Volume 199, June 24 – June 30, 1939

DIARY Book 199 June 24 - June 30, 1939 - A - Book Page Appointments and Resignations Stevens, Mr.: HMJr, Foley, McReynolds, and Gaston confer about appointment in case of war - 6/29/39 199 334 - B - Business Conditions Haas memorandum on situation for week ending 6/24/39 59 Recovery Program: Railroad Equipment Program: Presidents of American Locomotive Company and American Car and Foundry Company ask HMJr to confer with them concerning proposed financing of purchases - 6/26/39 84 Currie memorandum sent to FDR - 6/29/39 271 HMJr, White, and Currie confer on FDR's press conference; timing of bill to be sent up to Congress; et cetera - 6/27/39 118 a) HMJr says this must be a success because "all New Dealers either will have nothing to do with it or are opposed to it" Luncheon conference on lending activities; present: HMJr, Wallace, Jones, Carmody, Mellett, Hanes, Foley, and Gaston - - 6/27/39 121 a) HMr wishes to enlist help of leaders in Administration toward success b) Mellett will handle FDR's press conference c) Jones asked for expression of opinion on program d) Interdepartmental meeting held at HMJr's home - 6/29/39 277 Automobile Industry resume : Seltzer memorandum - 6/28/39 179 Haas memorandum on business situation based on conferences with officials of Sears, Roebuck and Company, International Harvester Company, and American Steel Foundries Company - 6/30/39 416 - C - Canada See Silver See War Conditions Coast Guard Additional cutters and long-distance planes discussed by HMJr and Smith (Budget Bureau) after HMJr has talked with FDR - 6/30/39 448 Cotton See Spain China See Silver Regraded Unclassified - C - (Continued) Book Page Commodity Credit Corporation HMJr informs Director of Budget he does not approve of an official of the Government having administrative supervision over an organization such as Commodity Credit Corporation also exercising rights accruing to the holder of stock in such corporation - 6/30/39 199 386 Countervailing Duties Germany: Tobacco Tobacco produced in Bulgaria, then exported to Germany is next exported to United States without in meantime having been manufactured or processed; exportation from Germany is subject to grant or bounty: Foley opinion that countervailing duties may not be applied unless new law is passed - 6/27/39 127 Italy: Costanzo Ciano (President, Italian Chamber) death postpones conference - 6/27/39 124,125 a) Wait (Customs representative, Paris) advised Treasury will withhold notice until July 5 126 HMJr and Welles discuss delay 161 Guarnieri and Wait confer - 6/28/39 182 a) Guarnieri considers loan paid by Government to silk-growers comparable to United States assistance to producers of cotton and wheat Wait resume of situation - 6/30/39 409 Craig, Malin (General) Thanks HMJr for courtesy and says goodbye preparatory to leaving as Chief of Staff of War Department - 6/29/39 338 Customs, Bureau of HMJr tells Gibbons he will transfer Customs to Gaston; Gibbons says he is leaving and this will give him "black eye"; HMJr had not known this and will postpone order - 6/30/39 408 Czech Gold Balances in London: Press comment, debates in House of Commons, et cetera - 6/24/39 1,87 Resume of entire affair prepared by Butterworth - 6/24/39 25,37,100 White resume: "What happened to Czech gold in the Bank of England?" - 6/27/39 114 a) Discussed by HMJr, White, Lochhead, Cochran, and Bernstein - 6/28/39 163 - F - Federal Reserve Board Eccles discusses with HMJr "running off of bills in accordance with authority given to Executive Committee by Open Market Committee" - 6/27/39 128 Finland Hull sends HMJr strictly confidential memorandum "International political situation of Finland in relation to international loan" - 6/27/39 149 - G - Book Page Germany For Czech gold balances in London, see Czechoslovakia See also Countervailing Duties Gibbons, Stephen B. See Customs, Bureau of Government Bond Market Haas memorandum on recent financial developments: average of high-grade corporate bond yields revised - 6/24/39 199 49 Review of market for week ending 6/24/39 76 Great Britain See Silver - I - Italy See Countervailing Duties - L - Lonigan, Edna See Self-Help Cooperatives Louisiana Smith's (J. Monroe) (President of University of Louisiana) embezzlement of funds discussed at 9:30 meeting - 6/29/39 292 a) Attorney General's degree recently from University of Louisiana also discussed - M - Monetary Legislation HMJr, Foley, Bernstein, White, and Lochhead confer - 6/29/39 341,388 a) HMJr consults Mint and finds no newly-mined silver would be taken in over week-ends 347 b) Foley memorandum: "Purchase of newly-mined domestic silver under Silver Purchase Act" 350 c) Lochhead memorandum: "Procedure for silver purchases by Federal Reserve Bank of New York as fiscal agent of United States under Silver Purchase Act of 1934" 355 - M - (Continued) Book Page Monetary Legislation . - (Continued) Attorney General's opinion on sufficiency of provisions of H.R. 3325 to accomplish purpose if enacted into law after midnight - 6/30/39 199 382 a) HMJr tells Grace Tully to so inform FDR - 6/30/39 387 - P - Poland See War Conditions - R - Railroads For equipment program, see Business Conditions: Recovery Program Revenue Revision Hanes' proposed testimony reviewed by HMJr, Gaston, and Hanes - - 6/28/39 184 - S.- Self-Help Cooperatives HMJr tells Colonel Harrington FDR suggests expansion of program by starting bureau in Works Progress Administration with Miss Edna Lonigan at head - 6/28/39 264 Silver See also Monetary Legislation Communications from HMJr to Treasury while en route to Washington by plane 159 HMJr tells Barkley silver in London has broken 40$; consequently Treasury has made price 40¢ - 6/27/39 123 a) HMJr also tells Wagner 138 b) HMJr authorizes drop to 38¢ - 6/29/39 359 HMJr and Hull confer on status and opinion of silver Senators that price be 774 - 6/27/39 143 a) "Unholy alliance between non-devaluationist and silver bloc" Chinese Ambassador consults HMJr about future sales in view of report Senate favors terminating foreign purchases - 6/28/39 260 Future Canadian purchases discussed between Hull and HMJr - 6/28/39 267 Josephus Daniels (Ambassador, Mexico) asks to be kept informed of action taken by Congress - 6/30/39 385 Regraded Unclassified - S - (Continued) Book Page Simon, Louis A. (Public Buildings Branch, Procurement Division) Thanks HMJr for inspiration of Mrs. HMJr and himself upon transfer to Federal Works Agency - 6/30/39 199 424 Spain Memorandum to Jesse Jones stating conditions precedent to any arrangement to finance exportation of cotton to - 6/30/39 423 Stevens, Mr. See Appointments and Resignations Surplus Commodities Wheat: Haas resume - 6/10-24/39 336 - T - Taxation See Revenue Revision - U - U.S.S.R. Oumansky (Ambassador) confers with HMJr on possibility of settling debt - 6/30/39 428 a) Hull informed of conference 425 - W - War Conditions Canada: Conference with regard to cooperative program for protection of security, money, and commodity markets, et cetera, in event of acute disturbances abroad planned between United States Treasury and Canadian Minister of Finance - 6/29/30 302 a) Jerome Frank notified 324 b) Eccles notified. 330 Poland: Butterworth reports negotiations for armaments, raw materials, and cash between Polish delegation and British Treasury "drag on"; Polish request from French also reported on - 6/28/39 244 Devaluation of currencies of Poland, Turkey, Greece, and Roumania may be suggested by British and French Governments to United States "if European situation holds together this summer" (Butterworth reports) - 6/28/39 245 Regraded Unclassified - W - - (Continued) Book Page War Conditions - (Continued) Devaluation (simultaneous) by Italians and Germans on July 1st rumored by Bullitt - 6/28/39 199 252 a) American Embassy, Berlin, gives resume of present situation between Italy and Germany, discounting possibility for the moment - 6/29/39 370 b) American Embassy, Rome, reports on situation - 6/30/39 375 ADDRESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, D.C. 1 DEPARTMENT OF STATE WASHINGTON In reply refer to June 24, 1939. EA My dear Mr. Dietrich: With further reference to my letter to you of yesterday, I am enclosing a set of clippings which has been sent to the Department from the American Embassy in London, relating to Czechoslovak gold in London. These clippings should be returned to this Department at your convenience. Sincerely yours, Leray D. Stinebowa Leroy D. Stinebower Office of the Adviser on International Economic Affairs Mr. Frank Dietrich, Care of Mr. Lochhead's Office, Treasury Department. Regraded Unclassified PARLIAMENTARY DEBATES NUMBER: 2 House of Commons 25 May 1939. London. Cols. 2541-2542. CZECHO-SLOVAKIA (ASSETS, GREAT BRITAIN). Mr. A. Henderson asked the Chancellor of the Exchequer to what law, according to the protocols, the Bank of International Settlement is subject, and what action His Majesty's Government propose to take, in view of the fact that the board of the said bank, which contains two representatives of the Bank of England, has recently taken a decision with respect to the Czech gold, which constitutes a recognition that the German Government is the de jure Government of Bohemia and Moravia, contrary to the policy of His Majesty's Government? Sir J. Simon: I would refer the hon. and learned Member to the convention respecting the Bank for International Settlements signed at the Hague in January, 1930 (Command Paper 3484) and the Constituent Charter granted by the Swiss Government to the bank in 1930 in accordance with that convention. No doubt the bank carries out banking transactions in accordance with what it understands to be its legal obligations, and I am not aware of any evidence that the transaction referred to in the ques- tion can properly be held to imply that de jure recognition had been granted to the incorporation of Bohemia and Moravia in the Reich. In any case, it is clear that there is no action which His Majesty's Government can usefully take in the matter, PAPER: DAILY TELEGRAPH MADER: CITY: LONDON DATE: MAY 27 1939 - Vet. - worrd and M.P.S PROTEST the Chandor know about it. is the dan when be ne Mr. Charrall - the Prime Misider - el the AGAINST CZECH Treasury, the Bank of Regional would not have dreamed of entering into . of their kind without - GOLD TRANSFER the Chanceller Five or - milino of gold belonging le the people of had. be been transferred to the which had - - right to CHANCELLOR TO it than - bungler who had reptured bearer Taben them to . bank, end acked for the cash. SEEK ADVICE It was known that they were statem. that they sera to he - to not detro ment. that the whole transaction would be respened when the Ingal claiments DAILY TELEGRAPH' had a chasre of beinging their - a Nigher nurt DISCLOSURE NEST CAPTURED "All them facts - left out of The explanation given by the Price Minis- ter." declared Mr. Lient George with . RELEASE NOT ACT would of generare 21 - all suest. The and has born but the mare a in our stable. and for all OF TREASURY understand # is - there The question withhelder the Teranury had arguiesent or gives assent was, be agreed. an important our Tm BY OUR 0%% REPRESENTATIVE Date had said they had WESTMINSTER, Friday. agreed, but there - net . gress dest a that Strements and sometimes fierce The main feets of the stary were that debate arose in the House of millions of states many had been passed - to the relatives with the know- Commons today on the subject of ledge of las directors of the Bank of the transference of Cerchoslovas an England and the Treasury had taken - gold from the Bank of England to activa, If the cash was state term. them the Treasury should reconsider de the Heichsbank. attitude The transfer - announced by Mr. George expressed himself sangaine dart war would be averted the The DATE TELEURAPH a werk ago. general agreement was signed with Mr Licent General reterwing. on the Runsia, but added that proce could not administent. bis attempt to pia - be got - the of "building up spenability upon the Government, recognition of the German resquest Nas relatived in much of his argument The Government should take sirps and - allow the cash ao e antil there vas la Sir John Sumon - legal decisions - it. The of the piedge 14 estables whether TREASURY NOT INVOLVED - have porm wring was interpreted Sie J. SEMIX was first conserned to by 30f. as promise that all vindicate the Prime Ministro and this certaine would M used to prevent trum the insputation of tud faith in deny- public disaster in the handling over - Mr Lieve George's charges last work - the now named Mr Lloyd George thought that visat Through It was this time which formed had been done had been duer by the the of discussion, the debate Treasury and under the An requiring its Ingam spen the wider of reneat to the release - Canh - Las of almorgtion of Control That was - - Sir Juin admitted the esiatesce of a RECOGNITION PROBLEM Inding that the marry and un the From Minister's demai was - Mr. A. V. ALEXANAR, speaking first strong that be protested that the - the the From Bench, and Sir gestion of for living released . large ARCHIBALE SINCLAIR, the Indipendent Mork at was potting a large Liberal leader. following both FEE is his sext. divided Demovires la The recognition The after of the B.I.S. happened problem months - sur Alexander provided that the Tenants the et of March indirect Government not - information meded the Treasury that de facto the B.15 - "taking viego to receil - Sir A. Bungfair added that n. would be sold the was not informed for the Bank with the of Englated - by the Carch Lingation police. end would have . had effect never give authority, Nor John German moderate upinion, which did added or is had forwing in my power apprime the litter régime. wait tan refused. Mr Genner having The B.I.S. be procepted, was entiraly advised that recognitive should be with Da directore were as long 41 possible, but could not previo - rewird benks and leaders of be desired indeficialy, numed la the industry - - - - of transference of assets. The 15 their Governments handing - of Credit moter to Gen- DIMINITY BY PROTOCOL - through the Bank of Bullivments --- et example of bank All the Consents - DM reliberry British and Freuch improvate- - protocol immunite from el Covera and rapital dould be withdrawn with - present) anda from the Bank at International Bettles i to the Bank mesta to provent recorrence of similar a vas, impossible (if the incidents la MOP the transfer of Mr. Person LAWERRY asked whether - they --- prepared to the Britts - the DIS. treaties leard Mr Maniager Numeer and No British diversions of the B.1.8. - - DEL Nomeme supported the transac- is dose with - British Das No foreign Government would Government The never - less believe that the acted without the The essence of Use of the Bank was if the British Government that a shard - the concerned will questions LACK OF LIAISON Whether the PUBLICY had study in Mr. Boomy throught the Bank for Landos No Juhn refreed be did - Informational Settlemento --- bound by know "I will medial diabiles to found - the money trut be premied. shether is the matter M there had been a tack of between have - winne the Bank directora and the Treasury Birth il. - by leteral the The Bank had exassed to perform any required standance la an order of the hesrtion and the - ats Mail mid - - readed or deposits and directore were withdraws breach 1 obligations the better Mi Lingst Gritge subed The Mr o SERVICES suggested that - Treasury could rise the - in - der an independent Crech - aurt to obtain Ings) opinion on the signt might demind experiment to the lunk to payment unit estemiship - of England of the which II had summered - John pronounced this quite a - Mr a. BRACKER thought the Chan full Hagentine Bis ean enginion was that of the Exclequer had les belt per - not free la interiere, but if Use treded by the Birthsk directors of the --- here - should take why B.I.S. They were tranties for the in- burther advice that resid be had. fortunate Credit they cheald have The gold --- - in the vesits of the resert to the trander 111 they Treasury The Government - . City- hat . legal decision from the Serial insurent had no mare authority than any priver person They wight base punel through - QUESTION OF RECOGNITION Inpit mingths but be would the - in conclusion Sir Jahn dealh briefts have - il The transference et - money - made to provide the marks with the recognition of Commany an- main some for Nam If --- position of the mod equalid from of Beancial Other governments, including approvement nd Um United Males had withdraws für 2. WARRIAM Mam returned that bein legations and - consular repre- the Bank et England had - other course instations. The anreptance of . consult - to it tad to follow the instructions --- de facts recognition We received from the personse - - the - in consultation - other premo money, the B.I.S. - on the matter No artive would SAMES before the House met again. KEEP THEM HERE" Administration of Creck belances in Mr. Lieure the buret into essantry housed by the Art. might - to - dealt with unitatedally or by speech of Berry returned which from both sides The amount risarged the Government and the Treasury with a the the assets had been excepiented Der - against them substantial transfer of the annets Be thing Detre Bether There would be any below returns at Sir Julin etc. - - - than times the interrupt him Mr. in a few rentences in particular, be charged the Green Made plain that be took Sir John's normal with misleading the Name (if) the - at pressure of wirthing más while and he demanded that if the - to provent the maing of the had - pet artically we the Bank of England. they should be relatent is - to that declared his- all still unable le understand how the this persing . court decision. had envirpod the Charrier The under nal developed, he legan, - Ilm - are eving about the as the result of bis interventies # last Friday's debate Be tud read POSSIFY be cried under prople to entire and any military be had address and visa about M rembine when the Chas Mm - - paying taxes - . pagentir offer of the Exchanger internated wale % protect M. and at the same time with the words, The Base $8,000,000 could to transfirmed to the That was - paper I Reppened to Covernment of Germany for the pur Me Libert George reprined, post of increasing its armamia highly reportable Conservative news paper and throught it - startling that diverted trans the evidect of or est automatived the statement Crum He had asked the Prime Minister for an explanations instituty - - nap that the explanation was fair of is was, in dark, be added mn A. MARKS NEST" Mi Chamberlain had stated, Mr. Lieyd George west - that the story unimared True Tm Dany - mark's nevt He had added that Net ⑉ not in London and that the Treasury had not agreed to any le the Bank for Inter- BATTY nel il account else Would - believe finies this date net, M. Dest George add that - at be throught, - of assets which cere deposited - the Bank of Regraded Unclassified had the 4 PAPER: DAILY TELEGRAPH NUMBER: 3 CITY: LONDON DATE: MAY 27 1939 THE CZECH GOLD IN the light of the fuller information imparted by Sir JOHN SIMON yesterday Ministers are completely cleared of the charges of disingenuousness which had been levelled against their attitude to the affair of the Czech gold. When, on Friday of last week, the Prime Minister described the whole matter as a 'mare's nest he was merely repeating in good faith what he had been told by the Treasury in refer- ence to the disclosure made for the first time in THE DAILY TELEGRAPH that morning. We are now aware that what we then pub- lished was based on an incomplete knowledge of the facts; but it is sufficient to remark that not only the Prime Minister but the Chancellor himself were at that time completely uninformed. and that the truth, as since verified. was a matter of prime public interest. It has become plain that the gold in question was held on deposit in the Bank of England on behalf of the Bank for International Settlements and that the transfer of the gold to the Reichs- bank was due solely to the initiative of the Bank for International Settlements, against which the British Government had no legal power to intervene. It does, indeed, appear that Sir JOHN SIMON, in his desire to avoid any possible suspicion of interference with the inde- pendent jurisdiction of the Bank for International Settlements, had rather gone out of his way to keep himself in total ignorance of the actions of that institution. Somewhat curiously he derived such information as he had, not from the British representatives on the Bank. but casually from an undisclosed Continental source. He even now does not know. rather sur- prisingly, whether the gold is still in the country. That so complete a detachment on the part of the British Government is necessary to the proper functioning of the Bank for International Settlements roused doubts in the minds of many members of the House yesterday as to the further usefulness of the latter institution. The Bank was founded as a Central Bank for Central Banks," with the express object of facilitat- ing a totally non-political conduct of international financial transactions. This purpose has been defeated by the highly political and controversial action of the Bank in transferring the Czech gold to unauthorised claimants. If, as appears, the Bank is to become an instrument for aiding and abetting in aggression then the sooner its statutes are radically revised the better. Meanwhile, it is satisfactory that Sir JOHN SIMON is to seek further legal advice as to whether the Czech gold, if still within reach, might not after all be impounded on behalf of its rightful owners. Regraded Unclassified PAPER: FINANCIAL NEWS NUMBER: 4 CITY: LONDON DATE: MAY 27 1939 GOVERNMENT & CZECH GOLD RELEASE CHANCELLOR TO TAKE LEGAL ADVICE NO LARGE SURPLUS OF ASSETS LIKELY The Government has undertaken to take further advice on the question whether it acted wrongly in refraining from interfering with the B.I.S. release of London-beld Crech gold to Germany, This promise was given by Sir John Simon in the course of the debate on the adjournment yesterday, but he warned Members that, in his view, the agreement with the B.I.S. was binding. Both the Government and the British representatives on the B.I.S. faced strong criticism from all sides of the House, The debate yester- BIA to oppose it, Nr leta Simin em- day marked the climax of the wase of phasiant that the Greernment had - indignation that began in work age with pour our them and that the Bank for the disclosure in The Financial News of International lad always the primare to Gennany of some been considered to be outside the 116,000,000 of Carch gold held in Landon Government's preserves. Be instated - account of the B.L.S. with the Bank that the Gevernment lad not even of England Intene feeling was also prem to obtain information from the annual by the revelation that negolis Bank upon whether the gold was - time am in progress between the in Lenton. Treasury and the German Government Neverthelens, Sir John Simos pro- for the release of the Corb amerts mised the House that be would take blocked in this country. legal advice to assertain whether the The Treasury and the Government, Government was wrong in thinking that the Bank of England, Mr. Normas and il was est possible to Nork the Crech fir Otto Niemeyer, and abive all the gold held in the name of the B.I.S. le D.I.S., faced sharp criticism from all expresent the view, however, that this sides of the House, Experienent Par- visa unlikely, declared that seldom has this Government, or any other, been LONDON TALKS subjected to - unanimous an altark. VERIFYING U.K. CLAIMS Hardly a single speaker supported If, CRITICISM OF B.I.S. As for the London negolistions, Sir John Simon stated that their first object is to verify the British claims. He said M.P.A DEMAND WINDING-UP that estimates published about the The transfer of the £6,000,000 of Carb amount of blocked Crech assets were gold by the B.E.S. to the Beichsbenk - growly and that no ear- strongly conderned by all speakers. plus is likely to be left. over after the Neveral of them demanded the winding settlement of the Treasury's own claims up of the B.I.S., or, alternatively, the and of British private claims, Should resignation of the British directors and there to . surpois, benever, be thrught withdrawal of British deposits. Feeling that il would be necessary to restore it in the House appeared to be partice- to the Crecho-Blovak owners even at the larly strong, and it la believed that the risk of lia bring selend by the Gennan matter will be raised again after the authorities. Da the political aspect of Whitern recess, the problem, Bir Inter promised the There was equally strong criticien of Brue that the Governments would make the attitude of the two Beitish directors no move for the recognition of the of the B.I.S., on the ground that they German régime in Carrbo Slovakia failed to make en effort be stop the telote the reasonsibly of the House after transfer qf the Cards gold, or even to Whitsen, report the matter to the Treasury. The CITY'S FEARS fact that the Treasury tax no control uver the militade of these directors was DOUBTS ABOUT LONG-TERM LOANS subject to much adverse comment, while the Government's contention that the When the details of yesterday's debate Bank of England and the D.I.S. are became known in the City, the first re- private banking institutions was de- artion vas disappointment at the states by several spenkers. The ment that, after all there may be no Recialiste setzed the opportunity to eurpise of Creds nexts ever claims, The demand the of the Bank of any direct reference la the -- . messa of terminating the present Crech Implem lease in the Chancel- animalsons situation. lot's liet of British claims to - malis- Bed est of the Carch alon around BANK & B.I.S. INSTRUCTIONS comment. views were expressed by all There are vigne fears that the liveng- speakers against the legalistic more term Inste may not be estitled ass of tion that characterised the Treasury's the Cards amets, and that the Govern- ellitude in this matter, One of the - may make arrangements with the spenkers argued that, even on strictly Germans la secure interest payment on legal grounds, there was . strong case the bonds out of the surplus of Crech - for the Bank of England to disergard porte to this country over Creeb Imports the indirections of the B.I.S. It - from this country, Any such pointed est that if a banker knows that mest would be considered meat unatie- the belder of an account acta morely as factory. a for . thint party, ad if the Senter condert was derived from the bolder of the account tries to convert possibility that the further enquiries the friends to another party, II is the daty may Blvd . way of you blocking the of the bank - make enquiries before Carch gold beld bere ns account of the coming evt the instructions received. BIS. Selidaction our this was damped, by his John THE MARE'S NEST " main that, if there should be & eurplas CHANCELLOR'S EXPLANATION of blocked assets, it. englisht to la Sanded back to the Carcha, even at the risk of lis On the question of the Carch assets being estand by the Gorman authorities. Hocked in Lemina, il was Instated that NO DEFENCE OF B.1.8. DIRECTORS the euror that would remain after What arrosed the most speciation in of British claims against benking ciedes --- the cranglete about as - effects station be handed over to Germany, or, in Sir John Simon's speech, of any attempt is defend is. Bank of Eng- what amounts to the name thing to the German consented land, or Mr. Mentage Norman and Sir National Bank. Offe Niemeyer, against The Bowd et There was, nondiess to say, Buck criticiens directed against them during the debate, While the Chancellor of the triticism of Mr. Chamberlain's marv's Exchequer spent considerable time - neil description of the reports about the Canch asseta, And the Chanceller defending Mr. Chamberisis, of the Eachequer agent Name Sime is and the Treasury against the trying to explain - the incident le left. the shary attacks against the two lle also might to explain away the British directors of the B.I.S. - secured between this Mainment - Tomby and that of the Financial A full report of the Commane debate is given - PACK a. lary to the Treatury - Monday Desing with the B.I.S. givil be GERMAN PRESSURE Internated the Ingalistic point of view, declaring that the Generament had - a la asserted by Basis, enge the Exchange, that the German Germinment power to - the transfer, owing to brought presure le lear en the B.I.S. the manuality of - under to affect the - the Cash Informational agreements to Germany The Brutish Gevernment, is reply to questions why the Genera is is americal, has - Ingal provide for met OR - to - - the by helpacting the British directors of the the prever Regraded assified with the PAPER: FINANCIAL NEWS NUMBER: 5 6 CITY: LONDON DATE: MAY 27 1939 FINANCIAL APPEASEMENT The question of recognition of the German conquest of Czecho- Slovakia and the fate of the Czech assets in this country occupied Parliament for 41 hours yesterday to the exclusion of everything else- a significant tribute to the importance of facts which the Prime Minister saw fit to describe as a " mare's nest," when they were first reported in these columns. The substantial accuracy of these facts is now universally accepted, and this in itself is a gain of some importance in days when public men are too frequently tempted to use the Press as a scapegoat. But, apart from this, the position after yesterday's debate remains hardly more satisfactory than before. The Government's intentions both in respect of the recognition of Herr Hitler's protectorate" and of the Czech balances in London are still obscure, and there is still room to fear that this obscurity may conceal the most deplorable type of diplomatic blunder. Speaker after speaker in yesterday's debate made plain the extreme distaste with which all parties in this country would view any Governmental action implying even de facto-much less de jure-recognition of the German invasion of Czecho-Slovakia. These strong feelings have a sound practical foundation. The whole policy of building the new peace front against aggression is but two months old, and it was only as a result of this invasion that the new policy was adopted. There are still some quarters, both at home and abroad, in which the sincerity of the Government's renunciation of appeasement' is still doubted. There can be little doubt that any faltering, such as would be implied by recognition now, would multiply these suspicions with potentially dangerous results for the solidarity of the peace front. Fortunately, Parliament has intervened decisively during the past week and the Prime Minister has promised to take no action until it reassembles. When that time comes the Government will have no excuse for unawareness of the state of public feeling. While the House of Commons yesterday left no doubt of its strong political objection to recognition of the present state of affairs in Czecho- Slovakia, it was no less outspoken on the financial questions involved. It is a remarkable fact that, out of nine speakers drawn from nearly all parties, not one could be found to approve either the handing over of £6,000,000 of gold to the Reichsbank or the "informal talks about the fate of the Czech assets covered by the Czechoslovakia (Restrictions on Banking Accounts, &c.) Act. In the matter of the £6,000,000 held by the Bank of England on behalf of the Bank for International Settlements, Sir John Simon was able to defend his own and the Treasury's inaction by reference to the strict provisions of the protocols of 1930 and 1936. This was the " legalistic 11 defence which members expected from the Chancellor. But in the matter of the Czech assets now blocked in London, Sir John had not even the defence of the law. Laymen. both in the City and elsewhere, find it difficult to understand why these assets should be the subject of negotiation at this time. In the absence of better explanations than have so far been forthcoming they will be apt to conclude that these negotiations are only the prelude to appeasement" on a wider front. The Government would be well advised to bow to public opinion, and let the Treasury think again. Regraded Unclassified 13725 INSURER: CITY: wear DATE: MAY 1939 TRANSFER OF CZECH ASSETS AGAIN BEFORE, COMMONS "MARE'S NEST" STATEMENT: SIR JOHN SIMON'S EXPLANATION SETTLEMENTS BANK DIRECTORS CRITICISED To - of the transfer of Check of - intending is take elops, - - ... received - the debate - the this gold. - for Na adjustment is the Name of - when su A. y NO POWER TO ACT (Lab, --- Whis be mained what ⑉ happening - the questive el the mpisa if the be al - Benight # right to main . - - copies at lines - - to what the tarte win. - for - Mr. General (Das., Bolder Boy know them. - - - level - - - the Bank for International for - anthority or anything et the - --- - performing . is any - be would have - - proor is the present state of Exempt la estuar - - with the new EXM Camb Referring les the nature and of - - - - under live bank For - the - - (Lak, Elistergh Chasreller HIS If - brand = Mar mail 1. said - did - disponsible that Mr. of and probode agret M the - - Ber one Name if - is - - the RIS. - - direct Karape . - pm elegiber segulations of the current but - - II was interrity - promites of the Bank of Englash - Governments) und - allu - provises of banks end representati of - - - la - - they - - instructions - - appointed to the - " - with the - - and ware - - - - - the B18 - anon Government is any De The Mainter . - that - affered questions of intergente - - --- . - - --- Han insure - relected like - International Dete et The Magor. The commission - - - - be AND the - with the or protects - - - - - - - ENVO la or for International - - the - Certar - respirte incometty Iran all - - personal a. pisture which van of principal or - - - - the Parts COMPLETE IMMUNITY LACK OF CO-OPERATION " - represity required that a - NEI - Mindom El - lass employee INSURY both with regard is the property - de bank twit end the de the tal * run to of - proprety and - held for the - la lack of lass latures Has accient of other Having entered - Name - - BER - the . --- rush. be mg the Insury - that the Treasury - to - M. - al was - the nie -- for - being of - transfer . - - - - derectora with- le - of these INSURANCE a was - of the question for B.M. M. Government - - - % said the with transfer of the - of the - - - Less Bank - International - is is treat for - Crede- to Mr. Lings Genger's view ----- main - Mare - that the firma of the Back for intered the Bank - England - runling Internation Address magic to la in - - despir, if - result - - with - British the . brea - Imal and la - information Sir Iska suit that a - - Es legal trade Hell - - was - FRR show Lord Newden returned true The N - - - - of Mar Hape, that the articles of association were desis - regist le thought de Genera trans - and the bank - vp. is was --- - have - - - - live - of the that the - action - the - of sow, or May hand - base - scentra --- the - have - - Particular und - et - document Neither the Rest - Mar DM --- the - wher the directors of - M all - prevent the I ted - taken the view - of - Their chief - that the of the bonk did - - --- - - - provided the mailer being cers the Bruse comment - - LEGAL ADVICE TO .. TAKEN - world. benefit. additional GOLD STILL HERE? - Best addre be could - to shelled the - net - when in the He Intel that for para was mater - be bulined Bill Fax - . name - the Bask - Expend and if assisted as - that des the savants wasted - - . ----- - unders to the Benk of - to direction be - certain the House England that would hant - he worded these to el - resid Hin provent - Limit George I hope be ent - the question - that way What Il that - reaching - - the world --- - - - should empoire last. - giving - to the whather - " - the treasury - - Englash and - beinging - faier the sesue is any coart - order to - -- - - part. tate - opinion - - the mate - There - . - Ausgre that - of payment will the questions of la dere - sodependent Cardo-No basily - Bran tab. la signi - - the new of England mind if the Character resid HD - be the Amount - - - name back - the me wheter the gill ⑉ - - the National actually is Die vesite of the Bank of of cante with have . 