnyder in which they explained
the purposes of the Swiss sales of gold in the American
market in recent months. Before proceeding further, the
Secretary of the Treasury would welcome any comments which
the Chancellor of the Exchequer may care to make with
regard to the monetary principles formulated in the
contemplated communication. End quote.
A similar message is being sent to Monsieur Bonnet.
HULL
(HF)
Eltra
333
JR
TELEGRAM SENT
GRAY
July 14, 1937
11 p.m.
American Embassy
Paris For Cochran
From Secretary of the Treasury
340.
Please give to Minister of Finance the text of the
contemplated communication to Bachmann and Schnyder which
was communicated to you earlier today with the following
introduction quote.
The Secretary of the Treasury is considering the
dispatch of the following reply to the letter of June
seventeenth of Bachmann and Schnyder in which they explained
the purposes of the Swiss sales of gold in the American
market in recent months. Before proceeding further, the
Secretary of the Treasury would welcome any comments which
the Minister of Finance may care to make with regard to
the monetary principles formulated in the contemplated
communication. End quote.
A similar message is being sent to Mr. Simon.
HULL
(HF)
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
334
DEPARTMENT OF STATE
WASHINGTON
July 14, 1937.
My dear Mr. Secretary:
I enclose for your confidential information a copy
of telegram No. 473 of July 14, 6 p.m., from the Ameri-
can Ambassador at London, with regard to the present
financial situation in France.
Sincerely yours,
Herbert teis
Hergert Feis,
Adviser on International
Economic Affairs.
Enclosure:
No. 473, from London,
July 14, 1937.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
335
MA
GRAY
London
Dated July 14, 1937
Rec'd 3 p. m,
Secretary of State
Washington
473
July 14, 6 p. m.
STRICTLY CONFIDENTIAL. FOR SECRETARY MORGENTHAU FROM
Butter..orth.
With reference to Bonnet's proposed visit to London
referred to in my conversation with Philipps, reported in
number 452 July 8, 6 p. m., there is set forth below
Simon's reply to Bonnet's communication of July 6th, This
reply will be given this evening to the French Financial
Attache here.
In supplying me with a copy the British Treasury
stated in confidence that Simon arrived at his decision
after consultation with Chamberlain and Eden, all of whom
agreed that in the given circumstances Bonnet's visit
would receive great publicity and arouse equally great
expectations relating to political as well as financial
matters and that unless "nothing came out of it" the reaction
would be unfortunate. "The Chancellor thanks the Minister
of Finance very much for his message. Since it was
received 1 Bonnet's programme for restoring budget
equilibrium has been announced and the Chancellor will
during
336
NA -2- July 14, 6 P. m., from London
during the coming months watch with the closest interest and
sympathy the measures taken to give practical effect to this
programme which he trusts will lead to a revival of confidence
and of economic activity. The Chancellor notes that Y.
Bonnet does not consider it possible to fix definite points
within which the franc will be allowed to move or to
indicate the level at which he estimates it may reach
equilibrium. Sir John Simon quite appreciates the reasons
which R. Bonnet gives and sincerely trusts that the measures
announced and taken will in fact produce the steadiness which
it is the object of the tripartite agreement to maintain.
As regards the suggestion that M. Bonnet should pay &
personal visit to London the Chancellor of the Exchequer feels
some anxiety lest the visit of so important B, minister might
arouse so much interest that unjustified anticipations
might be formed with results which would not be favorable
to the general objectives which both ministers have in mind.
In these circumstances the Chancellor of the Exchequer while
greatly appreciating V. Bonnet's offer and while hoping to
greet his French colleague at a later time, ventures to think
that the interests which we are pursuing in common might be
best secured by continuing for the present the constant
contact between officials and waiting for some future time
for a personal meeting".
BINGHAM.
CSB