1 Explaid Bank and - - - that - is repir, the Changeller be - - - what extends - Emergency had - - - educated - to - the Bank of England what H as might well - that - . - of - had in - cellars IN resible mot happen with - the Benk of England would - - entimate benk. but - Bach of Englash - - Involved - the place 1 I I : : . : the world COMSUL AT PRADUE BARR'S POSITION MISREPRESENTED - the question if conder represence Mr. Lieyd (Lib., las - the Green - - that al - grandly ad tax required that after May = und - - - - of - p.o.m el - deposited - the Bank representatives in Pragre should - - of England here - handed - to the the valla internal bitherts alives I I : I # I I to them the was - which the positives of - Bank - regunds the legative. -- - with - DI " - if II - colleary drawing - Minister: Credito - - grand banking That - - - - the a. - the - - - - of England of had already their - - the dess vehicles - - - native and - the - Date - will the Tenancy If these --- - - comenter representative to - after - - . great principle - . shift interests, name of - certainly ⑉ expiring I I I f I herigs address, the - - and billish - - School - is bonk with - Moran - is charge of . the - The tel - - name - The uness Government end - the Cash givel that . who date remier representative la them provides bester - - - - is the back - - is be recognized - - after and actions for cash Insure a mine ⑉ the Investions the Cresit claimed the - of the Comm 44 LEGAL QUIBBLES -- No - that ... " Jacks responsions of German authority is is - - - - for - procedual word, - had been tomal then mater with legal qualités You while to secure the protection of - in - - without - - they --- - You know they de jure of - new power are - - - - la year - - - the whole - will be CZECH BALANCES - - - - - - have . change of puting - - in . to the administration at Del higher - all these No - in - - sast that if they - git be - - the explanation - the - I 1 I I I I Misimi and at be approval, this world - - He Intered the - - - forative to existred - - the Character - - The proposer represente - there - . - I - very du - I I I I I = 1 ⑉ Unit - - hand - - - - sided - the - . . - - Rust - - - - energy - the - Date November - - -- - - . back - está --- will bene, thesid - - a - - - - - - The transfer of --- - Whether there would - any belance at tal respective of the compet of I = ! I I : I - Transity had applical - that - - les - bet - - - coverity - of cluss the pesibility The the RETIRNE This - - of the - would - # these was - " which - - be pert of . provided mile - - is ser - - - - that belance to e to - The - - 187 - that - prime - because " this - - - - - - - and - to Prenting than if Frank This -- - - ordinary - - think " world - - has - beneing - - . place phace - ATTITUDE WELDOMED proprivated by - - - - - - Mr - - Charchild Come, - - - - or what name - - the - - - the - - is the patiente ent Neger - - - - an to the - - - - --- give - - No - CHANGERLAIN'S POSITION has Name - for - - - is - --- of - being bended a bills - is Ha details Be Name - - - - From en - - 2 I I I i I I averya the - lensted - be in estat - - envego -- forse at with Phe - - Friday - Harrid carte E I I in 1 I È I I I 1 1 I I I - less - # - *** is - - I I : I I 1 protect der word I I I I I I - and beiter if the transferred - - are - allowed of - - H medical - - of Credito - Net be - - - essus --- - a - - - - that these - e - - - I - For - be - - - I I I I I the of the - address The - Misimum month Promised - - fally what be the - - - - - to - which de - - - - - - - to Ingred - - feel - - Important money " and brain et - - is - that die - - - Blams - - - - - the bands of - to Issue - . the - be en - - here - dates est - de Rich the phrse Refer - TM IN 1 - - - - - - - - IN - There - - - if - the Rive - - This Not - - have the - - - 4go H Revisions in - - - - March that the -- - PAPER: MANCHESTER GUARDIAN NUMBER: 7 8 CITY: LONDON DATE: MAY 27 1939 The Czech Gold Yesterday's debate on the gold of the Czech National Bank held in this country did something to clear up the mystery of what last Bank is now a very different body week was officially only a "mare's from what it was when it was set up nest" of Mr. Lloyd George's as an instrument of international discovery, That unfortunate phrase recovery ten years ago. It has given is now disowned, and the Prime way to German pressure in this case, Minister has been dutifully exon- and it is much to be hoped that, as erated from responsibility for it by Mr. Lloyd George suggested. the Sir John Simon; but this strange Chancellor and his advisers will be chapter is not at an end, and the able to find some way of getting over House will undoubtedly return to it the legal difficulties and so prevent immediately after the Whitsuntide this country from assisting in what recess. It was clear yesterday that was not too strongly called the all parties and all shades of opinion 'robbery" of the Czech people. The are deeply disturbed at the possibility incident brings up sharply the of handing over to Germany relations between the Bank of £5,000,000 to which her Government England and the Government. What has no shadow of right. The same is incredible Is that for two months view was expressed in speech after after the transfer of the gold was first speech, and it is a natural and just mooted the British Government had view. The invasion of Czecho- apparently only an indirect" know- Slovakia by Germany was a crime ledge of what was on foot and the which has been vigorously denounced general public no knowledge at all. by all, and not with least vigour by It is possible that the Government in the Prime Minister. The Govern- one of its not infrequent moments of ment has not recognised it, and there startling obtuseness failed to realise is general agreement that no steps the anger such a proposal would towards recognising it should be cause if it were known. It taken. To do anything which might apparently failed to reply with any imply recognition would be directly "indirect" protests and has actually opposed to the whole trend of our begin conversations with German foreign policy. That much is clear. representatives over the Czech assets There remain, however, three things now blocked in London by statute. about this history to be cleared up: conversations that are admittedly how did the possibility of transfer linked up with de facto" recognition arise, how far has it got, and how can of the German conquest. The Germans it be prevented from going any may excusably have believed that farther? According to Sir John there would in the end be no obstacle Simon, the Treasury heard "quite to full recognition and a full transfer indirectly "-that is to say, neither of all Czech assets. Neither course from the Bank of England nor should now be possible. from any Czech representatives- that the Bank for International Settlements proposed to take steps to recall the gold. If it had been in his power he would have refused to let the transfer take place, but it was not in his power, and the transfer was agreed to without, as far as can be seen, any protest on the part of Mr. Montagu Norman or of Sir Otto Niemeyer, the Bank of England's representatives on the Bank for International Settlements. Where the gold is now is not known: at any rate, Sir John Simon has no knowledge and is not sure that he has the right to ask. It is a very odd business. Sir John Simon is, of course, perfectly justified in pointing out that the Bank for Inter- national Settlements is, by its constitution, carefully guarded from governmental interference. But the Regraded Unclassified 9 PAPER: DAILY HERALD NUMBER: CITY: LONDON DATE: MAY 27 1939 There Must Be Control W Ho decides Britain's foreign policy and finan- cial policy? Mr. Montagu Norman or the Government? In the past year or two the Treasury seemed to be increas- ing its control over the Bank of England little by little. We flattered ourselves that Mr. Norman had begun to recognise the British constitution under which the will of the people is expressed in Parliament. But this confidence proves to have been premature. The astounding affair of the Czech gold surrendered to Germany shows that Mr. Norman is still taking decisions of high policy into his own hands and weav- ing a cobweb of legal quibble and financial mysteries around his operations. Mr. Norman never told the Government that the Bank for International Settlements was proposing to hand over the gold to Germany. The Government does not even know officially whether Mr. Norman, on the Board of the Bank at Basel, favoured the transfer, or opposed it. Sir John Simon has to tell the House that he does not even know where the gold is, and does not think he has the right to ask Mr. Norman. So, in face of the united demand for international justice from the British Parliament, the Chancellor of the Exchequer has to explain humbly and apologetically that he has no power to ask the Governor of the Bank to do what Parliament wants. Could there be a more con- clusive proof of the validity of Labour's claim that the Bank, under the Governor, should be made openly and officially servant of the British public? That claim is now shown to be not merely valid but urgent. No section of the British public can tolerate the situation In which Mr. Montagu Norman carries on with the policy of appeasement, when even Mr. Chamberlain claims to have given it up. Regraded Unclassified 9 10 PAPER: DAILY KERALD CITY: LONDON DATE: MAY 27 1939 MR. NORMAN IN CZECH GOLD UPROAR By DOUGLAS JAY, Daily Herald' City Editor AN extraordinary situation has been created by Sir John Simon's speech in the House of Commons yesterday on the £5,000.000 of Czech gold, which the Bank Faced with a unanimous de- of England has been ordered to transfer mand for further action, Sir John promised to re-examine the legal to Germany. question and see whether the Treasury could not call upon the Everyone in the City who Bank of England to withhold the ought to know believes that the gold after all. gold is still in the bank's Many legal and financial experts vaults. believe that this is the proper In Parliament yesterday nearly course, and that the Reichsbank every speaker demanded that the should be forced to sue the Bank Government should take immedi- of England in the British courts, ate steps to prevent the gold find- If it wishes to get the gold. ing its way to Germany. Sir John's next move is, awaited with very great interest in Parlia- Mr. Wedgwood Benn said that if the gold was still in the Bank ment, in the City, and throughout the country. of England's vaults, Sir John should send the Serjeant-at- Arms to fetch it. NO CONTROL Sir John made almost no attempt to defend Mr. Montagu Norman, Governor of the Bank of England. Instead he protested that, for all sorts of technical legal reasons, he could not control Mr. Norman in this matter at all. Sir John told the House that he would like to. prevent the Nazis getting the gold. But he added, to the growing astonishment of the Members, that he did not even know where the gold was, and did not think he had power to ask Mr. Norman to tell him. SILENCE Most surprising of all, Sir John said that Mr. Norman was not in the habit of telling the Treasury about the affairs of the Bank for International Settlements which recently granted powers to trans- fer the £5,000,000 to the credit of the Reichsbank ssified PAPER: FINANCIAL NEWS NUMBER: 10 11 CITY: LONDON DATE: MAY 30 1939 LOMBARD STREET SURRENDER OF CZECH GOLD: GOVERNMENT'S FURTHER ADMISSION MONDAY EVENING. clearly absurd to suggest that the Bank During the course of the debate on the is entitled to withhold information on any Czech assets last Friday, the Chancellor of subject If the Government demands it. the Exchequer made an admission which During the last few months the Govern- escaped the attention It deserved. He con- ment addressed repeated requests to all fessed that the Treasury knew, since the banks, and even though It had no legal end of March, about the action taken by right to demand the execution of its re- the German authorities to gain possession quests all banks willingly complied with of the Czech gold deposited in London in them. Is it admissible that the Govern- the name of the Bank for International ment should be entitled to expect loyal co- Settlements. On the other hand, our In- operation in the public interest from any formation is that the actual transfer did bank except the Bank of England? not take place until early in May. This means that the Treasury had ample time to POLITICAL BANKING take legal advice, obtain all the necessary Sir John Simon's contention that the information from the Bank of England, B.I.S. is a strictly non-political body must and to take the necessary steps for stop- have caused mild amusement among those ping the transaction. who have followed the bank's activities, Had the Treasury obtained Its Informa- From the moment of its foundation It has tion in May only, at the same time as the been a centre of political activities, and, Press did, it would have had a legitimate as one Conservative speaker remarked excuse for doing nothing on the ground during the debate on Friday, a hotbed of that there was no time to take action. As political intrigues." The transfer of the it is, Sir John Simon's confession amounted Czech gold was agreed upon, not on legal to an admission that, even though he had considerations, but purely as & result of more than a month at his disposal, he pre- political pressure from Berlin. We under- ferred to abstain from doing anything stand that the pressure was resisted by beyond considering the matter," pre- French interests, who wanted to await the sumably within his own department. It ruling of a law court, but they received no would appear that he did not even take support whatever from the British side. legal advice, judging by the fact that on Friday be promised to do so. It seems, Indeed, it seems reasonable to suppose therefore, that his claim that he was as that the British directors actually sup- anxious as anybody to stop the transfer if ported the German claim for the Imme- possible was mild exaggeration. The Gov- diate surrender of the Czech gold. Other- ernment will have to give very concrete wise, the French general manager, M. evidence of its desire to stop the transfer Auboin, supported by the French directors, in order to make good its inaction between would have put up a better fight against March and May. In the absence of such the surrender. When in October and evidence It will be generally assumed that November, 1937, Mr. Norman and Sir Otto the Treasury deliberately abstained from Niemeyer insisted upon the appointment of taking the necessary steps, in pursuance of a German general manager, M. Fournier its policy of financial appeasement." threatened to withdraw the French deposits from the bank, which would have IS THE GOLD STILL HERE? forced the bank to liquidate. Presumably According to Sir John Simon's own the reason why Paris did not decide to admission, although he obtained his in- take such a firm line on the present OCCR- formation from unofficial quarters towards sion was that the French authorities did the end of March. he did not attempt to not wish to disturb the relations between obtain official confirmation from Mr. Paris and London, relations which have Norman. Not even after the uproar caused become much closer since 1937. by the disclosures in the Press and the THE LONDON Premier's categoric denial of these disclo- sures did the Treasury consider it neces- NEGOTIATIONS sary to obtain the real facts. What is The Government's defence of the London more, even though the Chancellor of the negotiations with the German representa- Exchequer knew since May 22 that the tives in London, on the ground that such question would be raised on the adjourn- negotiations are necessary In order to ment on May 26, he did not déem it neces- ascertain how far the British claims sary to ascertain whether the gold was against Crecho-Slovakia are genuine, does still here, or even whether he had any not carry much conviction. Surely, it is pos- right to ask the Bank of England for In- sible to verify the claims with the aid of formation. This, at any rate, was what documentary evidence. without having to the House was asked to believe. enlist the assistance of the German Ministry The Chancellor's statement conveyed the of National Economy, and even the German impression that, not only had be no desire Foreign Office. The presence of the latter's to take action to prevent the transfer, but representatives conveys the Impression that he had no desire even to be informed that the London discussions are not about the situation. Even if there is no perhaps confined to technical questions, as law under which the Bank could be com- the House was led to believe on Friday. nelled to part with information. it is Sir John Simon stated that If there should be an excess of Czech assets over British claims the surplus will have to be released, even If this means surrender to the German authorities, since the Government has no right to retain these assets. The predom- inant majority of the Czech owners of assets here would prefer howerer, that their assets should remain blocked, NO as to be out of the reach of the German authorities IL is the latter and not the owners of the assets who are presumably pressing for a general release, efter satisfaction of the British claims. If is to be hoped that no arrangement will - made by which the Treasury will have to part with Informa tion about the names of Crech holders o assets in London. aded Unclassified 12 PAPER: FINANCIAL NEWS NUMBER: CITY: LONDON DATE: MAY 30 1939 M.P.S AND CZECH GOLD RELEASE MORE QUESTIONS TO MINISTERS Further questions about the release to the Reichsbank of the £06,000,000 of Czech gold held in London on account of the Bank for International Settlements will be asked in the House of Commons when Par- llament reassembles after the Whitsuntide recess. In the debate on the adjournment on Fri- day, which was fully reported in The Financial News, both the Government and the British representatives on the board of the B.I.S. (Mr. Norman and Sir Otto Niemeyer) were strongly criticised from all quarters of the House. The Chancellor of the Exchequer then pro- mised that the Government would take legal advice on the question whether 15 had acted wrongly in refraining from interfering with the release of the gold. LEGAL ASPECT OF AFFAIR Members want further information re- garding the legal aspect of the affair, and are anxious to be enlightened as to the exact position in the matter of the B.I.S., the Bank of England and the Reichsbank. Ministers will be urged to take measures whereby in future they will be provided with full information when the transfer of assets of this nature is in question. Colonel Burton, the Conservative mem- ber for the Sudbury Division of Suffolk, has given notice to ask the Chancellor of the Exchequer " whether he will consider the advisability of suggesting to the Bank for International Settlements or other holders of gold or specie for the account of Czecho-Slovakia that such gold or specie shall be retained in this country and the capital and/or income therefrom should be applied to the service of interest on loans and redemption of obligations of the late Czecho-Slovak Government." Other members intend to put down ques- tions later. LAST WEEK'S FIRE OF QUESTIONS In addition to the long discussion in Parliament on Friday, Ministers were interrogated at great length by members on Monday and Tuesday. The Financial News dealt with the affair on Wednesday and Saturday in leading articles entitled Mare's Nesting and Financial Appeasement." CZECH DEBTS TO U.K. HOLDERS JUNE 17 THE FINAL DATE FOR CLAIMS The Treasury to-day announces that June 17 is the final date for lodging the informa- tion in regard to certain Czecho-Slovakian financial obligations due to British holders, asked for in a Bank of England announce- ment on April 3. After that date no forms will be accepted unless the reasons for the delay are satisfactory to the Treasury. The information was required from holders in regard to financial obligations held by them at the close of business on March 14. The request did not, of course, imply that the Treasury accepts any responsibility for obtaining satisfaction in regard to such obligations. The necessary forms, obtainable from the Bank and its branches, or through any other bank in the U.K., should be sent, when completed, to the Chief Cashier's Office, Bank of England, in envelopes marked .. Czecho-Slovak obligations." CLAIMS ADMISSIBLE The financial obligations in question are: Loans issued by the Crecho-Slovak Government, by any public authority in Crecho-Slovakia or by any corporation In- corporated before March 15 lust, under ations is Regraded Unclassified More Mill - PAPER: FINANCIAL NEWS NUMBER: 12 13 CITY: LONDON DATE: MAY 31 1939 BANK AND CZECH GOLD GOVT. TO ADOPT NEW LINE OF DEFENCE ? It is understood that as a result of an exchange of views between the Treasury and the Bank of England on Friday, the Government is likely to change its line of defence in face of the criticisms directed against the Treasury's attitude in the matter of the surrender of Czech gold by the B.I.S. Throughout Friday's debate the main argument with which Sir John Simon sought to convince the House that the Treasury was unable to prevent the transfer of the £6,000,000 of Czech gold by the B.I.S. was that the assets held by the B.I.S. enjoy immunity against being seized. There is reason to believe that the Government will adopt a totally different method of defence after the reassembly of Parliament, and that benceforth the main argument will be that the Bank of England has no knowledge about the existence of any Czech gold in its vaults, beyond the amount which is held in the name of the Czecho-Slovak National Bank and which is blocked under the Czecho-Slovakia (Restriction on Banking Accounts, &c.) Act. DISCLAIMER BY BANK? The Government will maintain that the Bank of England disclaims possessing any information about the ownership of gold held here in the name of the B.I.S., and that, this being the case, no action could be taken either now or earlier for the seizuré of the alleged Czech deposits in London, whose existence is unproven." The explanation of the impending change in the method of defence lies in the fact that the protocol concerning the immunity of the B.I.S. assets binds the Government only and not the Bank of England, and that the Government would be attacked on the ground of having failed to induce the Bank of England to block the gold on its own initiative. FRENCH CRITICISM OF B.I.S. FROM OUR OWN CORRESPONDENT PARIS, May 30.-In French official circles extreme reserve is maintained con- cerning the Czech gold surrender, and comments are refused. Nevertheless, it is understood in financial quarters that re- ports that French representatives on the B.I.S. board opposed the transfer to Ger- many are correct. Strong criticism of the B.I.S. board is expressed in banking circles. It is con- sidered that the board's decision was on the principle that the situation of Czecho- Slovakia was unchanged by that country's annexation and consequently that Ger- many, owing to the simple use of force, was entitled to exercise Czecho-Slovakia's rights abroad. It is felt also that the B.I.S. should have submitted the question to The Hague Tribunal, especially since the B.I.S. itself originated the Young Plan which provided for numerous arbitration pro- ceedings. egraded Unclassified PAPER: FINANCIAL NEWS NUMBER: 13 14 CITY: LONDON DATE: MAY 31 1939 LOMBARD STREET BANK OF ENGLAND DISCLAIMS KNOWLEDGE OF CZECH GOLD 1 TUESDAY EVENING. boards they sit. Sir Otto Niemeyer, how- Following the debate on the Czech assets ever, is chairman of the B.I.S., while Mr. in the House of Commons on Friday, the Montagu Norman is one of the creators and Treasury has been constantly conferring the Pooh-Bah of the bank. with the Bank of England. The Bank BANKING SECRECY PLEA has apparently found a new explanation for the conduct of the B.I.S. And the UNTENABLE Bank now takes a totally different It is therefore not an unreasonable pre- line from that of the Chancellor of sumption that both Mr. Norman and Sir the Exchequer in his reply to questions Otto Niemeyer might be cognisant of the on May 23, and also in his statement ownership of the B.I.S. gold deposits in last Friday. The Treasury's "strong London-at all events, so far as important suit" is that the Government was debarred accounts, such as that of the Czecho-Slovak from taking any action under The Hague National Bank, were concerned. Nor is It Agreement of 1930 and the Brussels Pro- possible to plead that the identity of the tocol of 1936, by virtue of which the Govern- owners of the deposit had to be concealed, as a banking secret, in the Interest of the ment granted immunity to B.I.S. assets owners. The Czecho-Slovak National Bank against seizure and confiscation. Whether Itself never sought to hide the fact that part or not this defence is watertight as far as of its London gold deposit was held under the Treasury is concerned, it certainly does the name of the B.I.S. In the present situa- not cover the Bank of England. The latter tion it is obviously against the interests of was no party to the agreements, which the National Bank that its ownership were between the B.I.S. and the Govern- should be concealed under the plea of banking secrecy. ment, In these conditions, It may be doubted Accordingly, the view adopted among whether action In Parliament will per- international lawyers is that it was not for suade the Bank of England to admit know- the Treasury but for the Bank of England ledge of the existence of the Czech gold- to prevent the surrender of the Czech gold unless, of course, the strength of Parlia- to Germany, by refusing to carry out the mentary pressure is great enough to com- pel the Treasury to bring equally strong Instructions of the B.I.S. pending a ruling pressure on the Bank of England, If so, by the Court. The Treasury, it is argued, the public feeling aroused by this affair is to be blamed only in so fat as it failed is unlikely to die down. to use its considerable influence first, to induce the British directors of the B.I.S. IS THE B.I.S. to resist the German demand for the sur- NON-POLITICAL? render of the assets, and secondly, to induce the Bank of England to refuse to Even among those who are inclined to comply with the instructions received from accept the Treasury's defence of its the B.I.S. policy, there is a growing resentment against the attitude taken by the B.I.S., HITCH IN THE DEFENCE which In many quarters is regarded as the The line of defence adopted by the Bank villain of the piece." The fact that the of England was elaborated to meet this Chancellor of the Exchequer has re- line of attack. It consists of a simple dis- peatedly emphasised his inability to obtain claimer of knowledge of the existence of information about that bank from its any Czech assets in its vaults, beyond those British directors is also subject to much held in the name of the Czecho-Slovak adverse criticism. Sir John Simon's ex- National Bank, which are already blocked planation that such a result is inevitable, under the Czecho-Slovakia (Restrictions on owing to the essentially non-political Banking Accounts, &c.) Act. The Bank of character of the B.I.S., falls to carry con- viction. The Chancellor of the Exchequer England maintains that It has no know- can hardly have overlooked the well- ledge whatever of the ownership of the known fact that one of the German direc- gold held on account of the B.I.S., and tors of the B.I.S., Herr Funk, is a member that, in the absence of information about of the German Government. the existence of a Czech gold deposit It is difficult to imagine that, out of among the gold holdings under the name enthusiasm for the principle of Indepen- of the B.I.S., It would not be in a position dent Central Banking, Herr Funk, the to refuse instructions by the B.I.S. con- director of the B.I.S., conceals the know- cerning the transfer of part of its gold ledge acquired at Basie from Herr Funk, holdings. Adoption of this line of defence the German Minister of National Economy would make It likely that, after the re- -uf from any other German Government assembly of the House, less would be heard department. Thus, while the British about the Immunity of Czech gold held by Government is left in the dark (unless It the B.I.S. than about lack of knowledge of happens to obtain information indirectly its very existence. from unspecified continental sources) the Ingenious as this defence may appear, it German Government receives full informa- has one very obvious flaw. Two of the tion through the presence of one of is directors of the Bank of England are on members at the board meetings at Baste. the board of the B.I.S. Admittedly, direc- Is not a non-political bank which counts tors sometimes do not claim to possess Herr Funk among Its directors a contra- encyclopadic knowledge of the in- diction in terms numerable details of businesses on whose P.E. Regraded Unclassified. 15 PAPER: DAILY MAIL NUI BER: 14 CITY: LONDON DATE: MAY 31 1939 SURRENDER ORDER FOR CZECH GOLD BALE, Tuesday. T HE Bank for Inter- national Settlements announced to-day that it had "been forced' to authorise the handing over to Ger- many of £6,000,000 deposited by the Czecho-Slovak National Bank in the Bank of England. The authorisation came under an official demand from the new administration of the Czech National Bank." the Bank for Interna- tional Settlements stated. City Puzzled The Bank of International Settle- ments said that their only part of the transaction was to verify the signa- ture on the Czech Bank's request for the money.-Associated Press. The City of London is still much puzzled about the present whereabouts of the Czech gold (says The Daily Mail City Editor). Neither the Bank of England returns nor the bullion export figures disclose any shipment to Switzerland or Germany. It may be that the Czech gold has been sold by Germany in London and converted into dollars, but those who follow the bullion market believe that the £6,000,000 is still in the Bank of England. 16 PAPER: THE TIMES NUMBER: 15 CITY: LONDON DATE: JUN 1 1939 Dr. Beyen on Czech Gold The plain and straightforward state- ment made to the Agence Economique by Dr. Beyen, the president of the B.I.S., should serve to clear away much of the political fog which has surrounded the transfer of the Czech National Bank's gold deposit. Clearly Dr. Beyen, as the head of the executive, is the person who is best qualified to speak concerning something which was essentially a routine banking question. He confirmed the view ex- pressed here that the B.I.S., on receiving properly signed instructions from the National Bank regarding the disposal of -the gold deposit, had no obligation under Swiss law to question the circumstances in which the instructions were given, and that being so the B.I.S. was obliged to carry out the instructions in the absence of Governmental authority to do other- wise. Dr. Beyen also made it clear that neither the British Government nor the Bank of England could do anything to prevent the B.I.S. from disposing of the gold in accord- ance with its own decision. In practice the case might possibly have been put in even stronger terms than these, for the B.I.S. is certainly not under any obliga- tion to state for whose account, whether its own or that of a third party, any gold with the Bank of England is de- posited. Even if, however, the gold were specifically earmarked the Government, and consequently the Bank of England also, are bound by treaty to respect the complete immunity of B.I.S. deposits of any kind. Criticism of the B.I.S. At the same time, the very inevitability of the transfer has caused some people to question whether a concern, whose con- stitution makes such a position possible, is in itself desirable. And it is significant that in responsible and to some extent authoritative sections of the French Press suggestions have been made that the B.I.S. should not continue in its present form. On that question, plenty of argu- ments can be advanced on both sides. But it is not easy to attach any overwhelm- ing weight to the main argument put for- ward against the existence of the B.I.S.- the argument that an aggressor country might be enabled thereby to get posses- sion of any gold deposited with the B.I.S. by its victim's central bank. In compari- son with the other losses, material and otherwise, suffered by such a victim, this specific item might appear somewhat trivial; and at the present time official policy envisages rather more solid sup- port for the victims of aggressions than blocking their gold deposits post eventum. It is scarcely an argument which would justify the liquidation of the B.I.S. if that institution can still be shown to serve a useful financial purpose. Statutes of the Bank It is clear enough that the main purpose served at present by the B.I.S. is that of providing a valuable meeting-place for central bank directorates. Developments during the decade since it was established have largely prevented it from fulfilling its originally intended practical functions. But that does not mean that it may not be well worth while to keep the organization -which clearly would not be easy to re- establish-in existence. Moreover, if it is ever to carry out the practical tasks for which it was designed, the far-reaching immunities which it enjoys must be pre- served. That need not, naturally, pre- clude the possibility of amendments to Protocols and the Statutes of the Bank to deal with the specific difficulties which have been revealed, though agreement on such amendments might no doubt be em- burrassing to seek and difficult to obtain. At the same time, it is not only theoreti- cal arguments that will decide the future of the B.I.S. For is is quite obvious that % decision on the part of only a few countries to withdraw their deposits from the B.I.S. might make it impossible for the bank to continue in business indefinitely. The indignation and uneasiness caused by the Czecho-Slovak affair might well make a number of countries unwilling to make lase of the bank's facilities unless the con- itions under which it works are altered as to make it impossible for anything the kind to recur. Regraded Unclassified 17 PAPER: DAILY TELEGRAPH NUMBER: 16 CITY: LONDON DATE: JUN 1 1939 CZECH GOLD IN BRITAIN £16,000,000 LEFT' From Our Own Correspondent ROME, Wednesday. The Resto del Carlino," organ of the Fascist party, states that the German Government has obtained complete satisfaction over the Czech gold deposited in Britain. The Bank for International Settle- ments has ordered the Bank of England to hand over £6,000,000 deposits to the Reichsbank. The British Government could not object because the operation was quite legitimate. But the newspaper adds that there is still £10,000,000 in Britain which belongs to the former Czechoslovak Government. besides £6,000,000 belonging to Czech private depositors. The British Govern- ment, it says, has laid an embargo on these two deposits. TALKS SUSPENDED By Our City Editor It was learnt yesterday that the talks which have been taking place between the British Treasury and Herr Rueter, of the English section of the German Foreign Office, have been indefinitely suspended. These talks which related to the future of the Czech assets in London, excluding the £6,000,000 of gold held by the B.I.S., were essentially preliminary in charac- ter. Their aim was to explore the possi- bility of setting off the Czech assets held in London against the sterling liabilities of the old Czechoslovak State, 18 17 PAPER: DAILY TELEGRAPH NUMBER: JUN 1 1939 CITY: LONDON DATE: TRANSFER OF CZECH GOLD EXPLAINED NO PRESSURE EXERTED' From Our Own Correspondent PARIS, Wednesday. An interview with Dr. Beyen, president of the Bank for International Settle- ments at Basle, on the transfer of Czech gold to the Reich is published to-day in the Agence Economique et Financière." According to the Basle correspondent of the paper, Dr. Beyen said that the question was a purely technical one for the B.I.S. No pressure was exerted on it from any quarter whatsoever. The B.I.S., he said, had only to examine whether the order given was valid. Neither the British Government nor the Bank of England could prevent it from dealing with the gold deposited in London. Swiss legislation did not require the B.I.S. to examine the legitimacy of the orders given to it by the National Bank of Czechoslovakia. Dr. Beyen remarked that it was naturally not the business of the B.I.S. to determine whether pressure had been exerted by Germany on the National Bank of Czechoslovakia, and in any case it had not the means of so doing." the paper adds. Until now no claims had been made on the holdings of the National Bank of Czechoslovakia. It was not incumbent upon the B.I.S. to negotiate on this sub- ject with any German institution. Any attempt at political pressure would have been stopped immediately by the B.I.S." Regraded Unclassified PAPER: FINANCIAL NEWS NUMBER: 18 19 CITY: LONDON DATE: JUN, 1 1939 B.I.S. AND CZECH GOLD TRANSFER 'PURELY TECHNICAL," SAYS PRESIDENT In an interview given to the Basle corre- spondent of the Paris Agence Econo- mique et Financière, Dr. Beyen, president of the Bank for International Settlements, is reported to have said he regretted that the question of the surrender of £6,000,000 of Czech gold from the Bank of England had become a political one. He affirmed that it was a purely technical matter for the B.I.S. and that no pressure had been exercised from any quarter. He said that neither the British Government nor the Bank of England could prevent the B.I.S. from using the gold deposited in London in whatever way it desired, nor was the B.I.S. bound by Swiss law to examine in any special way the legitimacy of orders given by the National Bank of Czecho-Slovakia to the B.I.S. PRESSURE FROM GERMANY? Dr. Beyen pointed out that the gold did not belong to the B.I.S. and there was no question for examination whether there had been pressure from Germany on the National Bank of Czecho-Slovakia. Nor were the orders passed by that bank to the B.I.S. subject to question. The Agence Economique et Financière adds an editorial note, according to Reuter, that it is understandable that public opinion should be shocked by the transfer, which is apparently of a regular nature. It would be better to liquidate this insti- tution, continues the paper, than let it be in a position to carry out transactions which it would certainly be more difficult for the Reichsbank to achieve without it. See also " Lombard Street," page 6. PAPER: FINANCIAL NEWS NUMBER: 19 20 CITY: LONDON DATE: JUN 1 1939 LOMBARD STREET THE B.I.S. BREAKS ITS SILENCE DR. BEYEN'S APOLOGIA WEDNESDAY EVENING, IS LIQUIDATION It is nearly a fortnight since the first ADVISABLE? news of the surrender of the Czech gold by the B.I.S. to Germany. During that Few tears would be shed if, as a result time-and more particularly since the con- of the Czech gold affair, the B.I.S. were forced Into liquidation. A glance at the firmation of the news by H.M. Government figures of the balance-sheet and monthly on May 22, the Bank for International return shows that the bank is moribund Settlements has been sharply criticised and utterly lacks vitality. The ambitious from all sides. To-day, for the first time, schemes attached to it at the outset have the bank, through its president, Dr. Beyen, come to nothing. At present, it fulfils no has attempted to refute the criticisms, Dr. functions which could not be performed Beyen is reported to have expressed regret equally well by non-political banking institutions. Its turnover, apart from the that the question of the transfer of Czecho- renewal of frozen credits, is almost neg- Slovak gold from the Bank of England ligible, and may decline further after the had been given political significance. Lest Czecho-Slovak affair. this statement, however, should be inter- A first step towards the liquidation of an preted as suggesting repentance for the unfortunate experiment in monetary inter- decision to make the transfer for political nationalism would be the determination of the guarantee which secured immunity for considerations, Dr. Beyen hastened to add B.I.S. assets. This would remove practi- that the transaction was purely a technical cally the only Inducement for Central matter, and that no pressure had been Banks to keep part of their gold in London exercised from any quarter whatsoever. In the name of the B.I.S. France would If these words are to be interpreted undoubtedly follow Britain's example. In literally, we must assume that the B.I.S. that case, B.I.S. deposits would retain their was so anxious to oblige Berlin that it immunity only in one or other of the States carried out Germany's wish without even bordering on Germany. Such a proposi- being pressed to do so, Actually, Dr. tion would hardly be attractive. Few Beyen does less than justice to his bank people would be confident that any German by suggesting that it cheerfully sacrificed army of aggression would respect the the interests of its client, the Czecho- Slovak National Bank, in this way, despite immunity of B.I.S. assets. the fact that the instructions sent from GROWING STORM Prague were obviously given under duress. Though some quarters are suggesting INDECENT HASTE that there has been over-much discussion of the surrender of the Czech gold de- Dr. Beyen is reported to have declared, posited in London, a great deal more is further, that under Swiss law the B.I.S. likely to come. Public interest, far from was under no obligation to examine the abating, continues to grow in strength. legitimacy of the orders given and to go Last week the majority of daily news- into the question of possible duress, It might have been presumed as obvious, papers confined themselves to reproducing Parliamentary replies and debates on the without any special examination, that the Czecho-Slovak National Bank would not, subject, without comment. This week, of its own free will, have given instruc- however, the question is definitely tions so obviously contrary to its own news," and comment is almost uniformly interests. The President argues that It critical. In the foreign Press, also, espe- was not the duty of the B.I.S. to consider cially the French Press, the majter is re- this aspect, but does not pause to consider ceiving its share of attention. whether the B.I.S. had the right to part Several M.P.s have declared their Inten- with the gold. Yet, there is some evidence tion of pursuing the question further. that even the B.I.S. was not altogether There Is widespread anxiety to refute the satisfied with the legitimacy of the German arguments used by Sir John Simon during domination over the National Bank. The last Friday's discussion. Unless some voting right represented by the 4,000 shares action calculated to satisfy Parliamentary held by the National Bank was exercised opinion results from the legal advice taken at the shareholders' meeting, not by the by the Treasury, the question may be a Reichsbank but provisionally by Dr. thorny one for the authorities. Beyen. P. E. In broadly similar cases, banks have frequently, in order to safeguard their ellents' interests, refused to execute In- structions, pending a ruling by the Law Courts of their countries. Even to this day, no action has ever been brought in England by the German authorities to obtain the surrender of the substantial Austrian assets which are held by certain British banks. The B.I.S did not follow precedent, but acted in indecent haste, linst its client's Interests, Regraded Unclassified PAPER: DAILY HERALD NUMBER: 20 21 JUN 1 1939 CITY: LONDON DATE: CZECH GOLD: IT GETS ODDER By DOUGLAS JAY, Daily Herald" City Editor INDIGNATION about the recent transfer of £5,000,000 of Czech gold from the Bank of England to Germany via the Bank of International Settlements has been further increased by a statement from Dr. Beyen, Dutch Pre- sident of the B.I.S., made yesterday in Basel. Dr. Beyen says that the trans- fer of gold was regarded by the B.I.S. as a purely technical measure and not political" at all. Contradiction This attitude is in flat contradic- tion with that of the British Govern- ment, which refused to release ster- ling assets held by Czechs on the grounds that the Nazi seizure of Prague was illegal. The position of Mr. Montagu Norman and Sir Otto Niemeyer (directors of both the Bank of England and the B.I.S.). has thus become odder than ever. The City wants to know, and Parlia- ment will want to know. whether they accept the view of the British Govern- ment or that of Dr. Beyen. Disagreement Dr. Beyen's pronouncement has strengthened the general belief that there is a serious disagreement between the Treasury and the Bank of England over the whole matter. When Parliament reassembles there will be a strong demand that Sir John Simon should call on Mr. Norman to raise the matter again at the B.I.S. on the understanding that if the B.I.S. refuses to reverse its decision, the Bank of England would withdraw from its participation in the B.I.S. Should Mr. Norman resist such a request from the Chancellor, the ques- tion of the relation between the Bank of England and Parliament would arise in an acute form. PAPER: FINANCIAL TIMES NUMBER: CITY: LONDON DATE: JUN 6 1939 CZECH ASSETS TOTAL As soon as the debate was over I made inquiries of the Bank of England as to the facts, and it is plain that the assumption to which I have referred is incorrect. The Bank of England states that it £14,500,000 so FAR holds from time to time amounts of gold in safe custody for the Bank for Inter- national Settlements and holds such gold to the order of the Bank for International Settlements, but that the Bank of England BRITISH CLAIMS has no knowledge whether gold so held is in fact the absolute property of the Bank for International Settlements or is held by OUTLINED the latter in whole or in part for the account of others. The Bank of England is therefore not aware whether gold held by it at any time in the name of the Bank for International By our POLITICAL CORRESPONDENT Settlements is the property of the National Bank of Czecho-Slovakia. The same situation exists as regards cash WESTMINSTER, Monday. balances held by the Bank to the order of In the House of Commons to-day SIR the Bank for International Settlements. JOHN MELLOR (C., Tamworth) asked the Chancellor of the Exchequer if he would U.K. CANNOT STOP TRANSFER state the aggregate amount of the Now that the correct position is under- assets so far ascertained to be subject stood, a good many questions which were to the Czecho-Slovakia (Restrictions on raised in the debate are disposed of. But Banking Accounts, etc.) Act and of in addition to making inquiry of the Bank claims against such assets. of England I at the same time sought the He also inquired whether he had now advice of the Law Officers on a number obtained sufficient particulars to enable of points. What I am about to say is in him to form an approximate estimate of accordance with their advice. H.M. Government are precluded by the the total amount covered by the Act. terms of the Protocols of 1930 and 1936 CAPT. H. CROOKSHANK, Financial Secre- from taking any steps by way of legisla- lary to the Treasury, said the estimated tion of otherwise to prevent the Bank of amount of the assets so far ascertained to England from obeying the instructions be subject to the Act and available for given to it by its customer the Bank for meeting claims was between £14,000,000 International Settlements to transfer gold and £15,000,000. The claims included the as it may be instructed. The Czecho- repayment to the Treasury of the advance Slovakia Restrictions on Banking Ac- of £6,000,000, the transfer to the Czech counts, Etc.) Act. 1939. does not operate Refugee Trust Fund of the unexpended to prohibit the Bank of England from balance of the Free Gift-namely, making such a transfer without the con- £3,750,000 from British holders sent of the Treasury. Even if it did it in respect of bank balances, etc., amount- would be a breach of Treaty obligations ing to about £3,500,000, and in respect of to withhold Treasury consent. bonds with a face value of about There is no validity in any of the sug- £2,500,000. Claims had also been received gestions made in the recent debate that from British holders in respect of partici- the Bank of England would be entitled to pation in industry, real estate, etc., which refuse to obey the instructions given to it could not conveniently be expressed as a by the Bank for International Settle- capital sum. ments. And there are not means by which A notice had been issued in the Press the Treasury could obtain a ruling of the that 17th June was the final date for Courts as to whether they have the power registering claims and that no forms to prevent the Bank of England from would be accepted after that date unless making a transfer when ordered to do so the reasons for the delay were satisfactory until the question of the true ownership to the Treasury. Until all the claims had of the gold is finally determined. been received and until they had been examined the figures given could not be regarded as even an approximately SETTLEMENTS BANK accurate estimate of the claims of British holders. RETURN FOR MAY CHANCELLOR ON THE QUESTION OF CZECH GOLD From OUR OWN CORRESPONDENT CZECH GOLD BASLE, 5th June. The return of the Bank for International THE BANK'S POSITION Settlements for May, just issued, shows a decline in the balance-sheet total by Further questions on the Czech gold Swiss Frs.13,000,000 (about £650,000 at were put to the Chancellor of the Ex- current rates) to Frs.576,379,193 chequer in the House of Commons to-day. (£28,819,000). MR. GREENWOOD (Lab., Wakefield), On the assets side, gold in bars increased asked if the Chancellor could now give the by Frs.21,000,000 (£1,050,000), but cash is result of the inquiries he undertook to ra.11,000,000 (£550,000) less, sight funds make and of the advice he intended to Frs.15,000,000 (£750,000) down and invest- seek on the subject of Czecho-Slovakian ments Frs.17,000,000 (£850,000) lower. assets entrusted to the Bank for Inter- Among liabilities, short-term and sight national Settlements and alleged to be deposits decreased by Fra.18,000,000 deposited with the Bank of England. (£900,000). Str JOHN SIMON replied: In the debate None of the changes is big enough to which took place ten days ago on the account for the surrender of the Czech motion for the adjournment it was assets to the German Reichsbank. The assumed by several speakers that the same can be said about, the B.I.S. balance- Bank of England, when dealing with gold sheets covering March and April. or cash balances held by it to the order of If the transaction in question went the Bank for International Settlements, through the books of the B.I.S. at all, the would be aware of the party to whom such parting with the Czech assets must have assets belonged and, in particular, that become evident from either of the last gold entrusted by the National Bank of three monthly balanre-sheets, unless, of Caecho-Slovakia to the Bank for Inter- course, these assets are still held by the national Settlements and deposited by the B.I.S. under the name of the German latter with the Bank of England would be Reichsbank. held by the Bank of England with the knowledge that it belonged to the National Bank. Regraded 23 PAPER: FINANCIAL TIMES NUMBER: 2 JUN CITY: LONDON DATE: 7 1939 FUTURE OF THE B.I.S. Misconceptions which need never have existed concerning the Govern- ment, the Bank for International Settlements and the Czech gold trans- action have now been painfully and lengthily cleared away. The episode is an object lesson in how such matters should not be managed. In Parlia- Obviously, the Bank will more and ment the statements of fact which more terid to become a bankers' cul- ended the debate would, if made at its tural and statistical centre. No commencement, have avoided much formal measure will be needed to confusion of thought and undignified effect this transformation, which cir- altercation. As for the Bank itself, cumstances have been accelerating for its original handling of the "Czech" some considerable time. The task of application appears to have shown rehabilitating the Bank for Inter- signal disregard of the importance of national Settlements is bound up with the principles involved. Although it the task of restoring political sanity is clear that neither the Treasury nor and confidence to the world. The only the Bank of England could have done way in which the Bank can be made other than it did, it is difficult to avoid to function healthily once again is to the impression that the British repre- provide a reasonable degree of assur- sentatives on the Bank for Inter- ance that there shall be no more such national Settlements have been at events as the annexation of Czecho- fault. The possibility that such a Slovakia. To alter the constitution of situation might arise must have been the Bank so that it would not be evident to them from the moment of legally required to transfer the assets the German occupation of Prague. Yet of conquered clients would be to act the transfer of the Czech assets held on the assumption that the new by the B.I.S. took place without them British foreign policy is to be entirely registering any protest or promoting ineffective. It would be better, for the any discussion of an issue of obvious time being. to be resigned to the pros- importance for the B.I.S. in its peet of the Bank losing its clients, in capacity as a periodic round-table the hope that sooner or later condi- conference of international bankers. tions will become more propitious for It may be that the political cir- an experiment in international central cumstances of to-day and the Bank's banking. own constitution would have rendered such a protest ineffective, but that fact does not make it any the less regrettable that the opportunity was not taken of publicly airing the prin- ciples involved. International opinion would certainly have been more favourably impressed than by a pro- cedure which seemed to imply com- plaisance. In such circumstances, discussion of the Bank's future is of little more than academic interest. As an institution of practical import- ance its impotence has been heavily underlined by the Czech gold episode. On the other hand, to declare its total abolition would be to take unneces- sarily drastic action against an insti- tution which can still perform certain useful functions. Regraded Unclassified 3 PAPER: FINANCIAL TIMES NUMBER: CITY: LONDON DATE: UN 9 1939 COULD B.I.S. HAVE STOPPED CZECH GOLD TRANSFER? FOINTS THAT SHOULD HAVE BEEN CONSIDERED FULL STATEMENT DESIRABLE From A CORRESPONDENT Clarification of the circumstances Other grounds existed, however, on Allowing for recent territorial which between £5,000,000 and which the B.I.S. might well have insti- changes and new allegiances, the 000,000 of Crech gold was recently tuted international inquiries of some axis Powers and those likely to be trans ferred by the Bank of England to kind before transferring the gold. sympathetic to them commanded 83,814 the Reichsbank has by no means Since the Czecho-Slovakian State had votes out of a total of 200,000. cleared up the responsibility for the ceased to exist as such, it might have transaction. The responsibility has been questioned whether the National POLITICAL CHANGES merely been shifted from one quarter Bank had not ceased to have any to another, standing as a Central Bank. The That proportion is far from giving It bie now been made clear that the recent change in the scope of the any control over the bank's operations, gold, held by the Bank for Inter- Czech institution should have raised but if, as may be assumed, the axis national Settlements on account of the even more important questions. votes were energetically used they National Bank of Czecho-Slovakia Since 15th March the former might easily influence the policy of the from sume date prior to the annexa- National Bank of Czecho-Slovakia has B.I.S. to a disquieting extent. tion of Crecho-Slovakia by Germany. become the Bank of Bohemia and As a result of political developments was deposited with the Bank of Eng- Moravia, and its returns have not in- in Europe during the past decade the land merely as B.I.S. gold. without cluded assets and liabilities relating B.I.S. has thus fallen into a position in official indication of its Identity. to the new Slovak State. Presumably, which it may cease to fulfil its purpose therefore, the gold of the former bank of assisting the co-operation of Central INSTRUCTIONS TO BANK belonged partly to Slovakia, and the Banks. and may, on the contrary, be Oil the instructions of the Czech B.I.S. has laid itself open to criticism used as an instrument for carrying out Bank. given after the occupation. and in dealing with a jointly-owned asset the financial operations incidental to obviously at the instance of the Ger- on the instructions of only one of the the acquisition of new territories by men authorities, the B.I.S. in its turn owners. aggressor countries. instructed the Bank of England to That position has not been reached in hand over the gold to Germany. If, FOREIGN REACTIONS n. moment. It has certainly been patent as there are grounds for assuming. Points of this kind may possibly during the past 12 months. The right the Bank of England's compliance have been cleared up to the satisfac- quarters to have realised and dealt with followed automatically, the action of tion of the B.I.S. directors or officials the tendency for the nations command- the B.I.S. itself must be brought into before the Czech instructions were ing the heaviest voting power to fall question. ever translated into an order on the into two opposing camps were the Articles on the functions and Bank of England to transfer the gold. representatives of the democratic lowers of the B.I.S., published in THE But until some official statement on countries on the Board. INCIAL TIMES no 24th and 27th the subject is fortheoming there must There can be no doubt that a trend ibruary this year. made it clear that be room for suspicion that such ques- of this kind would have been observed lank holds gold for Central Banks tions were either overlooked or long ago, and its implications sensed, its own vaults but under its ear- ignored. in an industrial company or a com- in various financial centres. In any event, the reactions to the mercial bank. questions raised by the Czech gold transfer in foreign centres as transfer do not concern the MISSED OPPORTUNITY well as in this country show plainly (APrules for the Bank's conduct as enough that if the B.I.S. has satisfied It may be admitted that any recast- discussed in the articles, but the itself, it has by no means satisfied ing of voting power in the case of the views of the Board on the administra- opinion in Europe. Application of its B.I.S. would present enormous difficul- tion of the rules and their adaptation powers to this individual case have ties. to Individual circumstances. Did obviously been at variance with the Some alteration of the Bank's the circumstances require that the ideas of many of the countries partici- statutes to provide against any un- B.I.S. should refuse to meet the Czech pating in its formation, desirable political influence, although Bank's demand for its London gold to The very considerable representa- perhaps less difficult, might still be be transferred: and if so, what legal tion of axis and allied countries on by no means an easy matter in view power had the B.I.S. to demur or to the directorate of the B.I.S. may of the decidedly mixed composition of postpone compliance? possibly have influenced its policy. the Bank. OFFICIAL VIEW As shown in an article in THE But if recent trends had been FINANCIAL TIMES on 1st June, the dis- correctly observed steps might at least The only official statement we have position of votes carried by various have been taken to devise in advance on these questions is that made by countries, based on figures at 31st a code for dealing with situations such Dr. Beyen, the B.1.S. President, at the March, was as follows:- as that created by the absorption of end of last month. Dr. Beyen pointed No. of Czecho-Slovakia by Germany. If such out that in carrying out instructions given to it. the Bank had only to con- INSTITUTIONS votes a code had been in existence it may be sider whether the transfer order was Bank of England 19,772 doubted whether the London gold trans- National Bank of Belgium 19,772 regularly executed. fer would ever have taken place. Bank of France 19,772 It has been hinted that the Instruc- The opportunity having been missed Bank of Italy 19,772 tion was not, in effect. in order, since and the transfer made, the position cer- Reichsbank 23,772 it was not signed by the officials Industrial Bank of Japan 19,770 tainly calls for two measures by the usually subscribing on behalf of the First National Bank of New York 19,770 Bank for International Settlements. Czech institution. but by Germans Netherlands Bank 4,000 The first is the preparation and pub- who had supplanted them. There is Swiss National Bank 4,000 lication of a detailed account of the no need to take that suggestion as Swedish National Bank 4,000 transaction. and an explanation of the anything more than a forensie point. Bank of Danzig 4,000 part taken in it by the Bank. Secondly, Bank of Finland 4,000 On the evidence of Dr. Beyen's state- the Bank should make known the line Bank of Greece 4,000 ment it is fairer to assume that the Bulgarian National Bank 4,000 of policy it would propose to adopt if by signatures on the demand left no Danish National Bank 4,000 any chance similar circumstances were doubt as to its authenticity. National Bank of Rumania 4,000 to arise again. The circumstances were certainly Bank of Poland 4,000 Publication of statements on these such as to put the B.I.S. on inquiry. National Bank of Hungary 4,000 lines might sustain the waning but under Swiss law and under ordi- Caecho-Slovakia National Bank 4,000 confidence in the B.I.S. Failure to Bank of Norway nary banking practice, compliance 4,000 National Bank of Yugo-Slavia jasue them would undopbtedly with the demand was perfectly in 4,000 Bank of Latvia 500 strengthen the demand for the winding order. particularly as the German Bank of Lithuania 500 up of the Bank, or the withdrawal of annexation of Crecho-Slovakia has Bank of Albania 500 been recognised in Switzerland Bank of Estomia 100 "Regraded of the sified 25 CJ PLAIN LONDON Dated June 24, 1939 Rec'd 5:35 p.m. Secretary of State, Washington. 896, June 24, 8 p.m. STRICTLY CONFIDENTIAL FOR IMMEDIATE DELIVERY TO THE SECRETARY OF THE TREASURY FROM BUTTERWORTH. Your 474, June 23, 11 a.m. The following is the story of the Czech gold affair according to my infor- mation and Estimate. The Germans marched into Prague on March 15. On March 16 Simon announced in the HOUSE of Commons that no request had up to that time been made for a transfer of any gold reserves held in London by the Czech National Bank and that the British Government had requested the Bank of England not to make any Exceptional transfer of gold or balances without previous reference to the British Government (my 346). This request was generalized to all financial in- stitutions and applied to balances, securities, and gold held on behalf of any institution, firm or resi- dent institution, firm or resident in Czechoslovakia in a Regraded Unclassified 26 -2- #896, June 24, 8 p.m., from London a communication dated March 17 which the British Treasury requested the Bank of England to circulate. (This and other pertinent documents including Simon's letters to Norman may bE found in either my written report No. 2387 of April 3, cr telegram No. 377 of March 21, noon). By March 27 legislation had been passed by both houses of Parliament legalizing this impounding of Czech assets, these assets still remain 30 impounded, the only withdrawals permitted being by Czech refugees and some payments in satisfaction of pre-March 15 contracts. The amount now subject to this act totals about pounds 16,000,000 of which pounds 14,250,000 are regarded by the British Treasury as firm assets (my 712). On May 18 a German delegation made up of Muller, Von Susskind, and Ritter arrived in London for Explora- tory conversations with the British Treasury. According to the British Treasury (my 712) the German representa- tives were informed that if the matter could not bE handled through negotiations the British Government proposed to pass legislation during this session of Parliament to take over the impounded Czech assets and to USE them to liquidate British claims. My own in- pression was and is that the British Treasury would bE most Regraded Unclassified 27 -3- #896, June 24, 8 p.m., from London most reluctant to take such action since Great Britain has Enormous foreign assets and is aware of the danger of the precedent that would thus bE created. After a day or two the German delegation returned to Berlin to consult their government, and the British Government has just received a note from the German Embassy stating that the German Government was prepared to negotiate in this matter although it did not recognize the legality of the British action in impounding these assets and it did not regard all the British demands as just, The British Treasury is now awaiting a Cabinet decision as to when or whether it will proceed to enter into such negotiations. This is the straightforward part of this affair. The other part is curiously complicated. Such facts as have now become public reached the light of day because of two separate stories which happened to appear in the DAILY TELEGRAPH and the FINANCIAL NEWS on the same day, May 19. THE DAILY TELEGRAPH published an Erroneous story to the Effect that Herr Wohlthat, head of the Commercial Department of the German Foreign Office, had been in London since May 12 negotiating with the British Treasury which had "agreed to release pounds 5,000,000 of Czechoslovak assets in this country to the Bank of International Settlements to bE armarked for the USE of the Reichsbank". THE 28 -4- #896, June 24, 8 p.m., from London THE FINANCIAL NEWS story was to the Effect that the German authorities had obtained control of part of the Czech gold held in London that this sum of pounds 6,000,000 represented the amount held in London in the name of the Bank for International Settlements and that it was found that the B.I.S. gold could not bE brought within the scope of the act passed to block Czech assets in London. Lloyd George read the DAILY TELEGRAPH story on his way to the House of Commons to participate in a foreign affairs debate and hE used it in the debate. Since the debate was about foreign policy there were no Treasury officials in the House of Commons to advise the Prime Minister. A telephone call was made to Waley who had read the DAILY TELEGRAPH story but had not SEEN the FINANCIAL NEWS, and hE denied the assertions in the DAILY TELEGRAPH STORY, In his speech the Prime Minister used this information in such a way that it was subject to the interpretation of bEing a denial of both stories, HE said "The Right Honorable Gentleman (Lloyd George) found another subject for gloom in a story in the press that a German representative was in this country Engaged upon a sinister mission in consequence of which the British Treasury was to release sterling 5,000,000 of Czschoslovak assets to the Bank for Inter- national 29 -5- #896, June 24, 8 p.m., from London national Settlements for the benefit of the Reichsbank. I am glad to be able to cheer up the Right Honorable Gentleman on that particular point, because the whole story is a mare'spest. (Laughter) Herr Wohlthat, the gentleman named, is not in London at all as it happens, and anyhow the Treasury has not agreed to release any Czechoslovak assets to the Bank for International Settle- ments or to anyone Else. The only releases that have been made have been releases of small amounts to refugees from Czechoslovakia apart from some releases of small amounts to pay trade debbs due under contracts made be- fore March, 1939". Since the FINANCIAL NEWS story was basically true the Prime Minister's phrase If a mare's nest" has haunted both him and the British Treasury ever since. The German authorities did obtain possession of pounds 6,000,000 of gold which was held in London in the name of the Bank for International Settlements and are alleged to have obtained several millions of other as- sets which the Czechoslovak National Bank had on deposit in the B.I.S. which the latter hEld in Switzerland or Elsewhere. Shortly after the Germans ENTERED Prague they had the Czech National Bank officials sign the necessary papers requesting the B.I.S. to transfer assets held on behald of the Czechoslovak National Bank. My information is 30 ⑉6⑉ #896, June 24, 8 p.m., from London is that they did not request the transfer of all the assets at one time. When the first request was received at Basel, Oubion, the French Manager of the B.I.S. wished to delay honoring it. Beyen, the President, supported by the German manager, was favored honoring it. Oubion is said to have communicated with Fournier, who may or may not have talked on the telephone with Montague Norman. At any rate although Fournier later protested against the release at the meeting of the directors at the End of March, he seems to have been unwilling to take individual action. HE did communicate the facts to the French Government which in turn approached the British Government for the first time on March 24. Subsequently the French Embassy made several representations both to the British Treasury and to the Foreign Office in an attempt to persuade the British Government to take action. The British Government refused to MOVE. There is con- siderable confusion as to the Exact date on which Beyen authorized the first release of the Czechoslovak National Bank assets to the German authorities. From the British one gets the impression that the release occurred almost simultaneously with the first French representations; from the French one gets the impression that there was still time if quick action had been taken. But EVEN the French admit that by about that date a quarter of the assets 31 -7- #896, June 24, 8 p.m., from London assets were released. As Bonnet indicated in his statement of June 21st before the French Foreign Affairs Committee, the transfer of the assets was made by BEYEN himself. When the directors of the B.I.S. met at the End of March the overwhalming majority of the assets had been released. Fournier at that meeting protested vigorously against the action taken but his protests were evalued as being designed to avoid criticism at home. It is often hard and usually unfair to attribute motives on insufficient facts, but in appraising BEYEN'S action in releasing the gold, with or without the informal concurrEnce of some of the directors, it must bE said that hE had Austria and other precedents and the central banker-customer tradition favoring such a pro- cedure. It also has to bE said that he had already accep- ted an important position in London which he will take up at the End of the year with LEVER Brothers and Unilever Ltd., and that this concern has large German interests. The British Government claims that on the same day that the French first made representations, namely March 24, but earlier on that day, it received information from "a continental source" about the Czecho- slovak National Bank assets held with the B.I.S. It is possible that the British Treasury knew before this, if Fournier 32 -8- #896, June 24, 8 p.m., from London Fournier had communicated with Norman, for it is unlikely that Norman would not have passed on this information to the Treasury. On the other hand, when I asked the British Treasury on the afternoon of March 21 about the report which had reached Washington that when the Germans arrived in Prague they had found that "the cupboard was bare", Waley said that hE could not believe that was true and while I was there hE telephoned Cobbold of the Bank of England, who stated that as far as the Bank of England knew most of the gold of the Czecho- slovak National Bank was in Prague when the Germans 00⑉ cupied the city (my 382). It is an accepted fact here that the British Government could not have prevented the removal of any assets held in the Bank of England in the name of the B.I.S. without contravening the provisions of the Hague Protocol of 1930 and the Brussels Protocol of 1936. It is by no means an accepted fact that the British Government could not have taken steps through the Bank of England to attempt through court action to delay or prevent some if not all of the (*) released to the German authorities. In this connection the antece- dents of this affair are pertinent. As reported in my 374 of March 20, 6 p.m., the British Treasury decided to 33 -9- #896, June 24, 8 p.m., from London to impound the Czech assets in London because it "did not propose to repeat its Experiences over Austria, namely, to turn over all assets in Effect to the German authorities and then have to make a play, without this trump card, for the settlement of obligations to British nationals. It 30 happened that these obligations to British nationals included unfulfilled British Government orders to Czech munition firms for guns, gun-steel, and armor-plate. On these in accordance with standard Euro- pean munitions practice, one third of the purchase price had teen paid on the signing of the contracts. HENCE the British Treasury had immediate practical problems which required ENERGETIC action and it was motivated by these considerations and not by idsological and poli- tical concepts in the impounding of the Czech assets in the United Kingdom. However, this step was taken at the same time that the British Ambassador was recelled from Berlin and the Prime Minister made the speech refer- red to in my 359 of March 18, 1 p.m., and such was and is the rising tide of British public opinion that it in- terpreted the Treasury move as "retaliation against German aggression" as a means of Effecting "not-a-penny- for-Hitler". When it became clear that this in fact was not the impelling motive for the impounding of the Czech 34 -10- #896, June 24, 8 p.m., from London Czech assets, political controversy arose in acute form. The opposition in the HOUSE of Commons saw "appeasement" raising its heas; the Chancelor of the Exchequer denied that hE favored Germany obtaining possession of these funds. For further information on this aspect of the affair please SEE my written report No. 2776 of June lst. However, in his explanations in the House of Commons Simon went so far in Exphasizing both the non-political international character of the Bank for International Settlements and the private character of the Bank of England in order to explain why Norman was under no obligation to inform him of B.I.S. affairs or to take his instructions on such matters, that hE provided an opportunity for further controversy. A section of the HOUSE of Commons is urging that the B.I.S. statutes either bE amended or the British representation withdrawn; and an EVEN larger section of the House of Commons has become interested in the question of how close is the contact maintained between the Bank of England and the British Treasury. My own opinion is that the contact is very close and that both the Treasury and the Bank of England merely Emphasize the private character of the Bank of England when it is convenient and the governmen- tal character of the Bank of England when that is con- venient. 35 -11- #896, June 24, 8 p.m., from London. venient. HOWEVER, public statements have been made in the course of thi controversy which have given impetus to the movements for a more Exact definition of the re- lationship and for nationalization of the Bank of Eng- land. Furthermore, Bonnet's public statement of June 21st has laid the Prime Minister and the Chancelor of the Exchequer open to a charge of misrepresentation. For instance, the LABOR DAILY HERALD of June 22 in an Editorial Entitled "A Mare's Nest" raised "the question of the Minister's good faith" and states that "this is not the first time that Mr. Chamberlain has misled the Commons.' For England in the year 1939 that is strong political language. Although the B.I.S. assets of the Czechoslovak National Bank have long since passed into German possession the significant controversy which it caused in this country is still alive. This is the story as I get it and SEE it. I have tried to cover the de- velopments as they occurred and for convenient reference for further details my telegraphic and written reports are listed below. WRITTEN REPORTS Nos. 2299, March 20; 2387 of April 3, 2731 of May 23, 2742 of May 25, 2776 of June 1, 2811 of June 6, TELEGRAPHIC 36 -12- #896, June 24, 8 p.m., from London TELEGRAPHIC REPORTS Nos, 336 March 15, 7 p.m.; 346, March 16, 7 p.m.; 374, March 20, 6 p.m.; 377, March 21, noon; 382, March 21, 7 p.m.; paragraph num- bered 2 of 694, May 16, 9 p.m.; 712, May 19, 5 p.m.; 724, May 22, 6 p.m.; 729, May 23, 6 p.m.; 749, May 26, 6 p.m.; 779, June 5, 6 p.m.; 828, June 14, 7 p.m. KENNEDY NPL (*) Apparent omission BECEIAED ilivi se loss THENTRA930 YOURAPRT (When? sit in millo reisure wt of tent 37 THIS IS A CORRECTED COPY OF MESSAGE RECEIVED ON SATURDAY. CJ PLAIN LONDON Dated June 24, 1939 Rec'd 4:06 p.m. Secretary of State, Washington. 896, June 24, 8 p.m. Strictly confidential. For immediate delivery to the Secretary of the Treasury from Butterworth. Your 474 June 23 11 a.m. The following is the story of the Czach gold affair according to my information and estimate, (paragraph) The Germans marched into Prague on March 15. On March 16 Simon announced in the House of Commons that no request had up to that time been made for a transfer of any gold reserves hEld in London by the Czech National Bank and that the British Government had requested the Bank of England not to make any Exceptional transfer of gold or balances without previous reference to the British Government (my 346). This request was generalized to all financial institutions and applied to balances, securities and gold hEld on behalf of any institution, firm or re- sident in Czechoslovakia in a communication dated March 17 which the British Treasury requested the Bank of 38 -2- #896, June 24, 8 p.m., from London. of England to circulate. (This and other pertinent documents including Simon's letters to Norman may bE found in Either my written report No. 2387 of April 3, or telegram No. 377 of March 21, noon (paragraph). By March 27 legislation had been passed by both Houses of Parliament legalizing this impounding of Czech assets, (these assets still remain so impounded,) the only withdrawals permitted bEing by Czech refugees and some payments in satisfaction of pre-March 15 contracts. The amount now subject to this act totals about 16 million pounds of which 14-1/4 million pounds are regarded by the British Treasury as firm assets (my 712) (paragraph). On May 18 a German delagation made up of Muller, von Susskind and Ritter arrived in London for Exploratory conversations with the British Treasury. According to the British Treasury (my 712) the German representatives were informed that if the matter could not bE handled through negotiations the British Government proposed to pass legislation during this session of Parliament to take over the impounded Czech assets and to USE them to liquidate British claims. My own impression was and is that the British Treasury would bE most reluctant to take such action since Great Britain has Enormous foreign assets and is aware of the donger of the precedent that would 39 -3- #896, June 24, 8 p.m., from London. would thus be created. After a day or two the German delegation returned to Berlin to consult their Govern- ment, and the British Government has just received a note from the German Embassy stating that the German Government was prepared to negotiate in this matter although it did not recognize the legality of the British action in impounding these assets and it did not regard all the British demands as just. The British Treasury is now awaiting a Cabinet decision na to when or whether it will proceed to Enter into such negotiations, This is the straightforward part of this affair. The other part is curiously complicated. Such facts as have now become public reached the light of day because of two separate stories which happened to appear in the DAILY TELEGRAPH and the FINANCIAL NEWS on the same day, May 19. The DAILY TELEGRAPH published an Erroneous story to the Effect that Herr Wohlthat, head of the Commercial Department of the German Foreign Office, had been in London since May 12 negotiating with the British Treasury which had "agreed to release 5 million pounds of Czecho- slovak assets in this country to the Bank of International Settlements to bE Earmarked for the use of the Reichsbank 40 -4- #896, June 24, 8 p.m., from London. Reichsbank." The FINANCIAL NEWS story was to the Effect that the German authorities had obtained control of part of the Czech gold hEld in London that this sum of 6 million pounds represented the amount hEld in London in the name of the bank for International Settlements and that it was found that the B.I.S. gold could not bE brought within the SCOPE of the act passed to Block Czech assets in London. Lloyd George read in the DAILY TELEGRAPH story on his way to the House of Commons to participate in a fortign affairs' debate and he used it in the debate. Since the debate was about foreign policy there were no treasury officials in the House of Commons to advise the Prime Minister. A telephone call was made to Waley who had read the DAILY TELEGRAPH story but had not SEEN the FINANCIAL NEWS, and hE denied the assertions in the DAILY TELE- GRAPH story. In his speech the Prime Minister used this information in such a way that it was subject to the in- terpretation of being a denial of both stories. HE said "The right honorable gentleman (Lloyd George) found another subject for gloom in a story in the press that a German representative was in his country Engages upon a sinister mission in consequence of which the British Treasury was to release pounds 5,000,000 of Czechoslovak assets 41 -5- #896, June 24, 8 p.m., from London assets to the Bank for International Settlements for the benefit of the Reichsbank. I am glad to bE able to cheer up the right honorable gentleman on that particular point, because the whole story is a mare's nest. (Laughter). Herr Wohlthat, the gentleman named, is not in London at all as it happens, and anyhow the Treasury has not agreed to release any Czachoslovak assets to the Bank for Internation- al Settlements or to anyone Else. The only releases that have bEEn made have been releases of small amounts to re- fugees from Czechoslovakia apart from some releases of small amounts to pay trade debts due under contracts made bE- fore March, 1939. Since the FINANCIAL NEWS' story was basically true the Prime Minister's phrase "a mare's nest" has haunted both him and the British Treasury EVEr since. The German authorities did obtain possession of 6 million pounds of gold which was held in London in the name of the Bank for International Settlements and are alleged to have obtained several millions of other assets which the Czecho- slovak National Bank had on deposit in the B. I. S. which the latter held in Switzerland or Elsewhere. Shortly after the GErmans ENTERED Prague they had the Czech Nation- al Bank officials sign the necessary papers requesting the B.I.S. to transfer assets hEld on behalf of the Czecho- slovak National Bank. My information is that they did not request Regraded Unclassified 42 -6- #896, June 24, 8. p.m., from London request the transfer of all the assets at one time. When the first request was received at Basle, Oubion, the French manager of the B.I.S. wished to delay honoring it. Beyen, the President, supported by the German manager, favored honoring it. Oubion is said to have communicated with Fournier, who may or may not have talked on the tele- phone with Montague Norman. At any rate although Fournier later protested against the release at the meeting of the directors at the End of March, hE seems to have been un- willing to take individual action. HE did communicate the facts to the French Government which in turn approached the British Government for the first time on March 24. Subse- quently the French Embassy made several representations both to the British Treasury and to the Foreign Office in an attempt to persuade the British Government to take action. The British Government refused to move. There is con- siderable confusion as to the EXACT date on which BEyEn authorized the first release of the Czechoslovak National Bank assets to the German authorities. From the British one gets the impression that the release occurred almost simultaneously with the first French represEntations; from the French one gets the impression that there was still time if quick action had been taken. But EVEN the French admit that by about that date a quarter of the assets were released. 43 -7- #896, June 24, 8p.m., from London released. As Bonnet indicated in his statement of June 21st before the French Foreign Affairs Committee, the transfer of the assets was made by BEYEN himself. When the directors of the B.I.S. met at the End of March the overwhalming a jority of the assets had been released. Fournier at that meeting protested vigorously against the action taken but his protests were Evalued as bEing de- signed to avoid criticism at home. It is often hard and usually unfair to attribute motives on insufficient facts, but in appraising Beyen's action in releasing the gold, with or without the informal concurrence of some of the directors, it must be said that hE had Austria and other precedents and the central banker-customer tradition favoring such a procedure. It also has to bE said that hE had already accepted an important position in London(which he will take up at the End of the year) with LEVER Brothers and Unilever Ltd. and that this concern has large German interests. The British Government claims that on the same day that the French first made representations, namely March 24, but sorlier on that day, it received information from "a continental source" about the Czechoslovak National Bank assets held with the B.I.S. It is possible that the British Treasury knew before this, if Fournier had communi- cated with Norman, for it is unlikely that Norman would not have Regraded Unclassified 44 -8- #896, June 24, 8 p.m., from London. have passed on this information to the Treasury. On the other hand, when I asked the British Treasury on the after- noon of March 21 a bout the report which had reached Washing- ton that when the Germans arrived in Prague they had found that "the cupboard was bare", Waley said that hE could not believe that was true and while I was there he telephoned to Cobbold of the Bank of England, who stated that as far as the Bank of England knew most of the gold of the Czecho- slovak National Bank was in Prague when the Germans occu- pied the city (my 382). It is an accepted fact here that the British Government could not have prevented the removal of any assets hEld in the Bank of England in the name of the B.I.S. without contravening the provisions of the Hague Protocol of 1930 and the Brussels Protocol of 1936. It is by no means an accepted fact that the British Government could not have taken steps through the Bank of England to attempt through court action to delay or prevent some if not all of the releases to the German authorities. In this connection the antecedents of this affair are pertinent. As reported in my 374 of March 20, 6 p.m. the British Treasury decided to impound the Czech assets in London be- cause it"did not propose to repeat its Experiences over Austria, namely, to turn over all assets in Effect to the German authorities and then have to make a play, without this Regraded Unclassified 45 -9- #896, June 24, 8 p.m., from London this trump card, for the settlement of obligations to British nationals." It so happened that these obligations to British nationals included unfulfilled British Govern- ment orders to Czech munition firms for guns, gun-steel and armor-plate. On these, in accordance with standard European munitions practice, ONE third of the purchase price had been paid on the signing of the contracts. HENCE the British Treasury had immediate practical problems which re- quired ENERGETIC action and it was motivated by these con- siderations and not by idsological and political concepts in the impounding of the Czech assets in the United Kingdom. HOWEVER, this step was taken at the same time that the British Ambassador was recalled from Berlin and the Prime Minister made the speech referred to in my 359 of March 18, 1 p.m. and such was and is the rising tide of British pub- lic opinion that it interpreted the Treasury move as "re- taliation against German aggression", as a means of Ef- fecting "not-a-penny-for-Hitler". When it became clear that impounding this in fact was not the impelling motive for/the Czech assets, political contraversy arose in acute form. The op- position in the House of Commons saw "appeasement" raising its head; the Chancelor of the Exchequer denied that hE favored Germany obtaining DOSSESSION of these funds. For further information on this aspect of the affair please SEE my Regraded Unclassified 46 -10- #896, June 24, 8 p.m., from London my written report No. 2776 of June lst. HOWEVER in his Explanations in the HOUSE of Commons Simon went so far in Emphasizing both the non-political international character of the Bank for International SETTLEMENTS and the private character of the Bank of England in order to Explain why Norman was under no obligation to inform him of B.I.S. affairs or to take his instructions on such matter, that he provided an opportunity for further controversy. A section of the House of Commons is uring that the B. I. S. statutes either bE amended or the British representation withdrawn; and an EVEN larger section of the House of Commons has become interested in the question of how close is the contact maintained between the Bank of England and the British Treasury. My own opinion is that the contact is very close and that both the Treasury and the Bank of England merely Emphasize the private character of the Bank of England when it is convenient and the governmental character of the Bank of England when that is convenient. HOWEVER, public statements have been made in the course of this controversy which have given impetus to the movements for a more Exact definition of the relationship and for nationalization of the Bank of England. Furthermore, Bon- net's public statement of June 21st has laid the Prime Minister and the Chancelor of the Exchequer open to C. charge of Regraded Unclassified 47 -11- #896, June 24, 8 p.m., from London of misrepresentation. For instance, the LABOR DAILY HERALD of June 22 in an Editorial Entitled "A Mare's Nest" raises"the question of the Minister's good faith" and states that "this is not the first time that Mr. Chamberlain has misled the Commons." For England in the year 1939 that is strong political language. So, although the B.I.S. assets of the Czechoslovak National Bank have long since passed into German possEssion the significant controversy which it caused in this country is still alive. This 3 the story C.S I get and SEE it. I have tried to cover the de- velopments as they occurred and for convenient reference for further details my telegraphic and written reports are listed below. Written reports Nos. 2299 March 20; 2387 of April 3, 2731 of May 23, 2742 of May 25, 2776 of June 1, 2811 of June 6, and telegraphic reports Nos. 336, March 15, 7 p.m.; 346, March 16, 7 p.m.; 374, March 20, 6 p.m.; 377, March 21, noon; 382, March 21, 7 p.m.; paragraph numbered 2 of 694, May 16, 9 p.m.; 712, May 19, 5 p.m.; 724, May 22, 6 p.m.; 729, May 23, 6 p.m.; 749, May 26, 6 p.m.; 779, June 5, 6 p.m.; 828, June 14, 7 p.m. BECEIAE KENNEDY PFOI is HPD 16111 ANTHA930 YRUPART " In issue visiol 43 TREASURY DEPARTMENT COMMUNICATION Prepared by: H. C. Murphy DATE June 24, 1939 Assisted by: Wesley Lindow and V. L. Eyre 48 TO Secretary Morgenthau FROM Mr. Haas YOR Subject: Recent Financial Developments; Average of High- Grade Corporate Bond Yields Revised. SUMMARY (1) The recent decline in the Government bond market cancelled a little less than one-fifth of the spring rise. The weakness was greatest, in terms of yield, in the medium maturities, which had ex- hibited the most strength during the preceding rise (Chart I). (2) Excess reserves have decreased by $70 millions during the past month, due principally to a net withdrawal of private foreign balances from this country (Chart II). This decrease was probably not a significant factor in the decline of the Government bond market. (3) Weekly reporting member banks were buyers rather than sellers of Governments during the decline. The largest net acquisitions were those of notes by the New York City banks (Chart III). (4) The Treasury average of high-grade corporate bond yields has been revised, because of a lack of sensitivity in the old average due to bonds selling above their call prices. The revised index shows the corporate bond market consider- ably stronger during the spring than had been indicated by the unrevised index. Even on the revised basis, however, corporates lagged far be- hind Governments during the spring rise. High- grade corporates continued to advance during the recent decline in Governments, sharply re- ducing the differential between Treasury and corporate bond yields (Chart IV). 50 Secretary Morgenthau - - 2 The Recession in the Government Bond Market After reaching an all-time high on Monday, June 5, the Government bond market declined until Monday, June 19. The net decline was equal to a rise of .07 percent in the aver- age yield of all long-term Treasury bonds.* On Tuesday, Wednesday, and Thursday the market rallied, the long-term yield average declining by .03 percent. The decline between June 5 and June 19 cancelled, on the average, a little less than one-fifth of the rise in Treasury bonds which had taken place during the move from February 21 until June 5. Measured in terms of price, the decline was about equally great in the long and medium maturities. Measured in terms of yield, however, the weakness was greatest in the medium maturities. These maturities, it will be re- membered, had been the strongest during the spring rise. The position of the market on February 21, June 5, and June 19, respectively, is compared in Chart I. The yield changes between these dates for three representative bond 18- sues -- the ones indicated separately in the chart on the red and green curves -- are shown in the following table: Changes in the Yields of Three Selected Treasury Bonds (One Short, One Medium, and One Long) Between February 21 and June 5, and Between June 5 and June 19 (Percent) Yields as of Net change Percent Feb. 21 June 5 Feb. 21 of gain June 5 June 19 to to lost June 5 June 19 2-3/4's 1945-47 1.52 1.07 1.13 - .45 + .06 13% 2-3/4's 1951-54 2.30 1.85 1.94 - .45 + .09 20 2-3/4's 1960-65 2.54 2.26 2.32 - .28 + .06 21 * Adjusting for the change in the composition of the average on June 15. Regraded Unclassified 51 Secretary Morgenthau - 3 Treasury notes were also soft during the two weeks end- ing on June 19. The declines on the old issues, however, averaged only .03 percent in terms of yield and cancelled only about 10 percent of the rise since February similarly expressed. The new 3/4 of 1 percent notes were somewhat weaker than the old issues, their yield increasing by .05 percent from a level already out of line, on the basis of recent precedent, with the old issues of immediately pre- ceding maturity. The weakness in the new notes is easily seen in Chart I, where this issue 1s the only note separately indicated on the green curve. Excess Reserves The excess reserves of all member banks, which had reached an all-time high on May 24, decreased by $70 mil- lions between that date and June 21. The excess reserves of New York City banks decreased by about $120 millions during this period, those of banks outside of New York City increas- ing by about $50 millions (Chart II). The decrease in excess reserves for all banks during this period was due entirely to an increase in required reserves, total member bank reserves remaining practically unchanged. The effect of domestic factors during the period under review would have been such as to have caused a continued in- crease in excess reserves, 80 that the entire decrease which did actually occur 1s attributable to international factors, principally an increase in the deposits of foreign central banks at the Federal Reserve banks. This increase in foreign deposits is, in turn, attributable to a net withdrawal of private foreign funds from this country. The decrease in ex- cess reserves was probably not a significant factor in the recent decline in the Government bond market. Changes in Bank Holdings of United States Securities The weakness in the Government bond market between June 5 and June 19 was not caused by bank liquidation. On the contrary, between May 31 and June 21, weekly reporting member banks in New York City increased their holdings of Government bonds and notes by $95 millions, of which $75 mil- lions consisted of notes (Chart III). While the figures are not available for weekly reporting member banks in the other cities for the entire period, the changes between May 31 and June 14 were negligible. 52 Secretary Morgenthau - 4 The increase in the holdings of notes by New York City banks is a logical outcome of the June financing. When it was announced on June 1 that an 1ssue of notes would be of- fered in exchange for the September notes, the market was taken by surprise, for a bond issue seemed to have been generally expected. Consequently, the June "rights" became relatively more attractive to the New York banks, and they tended to accumulate them on net balance. New Average of High-Grade Corporate Bond Yields The Treasury average of high-grade corporate bond yields was originally set up because Moody's Aaa average had lost a great deal of its sensitivity because so many of the bonds included in it were selling above their call prices. To guard against this, the Treasury average included only non- callable bonds and callable bonds with a coupon rate of not higher than 3-1/2 percent. Long-term interest rates have since decreased to such an extent, however, that all of the callable bonds included in the Treasury average are now sell- ing above their call prices, and are consequently relatively insensitive to further decreases in interest rates. The same situation seems to prevail in nearly the same degree at the present time with respect to Moody's Aaa average, which has behaved very much like the Treasury average 80 far this year. Unfortunately, it is impossible at the present time to obtain a broad list of corporate bonds from which a satis- factory average may be derived, since every "high-grade" call- able bond actively traded on either the New York Stock Exchange or the Curb Exchange is now selling above its call price, and there are almost no long-term high-grade non-callable bonds, except rails. The best solution of this problem seems to be to base our corporate bond average, for as long as may be necessary, upon a small list of bonds which are actually Il free" to move, and 80 indicate changes in the underlying market. The five bonds selected for this purpose are as follows: Ultimately, either the rate of interest will advance, 80 "freeing" the bonds now selling above their call price; or the bonds will be called and replaced by new bonds with lower coupon rates, which will sell below their call prices and 80 be free to reflect changes in interest rates. As soon as either of these things happens, the index can again be enlarged. 53 Secretary Morgenthau - 5 Issues Included in New Average of High-Grade Corporate Bond Yields : Price : Yield : June 21 : June 21 Pennsylvania Railroad 4-1/2's 1960 120 3.19 Norfolk and Western Railway 4's 1996 122-5/8 3.15 New England Tel. and Tel. 4-1/2's 1961 128-1/2 2.58 Bell Telephone of Penna. 5's 1960 133-3/4 2.66 Standard 011 of New Jersey 2-3/4's 1953 106 2.25 Average yield 2.76 The first four of the issues included in the above table are not callable within the next twelve years.' The fifth (while now selling substantially above its call price of 103-1/2) has a coupon rate of only 2-3/4 percent. All of the bonds have a maturity of over twelve years. The rails are very high-grade. The two telephone company bonds are the only regularly traded long-term bonds (other than rails) not call- able within the next twelve years, which we have been able to find on either the New York Stock Exchange or the Curb Exchange. The Standard 011 of New Jersey bond -- which we have included reluctantly because of its call feature -- 1s, of course, very high-grade, and is given considerable freedom of movement, de- spite the call feature, by its very low coupon rate. On September 14, 1938, the average yield of the five bonds just discussed was the same as that of the old twenty-bond index. The relative movement of the two averages since that time is shown in Chart IV. It will be observed that, as measured by the new average, the corporate bond market has shown much greater strength during the spring than as measured by the old. Even as 80 measured, however, it has not been nearly as strong as the Government bond market, and the dif- ferential between Treasury and corporation bond yields on the The Pennsylvania and the Norfolk and Western bonds are non- callable. The New England Telephone's are first callable at par in 1958 and the Bell Telephone of Pennsylvania's in 1957, and their yields are computed to these dates. 54 Secretary Morgenthau - 6 new basis rose from 0.46 percent on February 21 to 0.73 per- cent on June 7. The corporate market, as measured by the new index, has continued to advance during the recent recession of the Government market, 80 that the differential between the corporate and long-term Treasury averages has fallen back to 0.60 percent as of June 21. Attachments. 55 Chart I YIELDS OF TREASURY BONDS AND NOTES Based on Closing Prices 1444 1946 1948 1950 1952 1954 1956 1958 1960 1942 1962 1964 1966 1968 1970 1940 PER PER CENT CENT 2.75 2.75 2.50 250 225 28 Capt. 1942 8342 de x Dec 1042 #222 June not 1629 1 Des. 5 x : 4 June x o 2.25 Feb. 21 2.00 200 - Notes June 19 June 5 1.75 150 125 Dec 1940 8787 As M / #677 dex June / #504 HOLD / XMX de dax Mar /M2 1426 ! SALTÉ $ Notes 1,00 1.00 Des W-R #769 anx Sept. 1048 #451 2%% June AL 10-14 BLART 4% w-w #755 2% % Men ALL ----- $2,611 x 2%X Sapt. 15. 16-20 1982 a% x June not w-w para % 36 Dec AS, 60- $1400 1.75 1.50 Dec AL AM 1524 de AX Mar 1940 15.1940 81378 is as June /940 #728 OF Ce Dec 18. 1947 #701 24 x w-w 1.25 anx Mar 15. w-w KX Bonds with no call period et : o Bonde with cell period .75 75 negotive yis/d 50 25 25 0 INX June ns. WJ-47 6454 4% Dec. 15. - #1007 iss Sept 45-47 BLIM 2% 2%% Dec. /045 1541 Man 1489 as June - BLOOK are - Arrows to sero line indicate 50 Bonds o DOLLARS w-ve 81,401 are e # x - 1 INX Apr 15. will un DOLLARS Millions Millions Amount Outstanding 3,500 3500 1% Mer it. - 8545 As of June 19, 1939 3,000 Notes Bonds 3.000 2,500 2500 alsos 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 1940 1942 1944 1946 1956 1958 1960 1962 1964 1966 1968 1970 0 1948 1950 1952 1954 Note: For callable bonds, your are computed to, and issues plotted or of, the sortiest coll date if the fitted bond - selling above por, and os of the final maturity date if the bond " selling below par The smooth curves are by eye. Dollar amounts shown in descriptions of issues are in millions. lesues for which on exchange offer has been mode and has expired are excluded F-5 (Wee - the Servicery of the Treasury Regraded Unclassified 56 Chart II EXCESS RESERVES OF MEMBER BANKS BILLIONS OF DOLLARS BILLIONS OF DOLLARS 5 5 WEEKLY 4 4 ALL MEMBER BANKS 3 3 2 OUTSIDE 2 N.Y. CITY 1 1 NEW YORK CITY o Regraded Unclassi 1934 1935 1936 1937 1938 1939 Chart III U.S. GOVERNMENT SECURITY HOLDINGS WEEKLY REPORTING MEMBER BANKS 57 Cumulative Net Change From Feb. 21, 1939 Feb Mar Apr May June July DOLLARS DOLLARS Millions Millions New York City +600 *600 +400 *400 Bonds Total +200 +200 Bills o o -200 -200 Notes -400 -400 Feb Mar Apr May June July +1000 +1000 All Other +400 +400 Bonds +200 +200 0 o Bills -200 -200 Total -400 -400 Notes -600 -600 Feb Mar Apr May June July *1000 +1000 All Cities *800 +800 +600 Bonds +600 +400 +400 *200 *200 Total o o -200 Bills -200 -400 -400 Notes 600 -600 800 -800 Feb Mar Apr. May June July 1939 Office of the Secretary of the Insury - di hard - - F-111 Regraded Unclassified 58 Chart IV COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY AND AVERAGE OF HIGH GRADE CORPORATE BONDS Yields Based on Wednesday Quotations 1938 1939 JAN. a FEB MAR APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV DEC. 19 . # # is as 14 as ⑉ as . a . 20 a 17 I . : - z e a4 21 - - 4 is # is " il ET e 24 " 1 5 if # se - : " as Inverted Scale Inverted Scele PER CENT PER CENT 2.2 2.2 2.4 Long Term Treasury (12 years or more to earliest cell date) 2.4 2.6 2.6 2.8 2.8 New Index (5 Bonds) 3.0 3.0 Old Index (20 Bonds) 3.2 3.2 Corporate 3.4 3.4 PER PER CENT CENT Old Index 80 80 Spread Between Long Term Treasury and Corporate* 60 60 New Index 40 40 20 20 o o . JAN " FEB . MAR # APR - se MAY - " JUNE ii 25 JULY . " * AUG #0 , SEPT if . OCT e " NOV 4 24 - DEC 24 . JAN ⑉ . FEB - - MAR + , APR - " MAY is 27 JUNE 10 - JULY . at . AUG - it SEPT - 38 OCT " NÓV H 19 DEC " 1938 1939 "Breas Regraded Unclass & 59 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION CONFIDENTIAL DATE June 26, 1939 TO Secretary Morgenthau FROM Mr. Haas ADR Subject: The Business Situation, Week ending June 24, 1939. Summary (1) The contra-seasonal rise in business activity con- tinues under way despite growing political tension abroad, with further substantial increases reported in the adjusted indexes of steel and automobile production. Were it not for the foreign situation, business activity now would doubtless be at a substantially higher level. The approach of the Fourth of July holiday is likely to bring a decline in steel operating schedules and perhaps some slackening in other industries during the current week. (2) Continued weakness in sensitive commodity prices seems to foreshadow further unsettling developments abroad, since the domestic picture remains favorable for rising prices. The uncertainty over what may happen in Europe and the Far East over the next few months remains the major handicap to a rapid business recovery. (3) A sharp downturn in seasonally-adjusted residential awards occurred during the first half of June, first fore- shadowed by a decline in FHA selected mortgages in April. Mortgage data for May and early June, however, indicate that residential awards during July and August are not likely to decline further. The current business trend Business activity, as measured by the New York Times index, continued to gain during the week ended June 17. (See Chart 1) The adjusted index for that week rose to 90.6 from 89.8 the previous week. Of the two leading industries (shown on the chart) steel activity has contributed most to the business upturn, cotton mill activity remaining relatively steady. For the week ending June 24, further improvement is shown in the indexes of steel production and automobile production, the only components so far available. Regraded Unclassified 60 Secretary Morgenthau - 2 During the July 4 holiday week now approaching, a sub- stantial temporary drop is likely to be recorded in the adjusted business index, owing to the holiday falling on Tuesday, since many workers in both factories and offices will be given a holiday on Monday as well. The Federal Reserve Board, in publishing its preliminary index figure of 92 for May, reports that a considerable increase in industrial production occurred during the first three weeks of June. Private estimates of the probable FRB figure for June range between 95 and 98. The possibility of another severe crisis abroad during the next few months, with possible accompanying weakness in security prices, continues to act as a major restraint on active business recovery. To the extent that war fears have already held business back, however, the shock of serious new developments would be reduced. With the present basic strength in the domestic business situation, such developments would not be likely to prevent a further business rise during the second half of the year, though the rate of rise might be more gradual. The steel situation The rate of operations in the steel industry rose 1.9 points last week to 55.0 per cent of capacity, almost reaching the spring peak established in April. The independent com- panies continue to show much higher activity than U. S. Steel, their average rate for the week ended June 19 rising 1/2 point to 61 per cent of capacity, while the U. S. Steel rate dropped 1 1/2 points further to 44 1/2 per cent. A decline in steel operating schedules seems in prospect for the current week, owing partly to the approach of the Fourth of July holiday. The Youngstown district is scheduled to reduce its operating rate 6 points this week, which is regarded as temporary. In the Buffalo area the rate was re- duced 4 1/2 points at the middle of last week. New orders reported by the U. S. Steel Corporation last week increased slightly to 46 per cent of capacity, versus 44 per cent the previous week. The orders are closely in line with the Corporation's 44 1/2 per cent operating rate. In view of its relatively low level of orders and low operat- ing rate, it appears that this steel company, specializing in heavy steel products, may have been more conservative than the independent companies about accepting recent automobile steel orders at "profitless prices". 61 Secretary Morgenthau - 3 Automobile output last week rose further to 81,070 units, from 78,305 units the previous week. The trend will probably be downward from now until late July or early August, when production of 1940 models will get under way. The end of this week saw four companies finished with 1939 model runs, and by the middle of July all of the General Motors and Chrysler plants are expected to be finished. Price trend lower A continued weakening tendency in sensitive commodity prices (See Chart 2) appears rather ominous as possibly foreshadowing further disturbing developments in the foreign situation, particularly since rising prices would normally be indicated by the strengthening domestic outlook and improv- ing business activity in England and certain other foreign countries. The end of the week, however, saw at least a temporary price upturn. Security prices in London and Paris during the past week have turned somewhat weaker than in New York. Prices of industrial materials, which are most closely related to basic business conditions, continue to be well maintained. (See Chart 3) Prices of farm products, on the other hand, have continued the decline which began at the end of March. During the week ended June 17 the BLS price index of farm products reached the lowest point in the past five years. Despite the lower price trend, cash farm income in May, including Government payments, was 6.5 per cent larger than in April. The total of $589 millions was 6.3 per cent above the comparable figure for May last year. Total cash farm income during the first five months of this year exceeded that of the previous year by $47 millions, which accounts at least in part for the favorable showing of rural retail sales in recent months. Residential awards lower The F. W. Dodge residential contract awards for the first half of June dropped sharply from the corresponding May figures, indicating a total for the entire month at this rate of $97,400,000. This would compare with a May total of $133,818,000. Seasonally adjusted figures are shown in Chart 4. 62 Secretary Morgenthau - 4 A deeline in residential awards in June had been fore- shadowed by a downturn in April in the volume of fha mortgages selected for appraisal. These mortgage data have considerable forecasting value in indicating the trend of residential awards, showing a lag of approximately two months, after seasonal adjustment. A study we have made of the trend of FHA selected mort- gages during May and the first part of June does not indicate & further decline in residential contract awards, but suggests that they are likely to level out during July and August at approximately the June rate. 63 BUSINESS ACTIVITY Chart 1 PER CENT Seasonally Adjusted Est. Normal = 100 110 100 37 36 90 38 39 80 70 N. Y. Times 60 JAN. MAR. MAY JULY SEPT. NOV. STEEL INGOT PRODUCTION COTTON MILL ACTIVITY PER PER CENT ENT 1921-31-100. Adjusted Est. Normal = 100, Adjusted 20 140 37 39 00 120 36 36 37 80 100 38 39 60 80 38 40 60 N.Y. Times N.Y. Times 20 40 JAN MAR. MAY JULY SEPT. NOV. JAN. MAR. MAY JULY SEPT. NOV. Office of the Secretary of the Ter any C-235-1 of Research and Statements Regraded Unclassified 64 Chart 2 COMMODITY PRICE INDEXES IN U.S. AND U.K. 1939 1939 APRIL MAY JUNE 2 9 16 23 30 7 14 21 28 4 II 18 25 PER PER CENT CENT CUTER, MOODY DOW-JONES 162 DAILY 54 159 53 156 52 153 51 COMMODITY FUTURES (DOW-JONES) 1924 - '26 = 100 150 50 147 49 144 48 141 47 138 46 135 MOODY'S INDEX IN U.S. 45 DEC. 31, 1931 = 100 REUTER'S INDEX IN U.K. 132 SEPT. 18, 1931 = 100 44 129 43 126 42 2 9 16 23 30 7 14 21 28 4 II 18 25 APRIL MAY JUNE 1939 1939 I the Secretary of the Treasury P - 148 - F - 3 of Research and Statistics PRICES OF INDUSTRIAL MATERIALS AND FARM PRODUCTS 1926 = 100 1938 1939 J F M A M J J A s o N D J F M A M JJASOND PER PER CENT CENT 80 80 75 75 Farm Products 70 70 65 65 60 60 55 55 Industrial Materials 65 50 50 45 45 J F M A M J J A $ o N D J F M A M J J A $ o M D 1938 1939 CONFIDENTIAL Chart 3 SOURCE: BUREAU OF LABOR STATISTICS Office of the Secretary of the Treasury Division of Research and Statistics P = 171 - A Regraded Unclass 66 Chart 4 CONSTRUCTION # Daily Average, Recemally Adjucted Total DOLLARS DOLLARS Millions Millions 16 16 14 14 1930 12 12 1938 10 10 June 1-15 8 8 6 6 4 4 Jan. Mar. May July Sept. Nov. Residential 8 8 6 6 1939 4 4 June 1938 2 2 o o Jan. Mar. May July Sept. Nov. # CONTRACTS AMARDED-F.W. DODGE CORP. Sice of the Secretary of the Treasury Division of Research and Statistics C - 143-A-1 Regraded Unclassified 67 June 26, 1939 I spoke to Hull on the telephone from the farm about the loan to Finland and he said, "Some of the big powers might object". I told him that unless he was entirely happy about it that I did not want to do it; that I had no interest in it. Then he said you know how we all feel about Finland and would I have a further talk with him when I came back. 88 June 26, 1939. THE SENATE SILVER BLOC, ENGAGED IN A FILIBUSTER THAT HAS ENDANGERED THE ADMINISTRATION'S "MUST" LEGISLATIVE PROGRAM, WAS DEFEATED IN AN ATTEMPT TO FIX THE DONESTIC SILVER PRICE BY LAW AT $1.16 AN OUNCE. THE VOTE was 26 TO 52 6/26--RS1243P ADD MONETARY BILL, SENATE THE PROPOSAL WAS OFFERED BY SEMATOR PITTMAN AS AM AMENDMENT TO THE PENDING MONETARY BILL EXTENDING FOR TWO YEARS THE STABILIZATION FUND AND PRESIDENT ROOSEVELT'S POWER TO DEVALUE THE DOLLAR. IT REPRESENTED A MODIFICATION OF PITTMAN'S ORIGINAL AMENDMENT FIXING THE PRICE AT $1.27 AN OUNCE. ALTHOUGH THE SILVERITES STOPPED TALKING LONG ENOUGH TO PERMIT THE VOTE ON THE PITTHAN PLAN, THEY REITERATED THAT THE NONEY BILL WOULD BE "DISCUSSED THOROUGHLY* BEFORE THEY WOULD PERMIT ITS PASSAGE. THE BILL NUST BE SIGNED BY THE PRESIDENT BY MIDNIGHT JUNE 30 TO PREVENT EXPIRATION OF THE ADMINISTRATION'S MONETARY PROGRAM. ADMINISTRATION LEADERS SAID THAT IF THE SILVERITES CONTINUED TO PROLONG DEBATE, THE SENATE WOULD BE HELD IN SESSION TOMIGNT--TNE FIRST MIGHT SESSION OF THE YEAR. 6/26--RS1246P Regraded Unclassified 69 ADD MONETARY BILL, SENATE AFTER THE DEFEAT, PITTHAN OFFERED ANOTHER AMENDMENT TO PEG THE PRICE AT 77.57 CENTS. THAT WAS THE PRICE FIXED IN 1934 WHEN THE SILVER PURCHASE PROGRAM WAS INITIATED. THE PRICE WAS CHANGED AT THE END OF 1937 TO 64.64 CENTS. 6/26--RS106P ADD MONETARY BILL, SENATE THE SECOND PITTHAN AMENDMENT WAS WRITTEN INTO A PROPOSAL BY SENATOR ADAMS TO KILL THE DEVALUATION AUTHORITY. THE SILVERITES HOPED TO PUT THE AMENDMENT OVER THROUGH THE COMBINATION WITH SEMATORS OPPOSED TO DEVALUATION. 6/26--RS110P ADD MONETARY BILL, SENATE THE EFFORT TO COUPLE ELIMINATION OF THE EXECUTIVE MONETARY CONTROL AND THE FIXING OF THE DOMESTIC SILVER PRICE AT 77.57 IN A TEST VOTE WAS HALTED BY A PARLIAMENTARY MOVE. SENATOR BANKHEAD, PRESIDING, UPHELD NAJORITY LEADER BARKLEY'S CONTENTION THAT TWO SEPARATE QUESTIONS WERE INVOLVED IN THE ADAMS AMENDMENT AND ORDERED A VOTE ON EACH. ADAMS IMMEDIATELY APPEALED TO THE SENATE TO UPSET THE RULING. 6/26--R131P Regraded Unclassified 70 ADD MONETARY BILL, SENATE BANKHEAD'S RULING WAS UPNELD, - 39 TO 35, AND THE AMENDMENT WAS SPLIT INTO TWO SECTIONS. 6/26--R136P THE SENATE VOTED TODAY TO REPEAL PRESIDENT ROOSEVELT'S POWER TO DEVALUE THE DOLLAR. THE VOTE WAS ON AN AMENDMENT BY SENATOR ADAMS TO THE PENDING MONETARY BILL. THE VOTE TO WIPE OUT THE POWER WAS 47 TO 31. 6/26--R207P ADD MONETARY BILL, SENATE (TIMED 207P) ADOPTION OF THE AMENDMENT WAS MADE POSSIBLE WHEN MEMBERS OF THE SILVER BLOC, ANGERED BY REFUSAL OF THE ADMINISTRATION TO BOOST THE PRICE THE TREASURY PAYS FOR DOMESTICALLY MINED SILVER, VOTED ALMOST SOLIDLY FOR IT. 6/26--R216P ADD MONETARY BILL, SENATE A FEW MINUTES LATER, THE SENATE VOTED TO REQUIRE THE TREASURY TO PAY 77-1/2 CENTS AN OUNCE FOR DOMESTICALLY MINED SILVER. THE EXISTING PRICE IS 64.64 CENTS. 6/26--R217P Regraded Unclassified ADD MONETARY BILL, SENATE THE SILVER VOTE WAS 48 TO 30. 6/36--2217P ADD MONETARY BILL, SENATE THE ROLL CALL ON STRIPPING THE PRESIDENT OF HIS DEVALUATION AUTHORITY FOLLOWS: AGAINST DEVALUATION (47) DEMOCRATS (29)--ADAMS, ANDRESS, ASHURST, BAILEY, BONE, BROWN, BULOW, BURKE, BYRD, CLARK OF IDANO, CLARK OF MISSOURI, BOWNEY, GERRY, GLASS, HAYDEN, HERRING, HOLT, MCCARRAN, NURRAY, O'MAHONEY, PITTMAN, RADCLIFFE, SCHWELLENBACH, TYDINGS, VAN NUYS, WALSH, WHEELER, JOHNSON OF COLORADO AND KING. REPUBLICANS (17) AUSTIN, BARBOUR, BRIDGES, CAPPER, DANANER, DAVIS, FRAZIER, GURNEY, MALE, HOLMAN, JOHNSON OF CALIFORNIA, REED, TOBY, TOWNSEND, VANDENBERG, WHITE AND WILEY. FARMER LABORITE (1) SHIPSTEAD. FOR DEVALUATION (31) DEMOCRATS (28) BANKNEAD, BARKLEY, BILBO, BYRNES, ELLENDER, GEORGE, GREEN, CUFFEY, NATCH, WILL, MUCHES, LEE, LOGAN, LUCAS, MALONEY, MCKELLAR, MILLER, NINTON, NEELY, OVERTON, REYNOLDS, RUSSELL, SLATTERY, SMATHERS, STEWART, THOMAS OF OKLANOMA, TRUMAN, AND VAGNER. REPUBLICANS (1) BORAN. PROGRESSIVES (1) LA FOLLETTE. INDEPENDENT (1) NORRIS. 6/26--R232P Regraded Unclassified 72 ADD MONETARY BILL, HOUSE DEMOCRATIC LEADERS SAID LATER THAT WHEN THE BILL IS SENT TO CONFERENCE WITH THE HOUSE--PROBABLY LATE TODAY-THEY WOULD MAKE AN ATTEMPT TO HAVE THE CONFEREES RESTORE THE DEVALUATION PROVISION. 6/26--R250P ADD MONETARY BILL, SENATE THE ROLL CALL VOTE ON THE SILVER AMENDMENT: FOR THE AMENDMENT (48) DIMOCRATS (30)-ADAMS, ANDREWS, ASHURST, BANKHEAD, BILBO, BONE, BULOW, CLARK OF IDANO, CLARK OF MISSOURI, DOWNEY, ELLENDER, HATCH, HAYDEN, HERRING, JOHNSON OF COLORADO, KING, LEE, LOCAN MCCARRAN, MILLER hurray, NEELY, O'NANONEY, OVERTON, PITTHAN, SCHWELLENBACK, STEWART, THOMAS OF OKLAHOMA, VAN NUYS, AND WHEELER. REPUBLICANS (16) AUSTIN, BARBOUR, BORAH, BRIDGES, CAPPER, DAMANER, DAVIS, FRAZIER, CURNEY, HALE, HOLMAN, JOHNSON OF CALIFORNIA, REED, VANDENBERG, WHITE AND WILEY. PROGRESSIVE (1) LAFOLLETTE. FARMER LABOR (1) SHIPSTEAD. AGAINST THE AMENDMENT (30) DEMOCRATS (27) BAILEY, BARKLEY, BROWN, BURKE, BYRD, BYRNES, SEORGE, CERRY, CLASS, green, CUFFEY, HILL, NOLT, NUGNES, LUCAS, HALONEY, HCKELLAR, MINTON, RABCLIFFE, REYNOLDS, RUSSELL, SLATTERY, MATHERS, TRUMAN, TYDINGS, WALSH AND WAGNER. REPUBLICANS (2) TOBEY, TOWNSEND. INDEPENDENT (1) MORRIS. 6/26--R305P Regraded Unclassified 73 ADD MONETARY BILL, SENATE THE SENATE REJECTED, 28 TO 39, AN AMENDMENT BY THOMAS OF OKLANONA, TO REQUIRE THE COVERNMENT'S FISCAL AUTHORITIES TO STABILIZE THE BOLLAR IN TERMS OF COMMODITY PRICES AT A LEVEL OF 100. 6/26--R332P THE SENATE REPEALED BY A VOICE VOTE THE SILVER PURCHASE ACT PROVIDING FOR THE ACQUISITION OF FOREIGN SILVER. 6/26--R4 ADD SILVER ACT, SENATE THE SENATE ADOPTED AN AMENDMENT BY SENATOR JOHN C. TOWNSEND DESPITE THE PLEAS OF MAJORITY LEADER BARKLEY THAT THE REPEAL WOULD REFLECT IN OUR TRADE WITH FOREIGN COUNTRIES. SENATOR ASHURST DENOUNCED THE SILVER PURCHASE ACT AS A FAILURE AND TOLD THE SENATE THAT "VE GET $1 OF TRADE FOR EVERY $9 INVESTED." SENATOR BAILEY SAID THAT THE UNITED STATES SHOULDN'T PAY AN ARTIFICIALLY INCREASED PRICE TO FOREIGN GOVERNMENTS FOR SILVER, WHICH HAD ONLY THE VALUE OF A COMMODITY AND WHICH COULD NOT BE SOLD AT A PRICE ANY WHERE NEAR THE PURCHASE PRICE. HE SAID THAT IF THE U.S. WISHED TO PROMOTE TRADE THAT IT WHOULD BUY SOUTHERN COTTON so THAT NEW ENGLAND SHOES MIGHT BE PURCHASED. 6/26--R433P Regraded Unclassified 74 ADD SILVER ACT, SENATE *MEXICO RESPONDS TO OUR OVERTURNES BY REPEATED SEIZURES OF AMERICAN PROPERTY," ASHURST REMINDED THE SENATE WHEN BARKLEY ASSERTED THAT THE FOREIGN NATIONS WERE GIVEN PURCHASING POWER BY THE SILVER ACQUISITION. 6/26--R434P ADD SILVER ACT, SENATE THE TOWNSEND AMENDMENT REPEALED ONLY THE SECTIONS OF THE SILVER PURCHASE ACT PROVIDING FOR FOREIGN ACQUISITIONS. THE BILL, WHICH ALSO PROVIDES FOR DONESTIC PURCHASES, REQUIRES THAT THE AMOUNT OF SILVER IN THE U. s. TREASURY BE ONE-FOURTH OF THE TOTAL CURRENCY. 6/26--BG5P THE SENATE TONIGHT PASSED BY VOICE VOTE AND SENT TO CONFERENCE WITH THE HOUSE THE ADMINISTRATION'S "MUST" MONETARY BILL AFTER STRIPPING PRESIDENT ROOSEVELT OF HIS DOLLAR BEVALUATION POWER, RAISING THE GOVERNMENT PRICE ON DOMESTIC SILVER AND BANNING FUTURE FEDERAL PURCHASES OF FOREIGN SILVER. 6/26 ON625P Deree ADD MONEY BILL, SENATE THE $2,000,000,000 STABILIZATION FUND WAS EXTENDED FOR TWO YEARS WITHOUT CHANGE. A LAST MINUTE ATTEMPT BY SENRTOR ELMER THOMAS TO REDUCE THE FUND TO $500,000,000 AND TRANSFER THE REMAINING $1,500,000,000 TO THE GENERAL FUND OF THE TREASURY, WAS DEFEATED. 6/26 ON626P ADD MONETARY BILL, SENATE DEBATE ON THOMAS' AMENDMENT TO REDUCE THE STABILIZATION FUND WAS DIRECTED TOWARD ITS INFLATIONARY POSSIBILITIES. SENATOR BAILEY, OF NORTH CAROLINA, SAID THAT THE $1,500,000,000 CONSTITUTED HERELY "THE NOSE UNDER THE TENT." "YOU WOULD DESTROY THE FOUNDATION OF AMERICAN STABILITY," HE SAID. THE ACTION OF THE SEMATE TODAY DOES NOT DISTURB THE THOMAS AMEND- MENT TO THE AAA UNDER WHICH THE PRESIDENT HAS THE POWER TO ISSUE $3,000,000,000 IN "CREEN-BACKS." THE SAME AMENDMENT GAVE THE PRESIDENT POWER TO REDUCE THE GOLD CONTENT OF THE DOLLAR BY Ag MAXIMUM OF 50 PER CENT. THIS LATER WAS RESTRICTED TO BETWEEN 50 AND 60 PER CENT BY THE.GOLD RESERVE ACT. 6/26--RB641P Regraded Unclassified 76 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 26, 1939 TO Secretary Morgenthau FROM W. H. Hadley Review of the Government Market Week ending June 24, 1939 During the week the government market reversed the downward trend of the previous two weeks. Although not very active, long Treasury bonds moved up as much as 1/2 point on limited buying. This reversal of trend was mainly attributable to the announcement that $100 million Federal Farm Mortgage bonds due in September would be paid off in cash. Other forces adding to this firmer tendency appeared to be that profit-selling by banks for June 30 statement purposes was apparently completed and dealers' portfolios were considerably reduced. Treasury notes showed gains of 1 to 5/32nds while guaranteed issues were up 1 to 8/32nds. Today, Monday, Treasury bonds lost about 1/4 point in sympathy with a 2-point drop in the stock market as a result of uncertainties in the Far Eastern situation. Dealers' Portfolios Dealers' holdings showed a reduction of about $24 million. The principal individual changes included a reduction of $29 million in Treasury bond holdings and an increase of about $11 million in 1 to 5 year Treasury notes. -2- 77 Dealers' Portfolios (in millions) Week ended Week ended June 17 June 24 Net Change Treasury bonds 49.5 20.3 - 29.2 Treasury notes (1 year) 25.8 23.0 - 2.8 Treasury notes (1-5 yrs.) 22.6 33.8 + 11.2 Treasury bills - - - H.O.L.C. bonds 22.8 23.3 + 0.5 F.F.M.C. bonds 8,9 5,6 - 3.3 129.6 106.0 - 23.6 Dealers' volume continued light. Daily average was about $110 million, $60 million of which was in Treasury bonds. New Security Issues New corporate security market was quite active. A total of $83 million bonds were offered, of which about $78 million was for refunding. Two high grade issues, including $50 million 25-year bonds of Socony Vacuum, were well received and sold out quickly at a premium above the offering price. A utility issue of about $18 million, with a second grade rating, by Illinois Central Light and Power moved rather slowly at about the offering price. About $75 million in new bonds are expected to be offered during the week now current, including $25 million 20-year bonds by Bethlehem Steel Corporation. Corporate Bond Market The corporate bond market showed renewed strength during the week. High grade issues continued at recently established record high levels while second grade issues showed gains ranging to about 1/2 point on average. Activity in this market, however, was rather light. Treasury Investment Accounts Principal operations in the Treasury investment accounts were sales & 78 in the market totaling $3,915,000 of various direct and guaranteed issues for account of Home Loan Banks of Portland and Cincinnati. These sales were to give the banks funds needed in paying off $41 million debentures coming due July 1. In addition, a purchase of $350,000 long term bonds for account of U. S. Housing Authority was made. HOLC Bonds A total of $5,500,000 1-1/2% HOLC bonds were sold in the market, bringing the total sold to $45,900,000 and leaving a balance to sell of $54,100,000 of the original $100 million authorization. Federal Reserve System Account The only transactions by the Federal Reserve included replacement of $35,543,000 Treasury bills with new bills and a purchase of $1,507,000 bills in anticipation of this week's maturity of $44,885,000. TREASURY DEPARTMENT 79 INTER OFFICE COMMUNICATION DATE June 26, 1939 TO The Secretary FROM Miss Lonigan <. The total number of WPA workers on June 14, 1939 is 2,589,760. The decrease from the week ending June 7 to the week ending June 14 was 3,782 workers. 80 WORKS PROGRESS ADMINISTRATION Number of Workers Employed United States Monthly W.P.A. Employment 1935 1930 1937 1938 Weekly W.P.A. Employment 1939 J 9 % / M a J 5 N J M E - $ N a - J $ " , E 1938 M J $ N MAR. 1535 WILLIONS MAY MILLIONS JULY SEPT. MILLIONS NOV. - - WAY JULY of SEPT. OF NOV, OF WORKERS WORKERS WILLIONS WORKERS or 3.5 MAKERS 3.5 3.2 3.2 3.4 3.4 3.3 JJ 3.2 2.8 2.8 3.2 3.1 3,1 3.0 3.0 2.4 2.4 2.9 2.9 2.8 2.8 2.0 2.0 2.7 2,7 2.6 2.6 1,6 1.6 2.5 2.5 2.4 2.4 2.3 2.3 1.2 1.2 2.2 2.2 2.1 2,1 a .8 2.0 2.0 1.9 1.9 A .4 1.8 1,8 1.7 1.7 a o 1.6 1.6 JAY SEPT. NOV. % L E 5 M JAN, MAR, MAY JULY SEPT. c of = J M N NOV. - MAR. MAY L - N = a di M e L 1535 1936 1937 1938 1939 1938 1939 SOURCES WORKS PROGRESS ADMINISTRATION Office of The Secretary of the Treasury Drives of and Traffice Z-221-B egraded Unclassified WORKS PROGRESS ADMINISTRATION Number of Workers Employed - Weekly 81 United States Week ending Number of Workers 1938 (In thousands) October 1 3,228 October 8 3,224 October 15 3,266 October 22 3,300 October 29 3,346 November 5 3,364 November 12 3,359 November 19 3,345 November 26 3,319 December 3 3,287 December 10 3,241 December 17 3,186 December 24 3,124 December 31 3,094 1939 January 7 3,070 January 14 3,030 January 21 3,001 January 28 2,986 February 4 2,966 February 11 2,966 February 18 3,011 February 25 3,043 March 4 3,032 March 11 3,009 March 18 3,015 March 25 3,009 April 1 2,980 April 5 2,906 April 12 2,761 April 19 2,752 April 26 2,751 May 3 2,734 May 10 2,660 May 17 2,622 May 24 2,609 May 31 2,598 June 7 2,594 June 14 2,590 Source: Works Progress Administration. a Confidential. 82 WORKS PROGRESS ADMINISTRATION Number of Workers Employed - Monthly United States Number of Workers 1936 (In thousands) June 2,256 July 2,249 August 2,377 September 2,482 October 2,581 November 2,483 December 2,192 1937 January 2,138 February 2,146 March 2,115 April 2,070 May 1,999 June 1,821 July 1,569 August 1,480 September 1,451 October 1,476 November 1,520 December 1,629 1938 January 1,901 February 2,075 March 2,395 April 2,582 May 2,678 June 2,767 July 3,053 August 3,153 September 3,219 October 3,346 November 3,319 December 3,094 1939 January 2,986 February 3,043 March 3,009 April 2,751 May 2,598 Source: Works Progress Administration. a Confidential. Monthly figures are weekly figures for the latest week of the month. They include certified and non-certified workers. 83 PHONE NUMBER: District 3544 Mr. Sutherland or Miss Sampson Wants an hour 12:30 AMERICAN LOCOMOTIVE COMPANY >FFICE or THE PRESIDENT so CHURCH STREET NEW YORK June 26th, 1939. Hon. Henry Morganthau, Jr., Secretary of the Treasury, Washington, D.C. My dear Mr. Secretary:- At the suggestion of Secretary Hopkins, Charles J. Hardy, President of the American Car and Foundry Company, and the writer called upon the Secretary on Friday, the 23rd, in relation to proposed financing of purchases of Railroad equipment. At the conclusion of our interview Secretary Hopkins suggested that we seek an opportunity to ex- plain to you our thoughts in connection with this financing. May I say that we shall be very glad indeed to do so and shall welcome an appointment at your con- venience. The exigencies of the situation are such that we hope an early appointment may be possible. I am, Very respectfully yours, W. C. Dickerman WCD BDD Regraded Unclassified Fon. Henry Morganthau, Jr., Secretary of the Treasury, Washington, D.C. 86 EG GRAY London -ated June 26, 1939 Rec'd 1:28 p.m. Secretary of State, Washington. 901, June 26, 6 p.m. FOR TREASURY FROM BUTTERVORTH. The British fund did practically no business in the spot dollar today; the rate vas steady all day as was also the forward rate. The British fund gave about 53 of the 1.10 bars of gold at the fixing. Five were married and as main buyer Samuel Montagu was prorated at 50% receiving 100 bars. No silver was invoiced today and the spot price at fixing was 19 5/8 pence the forward 19 7/16 pence. KENNEDY 03 peop 79 VIII Tige TWORTHA930 VERSAGE sult - to Regraded Unclassified ADDRESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WISHINGTON, D.C. 87 DEPARTMENT OF STATE WASHINGTON reply refer to June 26, 1939. My dear Mr Dietrich: With further reference to my previous letters, I am enclosing copies of two additional despatches from the American Embassy in London relating to Czechoslovak assets in the United Kingdom. These are despatch no. 2299, dated March 20, 1939, and no. 2776, dated June 1. Sincerely yours, Reary D Steriebowe Leroy D. Stinebower Office of Adviser on International Economic Affairs Enclosures: 1. From London, no. 2299, March 20, 1939. 2. From London, no. 2776, June 1, 1939. Via UNITED Mr. Frank Dietrich, Care of Mr. Lochhead's Office, Treasury Department. esm BENUL to Regraded Unclassified COPY:EA:EB 88 EMBASSY OF THE UNITED STATES OF AMERICA LONDON, March 20, 1939. No. 2299 SUBJECT: British Financial Assistance to the Former Government of Czechoslovakia. The Honorable The Secretary of State, Washington. Sir: I have the honor to refer to despatch No. 2163 of February 27, 1939, regarding the financial arrangements entered into between the British, French and Czecho- slovakia representatives, and to transcribe below the pertinent portion of a statement made by the Secretary of State for Foreign Affairs in the House of Lords on March 15, 1939, Hansard Columns 216-217: "As regards the financial assistance to the former Government of Czecho-Slovakia, which was authorised by the Act of Parliament passed last month, the position, 80 far as I have been able to ascertain, is as follows:- Section I of the Act provided that the Treasury should repay to the Bank of England the L10,000,000 which had been placed at the disposal of the National Bank of Czecho-Slovakia, and that has been done. The amount that has been withdrawn by Czecho-Slovakia since this advance was first made available - last October - is L3,250,000. The balance of L6,750,000 has not been drawn upon but remains with the Bank of England. The scheme as originally devised between ourselves, the French Government and the former Czecho-Slovak Government included the issue by the last-named Government of a loan on the London market by means of which the assistance given to that Government, 80 far as it took the form of loan, would be repaid. In the new circumstances, when it would appear that the Government of Czecho- Slovakia Regraded Unclassified 89 ⑉2⑉ Slovakia has ceased to exist and the territory for which that Government was formerly responsible has been divided, it would seem impossible that the scheme can be carried through, and steps have been taken to request the Bank of England to make no further payments out of the balance of the L10,000,000 until the situation has been cleared up and definite conclusions reached. I may say that I have no reason to suppose that the L3,250,000 already drawn has not been applied in accordance with the provisions which were set out in the recent White Paper, and a substantial portion of the sum has been directly devoted to the assistance of refugees." As reported in paragraph one of the Embassy's tele- gram No. 336, March 15, 7 p.m., the Prime Minister made a similar statement in the House of Commons on the same day. Respectfully yours, For the Ambassador: HERSCHEL V. JOHNSON Counselor of Embassy WWB/jc 90 LONDON, June 1, 1939. No. 2776 SUBJECT: Czechoslovak Assets in the United Kingdom. The Honorable The Secretary of State, Washington. sir: I have the honor to report that the replies iven by the Prime Minister and the Chancellor of the Exchequer to questions regarding the administration of the Csecho- slovak (Restrictions on Banking Accounts, etc.) Act, 1939, which were set forth in despatches No. 2731 of May 23, and No. 2742 of May 25, 1939, evoked sufficient criticism to cause the issues to be raised on the adjournment of the House of Commons for the Whitsun recess. There is 1/ enclosed the Hansard text of the debate which took place on Regraded Unclassified 91 -2- 2/ on May 26, together with the summary of the debate that appeared in the Manchester Guardian of the following day which is not only a fair analysis of the course of the debate but accurately represents the reaction of the House of Commons. The real significance of the debate lies not in the particular issues surrounding the ownership of the gold belonging to the Czech National Bank but held in London in the name of the Bank for International Settlements, but in the demonstration that the House of Commons gave on this occasion of its changed attitude to Germany. And at least in this matter the House of Commons truly re- flected British public opinion which has hardened immeasur- ably since the Munich agreement. On the other hand, appeasement in one form or another or for one reason or another is still current in the thoughts of the British Cabinet but the rank and file supporters of the National Government in the House of Commons and the British public in general are less and less disposed to compromise by concession. And due to the extent of the inspired propa- ganda as to the rapidity of British rearmament the need for compromise concessions is no longer held necessary. Therefore, at some point this divergency of attitude between the head, the body and the tail may cause trouble. In this general connection it is perhaps useful to review the antecedents of this Csech gold affair. As re- ported in No. 374 of March 20, 6 p.m. the British Treasury decided to impound the Czech assets in London because they "did not propose to repeat their experience over Austria, namely, to turn over all assets in effect to the German authorities Regraded Unclassified 92 -3- authorities and then have to make a play without these trump cards for the settlement of obligations to British nationals". It so happened that these obligations to British nationals included unfulfilled British Government orders to Czech munitions firms for guns, gun steel and armor plate. On these, in accordance with standard Euro- pean munitions practice, one third of the purchase price had been paid on the signing of the contracts. Hence, the British Treasury had immediate practical problems which required energetic action and it was motivated by these considerations and not idealogical or political con- cepts in impounding Crech assets in the United Kingdom. Furthermore, as regards the gold of the Czechoslovak National Bank held in the Bank of England in the name of the Bank for International Settlements, aside from the legal position, which as pointed out in despatch No. 2731 of May 23, 1939, obviously gave the gold immunity from seizure, the British Government had no desire unnecessarily to irritate Germany by bringing pressure to bear on the Bank for International Settlements to require a decision from, say, the Swiss Courts or the International Court at The Hague before releasing the gold. The French Government apparently took a different view and I am reliably informed unsuccessfully urged the British Government to take such action. Thus, this further illustrates the fact that in impounding the assets in the United Kingdom held in the name of Czech banks, firms or individuals, the British Treas- ury was motivated by matter of fact considerations. But such is the rising tide of British public opinion that it interpreted the Treasury's move as retaliation ainst Cerman aggression Regraded Unclassified 93 -4- aggression, as & means of effecting "Not-a-Penny-for- Hitler". When the real motives of the Treasury began to be unconsciously revealed through the inept answers given in the House of Commons on May 22, 23 and 24 and reported in the despatches referred to above, then the political pot began to boil. The Cabinet became concerned about the matter, par- ticularly since the controversy descended upon them rather unexpectedly. Mr. R. A. Butler, the Parliamentary Under- Secretary for Foreign Affairs was even recalled from the League meeting at Geneva and had some difficulty in per- suading Sir John Simon, who is sufficiently ambitious to wish to avoid unnecessary difficulties, that the contro- versy was overwhelmingly a Treasury matter. Sir John Simon made the defence for the Government, and a very humble and conciliatory one it was. After explaining at some length that neither he nor the Prime Minister had in- tended deliberately to mislead or deceive the House of Commons by their previous statements he emphasized the special and non-political character of the Bank for Inter- national Settlements at great length and postponed the embarrassing specific financial questions to a later date. He also gave an assurance in the matter of de facto recognition of the annexation of Bohemia and Moravia, which, in view of our own interest in this matter, is quoted below: "There is the question which is more of & Foreign Office question perhaps, than a Treasury question and has to do with the appointment of a consular representative in Prague. Prior to 15th March we had in Prague at our Legation our Minister as diplomatic representative. ince then the question has necessarily arisen how we are to arrange matters Regraded Unclassified 94 -5- matters in view of the annexation of Caecho- Slovakia to the German Reich. The diplo- matic representative could not continue, because the German Government had required that after 25th May diplomatic representa- tives in Prague should not enjoy extra territorial rights which they had previously been allowed to enjoy. A8 regards the Lega- tion, we are withdrawing our Minister, and certain other Governments, notably the U.S.S.R. and the United States, have already withdrawn their Legations under similar notice and have left for the time being consular representa- tives to look after their interests. To leave our own diplomatic representative, that is the Minister, in Prague after he had ceased to have diplomatic status and privi- leges would be an absurdity. He would morely be & private person. The Legation was closed yesterday, and, as my right hon. Friend the Prime Minister informed the House on Wednes- day, the British interests in Bohemia and Moravia are now in charge of the British Vice-Consul. "Then comes the question about the presence in that area of the British Consul. The German Government, in their communica- tion, said that Consular representatives in both provinces would 06830 to be recognized on and after 20th June unless, in the mean- time, the Consul obtains the exequatur of authority. The House, no doubt, knows that that is the form of document which gives the consul his authority. It is under that that he is entitled to take under his wing British subjects that need protection or representa- tions to be made. It also entitles him to send his official bag and to use a cipher and to send information to the Government. As has already been referred to, in a case like Prague a very important matter is that in connection with refugees. The question which has to be considered is, what our action should be in that situation. It would be no use leav- ing anybody in Prague unless he had consular authority. Where we do have consuls, they en- joy official recognition, and we want them to give all the services they can render to us and to British subjects or to refugees or whoever they may be. It is not B. compliment to any Government that there is granted an exequatur. It is not necessary that this point should be decided instantly by the British Government, and I now state to this House that we shall not make that decision until the House resumes. It is not intended to make it during the recess. It Regraded Unclassified 95 -6- "It will be appreciated that there are in fact considerable British interests that We have at least to bear in mind. I was not myself aware that the Prime Minister's words on Wednesday were to be understood as contem- plating any de jure recognition at all. Cer- tainly, as far as my information goes that is not what is in contemplation at all, but no doubt it is the fact that, if our Consul gets the exequatur which he must get by 20th June, it might be called a de facto recognition of Cerman authority. That is exactly the problem, and I am merely stating it. I might remind the House that this difficulty has arisen before. For instance, in the case of Abyasinia. The British Consul there from the very early stages of the Italian invasion received the Italian exequatur long before there was any question of de jure recognition. The same thing, I am informed, was true of Austria. Therefore, as far as precedents 80, I do not think it is very surprising that it has been found possible to secure the protection of British interests in these areas without making the de jure re- cognition of these new powers. "Mr. Alexander: The de facto recognition of the Consul in Austria and Abyssinia followed as night follows day, as events proved, but in Manchukuo we have heard of no report of any serious damage to British interests, nor has the British Government up to the present given de facto recognition. "Sir J. Simon: The actual question now is as to our consular representative at Prague. The question 1s under consideration, and we are in consultation with other Governments about it. I can give the House an assurance that no re- levant action will be taken about the matter until the House resumes. "The right hon. Member for Hillsborough (Mr. Alexander) has just referred to another matter, on which I have some responsibility. It is true that in that case the British Govern- ment and the then Foreign Secretary secured at the League of Nations the adoption of the prin- ciple that there should not be acknowledgmont or recognition of a conquest or annexation which had taken place in breach of the Covenant or the Kollogg Pact. It was I as Foreign Secre- tary who proposed that at Geneva, it was I who got it carried by the League, and I received the thanks of the American Government for doing 50. Therefore, I am perfectly familiar with the precedent. I am, however, bound to say that I do not think anybody would agree that the everlasting exclusion of British consular assistance in an area would be in the interests Regraded Unclassified 96 -7- of British trade. I noticed the point of the right hon. Gentleman, which was that one must perhaps draw & distinction between some sudden, immature acknowledgment of a situation which takes & new shape, which may be an action which we repudiate and deplore and which becomes & portion of e. more permanent structure. The case of Menchukuo is An instance, the only in- stance so far as I know, of almost a general decision not to recognise a changed Sovereignty which has been brought about by means contrary to the Covenant." (Hansard, May 26,1939, Cols. 2767-9) Respectfully yours, For the Ambassador: Herschel V. Johnson Counselor of Embassy Enclosures: 1. Parliamentary Debates, Hansard of May 26, 1939, Columns 2713-2772, in quintuplicate. 2. Article from the Manchester Guard- ian of May 27, 1939, entitled "M.P's Criticise Transfer of Czech Gold to Germany", in quintuplicate. WWB/JC & TRUE COPY OF THE SIGNED ORIGINAL 92/2 Regraded Unclassified 97 Written Answers 26 MAY 1939 Written Answers 2711 2712 a view to supplying official information to under the usual conditions applicable to supplement that already given in the agricultural employment. National Service Handbook, and in the Press from time to time? Mr. E. Brown: I have been asked to AGRICULTURE. reply. The supply of information for DERELICT LAND CULTIVATION. persons who are anxious to participate in Mr. W. R. Duckworth asked the National Service but are uncertain in what Minister of Agriculture whether he has capacity they can most usefully do so is any statistics showing the extent to which a matter in the first instance for the farmers without any subsidy are clearing National Service Committees established semi-derelict acreage for the purpose of in each locality. In London, a Central cultivation; and, if so, whether he can Information and Recruiting Bureau has give any details? been in operation experimentally for the past five weeks; and National Service Sir R. Dorman-Smith: I regret that the Committees have recently been invited to information is not available. consider whether similar bureaux might SHEEP, OATS AND BARLEY (STATISTICS). usefully be opened in their respective localities. Mr. Lambert asked the Minister of Agriculture what was the number of sheep LAND ARMY VOLUNTEERS. and acreage of oats and barley in the Sir R. Glyn asked the Minister of United Kingdom for each of the last five Agriculture whether he can arrange for years? the names of those who entered their Sir R. Dorman-Smith: The following names in the National Register for service statement gives the number of sheep and in the land army to be communicated to the acreages of oats and barley in the the appropriate authority in each county United Kingdom as returned by the to that a scheme may be devised for occupiers of agricultural holdings in June such persons to have the opportunity to in each of the last five years. volunteer to obtain experience in assisting b carry this year's harvest under proper vage conditions laid down by the Wages Year. Sheep. Oats. Barley. Board? Number. Acres. Acres. 1934 24,943,828 2,498,301 959,282 Sir R. Dorman-Smith: If my hon. and 1935 25,061,719 2,518,221 871,272 allant Friend will refer to the National 1936 25,040,177 2,513,692 893,999 Service Handbook, he will see that women 1937 25,540,905 2,298,830 906,420 ere invited to enrol in the Women's 1938 26,775,421 2,395,016 987,857 and Army to undertake farm work in event of war. As stated in the reply BRITISH ARMY (RECRUITS, which I am giving to-day to my hon. VACCINATION). riends the Members for Tamworth and Revizes respectively, arrangements are Mr. Groves asked the Secretary of State leing made to provide training facilities for War whether the paragraphs of the Land Army volunteers in time of Regulations for the Army Medical Service eace. While the primary objective of regarding the vaccination of recruits after each training is an addition to the reaching the depot will be altered to meet gricultural labour supply available in the case of conscripts, who cannot be me of war, there is no objection to any compelled to be vaccinated? Bember of the Women's Land Army Mr. Hore-Belisha: Any necessary altera- undertaking farm work in peace time tion of regulations will be made. No. 111 B HOUSE OF COMMONS Czecho-Slovakia Adjournment- Royal Assent 26 MAY 1939 Crecho-Slovakia 2716 2713 ADJOURNMENT (WHITSUNTIDE). I hope that hon. Members, not #715 on this side, but in all parts of the House, mertiy Minister himself. We were all dis- the Prime Minister had made a statement will feel that it would also have its OWN appointed with the tenor of his state- at Birmingham which was of very great Resolved, That this House, at its rising this day, way of expressing its disapproval. ment in the House on 15th March while importance in its expression of view with adjourn till Monday, 5th June: provided by can do so either by formal vote, when lt the actual operations were still proceeding regard to the action of Germany in sup- do that if it is represented to Mr. Speaker in Czecho-Slovakia. It is partly his atti- pressing Czecho-Slovakia, but that he had His Majesty's Government that the public there is an actual Resolution before the House, or by allowing its feelings to be tode that day which make us fear what not answered the questions which he had interest requires that the House should meet expressed on such an occasion as this, his actions may be. I recall that he put in that statement. Since that date at any earlier time during the Adjournment, and Mr. Speaker is satisfied that the public interest does so require, be may give notice when we raise the matter in questions said: the Prime Minister and his colleagues in the Government. I hope that Members to of It is natural that I should bitterly regret the Cabinet, without giving a verbal that he is so satisfied, and thereupon the what has now occurred, but do not let us on answer to the questions, have un- House shall meet at the time stated in such the House, whatever their party may be, that account be deflected from our course." doubtedly by their arrangements with notice and the Government Business to be transacted on the day on which the House will give the Government to-day a clear What some of us fear is that, as has Poland, Greece, Rumania and Turkey, shall so meet shall. subject to the publication indication of their view of this matter happened on many occasions in the con- and their negotiations with the U.S.S.R., of notice thereof in the Order Paper to be which is causing us so much anxiety. It duct of foreign affairs since the Prime given what seems to be a practical answer circulated on the day on which the House is necessary before we go any further to Minister took executive power in that to the problem of having reasonable safe- shall so meet, be such as the Government remind ourselves of the views which were may appoint, but subject as aforesaid the department of the Government's activities guards for the future. Now after the House shall transact its business as if it had expressed by leading Members of His in this House, he may again wobble from statement of the Prime Minister on been duly adjourned to the day on which Majesty's Government as soon as the what is the proper course for this country Wednesday we are once more disturbed it shall so meet, and any Government Orders latest aggression in March against Czechs- to take. After great pressure from people lest those very actions which have been of the Day and Government Notices of Motions that may stand on the Order Book Slovakia by Germany had taken place. of all parties in this country the Prime taken partially in answer to the ques- for the 5th day of June or any subsequent I think I might quote first the statement Minister two days later made a speech at tions which the Prime Minister postulated day shall be appointed for the day on which made by the Secretary of State for Birmingham. Then he made one or two will, in fact, detract from those measures the House shall so meet; provided also that Foreign Affairs. On 20th March he said: statements which, I think, will strongly and lessen the degree of security that we in the event of Mr. Speaker being unable to act owing to illness or other cause, the Chair- We have protested against the changes reinforce our contention this morning that all want to see. man of Ways and Means, in his capacity as effected in Czecho-Slovakia by Germas mile there should be noconsideration even given Deputy-Speaker, be authorised to act in his tary action and have said that in our view to the question of the recognition of the Therefore, we submit to-day that not stead for the purposes of this Resolution." legality." those changes are devoid of any basis of state of affairs in Czecho-Slovakia. The only should the Government not give [Sir 1. Simon.] Prime Minister made use of statements of actual recognition to the annexation of That was a very authoritative and clear this character at Birmingham on 17th Czecho-Slovakia, but ought not even to CZECHO-SLOVAKIA. statement by the Secretary of State for Motion made, and Question proposed, Foreign Affairs. In a subsequent passage March. He expressed indignation that consider it. It is not necessary for us in his statement on that day, he said: hopes had been wantonly shattered. He to set out at length the tragic story of That this House do now adjourn."- Czecho-Slovakia. The bare fact is that said that Hitler had taken the law into his [Captain Margesson.] We are confronted with the arbitrary own hands, Surely that is not a basis for the German Government, having tricked suppression of an independent sovereign State by force and by the violation of what considering recognition now. Then he the Czechs into surrendering one of the 11.33 a.m. asked these questions which are extremely strongest strategic positions in Europe, Mr. A. V. Alexander: On Wednesday must regard as the elementary rules of linter- national conduct." important: subsequently without a shadow of right of this week my right hon. Friend the annexed the whole country and brought Leader of the Opposition gave notice that That, again, was a most powerful state Is this the last attack upon a small State, he would to-day raise the question of the ment of what I think was the proper or is it to be followed by others? Is this, to an end, to quote the words of one of possible consideration by His Majesty's view for His Majesty's Government 21 in fact, a step in the direction of an attempt His Majesty's Ministers, the existence to dominate the world by force? These are of a sovereign State." This was done Government of the recognition of the take of the situation. What concerts . grave and serious questions. 1 am not going despite the agreement which had been existing situation since the aggression of now is something which was summed to attempt to answer them to-night." come to between Herr Hitler and the Germany in Czecho-Slovakia. I would in a short subsequent phrase in the same Prime Minister himself at Munich. It remind the House that on Wednesday statement by the Secretary of State. ROYAL ASSENT. was also done in defiance of the guaran- the Prime Minister was asked by the hon. remember as I was listening to him at the Message to attend the Lords Commis- tees given by His Majesty's Government Member for Norwood (Mr. Sandys) to time that he said: to the Czech Government, on the faith sioners; give an assurance that no recognition Every country which is Germary of which the Czech Government made would be given to the annexation of neighbour is now uncertain of the morrow." The House went; and, having re- their surrender in the interests of Czecho-Slovakia by Germany without this I submit that to-day, in view of the falm turned;- European peace. The British Govern- House being first consulted, and the of the Prime Minister to satisfy the House Mr. SPEAKER reported the Royal Assent ment made, in fact, no effort to redeem Prime Minister replied that he could give on this point on Wednesday last. every its pledges with regard to those guaran- no such assurance. Obviously, that one of those countries will be more a Military Training Act, 1939. tees, and many people to-day regard the answer caused very great concern to certain of the morrow. To-day ought to Government as being in the position of a hon. Members on this side, and my right be an occasion when we can get a defaulting guarantor. hon. Friend asked whether the Govern- ment-at least I hope we can-from or CZECHO-SLOVAKIA. Therefore, in my view it is unthinkable ment were contemplating such action. Government that no such action as gettle The Prime Minister then replied, rather Question again proposed, " That this that they should now propose to recognise of us fear may take place will, in fact. X House do now adjourn." the action of Germany. I would go cryptically, that the matter was being put into operation. I should like to $ further and say that even from the point considered. When he was further pressed, port what I have quoted from the Sect 11.50 a.m. of view of his own self-respect I should he said that the House would have its tary of State for Foreign Affairs by de Mr. Alexander: When the Debate was have thought the Prime Minister would own way of expressing its approval, and ences to the statements of the Print interrupted I had just been saying that not even have considered it. But. after No. III Bz Regraded Unclassified Adjourament- HOUSE OF COMMONS Czecho-Slovakia 2717 2718 Adjournment- 26 MAY 1939 Caecho-Slovakia [Mr. Alexander.] company of the law-breakers in the hope 2719 2720 all, them is something at stake far more that by his return he may appease them doubt, be followed by other nations in analogy from rules of national law con- important even than the self-respect of in their actions. It is curious that in all such questions where aggression has cerning prescription. I could quote the Prime Minister. Such recognition, if the discussions and statements about the taken place. many other authorities, but I hope I it were to be given, would be, in our U.S.S.R. the Prime Minister has, The effect of the principle will be that have made a sufficiently good case to view, entirely contrary to the principles apparently, not been prepared to let nations who are signatories to the obtain independent and sympathetic sup- of the League of Nations. single friendly word pass his lips in rela. a Covenant of the League, or signatories port from all parties in the House in On sundry occasions in the past few tion to that country, but nevertheless be to the Pact of Paris with the principles respect of the question which should be years those principles have been sends his Ambassador to the victory march put to the Government in this matter. abandoned by the Government, but we of General Franco to watch the parade of there laid down, must refrain from giving had begun to hope that they had really Italian troops, who are still in Spain in de facto or de jure recognition. I shall In the course of my remarks I have learned their lesson. We thought that violation of the pledges which were given be glad if the Chancellor of the referred to other matters which have been the tragic dismemberment of Czecho- to him directly by the Italian Govern. Exchequer will be good enough to look it present in the minds of some hon. Slovakia and the ruthless acquisition of ment. The right hon. Gentleman now up, because I think he will find there is Members, particularly the procedure seems to hanker after recognition of the another precedent in this matter to be Albania by the other dictator had at last which has taken place with respect to the Czecho-Slovakian conquest, Is it not found in the Treaty which was concluded Bank for International Settlements. I put a stop to a policy of so-calied appeasement by complicity in illegality plain to Members of the House that such in 1933 by the Latin-American States and hope later on in the Debate that my right and violence, and that there was to be backslidings from the proposals to return to which, by the way, both Italy and the hon. Friend the Member for East to collective security must depress the United States of America adhered. The a return to the principles upon which Edinburgh (Mr. Pethick-Lawrence) will alone can there be civilised intercourse friends of peace abroad? At best they are Treaty stated that the high contracting say a word or two on this question. In between nations. examples of the havering and dithering parties recognised no territorial arrange- conclusion, I would say that if the British which have in the opinion of a Member of ments that were not obtained through Government were to grant recognition to The formation of a peace front which the Government, characterised Govern- pacific means, nor the validity of any Germany over the annexation of Czecho- We understand, or we hope we understand, ment policy in another matter. occupation or acquisition of territory Slovakia at this time, such an action is almost completed, surely implies a re- brought about by armed force. The would be inconsistent with the Covenant turn to the conception of the rule of law I ask the Chancellor of the Exchequer Government would be well advised to re- instead of the reign of anarchy. No of the League just at the time when the when he replies to this Debate to consider doubt hon. Members have noted the speech consider the position from that point of speech of the Secretary of State at the also the actual legal position. I have view, and to make it plain to the House made by the Secretary of State for Foreign League Council this week has given us tried to put before the House what I feel Affairs at the Council of the League of of Commons that they will not consider hope that we were more inclined to a Nations at Geneva during the past few is the right political position which We de facto recognition. The Prime Minister sane view in these matters. Secondly, it days. I take a few words from it: ought to adopt in this matter, but there might argue in defence of recognition that would be impossible for such an action to One principle is common to all these is also the legal position. I cannot the Covenant of the League cannot be be reconciled with the previous decisions obligations that we have assumed, namely, possibly pretend to be in any sense an held to mean that no change in the exist- of the Council and of the Assembly. resistance to the imposition of a solution by authority upon legal matters in inter- ing status of the members of the League Thirdly, it is contrary to international law the method of force which, if continued, must national affairs, but there are open to us result in reducing civilisation to anarchy and can ever be made and that on grounds as accepted by the American States; and, destruction Everything that the Government authorities at which we can look from time of practical politics it might be necessary fourthly, it is impossible to justify on have done is in strict conformity with the to time for our personal views, and quote to recognise changes made by armed grounds of prescription. Such action will spirit of the League Covenant." if necessary. It is plain from such force. It may be admitted that in the strike a very heavy blow indeed at the Can any of us really maintain that the evidence as is available to us that if de course of time international law may have hopes we have of beginning to rebuild a recognition of Germany's annexation of facto recognition takes place, the British to develop a rule corresponding to pre- proper recognition of international law. Czecho-Slovakia is in accord with the courts thereafter will have to give re- scription, in order to validate a position It is not justified by the actions of the spirit of the League? cognition to the validity of the action of which may have been wrong at its in- Government in the past. They still have The more one considers the actions of the German authorities in Czecho- ception, but which has been de facto not recognised Manchukuo; we still hope the Prime Minister in these matters, the Slovakia. For no other reason than that accepted for a long time, they will not recognise Albania as a con- more they give ground for the gravest this House ought immediately to persuade In that matter I have been looking up quest of Italy; and I beg this House to suspicion. From time to time the right the Government to refuse to consider de hon. Gentleman does not appear to be what authorities were available to make it clear to the Government to-day facto recognition. The other point I would following wholeheartedly the new orienta- bring to the notice of the Prime Minister and I find in national systems of law that me, that it is strongly of opinion, in all parts is that there has grown up in the last few periods to of prescription are legal for from of this Assembly, that the Government tion, as it has been called, of foreign policy, which is a return as far as may to 30 years when there has been ought not even to consider recognition of years in international law a clear re be and as quickly as possible to the cognition of a principle to be observed in effective dispute concerning rights no of this brutal aggression at this stage. principle of collective security. From these matters, which is that in this so- the manner in which the Prime Minister Slovakia, that tragic victim of the failure possession. In the case of Czecho- 12.6 p.m. treats these matters I doubt very much called non-recognition, there must be a definite act taken by way of resolving of in democracies to honour their bond, left Sir Archibald Sinclair: There is no whether he appreciates the importance of the rule of law, In fact, it has been not to recognise. This is of fundamental uncertainty and finally dismembered doubt that the right hon. Gentleman the by a dictator, in spite of the Prime Member for Hillsborough (Mr. A. V. suggested that in these international importance in the post-War legal position Minister's pledges to guarantee its Alexander) has constructed a massive of international relationships. The state boundaries, it is only two months since case in opposition to the proposal for matters the Prime Minister has pro- nounced recidivist tendencies, because he ment which was made by Mr. Simpson over the invasion of Manchuria by Japan no formed. I therefore submit that there per- is the final set of brutal aggression was the recognition of the German annexa- tion of Czecho-Slovakia. I do not intend is constantly seeking to return to the was one of the precedents which will. no conceivable case for recognition by to follow him into the main aspects of that case, though I was the first to raise Regraded Unclassified HOUSE OF COMMONS Czecho-Slovakia Adjournment- 26 MAY 1939 Crecho-Slovakia 2722 2723 2724 Adjustment- 2721 Government in appointing a British any real principle in the world. We know tions Wh tout the necessity for applying the question in my speech on Friday of [Sir A. Sinclair.] consul at Bratislava. what principles we stand for, although for any exequatur, and therefore with- week. To-day I wish to confine my- the Personally, as I said last Friday, I dis- many of us are shocked at the infringe- out the necessity for according any self last in particular to the possibility of with like the idea of this appointment of a ment of those principles when Herr de facto recognition. I can quite appointment of a consul at Prague, have British consul at Bratislava, but I can Hitler invaded and annexed Czecho- understand that points of that kind may understand that a case can be made out Slovakia, but until then we felt confident the inevitable result that we should require more consideration. What I am of the principles for which we stand. to apply for an exequatur from the Ger- for the appointment of a consul there, pressing for is an answer to this point. But are you really standing for any prin- man Government in Berlin. The other of because there you are recognising, not Will the Chancellor assure us that the some foreign Government, but this new ciple of resistance to aggression? Many important aspect of the question is, in ultimate decision will be one which will course, that of the Czech balances Slovak Government, which is an inde- of these moderate men have pleaded with in no case involve recognition of the London, with which, I understand, my pendent and indigenous Government me to use such little influence as I German annexation of Czecho-Slovakia? right hon. Friend the Member for Car- For my own part I regard it as a puppet possess to strengthen the Government harvon Boroughs (Mr. Lloyd George) is against any condonation of this annexa- The the question of consultation with Government in the hands of the Germans, tion, and to make it clear that we do Parliament has been raised. I fully going to deal in his speech, as he was but I realise that it is possible to take a different view. It is, however, quite im- stand on the principle, not of protecting recognise that the constitutional posi- the first to raise that question. possible to take a different view of the British interests, the British Empire and tion is that the Government have a It seems to me that to apply for this British possessions, but of protecting the perfect right to recognise the annexation exequative to the German Government in appointment of a consul in Prague. In Berlin and thus to recognise de facto Ger- that case you have to apply for your world, including the British Empire, from of Czecho-Slovakia without consulting exequatur to the Government in Berlin, the threat of aggression. Parliament, and we should have no man rule in Czecho-Slovakia, would be I would like to ask the Chancellor of ground for complaint. But politically that absolutely inconsistent with the main and that would necessarily involve recog- that is not true. Politically it would be principle of His Majesty's Government's nition of the German annexation. This the Exchequer what interests in Slovakia, an act of the highest and gravest signifi- foreign policy, or, at least, the principle would undoubtedly have a very serious in the first place, we are protecting by cance if the Government did that. which they profess to have made the main affect on opinion in France, and I believe the appointment of this consul at Brati- it would have a very serious effect on slava, and what are the interests that we Politically the Government have no right principle of their foreign policy, namely, to commit this country to condonation that of collective resistance to aggression. opinion in the United States of America. should be protecting by appointing a con- of a crime without consultation with the I hope we shall have, in answer to the sul in Prague? No doubt have a certain We are engaged. it seems to me, on a very representatives of the people. The Prime speech of the right hon. Gentleman the amount of trade still with those countries, dangeroits enterprise-a very necessary and these consuls would perform a use- Minister, for example, recognised the enterprise. but a very dangerous enter- Member for Hillsborough, a declaration ful function; and there are, of course, political aspect of a similar question when prise-when we set ourselves across the from the Government that they approve in the House of Commons in November path of these two dictators in Germany of the Stimson doctrine of non-recognition the interests of the refugees to be con- sidered. I can quite understand, and I last he referred to the terms of the guaran- and Italy, and when we give guarantees of the fruits of forceful aggression. I wish tee of the frontiers of Czecho-Slovakia. to countries in Eastern Europe like we could have that declaration. Nothing am not denying for a moment, that there are such interests, some of which would He ended a passage of his speech by Poland, Rumania and Greece. It is a could be more likely to strengthen the understanding between ourselves and the be very important interests; but I would saying: very dangerous enterprise, and one which we shall not be able to bring to success United States of America than the making ask the Chancellor of the Exchequer, can Of course, before anything was settled the they really be weighed in the balance terms of such a guarantee and the names of without a tremendous national effort of such a declaration by His Majesty's those taking part in it would be brought before here at home, and without securing the Government. Moreover, the Czech legion- against the suspicion and uncertainty that the House, [OFFICIAL REPORT, 1st Novem- loyal and confident support of a very aries have a very strong influence on would be aroused in this country and ber, 1938; col. 79. Vol. 340.] large number of friends abroad. Any- public opinion in the United States of throughout the world if His Majesty's Obviously, because it was a matter of thing which sows distrust between us and America and in Russia, and this con- Government were to take any action templated action in regard to recognition which involved recognition of the German such very grave consequence. But so our friends in Europe and in other con- is this and, if it was right then to give tinents of the world must inevitably of the German annexation in Czecho- annexation. The Government have long been considering this question. As long that assurance to the House of Commons, diminish greatly the chances of our Slovakia would swing the whole of that it is right now to give us the assurance success in this enterprise. I venture to influence of the Czech legionaries against ago as last Friday the Under-Secretary of say that the attitude of the French State told me clearly that an application for which we ask, that no such departure us in the United States of America, in in policy will be made without consulting Russia, and, indeed, in all Slav countries. to the German Government for an exe- Government to this proposal of the appointment of a consul in Prague must said: quatur would amount to recognition. He the House. If we are going to carry to a Moreover, what would the Germans successful conclusion this hazardous enter- be clear from the answer which was think of it? In the last 12 months I given to the Question of the hon. Mem- No decision whatever has been taken to prise of collective resistance to aggres- have had a great many interviews with ask for an exequatur from the German Govern- sion, we must be prepared to make some ber for Norwood (Mr. Sandys) this morn- Germans, from Gauleiters on the of ment which would, as the right hon. Gentle- sacrifices of financial interest, of economic ing. It was quite clear from that hand to refugees on the other, and a great mag reminded us, amount to the de facto re- advantage and of commercial convenience answer that the French Government have many people in between those classes cognition of Bohemia and Moravia, so far refrained from appointing a consul 347.] CIAL REPORT, 19th May, 1939; col. 1889, Vol. to the main purpose of rallying the world and apart from the extremes on either forces of resistance to aggression. To in Slovakia. Although they were side-the Gauleiters and the refugees. who about that, and the House is entitled now There can, therefore, be no dispute recognise the annexation of Czecho- approached by His Majesty's Govern- take, of course, the extreme view on Slovakia would be to poison the relations ment, and were informed by His either side-moderate people in Germany Majesty's Government of what they in- living there now, many of them in in- be to an assurance, not that no consul will between those who are engaged together appointed-that is not what I am on this great enterprise. I beg the Gov- tended to do, they have neither appointed portant and responsible positions, have asking for-not that the present vice- ernment to give us the assurance that a consul themselves nor expressed any said to me, We are doubtful whether for approval of the action of His Majesty's you, the democracies, are standing consul may not be continued in his func- whatever action they may take to protect our interests or to help the refugees- Regraded Unclassified HOUSE OF COMMONS Czecho-Slovakia Adjournment- 26 MAY 1939 Czecho-Slovakia 2728 Adjournment- 2726 1727 2745 think my hon. Friend will quarrel with Mr. Churchill: Would the hon. Member is reconstructed, on the economic basis [Sir A. Sinclair.] not asking them to tell us exactly that definition of the primary function of that the policy might be linked up that I have endeavoured to indicate. At what I am that action may be-will not involve of the banker which in these days is so often with agree that of the League of Nations? the moment it is a hotbed of intrigue. forgotten. In the particular case under I believe that its winding-up would re- recognition of the German annexation review, we have the Bank for Inter- Mr. Braithwaite: If it is possible to have quire a two-thirds majority of the Czecho-Slovakia. national Settlements established at Basle the best of both worlds, I have no objec- Assembly-hon. Members will correct me to perform certain functions, notably the tion. The right hon. Gentleman has great if I am wrong. If that is not possible, 12.20 p.m. Mr. Gurney Braithwaite: We have just handling of the very difficult technical experience of League matters. I prefer to there is another method of dealing with listened to two right hon. Gentlemen and, problem of passing reparation payments lean rather more heavily on the military the matter. That is, to withdraw the according to all accounts, we are shortly aross unstable and fluctuating exchanges. side of the arrangement than on the British and French deposits from the to listen to three more. I hope the House It is, in fact, an example of internation- Geneva atmosphere or technique, but he Bank, which would have the de facto- will pardon an intervention from a back alism de luxe. has more experience on the subject than if that is the correct term-effect of pre- bench. I can assure them it will be I should like to indicate some of the I have. The international financial venting a similar lamentable incident. I of the brief character that we were told consequences which have resulted from machinery has been set up, and there is would humbly submit to the House that yesterday should characterise our proceed- this attempt to operate the international some discontent and considerable discom- point of view, while apologising for stand- ings. I have no knowledge of the diplo- theory in this case. I think a parallel fort because it is not functioning in ing between hon. Members and other matic niceties of these matters such as exists in the military situation. I re- accordance with the wishes of Britain and Privy Councillors who want to speak. is possessed by many right hon. Friends, member very well immediately after the France. I do not think I am unfair in but 1 want to put a layman's view of War coming home, very thankful to be saying that, at least in this House, at the 12.31 p.m. alive, and being sternly rebuked for sug- moment internationalism is being inter- Mr. Pethick-Lawrence: The hon. Mem- the present situation, which is that this country should withhold recognition, gesting that a simple continuation of the preted as the fulfilment of democratic ber for Holderness (Mr. G. Braithwaite) either de facto or de jure, for a lengthy war-time alliance was the best method aims. I welcome that new definition, but has opened up a very important question of preserving peace on the Continent of I doubt whether this facade can be pro- period, as an indication of our indignation relating to the Bank for International and abhorrence at this annexation of Europe. I was told that that method longed logically or even fairly. In the Settlements. Therefore, perhaps it will be Czecho-Slovakia. From a logical stand- was out of date and that all hopes were financial, as well as the military sphere, convenient to the House if I raise this point however-although logic is not now centred in the new peace experi- we cannot be controlled at this period matter on somewhat general lines, in everything in these matters-it seems to ment, the League of Nations, and that if from either Basle or Geneva. I am one of order that the Debate may thereafter run me difficult to withhold indefinitely recog- only the requisite number of genuflexions those-and I hope the right hon. Gentle- both as regards the main issue of recog- nition in these circumstances unless one is was made at the mention of the word man the Member for Epping (Mr. nition by the Government and the sub- sidiary issue of what is to happen to the prepared by force to restore the status Geneva and the formula collective Churchill) will at least allow me to say quo. Those who take that view must be security repeated with sufficient con- this-who hope that the League will be Czech currency. I should like to begin viction, all would be well. I felt that rebuilt, and rebuilt in our time, but I by a statement of what I believe to be prepared in the event to go to that ex- treme. But 1 hope that in the present that was an experiment which must be believe that that will have to be on the the facts. If I state them incorrectly I tried, and I think this country was right basis of economic co-operation, with many situation there will be no question, for at hope the Chancellor will interrupt me. I at the time, under the leaderhip of the of the more sentimental clauses with understand the position to be that the least a very considerable period, of any such recognition either de facto or de jure. right hon. Gentleman opposite, to enter which the League embarked on its career Bank for International Settlements-com- the League of Nations and to make an deleted. monly known as the B.I.S.-held certain The right hou. Gentleman the Member attempt to operate it. But today the assets for the Bank of Czecho-Slovakia, for Hillsborough (Mr. Alexander) touched wheel has gone full circle, and this has 3 I doubt very much whether the Bank for International Settlements has a useful and deposited them in the form of gold upon certain financial consequences bearing on the financial situation. After with the Bank of England. A few days arising from this matter, and it is upon denouncing alliances as being out of date, function to perform to-day. I had the this that I should like to say a word. It the Government are now being urged, honour of being interrupted just now by ago the authorities of the B.I.S. gave in- structions to the Bank of England to affects the situation which has arisen in impatiently and stridently, by hon. my hon, Friend the Member for North hand those assets over to the German connection with the Bank for Inter- Members opposite to enter into military Paddington (Mr. Bracken), who has had Reichsbank. This instruction either has national Settlements in connection with alliances with the least possible delay with great experience in these matters, and who, through one of his organs, has been been or is shortly to be obeyed. Czech deposits. I think we should various totalitarian and semi-totalitarian do well to remember-what is often States in order to resist the challenge that pressing this matter eloquently, and I The facts of this transfer were referred forgotten in these days when economic is being made by other totalitarian States. think wisely, in the last few days. I to on Friday last by the right hon. Gentle- agree with what he said about money man the Member for Carnarvon Boroughs theorists flourish-that the primary function of the banker is to take Sir A. Sinclair: Do you approve of it? being handed over under duress. That (Mr. Lloyd George), who, in his usual care of his depositors' money and is the method employed in bank rob- picturesque way, made certain comments to produce it when required. Even if Mr. Braithwaite: Certainly, I support beries, when insufficient staff is provided upon it, and incidentally charged the the bank manager knows that it is being that policy. I am trying to say-if the -1 matter in connection with which I Treasury with being a party to the agree- withdrawn for mischievous or even im- right hon. Gentleman will be patient- once presented a Private Member's Bill, ment. The Prime Minister, speaking on moral purposes it is still his duty to that after the War I felt that the system which made no progress. But I want to that day, said that the whole story was produce the cash as and when required. of military alliances was one which might that make this final observation as the moral a mare's nest, and added that the only It is true of the Post Office Savings well have been continued, but I felt of this lamentable occurrence. I want to releases that had been made were of re- Bank, of joint stock Banks and even of the League of Nations system should be suggest quite seriously that the Bank for latively small sums to refugees in Czecho- the International Bank in its crudest tried. The wheel has now gone full circle. the International Settlements has no longer a Slovakia, Subsequently, in answer to form. [Interruption.] I was trying to and I feel that we should support I useful function to perform. It should be, questions, the Chancellor of the Ex- give the actual situation, but I do not system of the balance of power in Europe. think, revived, if and when the League chequer and the Financial Secretary Regraded Unclassified HOUSE OF COMMONS Crecho-Slovakia Adjournment- 26 MAY 1939 Czecho-Slovakia 2732 Injournment- 2730 2729 [Mr. Pethick-Lawrence.] The Chancellor of the Exchequer would have us believe that he knew nothing of England, was the Bank of England is moments, but I would like to say, on the the facts in somewhat the same what bound to carry them out? That a political side, that I listened with com- stated as 1 have done, but said that about what was happening, that be matter that can be argued, and is open to plete agreement to what the right hon. terms untrue in the statement of the right Car- heard of it only by accident from a third party, and that the decision taken by the argument. But, granting for the sake of Gentleman the Leader of the Liberal Party argument that it had no other course said. We have to distinguish in this was Gentleman the Member for the hon. Boroughs was his charge that for B.I.S. in no way necessarily represents the views of the Government. when the Bank for International Settle- matter between the purely practica! side narvon Treasury were in any way responsible not ments had taken that decision, that does of conducting normal business relations the transaction. The Chancellor has We in this House, knowing the legalistic not in the least release the Government with a certain part of Central Europe- corrected my statement of facts; there- mind of the Chancellor of the Exchequer, from their share of responsibility for the I mean by that the appointment of a fore, I assume that I have stated them believe what he says, but I am certain action that these men took when they consul or vice-consul to represent British that no foreign Governments will believe were dealing with the matter in the B.I.S. business interests-and the question of correctly. The Chancellor of the Exchequer (Sir it. They do not work in that way. When they have representatives of their country The fourth matter that arises is the recognition either de jure or de facto of statement that was made by the Prime Czecho-Slovakia. I believe that, in the John Simon): In certain respects the opinion of this House and of the country, statement made by the right hon. Gentle- representing their central bank sitting on some important body-this very body Minister in this House. I know that the itself-they take very great care that the Prime Minister is a very busy man, and any kind of recognition by the British man is not quite right. He invited me to Government of the annexation of Czecho- interrupt him, but 1 do not think I can deal with his points one at a time. It views that these representatives put for. 1 do not in the least charge him with a Slovakia is quite unthinkable, and I can- ward are the views of their Government breach of faith, but there was an would not be convenient for me to pop interval between the statement of the not believe that His Majesty's Govern- I am told that in every one of the other ment are contemplating any such step. up every minute in order to do that. cases-this may be exaggeration-the right hon. Gentleman the Member for Mr. Churchill: Will my right hon. views of the Government are put forward Carnarvon Boroughs and the Prime There would be the same kind of uproar -much worse, in my opinion-as greeted Friend deal with the matter early in the by the representatives on the B.I.S., and Minister's reply, and I have no doubt the Hoare-Laval proposals when they first I certainly do not think that the Chan- whatever that the Prime Minister made Debate, so that the House may know came up. That is the kind of thing that cellor of the Exchequer will be believed his statement as a result of information what the position is? would happen if the Government pro- abroad when he puts over the story that received from the Chancellor of the posed or even contemplated taking such Sir J. Simon indicated assent. these representatives act on the whole in- Exchequer on behalf of the Treasury. a step. Therefore, I am sure that the Mr. Pethick Lawrence: Perhaps the dependently, and, possibly, in certain Mr. Lloyd George: He said so. Chancellor of the Exchequer will be in a right hon. Gentleman will correct me when cases, directly at variance with the views position to assure us that they do not he speaks, but I do not believe that I of the Government. Mr. Pethick-Lawrence: He said so the contemplate taking any such step. We come now to the second question. other day. I can quite understand, and have made any serious misrepresentation I think on the basis which the Chancellor What I really want to speak about for of the facts. These facts raise certain what in fact were the views that the of the Exchequer now says it might have a moment or two is the financial aspect highly important questions. The first British representatives put forward? Did been correct for the Prime Minister to raised by the right hon. Gentleman the question of supreme importance is the they in fact, on the B.I.S., support the say that the facts mentioned by the right Member for East Edinburgh (Mr. Pethick- relationship of the Government to the transference of these Czech assets to the Reichbank? Because if they did this, hon. Gentleman were not correct, mean- Lawrence) and to say that, with regard British representative on the B.I.S. We none of us dispute that Mr. Montagu it is a most important thing. Even if the ing by that that the Treasury were not to the Bank for International Settlements, Norman and Sir Otto Niemeyer are on responsible, it is a matter of argument. I believe that the Government are on Government were contemplating recog- But it was quite possible to say that. He sound ground from the purely legal point the Bank for International Settlements nition, they had not at that time decided not as direct representatives of the Gov- to recognise, and I suggest that the did not say that, but that the whole story of view. From my reading of the Statutes ernment, but as representatives of the decision that the Czech assets are to be was a mare's nest. That is obviously of the Bank of International Settlements, Bank of England, but that is not to say, handed over to the Reichbank constitutes untrue, and when he went on to say I believe that the Bank of England is what apparently the Chancellor of the a recognition of some kind at any rate of that the only releases that have been bound by these Statutes to hand over any made have been releases of small amounts funds that may be entrusted to them. Exchequer said, that, in consequence of the control and the hold of Germany over to refugees from Czecho-Slovakia, he What we complain about, and have the that, they are neither bound to consult the country that was Bohemia and part with the Government before taking any finally painted a picture that was entirely right to complain about, is the evident of Czecho-Slovakia. That is the second contrary to the facts. We have the right lack of liaison between the British repre- action on the B.I.S., still less are they question, and it is a very grave one, to take a line in accordance with what to complain when a responsible statement sentatives on the Bank for International the Government wish on vital international I do not believe that the foreign which is not correct is allowed to be made Settlements and the Treasury. I think matters, and finally, that they are not Governments will for a moment credit this by a Minister. These are the important that the right hon. Gentleman is quite even to be expected to report a decision Government with an attitude different issues: first of all, the position of the right when he says that very few foreign that they have taken on these inter- from the one which the representatives of British representatives on the B.I.S. to countries would believe for a moment that national questions. If that really is the the B.I.S. supply, and we in this House the Government; secondly, the attitude these two directors could have acted on position of the Government vis-à-vis these are at least entitled to know what was that these representatives actually took the Board of the Bank for International representatives of the Bank of England, the view of these British representatives. at the B.I.S.; and thirdly, the mis- Settlements independently of the Treasury it is a most grave and serious admission. The third question-and it has been the statement of facts which the Treasury and of the Government. My right hon. policy of the Chancellor of the Exchequer to allowed the Prime Minister to make on Friend the Chancellor of the Exchequer I go further. I venture to think that in this case we have had, if that be true, all through these discussions to try the Friday last, told the House afterwards that he had heard of the transaction from another a direct conflict of attitude between the make the House believe that this was 12.43 p.m. only issue involved-is, if and when Bank the source, subsequently. I should like to Government and these men, who are in a Mr. Boothby: I do not propose to detain know from whom he heard it. We always very representative position on the B.I.S. B.I.S. gave these instructions to the the House for more than a very few assume in this House there is the closest Regraded Unclassified HOUSE OF COMMONS Czecho-Slovahia Adjournment- 26 MAY 1939 Czecho-Slovakia Adjournment- 2736 2733 2734 [Mr. Boothby.] claims on our side arising out of the made 1735 by the right hon. Member for questions we have put, particularly in continuous contact between the Chan- blocked Czech assets in this country, It cellor of the Exchequer and the Governor was made perfectly plain in the Debate Carnarvon Boroughs (Mr. Lloyd George) regard to Spain, where it was evident that a mare's nest. I should like to draw the Government have been much more of the Bank of England. We imagine on the Bill that British holders of the was attention of the House to the fact that anxious to withhold information which that the Governor sees the Chancellor of balances in Prague in the form of cash the Government spokesmen in trying was in their possession than to give it to the Exchequer frequently and that they or bonds and bona fide Czech residents subsequently to explain away that re- the House of Commons. discuss all the aspects of financial policy. in this country who have claims in re- markable statement of the Prime Minister Let me come to another point, which I once described the position of the spect to cash or bonds, ought to be com- have been contradictory. I should, there- was dealt with by the hon. Member for Governor and the Chancellor of the Ex- pensated to the full out of the blocked fore, like them to try and explain away chequer as corresponding to the position assets that we hold in this country, be- East Aberdeen (Mr. Boothby) and my those contradictions. It will be remem- right hon. Friend the Member for East of the First Sea Lord and the First Lord fore there is any question of transferring bered that in answer to a Supplementary of the Admiralty. The Governor tenders anything to the German authorities. Edinburgh (Mr. Pethick-Lawrence) Question which I put on the Tuesday technical advice and the Chancellor of Once those claims are compensated out asking why it was that the Prime Minister namely the position of Mr. Montagu the Exchequer decides on policy, and be- of the assets that we now hold, thanks said that the story, which we now know Norman and Sir Otto Niemeyer on the tween them they must make the thing to the quick and resolute action of the Board of the Bank for International to be substantially true, was a mare's work. It seems almost incredible that Chancellor of the Exchequer, I should Settlements. The Chancellor of the Ex- nest, the Financial Secretary to the Trea- the Governor of the Bank of England, in like the remainder of the assets to be chequer said: sury said: close contact with the Chancellor of the put into a suspense fund and used for the I should like to make it clear that my right It is certainly not the fact that the Gov- Exchequer in so many ways, as the agent benefit of refugees of one kind or another, hon. Friend (the Prime Minister) has no ernor of the Bank of England reports to the British Government on a matter of this sort. of the Treasury, did not mention this and for the assistance of Czechs outside means of knowing whether the facts are, or are matter to the right hon. Gentleman about not, as stated by the hon. Member for North It is a mistake to suppose that the Governor Czecho-Slovakia. In any case, I think of the Bank of England serves on the Board the whole of this business might be Lambeth (Mr. G. Strauss) "-[OFFICIAL the transfer of some £5,000,000 or of the Bank for International Settlements as REPORT, 22nd May, 1939; col. 1928, Vol. 347.] (6,000,000. facilitated and quickened by direct nego- a nominee of the British Government. tiations with the German Government, My question was whether the Czech [OFFICIAL REPORT, 23rd May, 1939; cols. The position of the British directors on and in those negotiations we shall occupy balance in the hands of the Bank for 2089-90, Vol. 347-] the Bank for International Settlements a very strong position because we have International Settlements deposited in Then whose interests does he represent is a very invidious one if they are to assets. in our hands very considerable sterling London would be handed over. The on the Bank for International Settle- proceed on their duties regardless of the Financial Secretary to the Treasury said ments? Is it seriously suggested that he Treasury. Such an invidious position that the Prime Minister had no means of is merely the representative of the inter- leads one to think that we ought to The only other point is that I believe knowing whether that had happened and ests of the shareholders of the Bank of examine the position of the Bank for the assets of the Czech banks which we that consequently he was justified in his England? Nobody in this country and International Settlements itself. I am by hold in London should be treated as One ignorance of the matter. However, the nobody in any other country would swal- no means certain that this Bank has not unit with the Czech National Bank. next day the Chancellor of the Exchequer low that story. He is obviously there as long since ceased to fulfil a useful function Before the annexation these banks held said: the representative of the Government. or purpose. The main purpose for which their funds by permission of the Czech "I should like to make it plain to the House Yet on a matter so directly and seriously the Bank was established, namely, to National Bank; they were included in the that the Treasury did hear indirectly that it affecting the national interests of this facilitate international transfers of funds weekly statement of the Czech National was believed that the German Reichsbank was country and affecting possibly the lives of can no longer be carried out in respect Bank and could not be sold or trans- trying to get from the Bank for International of many countries, and if it is to exist ferred without permission of the Czech Settlements an amount of gold with which it many people in this country-for this National Bank. I hope that in the Bank." had been entrusted by the Czech National money which is going to Germany is used for the sole purpose of enabling transfers mainly for the purpose of building up of funds to be made from the democratic negotiations with the German Govern- their armaments-we are told that Mr. States to the totalitarian States, which ment, which will take formal shape ir the Sir J. Simon: Surely that is a different Montagu Norman does not even report on seems to be its main function at the near future, we shall treat the assets of thing. the matter to the British Government. If moment, then the sooner it is wound up, the Czech Bank held in London as one that be so, I suggest that it is an intoler- the sooner our directors are withdrawn unit, and I hope that in his negotiations Mr. Strauss: I do not think so, First, able situation. If that is really true, and and our deposits withdrawn, the better with the Germans the Chancellor of the the Financial Secretary says that the Gov- if the Governor of the Bank of England for this country and for Europe. The Exchequer will not give away the advan- emment cannot know anything about it and Sir Otto Niemeyer sit on the Board Chancellor of the Exchequer would do tage that we have got, but that he will in the circumstances, and then the Chan- of the Bank for International Settlements well to consider the whole position of drive a hard bargain for the benefit of cellor of the Exchequer, the next day, either in their personal capacity or as the Bank for International Settlements at British claimants against Czecho-Slovakia says: As a matter of fact we did hear about it, and not only did we hear about representing the shareholders of the Bank the present time for, in the words of the and for the benefit of Czech residents hon, Member of Evesham (Mr. De la here who may have claims and who are it but we made investigations. There is a of England, then that is the strongest argument that has ever been put forward Bère), it is highly unsatisfactory. desperately hard up at the present time. very obvious contradiction in the state- for the nationalisation of the Bank of ment of the Financial Secretary and that England and for making the Governor of We ought not to confuse the question of the recognition of the annexation of 12.49 p.m. of the Chancellor of the Exchequer, and the Bank of England the servant of the Mr. G. Strauss: I should like to follow the House is entitled to a further explana- Czecho-Slovakia, either de jure or de tion of the matter. We on this side of British people. Indeed, we are always the main line of argument which has been facto, with any negotiations that may adopted and to ask the Government a few the House are particularly suspicious in told by hon. Members opposite, when we argue that case, that in point of fact take place between the Treasury and the questions. The first question is in regard regard to this matter, because we have the Bank of England is in matters affect- representatives of the Reichsbank with to the Prime Minister's statement last been accustomed in the last year or two ing the financial interests of this country regard to the settlement of outstanding Friday, when he said that the statement to answers from the Treasury Bench on the agent of the Government, but in a HOUSE OF COMMONS Crecho-Slovakia Adjournment- 26 MAY 1939 Caecho-Slovakia 2740 Adjourament- 2738 #737 [Mr. Strauss.) has placed with the bank and the bank prevent 1739 the matter being made public to held in trust for the Czecho-Slovak critical matter of this sort we find that knows that the customer does not want Parliament or the country. people and say that after the claims have the directors not only do not follow the to do so, but is being forced to do so by What is the position now in regard been properly and fully settled, what instructions of the Government here but third party, the bank in those circum. a stances is entitled to keep the deposit and to this money? I understand that the balance there may be-and there may be do not even bother to report back to the Government matters of immense national prevent it being taken away by the gold is still in the Bank of England, that a considerable one-will be kept here in it has not been taken away. If the trust for the Czecho-Slovak people and depositor and handed over to a third will in no circumstances be handed back interest. party. Government really want to act in this I want to put a further question about matter in the direction in which I am per- to Germany where, as we know, it would the actions of Mr. Montagu Norman and I also understand, again from some of fectly certain the House wants it to act, be used for purposes quite contrary to Sir Otto Niemeyer on the Board of the it could still prevent that gold reaching the interests of the Czecho-Slovak people my legal friends, that if I have a deposit Bank for International Settlements. I the vaults of the Reichsbank by giving and those of world peace. at a bank and the bank knows that the want to ask whether they considered at money I hold there is being kept for some certain guarantees to the Bank of I hope the right hon, Gentleman the any time the transfer of this Czech money other purpose, is in trust for some other England and then putting through the Chancellor of the Exchequer will make himself quite clear on the matter. From from England to the United States of party, and I give an order to the bank to necessary legislation. If the Government America? The United States did not are anxious to prevent this money going the statement that he made, it would deliver the money, which the bank knows sign the agreement which was signed by I am holding in trust for some other pur- to Germany, why do they not act? There appear that the Government contemplate this country and, therefore the deposits pose, to a third party, perhaps to pay to is further a serious danger for the Chan- making a general release to Germany of of the Bank for International Settlements my bookmaker, if I have one, in those cellor of the Exchequer. One of these what balance there may be. On Tuesday, would not be immune from confiscation, circumstances the bank is entitled not to days it may be that an independent the Chancellor said that there will be of seizure or temporary restraint, in the part with that money when it knows that Czecho-Slovakia will arise and say to the no general release of the assets unless United States. I should have thought the deposit is held in trust. If customer Bank of England and to the British and until a satisfactory arrangement has that these directors on the Bank for Inter- A has a deposit at a bank and asks for Treasury, You held £6,000,000 of our been made in regard to the financial national Settlements, if they thought there the money to be given to Y, the bank. money, but you handed it over to a third obligations of Czecho-Slovakia to British was a slightest danger of the money in according to British law, can say The party without our permission. We want holders, from which one gathers, by in- London being taken by Germany. might money is held in trust for X, and then- that money back." In those circum- ference, that when such an arrangement have thought it desirable to transfer the fore, we cannot allow it to be paid out to stances I am told that the National Bank has been made there will be a release money to the United States. If it is Y." I submit that the facts in this Case of Czecho-Slovakia would have a very of the assets to the Czech National Bank argued that the directors of the Bank of fall into such circumstances. The Bank good case for demanding that the money and to Germany. I submit that this England acting on the Bank for Inter- for International Settlements held this should be refunded to the Bank of matter is of considerable importance not national Settlements are in a minority money in London in point of fact in trust Czecho-Slovakia, and the British taxpayer only to the people of this country, but position and that the Bank for Inter- for the Czech people. The Bank would have to find the £6,000,000 in to the people of the world. The people national Settlements is under the in- England knew that; and the Bank for order to hand over to the bank of an of the world are watching anxiously to fluence, as has been alleged, at the International Settlements then asked the independent Czecho-Slovakia. I hope that see what is the foreign policy of the Gov- moment of the Fascist countries, that Bank of England that the money should matter has not escaped the attention of ernment at the present time. If it appears again is an unanswerable argument for the be handed over to a third party. the Chancellor of the Exchequer. that, in spite of all the pacts that have abolition altogether of the Pank for Inter- There is another very extremely im- been entered into and the guarantees that national Settlements. In these circumstances I think the Bank portant point. I want to ask the Chan- have been made by the Government dur- of England is running the danger of com- cellor of the Exchequer whether he will ing recent months, they are continuing The next point I want to put is, could mitting, if it has not actually committed. elucidate far more clearly than he has a policy of appeasing and satisfying the the British Government, taking into a breach of trust, and I am informed by up to the moment what is the position of dictators by making sacrifices to those account the Protocol and British law, and my legal friend that the matter is open Czech balances which are being held here, dictators at the expense of small nations, knowing the facts, have stopped the trans- to considerable doubt, and that if he were quite apart from the issue of the Bank then I think the world will have little fer of this money to Germany? I suggest advising the Bank of England he would for International Settlements. What is faith in any change of policy by the there are two grounds on which they certainly tell them not, to part with the the policy which the Government are pur- Government and will be convinced that could have done so if they wanted. In money. In view of the doubt which exists suing in this matter? As far as I can the Government are continuing their old the first place, it is clear that the Bank in this matter, I submit that the Govem- see, they can pursue one of two policies. policy of appeasement. for International Settlements was put ment should have held the money back They can say that they are holding the Therefore, I think it is desirable, first under duress by the German Government. pending action in the courts of law. or money here in order that British nationals from the point of view of the Bank of There was, in fact, considerable opposi- should have come to Parliament and or institutions who have claims against England, that the position in this respect tion to this move. I understand that in- asked for the direction of Parliament. If Czecho-Slovakia shall be satisfied and should be clear. It may well be that fluential Czech circles pressed that the the Government had really been anxious that when those claims have all been the Bank of England, after what has transfer should not take place, but the to prevent this Czech money being handed fully satisfied, the balance will be sent happened, may no longer be looked upon demand was made, and acting under over to Germany they had quite a good back to the Czech National Bank, which as the safest place in the world and that duress the Bank for International Settle- legal case for holding up the transfer in fact means to the German Government. the phrase as safe as the Bank of ments felt that they had to give way. I until the legal aspect had been settled of That is one attitude that can be taken. England may no longer apply. The am not a lawyer, but I understand from until legislation had been passed by The Government can look upon the de- Czech people and other peoples may look some of my legal friends that the law of Parliament. But neither the Bank of posit which they are keeping here under upon the Bank of England as being very Switzerland, as well as of this country, England nor the Treasury seemed at all restraint as a negotiating instrument to unsafe, and the phrase may become as is that when a customer of a bank de- anxious to prevent this transfer of money. satisfy British claims. On the other hand, unsafe as the Bank of England." The mands to take away a deposit which he their chief concern seems to have been to they can look upon the money as being deposits of small countries may go to Regraded Unclassified HOUSE OF COMMONS Caecho-Slovakia Adjournment- 26 MAY 1939 Grecho-Slovakia Adjournment- 2742 2744 2741 Bank for International Settlements [Mr. Strauss.) who 1743 his duty to consult with the Chancellor of Swiss law to find out what my trustees other countries, and not to the Bank of represent the Bank of England. the Exchequer-1 should be very much did when the Germans attempted to get England. unless the Chancellor, even I am certain that my right hon, F- the Chancellor of the Exchequer wid give ad obliged if my hon. Friend the Member for hold of this money. It might have been now, says that he will take what action Southend-on-Sea (Mr. Channon) would possible, through diplomatic negotiations, he can to prevent money belonging to us an admirable legalistic defence of the not hold a discussion with his lord and to have prevented the transfer of the gold the Czecho-Slovak peop and still in British Government's arrangement with master the Under Secretary for Foreign until the Swiss courts had ruled on the the vaults of the Bank OL England, from regard to the Bank for International Affairs: I have no doubt he has important legality of the German occupation. I going into the hands of a third party. Settlements' deposit. The Chancellor information to impart to him, but I sug- think that is a sound point. It is also Secondly, this matter is very important would be right in maintaining that the gest that he should do it outside the clear that the British directors of the from the point of view of the safety of British Government have no power what. House. I am sure that the Chancellor Bank for International Settlements made this country. It would be a very serious ever over the deposits of the Bank for will agree that Sir Otto Niemeyer and no effort to protect those people, who had International Settlements, whether held the other director read the Czecho- put their trust in them. Let us recognise thing if 6,000,000 of free money were handed over to Germany for the purchase in London or elsewhere. The Bank for Slovakia (Restrictions on Banking Ac- that fact. of raw materials for armaments which International Settlements is what parsons counts, etc.) Act that was passed by the might be used in some great war in call a peculiar. It is a bank that was House. They would do so in their capa- Mr. Boothby: Does my hon. Friend put outside the scope of the laws of the which England and Germany were oppo- city as directors of the Bank of England. suggest that Mr. Norman and Sir Otto nents, and which might result in the many countries which were its founders, Surely, having read that Act, it must Niemeyer might in certain circumstances destruction of millions of lives in this so that the Government can make out a have occurred to them that they should be held personally liable for this debt, country. Thirdly, from the international very good case for possessing no power mention to the Chancellor of the Ex- under Swiss law? point of view and from the point of view over its deposits. chequer that they, as directors of the of the confidence of countries such as the It is most distressing to learn that the Bank of International Settlements, knew Mr. Bracken: I am not a lawyer. [HON. United States of America, Russia and the British directors on the Board of the Bank that (6,000,000 of gold belonging to the MEMBERS: of Hear, hear."] The Chief smaller countries in Europe, whose con- for International Settlements did not Czechs was deposited in London, and Whip who is behind Mr. Speaker's chair fidence we must have if we are to have think fit to inform the Treasury of the also that the Germans were pressing for says hear, hear," which I suggest is any real peace pact against aggression, arrangement to transfer Czech gold to a return of that money. out of order, but even gorgeously arrayed it is essential that we should make it the Nazi gangsters who have bludgeoned as he is to-day, I would say this to him. abundantly clear that we are no longer and robbed Czecho-Slovakia. The Chan- They could have said: We realise We all know that directors of any institu- pursuing the policy of appeasement and cellor told us that he heard of it from an that the Chancellor has no legal power tion, whether in Switzerland or in Eng- to tell us what to do, but in view of giving in to the demands of the dictators unofficial Continental source. I think my land, who definitely break a trust with when they make them. not as a sacrifice the fact that we did foster this Act, we right hon. Friend has been very badly their depositors or shareholders, may be should like to know the opinion of the shot at in the courts. I do not believe from this country, but as a sacrifice from treated by the two directors of the Banka small countries which are unable to resist of England who sit on the Board of the Government on what our duty should it is possible that the Governor of the those demands. If we hand over to Ger- Bank for International Settlements. I be." I say that they should have gone Bank of England or Sir Otto Niemeyer many any part of the Czech money that further. I say that the two directors will be called upon to pay this £6,000,000. entirely agree with my hon. Friend the is held in this country, we shall be should not only have notified the Chan- Member for East Aberdeen (Mr. But I think they might be subjected to shaming ourselves, and such reputation cellor but should have gone to Basle and Boothby) who described so well the re- a good deal of what is known as legal as we may have gained during the last lationships that exist between the Bank made the strongest possible protest. If mangling in the courts in Switzerland few months of standing up against their colleagues had attempted, in dis- and I, personally, would like to see some of England and the Chancellor of the aggression, will instantly disappear. regard of their views, to hand over this mangling. It seems to me that they Exchequer. My hon. Friend described the position as being that of the First money to the Germans, they should have adopted the attitude, The Nazis have 1.10 p.m. resigned from the Board and withdrawn Lord and the First Sea Lord. I have got control of Czech bank balances by Mr. Bracken: I agree with a good many the British deposits from the Bank. I violence and we have to hand over the often wondered who was First Lord and of the remarks made by the hon. Member say that these two British directors of the who First Sea Lord-not, of course, in money to the gangsters who have broken for North Lambeth (Mr. G. Strauss), but Bank for International Settlements are into Czecho-Slovakia and seized the title I think be rather exaggerated the dan- connection with the present Chancellor trustees for the unfortunate Czecho- deeds of the property of the Czechs." gerous position of this House in relation of the Exchequer, because now the Slovakians, They had a duty to those The directors of the Bank for Inter- to the deposits of Czech money in the Treasury have a much greater control for whom they were trustees, those who national Settlements simply said, in effect, Bank for International Settlements. I over the goings on in the Threadneedle had been bludgeoned by the Germans, Street department of national financial to the gangsters, " We realise that you think it is very unlikely that we should to retain that money until they got a ever be asked to provide £6,000,000 to decision from the courts in Switzerland. are right." I think of these directors, affairs. But it is very hard indeed (§ it must be said that they came, they saw satisfy damages against the Bank of Eng- the Chancellor that he should have to de pend on an unofficial Continental source I do not agree with the hon. Member and they capitulated. land as a result of a law case that was won by a Czech national. I believe that for information of such vital importance. for North Lambeth that it is possible I ask the hon. Member for Holderness once there was an experience of that kind One of the directors of the Bank of for the Bank of England to be sued in (Mr. G. Braithwaite) what would be the regard to this matter. I do not believe attitude of a British banker if a gangster in connection with a debt of £3,000,000 England on the Board of the Bank for of the Bank of England, and that ex- International Settlements, Sir Otto Indemnity Bill to protect the Bank of that it will be necessary for us to pass an came into his bank and attempted to perience proved conclusive from our point Niemeyer, is a former Controller of England, but if I were a Czecho-Slovak cash a cheque signed by one of his customers, when he knew that that of view, I agree with what was said Finance at the Treasury. I presume by the hon. Member about the " sealed that he has access to the Chancellor of that the state of customer was under duress? It is per- lips policy of the two directors of the the Exchequer, and would regard it as vived I should take some trouble under one day be re- fectly clear that the banker would not cash the cheque, but would send it back N₀ III C Regraded Unclassified HOUSE OF COMMONS Crecho-Slovakia Adjournment- 26 MAY 1939 Czecho-Slovakia 2748 Adjournment- 2746 1747 2745 [Mr. Bracken.] remember reading in the works of Dear in for financial appeasement. But it and that the British Government would for further and better particulars, and Swift a criticism of the Irish bishops is go a very squalid form of financial appease- not recognise the Government of Czecho- communicate with the police. He would in the eighteenth century. Swift said it ment, because they are appeasing the Slovakia. They are two of the most in for all sorts of delaying processes in was very true that the bishops who were Germans with the money of the unfortu- influential directors of the bank and are the go hope that the man who was held appointed to Ireland by a Government in nate Czechs, I think it would be a better regarded as its co-founders, and it was under duress might escape. That is the England and, when they had been COD- form of financial appeasement to give their duty to go to Basle and protest sound line to take in such a case. The secrated in London, left this city with them some us our own money-not, of against this surrender of Czech assets and, Bank for International Settlements could, the highest reputation for morality, course, that I am recommending any such if their colleagues would not take notice by engaging a lawyer to communicate scholarship and discretion. But, be action. I say that these informal nego- of them, they should have resigned. with the Reichsbank, have started a cor- added, it was evident that when they tiations, which may shortly become respondence which would have lasted two were crossing Hounslow Heath they Were formal, are highly dangerous, and no one Sir J. Wardlaw-Milne: It would be of or three years. They would have been seized upon by highway robbers who in this House approves them. I agree great advantage if we did not mix up perfectly within their legal rights in start- stole their robes and went to Ireland with the hon. Member for East Aberdeen two things. I am dealing only with the ing inquiries into the real ownership of in their place, and greatly discredited reli- when he says that if the public find out position of these directors in connection these assets. Nobody knows better than gion in that country. Somebody is try. that not only are the Government now with the demand on the Bank of England the Chancellor of the Exchequer how this ing to steal the clothes of the Chancellor willing to recognise the German conquest for the transfer of money which belonged can be done, provided you have the right of the Exchequer and of our Treasury of Czecho-Slovakia, but are also going to to the Bank for International Settlements. kind of lawyer. Consider the irony of the officials in this Czech affair. take the savings of the Czecho-Slovakian I am not at the moment concerned with position. The Bank for International I have not attempted to make any cal- people and transfer them to Germany in the issue as to whether they felt it their Settlements, which was set up to facilitate culation of what shall be left by way of order to facilitate her rearmament, there personal duty to make a public protest international banking transfers and to surplus, but there should be a fairly will indeed be as mighty an uproar as and resign-that is a matter entirely for promote good will in international re- lationships, is the bank which sanctions substantial surplus when the rights of there was over the Hoare-Laval proposals. themselves-but I am concerned with the British claimants have been met, and I position of the Bank of England, which the most notorious outrage of this gen- entirely agree with my hon. Friend the 1.28 p.m. had money deposited with it by another eration, the rape of Czecho-Slovakia. Sir John Wardlaw-Milne: It is one of Member for East Aberdeen about the des- bank. As I see it, the Bank of England the great advantages of the House of had no other course but to follow the I do not want to be very controversial. tination of that surplus. The object of Commons that in a Debate of this kind What I have said so far will lead no one these informal negotiations is clear. The instructions which they received from the we are able to hear both sides of a ques- people who owned the money. The to believe, I am sure, that I have been Nazi bosses of Czecho-Slovakia are try. tion. Therefore, my hon. Friend the money was the property, not of the Bank in any way over censorious of the Gov- ing to get as much Czecho-Slovak money Member for North Paddington (Mr. of England, but of the Bank for Inter- ernment. But now I propose to say a or assets as they can for transference to Bracken) will understand when I say at national Settlements, who were perfectly word or two about what the Prime Minis- the Reichsbank in Berlin. What are they once that I think I disagree with at least entitled to say to the Bank of England, ter calls the informal negotiations doing here otherwise? Does anybody three-quarters of what he has just said. Transfer this money to America, to which are going on between the Nazi think that they are sitting round a table Of course, I do not disagree with every Japan, or to Germany," or to anywhere German representatives of the Reichsbank here talking amiably with Treasury word, and I appreciate, as, I am sure, they choose. in London and our Treasury officials. My officials about the weather and the price did the whole House, the very breezy way hon. Friend the Member for East Aber- of fowls? No, they are trying to get as in which he put his argument forward, The proposition which has been put for- deen to my great surprise, blessed those much of these assets as possible to take but when he was dealing with the position ward several times in this Debate, that a negotiations. The Prime Minister is not back to Germany in order to buy various of the British directors of the Bank for banker in the position of the Bank of so sure about them. He calls them metals of war which will be required on International Settlements, I am bound to England, holding funds belonging to some informal." What are the Government the day when Messrs. Hitler and Com- say that I found it impossible to follow other party, should be able to dispose negotiating about? The assets and savings pany really believe that the major smasb- him. As I understand his argument, it of those funds in a way contrary to the of the Czecho-Slovak people, lodged in and-grab raid is ripe for delivery. So is that two directors, being a small propor- wishes of the owner, merely because they London. With whom are they negotiat- that we at the present time, in London. tion of the total Board of the Bank for think that the owner has no right to the ing? One would imagine that it would are actively helping the German rearmi- International Settlements, should have funds or is giving improper instructions, be with the Czechs, but not at all. They ment programme, and our Treasury off- objected to that bank giving an order to is, to me, one of the most extraordinary are negotiating with the Nazis who gar- cials are sitting round a table talking to the Bank of England to dispose of assets statements that I have ever heard. I rotted Czecho-Slovakia and robbed her people about stolen goods or about how which did not belong to the latter, but completely fail to understand that atti- of her possessions. Those are the people much of those stolen goods should be to the Bank for International Settlements, tude, but I want to say that that does with whom we are negotiating. Not one given back to Germany in order to facili- and that, if they had found that the rest not necessarily mean that I disagree with Czech is present at these negotiations. tate her rearmament programme. of their colleagues did not agree with them anything that has been said this morning They created these assets, they own this Really, this is the most squalid form of they should have made a public protest regarding the desirability or otherwise of property but they are not represented. and resigned from the Board. continuing the Bank for International appeasement. Political appeasement at Settlements. I am not at all sure that The gangsters who came in and captured the present time is, of course, out of the their country are those with whom the question. The by-elections and the Mr. Bracken: I must say again that I do not agree that the time has come the point at issue is this, that the two when the Bank for International Settle- Government are negotiating. I am stag- various political developments in the last British directors on the Bank for Inter- gered by this idea of informal negotia- ments might well disappear. I think it few months show that that policy at any tions between our Treasury officials, rate is dead and damned. but some for national Settlements were perfectly aware has perhaps served its period of useful- whose austere head sits in this House of appeasement is still, apparently. dest that the British Government had passed ness, but that is quite a different problem and the representatives of such men. I to the heart of the Government, so they an Act, called the Czecho-Slovakia (Res- from the problem, which has been so often trictions No on Banking Accounts, etc.) Act, stated this morning in one form or T11 Regraded Unclassified Adjournment- 26 MAY 1939 Czecho-Slovakia 2752 HOUSE OF COMMONS Czecho-Slovakia 2749 Adjournment- 2750 1751 Mr. Lloyd George: That is the one I of £5,000,000-and I think nearer [Sir J. Wardlaw-Milne.] Sir J. Wardlaw-Milne: I cannot, of another, that for some reason, namely, course, say anything about a case of happened to is a highly reput- £6,000,000-of Czecho-Slovakian assets which I know nothing, but from my able Conservative newspaper. I thought which were deposited in the Bank of because we have sympathy-and I have that what I read was so startling that England have been handed over to the as much sympathy as has any other hon. knowledge of anything that the German when I was speaking I diverted from the Reichsbank. Would anyone have be- Member-with the position of Czecho- authorities may have done, it does not Slovakia, the Bank of England, under give me much confidence that we should topic which I was developing and I sum- I lieved from the Prime Minister's state- the instructions of the Government of this follow such a course. To me it is quite marised the statement from memory. ment that that transaction had occurred? said to the right hon. Gentleman I think It occurred with the consent of two of country, should have taken an action clear that our actions must be in which no man could possibly take with- accordance with the procedure which any we ought to have some explanation of our representatives on the International private banker would adopt. The hon. this." I was perfectly well within the Bank. The Chancellor of the Exchequer out being in the position of not fulfilling his trust. The hon. Member for North Member for North Paddington referred rights of a Member of Parliament to ask knew about it. He has said so. If Lambeth (Mr. G. Strauss), I noticed with to the dangers of negotiations between that from a Minister. I drew some con- he denies it I can quote what he said clusions as to what the effect would be about it. interest, said that the phrase Safe as the Government and the German autho- rities, and made the statement, which I if the facts were such as they were repre- the Bank of England would soon dis- sented to be by this important newspaper. Sir J. Simon: It came indirectly to us. appear if the policy that he advocated have no doubt is correct, to the effect that The statement which appeared in the was not followed, but surely it would no Czechs were represented in those nego- tiations. So far as he is anxious to avoid newspaper said that the Treasury had Mr. Lloyd George: He knew about it; more quickly disappear if we had the position in which a banker was entitled agreed to this transaction. I naturally that is what I am saying. any transfer of money to Germany be can be assured that the whole House is asked the Treasury what the explanation to deal with money entrusted to him in a was. Nobody now will say that the ex- Sir J. Simon: I am not making any way contrary to the instructions of the with him, but the point which he suggests is, as I understand it, that there is little planation was fair or straightforward. In quarrel about it, but I will explain how people who owned the money. fact, it was very disingenuous. The Prime far I had any intimation. likelihood of any money being transferred Mr. G. Strauss: Will the hon. Gentle- Minister stated that he repeated in the to Germany at all because the bulk of Mr. Lloyd George: Here were two re- man answer my question? If a depositor House what he had been told by the these negotiations are in connection with presentatives of the British Government has a trust fund with a banker and sends claims on behalf of British subjects, and Treasury. Obviously, therefore, it was on the Bank for International Settle- instructions to the banker which he knows it may very well be that it is much to the Treasury who were responsible. Let ments. I am amazed at the way in which are in violation of the trust, surely the us see what the Prime Minister said in the interests of British subjects that these the position of the Bank of England has hon. Member will agree that the banker reference to this. He said that I took a negotiations should go on. I should been misrepresented. It is treated as if under those circumstances is acting cor- strongly object if the negotiations meant very gloomy view of this transaction it were purely an ordinary bank with no rectly to disobey those instructions, sub- the transfer of a great deal of money to Sir J. Simon: Perhaps the right responsibilities to the Government, no re- ject to confirmation, inquiry, and so on? Germany, but if these negotiations mean hon. Gentleman will be willing to read sponsibilities to Parliament, except the Sir J. Wardlaw-Milne: That is a very the settlement of a large number of claims the sentence. responsibilities that we all have as citizens hypothetical case, but as I see it a banker in favour of British subjects I do not of this realm, and no responsibilities to the think we should take up the attitude that Mr. Lloyd George: He said: is entitled to disobey his instructions only Treasury. That was never the attitude if he has reason to believe that they are we are not prepared to negotiate. My The right hon, Gentleman found another adopted by the Bank of England or the given illegally, and if in this case it main object in rising was to emphasise subject for gloom in a story in the press Treasury in the days when my right hon. that a German representative was in this could be proved that the Bank for Inter- the point that the attitude of the Bank Friend the Member for Epping (Mr. country engaged upon a sinister mission in national Settlements did not give the of England was the only possible attitude consequence of which the British Treasury Churchill) or I and others were at the instructions or had not the right to give that could have been taken up in the was to release [5,000,000 of Czecho-Slovakian Treasury, or even the Prime Minister. the instructions, that would be quite a circumstances. assets to the Bank for International Settle- They were always consulting us. If there ments for the benefit of the Reichsbank." different position. But here is a case in were anything that involved a great prin- which the Bank of England could not go 1.37 p.m. It is the statement in the Daily Tele- ciple or a matter of policy, and certainly farther back than the people who de- Mr. Lloyd George: I really ought to graph which I have summarised. if there were anything which involved posited the money with them. They apologise for taking part in the discussion at all, because it is the general desire of I am glad to be able to cheer up the foreign affairs, they were constantly in could not go behind them and say, right hon. Gentleman on that particular touch with us. They would not have the House that it should be conducted Where did you get the money? Did point, because the whole story is a mare's dreamt in the old days of entering into a mainly by private Members, and I can test. Herr Wohltat-the name of the gentle- you get it correctly? This is a posi- man-is not in London at all, as it happens, transaction of this kind without seeing tion in which definite instructions were well sympathise with that, having been a Private Member longer than anyone in and anyhow the Treasury has not agreed to the Chancellor of the Exchequer. This given by the owners of the property to release any Crecho-Slovakian assets to the is a slackness, a looseness of treatment. those who had it in trust, and clearly the the House. As, however, this incident Bank of International Settlements or to any- which must have been introduced within has developed as the result of my inter- one else, The only releases that have been Bank of England had no other course vention in the debate last Friday, I feel made have been releases of small amounts the last year or two, because that is not than to carry out their instructions. bound to say a few words in regard to to refugees from Czecho-Slovakia, apart from the view which any other Chancellor of Mr. Bracken: Let me give my hon. debts due under contracts made before some releases of small amounts to pay trade the Exchequer or any other Governor of it. I came here last Friday to initiate 1 Friend a specific case. After Austria was discussion on behalf of my hon. Friends March, 1930. That is a small matter.- the Bank of England would have taken attacked by the Germans, the Reichsbank 1841-2, Vol. 347.] (OFFICIAL REPORT: 19th May, 1939; Cols. as to the relations between the Bank and below the Gangway on foreign affairs. On my way I read the newspapers and the Government. in Berlin wrote to certain London banks and asked them to deliver moneys held there found a statement in several news Would anyone have believed from that When the Bank of England takes a cer- on Austrian account to various branches what the transaction really was? Let us tain line which impinges upon foreign papers of the Reichsbank, and these London " was Daily Tele take it as it is generally admitted now policy there is nobody, either in this coun- Sir J. Simon: It the banks refused to deliver that money. by everybody in the House, An amount try or any other country, who does not graph.' Regraded Unclassified HOUSE OF COMMONS Czecho-Slovakia Adjournment- 26 MAY 1939 Carcho-Slovakia 2756 2753 Adjournment- 2754 2755 Mr. Lloyd George.] right to it than a burglar who has captured Epping, pressed it, and at jast we Were that fact be concealed from the House believe that it is the policy of the Gov- bearer bonds would have a right to take told that the House could rest assured of Commons? Why are we to be the ernment. Chancellors of the Exchequer them to a bank and ask for the cash. If that the Government are always in con- only people who are not to know what is have very often held different views from it were known that it was the burglar tact with and consulting the General Staff. going on, when we are representing those held by the Governor of the Bank who was asking for the cash, would any I do not blame him. He was giving 47,000,000 people in this country? I of England on questions affecting foreign bank manager give him the money? Of something which had been put into his think we ought to know. countries. I did not take the same view course not. Legally when they are pre- hands. It was not true. To say that, I am going to ask the Chancellor of the as the Governor of the Bank of England sented the bank has no right to enter generally, they are in contact with the Exchequer this: The cash is here now, so with regard to Reparations, for instance, into an argument and ask, Where did General Staff is one way out; but every- I hear. I noticed that he did not contra- but be never on his own authority as you get them? Have you got them body was under the impression that the dict it when the statement was made by Governor of the Bank of England not honestly or otherwise? "-that is the General Staff had been consulted before an hon. Member behind me, and I asked merely declared that policy but acted whole point of bearer bonds. If knew that they had been burgled, if you you that guarantee. It was intended to con- a couple of hours ago about it. I told upon it-even if he would have had the vey that impression. That impression power to do so, He had a perfect right knew the date, if you knew how he had him that I had just heard that it was still would be a false one. here. Is that so? The right hon. Gen- to put his views before the Government broken into the bank, knew the weapons And here is another one, here is a state- tleman cannot contradict it? of the day, but he knew perfectly well used, knew how he burst the safe and ment which would convey the impression that he could not act upon a matter which took them out, what sort of a fool or that there was nothing whatever in the Sir J. Simon: 1 cannot contradict it affected a great many other nations as knave would the manager be who cashed those bonds? story about the £5,000,000 or £6,000,000, because I do not know, but if the right well as our own without first obtaining and that £5,000,000 or £6,000,000 had hon. Gentleman will be good enough- the sanction of the Government of the day: and it is a most extraordinary doc- It is nonsense to treat this question not been passed to the Germans. The trine that these two gentlemen who are with these miserable legal quibbles. First question whether the Treasury merely Mr. Lloyd George: This is very im- of all, you know they are stolen goods, acquiesced or gave its consent is, I agree, portant. I asked about this matter more representatives, not of the Bank of you know that they are going to be used an important point. They decided not to than two hours ago and I said I was going England, but representatives of the Gov- to your detriment, you know that the act, which means that they acquiesced. to ask the right hon. Gentleman a ques- ernment, who are appointed by the Gov- At any rate, whole transaction will be reopened again The Daily Telegraph statement was tion. I gave notice to the right hon. they were directors of the Bank of when the legal claimant may have a that they had agreed. Well, in the cir- Gentleman that I would ask the question, England. one of them being the Governor chance of putting his case in a higher cumstances, there is not all that differ- and I hope that he will have an oppor- and the other a very important director, court. But all these facts were left out ence between the two. At any rate, there tunity of ascertaining whether the were the main facts of the story, that £6,000,000 is in the Bank of England or and they could not have absolved them- of the explanation of the Prime Minister. selves from the responsibility which they It was all a mare's nest." The nest millions of stolen money had been taken whether it is now in the possession of Herr had been captured by the brigands, but away for ever, passed on to the robbers, Hitler for the purchase of armaments and had under those circumstances as directors of the Bank of England. the mare was in our stable, and from all and it had been done with the consent of of material for making war. If he finds I can understand it is still there. I have Sir Otto Niemeyer, who, I believe, is out that it is here I am asking him now Sir J. Wardlaw-Milne: Are they other questions to put to the Chancellor president of the Bank. At any rate he whether the Government will reconsider appointed by the Government? of the Exchequer, because I do not want and Mr. Norman are both directors of the their attitude. Let him put this point to Mr. Lloyd George: The Chancellor of to keep this argument merely on the level Bank of England them, because I think it has not been put: the Exchequer tells me they were not of a dispute between the Prime Minister Mr. Ellis Smith: The friends of the Ger- I am very hopeful that war will be appointed by the Government. and myself on a matter of explanation. man Government, avoided and I am more hopeful since the But there it is. After what he said there Government have decided to bring Russia Sir J. Simon: I have already said they is no one here who believed that Mr. Lloyd George: I will say something in. I cannot conceive of men of the ex- were not. £6,000,000 of Czecho-Slovakian gold had about that directly. Not only that, but traordinary position, shrewdness and per- been transferred to the Reichsbank. No the Treasury, knowing it, took no action, Mr. Lloyd George: I do not want to spicacity of Herr Hitler and the Italian one would have believed that we had and in 50 far as their conduct was con- make any point of that, but they were Duce engaging in a war in which their directors of the Bank of England which, parted with any money-except to sened the transaction had gone through chances have been so conspicuously for all practical purposes, as far as policy refugees and in payment of some small. without any interference. It is amazing diminished by the introduction of the is concerned, is a national bank, a trivial bills. That was the impression that these people should have gone there, greatest military power in the world- national institution. It is not in the same conveyed. holding their position in a great national bank-in the great national bank, the although it has been said that there is a position as the Midland or the West- I agree with my hon. Friend behind certain madness in men, making them minster Bank, and all the arguments me that there has been far too much of official bank of this country-and never given a single intimation to the Govern- fling themselves into impossible enter- which have been used upon that assump- this, We had the same thing in the tion are thoroughly false, are thoroughly ment of what was going on. Did the prises. That is the incalculable thing in debate on Friday. I put a question as to misleading, and I shall be very much Chancellor of the Exchequer complain human nature upon which you cannot whether the Government had secured the of it when he heard of it-when he was depend. surprised if the Chancellor of the Ex- advice of the General Staff before they chequer will support any contention of informed, when some gossip came along I personally am sanguine that war will committed us to that extraordinary and said something about it? Did he be averted the moment that that agree- that character, The facts are that £5,000,000 or £6,000,000 of gold has pledge to guarantee Poland and Rumania hear nothing from the representatives of ment is signed, and if it is entered into to without any assurance of support from the Czecho-Slovakian Government in this the extent of agreement between the been transferred to the Reichsbank. That Russia. I asked a second time. No country? Not a word? That is rather general staffs and obvious preparations on gold belongs to the people of Czecho- answer. I asked it of the War Minister, extraordinary. Where did it come from? the part of the three Powers to co-operate. Slovakia, The Reichsbank have no more my right hon. Friend the Member for We are entitled to know. Why should But that is not peace. It must be followed Regraded Unclassified Adjournment- HOUSE OF COMMONS Crecho-Slovakia 2758 Adjournment- 26 MAY 1939 Czecho-Slovakia 2760 #757 2759 (Mr. Lloyd George.] this as if it were an ordinary banking hon. Gentleman made his observation, 1 nest," he gave to the House the full by settlement, and the settlement will be a transaction. It is the result of a raid, feel sure he thought, and undoubtedly the information that he had. There was a very long business. It was a long business a blunt piece of banditry perpetrated by article to which he referred implied, that feeling that the expression u mare's when you had men on the same side dis- aggressors who have already stolen are what had been done had been done by nest was too strong a term. At the cussing the thing in Paris. It took country after another, You cannot treat the Treasury under that Act by way of re- time I did not think so, for it was quite months. If you had had men with that as if it were an ordinary banking lease. Unquestionably that was the effect plain to me, and I think to most different interests who made mutual con- transaction. Bankers do not deal on of the article, and it was plainly implied Members of the House, that what was cessions, it would have taken well over a those principles with men of that descrip- in what the right hon. Gentleman said. being suggested was that, in connection year. What will be the position then with tion. But when you meet these com- When he came to this, his power of drama with the authority which I have over regard to Czecho-Slovakia? If the tries, as I hope you will, when it is quite came out, and it is the fact that, having the blocked Czecho-Slovakian assets, I Government are taking steps one by one clear to the aggressors that they cannot 20 any further, and they themselves begin plainly suggested that something had been had just released a great block of them. to build up recognition of the German done by the Treasury under the Act which conquest, leaving nothing but the coping- to be anxious for a conference, let it be I had done nothing of the kind. it should not have done, and that this was stone to be put on, you will not get peace a conference with the knowledge that the simply a concession due to the Treasury Equine metaphors were rather in the world on that basis; but that is power is behind us, and keep this cash giving its consent which the Act re- numerous in that Debate as the the right what they are doing. All this talk about of these poor Czecho-Slovakian peasants quires hon. Gentleman had been talking about appointing consuls, this transference of and protect it for the honour of England. looking a powerful gift horse in the Mr. Lloyd George: I never mentioned (6,000,000 of the assets of Czecho- 2.8 p.m. mouth. Perhaps he would prefer me to the Act. Slovakia to Germany-what is that but Sir J. Simon: The hour is not perhaps say that I think the suggestion made was recognition? It is very substantial re- a very convenient one for detaining hon. Sir J. Simon: He pointed to me and an attempt to put a particularly large cognition. True, it is only recognition by Members in large numbers in the House, said: cuckoo's egg into my nest, and, as I had Mr. Montagu Norman at the present but I think it is right that I should es- nothing to do with it, I naturally refused They are not merely robbers, for we are moment, but the Treasury have practically plain as simply as I can the very impor- now going to see that they are the receivers it. That, I hope, will show to everyone acquiesced, and acquiescence is only a tant matters which have been raised in of stolen goods with the sanction of the in this House and outside that there is the discussion to-day. I am not in the British Chancellor of the Exchequer, and I cowardly method of agreeing. no sort of reproach on the Prime Minister hope that before this Debate is over we shall Those are all questions which ought to least disposed to regard them as unim- at all. I do not think it has been have some explanation of that. -[OFFICIAL be settled as part of the general settle- portant, or as matters to be put on one REPORT: roth May, 1939; col. 1823; vol. appreciated by the House that this other ment. What are you going to do with side, and I wish the House to believe me 347.) matter to which our attention is being when I say that I do not approach them I daresay hon. Members who were in directed is not one that has just Sudetan Germany, with Bohemia, with in what is conveniently called some the House observed that, that not know- happened. It happened months ago. It Czecho-Slovakia? You cannot give pettifogging legalistic spirit. I do not ing what the right hon. Gentleman had did not happen at the moment when the beforehand everything they want and then think that that is at all a fair criticism. been referring to, I consulted the officials newspaper article in question appeared, call them to a conference. They will say: You have already recognised our con- The first thing I must deal with, and I under the Gallery, and there was no one or at the time when we were then dis- quest of Czecho-Slovakia, It belongs to wish to deal with it very plainly and at there who had come prepared with this; cussing it. It was certainly two months us now. Here it is; you have appointed once, is the suggestion that the Prime but a note came hastily down stating in ago, I am informed, that this other officials there, you have treated us as Minister, on the ground of the answer very plain terms that it was not the case question was first raised-[Interruption]. the de facto governors, rulers and pos- which he gave to the right hon. Gentle- that any release had been given. The It was in March, and not in May. sessors of that country Would it not man on Friday last, could really come Prime Minister said it was not true that be better that, in the interest of any con- under any reproach. Whoever may be the German representative named was in Mr. Lloyd George: When the Bank ference which they may have to summon blamed this country engaged on this matter, but decided on the transference to Germany? or to attend, as they must if you are to Mr. Lloyd George: He said it rested that the gentleman in question was not Sir J. Simon: It was towards the end have real peace in the world after these in London at all, and anyhow the really with you. gentlemen realise that their career of Treasury had not agreed to release any of March-I cannot give the exact date- Czecho-Slovakian assets to the Bank for that information, coming indirectly, aggression is to come to an end-and until Sir J. Simon: The Debate on that day. International Settlements or to anyone reached the Treasury that the Bank for you do that it is impossible to deal with since it was a Friday, started early as it International Settlements was taking steps them-that the Government should take did to-day, and I rather think the right else, All that was perfectly true, and, if I had known at the time that some to transfer this gold. At the end of steps now and say: " We cannot allow hon. Gentleman started it. Neither my March a rumour of this had reached the this cash to go until we have a legal right hon. Friend nor anyone else, as far parelle) reference was involved, I decision upon it." certainly should have informed the Prime Department. I cannot state from what as I know, had the least idea that this particular point, which the right bon Minister. At any rate, the Prime source it came, What is important to Whether the decision is by our courts Gentlemen mentioned having perhaps Minister had no knowledge of it, and I appreciate is that we were not so informed by the Bank of England nor by the or not, the action would have to be seen it in a newspaper as he was coming want to make that entirely clear. I am down to the House, would be raised. It quite prepared to take any blame, but Czecho-Slovakian Legation. It is one of brought by Germany. Germany would be in the box. They would say to her, related to the Czecho-Slovakia (Restric- my right hon. Friend is completely with- those pieces of information which do not come in such a form that I can state the Where did you get it; whom did you tion of Banking Accounts, etc.) Act which out blame. He simply repeated at very source. That was the extent of our know- take it from: what right have you to it? I carried through the House and which short notice the note that had been given You burgled the safe; is that your case? has been the subject of close attention on to him while the right hon. Gentleman ledge. I considered that it would be They would have to go into the box and my part, and I was perfectly well in- was speaking. It did not in fact deal right to take the opportunity of making Is your claim the burglar's jemmy? a statement which would show what the formed as to what was happening in con- with this other matter at all, and apart facts were as far as we knew them. It make their claim, It is no use treating nection with that Act. When the right from the use of the expression mare's was not the fact in the least in the world Regraded Unclassified HOUSE OF COMMONS Czecho-Slovakia Adjournment- 26 MAY 1939 Crecho-Slovakia Adjournment- 2762 2763 2764 276ᵗ Banks, and representatives of industry, International Settlements. That is the say, if you like, that you do not approve [Sir J. Simon.] I had given any authority for any- to. etc. They are not appointed by the very thing which by treaty, in common of that arrangement. You may say, as that at all. I had not been asked be British Government at all and they are with all the other States, we must not do. the right hon. Gentleman opposite said, within If my power to refuse I would it thing 1 had considered that it would have not answerable to the British Govern- I might point out that it was for that that you would like to see the Bank of ment in any sense. Disputes about the reason, among others, that when we drew England nationalised, but in this con- refused. It was readily assumed that it interpretation of the Statutes of the Bank up our legislation we did not include this. nection the Bank for International Settie- I who was responsible for this, and of have to be referred to the International We could not include it unless we were ments is not an institution in the affairs was not so at all. Towards the end Court at the Hague and, for the rest, in prepared to break the treaty obligations of which the British Government have a was March the Treasury heard indirectly that order to make it quite clear that the Bank that we had. That was why, when the right to interfere. It was set up in such a the Bank for International Settlements should be free from any governmental in right hon. Gentleman quite plainly implied way that it should not be affected by either had given, or was giving, instruc- tervention or interference, the Govern- that something was happening to which international politics; and its decisions tions for the transfer of this gold and I ments concerned with this agreement, in- I had given my consent, the answer was are not decisions in which the British thought, that being the case, that I cluding His Majesty's Government, the given, perhaps a little hotly, but at any Government can interfere, That is un- ought to take the opportunity-and I full did French and all the other Governments, rate quite truthfully, that that was not doubtedly the position, and if anybody of making what was really a quite gave it by Treaty and Protocol complete the case. immunity from all forms of restriction and thinks it should be altered they are going statement on the subject. We have heard from my right hon. much further than this issue, interference, and it is expressly stipulated Sir A. Sinclair: When was that? that this complete immunity applies both Friend who has just spoken that the British members-not the Government Mr. Gallacher: You are evading the to the property and assets of the Bank issue. Politics are introduced when the Sir J. Simon: On 23rd May. itself and property and assets which the members, but the British members of the money is taken to Germany. Bank holds for the account of others, Bank ought, in his view, to be in close Sir A. Sinclair: Is it not very extra- communication with the British Govern- Sir J. Simon: I am merely trying to ordinary that if the Treasury heard of I think it is a little rash to assume that, ment. I can only say that they most make the position clear. The Bank for this transaction at the end of March, at a having entered into treaties with the other certainly are not in communication with International Settlements is, by that very time when legislation was being proposed countries of Europe that that shall be the the British Government on the affairs of constitution, not concerned with political to stop the transfer of similar balances nature of this Bank, and completely re- this bank in Switzerland. It might be issues, It carries out instructions re- lying in London, the right hon. Gentle- lieving it from any possibility of an suggested, perhaps, that the present in- ceived in accordance with what it con- man's own officials did not disclose it to embargo or restraint being put on its cumbent of my post is responsible for ceives to be its legal obligations, and the him? assets or any assets for the account of that, and that no doubt there were better Bank of England, in this matter, is not others, that the Treasury here is to blame. arrangements made before. I have in- speaking for the British Government. Sir J. Simon: I think the right hon. The right hon. Gentleman entirely omitted Gentleman will see how that works out. quired into this at the Treasury, and I am Although it is the Government's banker, all reference to this. It is very easy top I perfectly understand the concern of the told that the position has always been as it is not a Government bank. There are dismiss these things as miserable legal it is now, I agree that this is a very all sorts of things that the Bank of House, and I ask to be allowed to state quibbles but the fact is that the Bank has as clearly as I can my knowledge of the special kind of bank. It was established England do which are not matters for been created in that form. I must say I matter. I was going to observe on the in 1930 as a result of the activities of Lord the Government at all. It has been asked regard it as not without importance that Snowden at the Hague, under first of all, where these assets are now held as I question of the hon. Gentleman opposite whether the answer given by the Financial we should respect its constitution. It was the very fact that this is the nature of a series of articles of association, but- said, I really have no information on that. Secretary corresponded to what I stated the next day. That is so. The question the protection enjoyed by the Bank for tressed up by these protocols. But, be that as it may, I will certainly have it considered immediately, with the International Settlements by international asked was whether any transfer in respect Mr. Lambert: Was it established by the information that I can get, whether in this of this deposit had recently taken place. treaty which would have prevented 15 Labour Government of that day? matter we have gone wrong. But if, as from effective interference. Sir J. Simon: I do not think that that is I believe, these protocols involve an ab- It was in connection with that that the Mr. Pethick-Lawrence: The right bon. a fair point. solute assurance to the Bank for Inter- Financial Secretary made it clear that I national Settlements that their orders shall had no means of knowing whether the Gentleman is really getting away from the point. The main point is not whether at all. Mr. Wedgwood Benn: It is not a point be obeyed I do not see how we can fail facts were or were not as stated by the hon. Member for North Lambeth (Mr. to obey them except by breaking our when the Bank for International Settle G. Strauss). That is perfectly accurate. Sr J. Simon: We cannot in this matter treaty obligations. ments made a decision we could resist it As, however, the Treasury had received The question is what part our representi- claim to blow hot and cold. The ob- Mr. Lloyd George: I hope that when this hint, I made the statement on 23rd May. tives took in coming to that decision? ject of setting up the Bank for Interna- the Chancellor is seeking an opinion he tional Settlements was to have a great will not put the question in that form- We must pay some attention to what is Sir J. Simon: I do not think I am de in central institution, which would be not Was I wrong "? I think that is very the nature of the Bank for International parting from the point. It is a matter of the least concerned with the politics important. Will he ask whether it is Settlements. It is a bank with very ex- which has been very carefully canvassed Europe. I have no doubt that that is within the power of the Treasury to raise ceptional immunities. I have refreshed in the House and it has a very direct beat- one of why the directors of the the issue in any court, in order to obtain my memory as to its statutes and the ing on the matter the right hon Gentle the British directors— a legal opinion as to his right to suspend Treaties signed by a number of countries, man now mentions. I must make dis the business of Bank is not consistently taken the view that payment until the question of ownership- which have given it an immunity which point good before I go further. It will His is finally settled? is altogether exceptional. It is an entirely clearly out of the question for with that they could Governey could that they could that they conld di discuss with the a British matter Sir J. Simon: I think that is quite a non-governmental institution. Its direc- Majesty's Government to interfere for I am assured that that tors consist of the Governors of Central the transfer of assets by the Bank been the position. You may reasonable suggestion, and I am grateful to the old solicitor. I do not want to Regraded Unclassified HOUSE OF COMMONS Gatcho-Slovakia 2765 Adjournment- 2766 Sir J. Simon: I shall be very glad to lgls Adjournment- 26 MAY 1939 Grecho-Slovakia 2768 mislead anybody or get away cheaply, consider that and any other suggestion There are two other points that were is, what our action should be in that situa- [Sir J. Simon.] that any hon. Member is good enough mentioned, and although I am occupying tion. It would be no use leaving anybody advisers, is that as long as these protocols but my own view, and the view of my Friend. to make, and I am obliged to my hon more of the time of the House than in Prague unless he had consular author- perhaps I ought, I would really like to ity. Where we do have consuls, they enjoy exist, which bind us not to put any em- make a short statement upon them. First official recognition, and we want them to bargo on the claims of the Bank for Inter- Mr. Stokes: Cannot we have, before the House rises this afternoon, an answer to of all, there is the question which is more give all the services they can render to us national Settlements, we cannot get over the question of whether the Bank of Eng. of a Foreign Office question perhaps, than and to British subjects or to refugees or that. land could be asked whether it has got a Treasury question and has to do with whoever they may be. It is not a com- Mr. Lloyd George: Access to the the gold or not? the appointment of a consular representa- pliment to any Government that there is tive in Prague. Prior to 15th March we granted an exequatur. It is not necessary courts. Sir Stanley Reed: On a point of Order. had in Prague at our Legation our that this point should be decided instantly Mr. Benn: Will the Chancellor tell us, May we not be allowed to hear this im- Minister as diplomatic representative. by the British Government, and I now before we rise at 4 o'clock, whether the portant statement from the Chancellor of Since then the question has necessarily state to this House that we shall not make gold is in the Bank of England? The the Exchequer without these continual arisen how we are to arrange matters in that decision until the House resumes. It Bank of England is only a mile and a interruptions? view of the annexation of Czecho- is not intended to make it during the half away. If he will not tell us, can we Slovakia to the German Reich. The recess. Sir J. Simon: I am not aware to what send the sergeant to inquire? extent it is really legitimate for the Gov- diplomatic representative could not con- tinue, because the German Government It will be appreciated that there are in Mr. Boothby: Is the present Czech ernment to address the Bank of England fact considerable British interests that we National Bank the same bank which origi- and inquire whether they have or have had required that after 25th May diplo- have at least to bear in mind. I was nally held the deposits? I believe it is not gold in their cellars. [Interruption.] matic representatives in Prague should I wonder whether the right hon Gentle- not enjoy extra territorial rights which not myself aware that the Prime quite a different bank. they had previously been allowed to Minister's words on Wednesday were to man will allow me to proceed. enjoy. As regards the Legation, we are be understood as contemplating any de Sir J. Simon: There are quite a num- Mr. Benn: I am not interrupting. withdrawing our Minister, and certain jure recognition at all. Certainly, as far ber of points which arise, and on a proper other Governments, notably the U.S.S.R. as my information goes that is not what occasion I could deal with them. But I Sir J. Simon: I was saying that I am and the United States, have already with- is in contemplation at all, but no doubt think the House will agree that we have not aware to what extent the Treasury drawn their Legations under similar notice it is the fact that, if our Consul gets the to respect these protocols. At present. I have the right to press the Bank of Eng- and have left for the time being consular exequatur which he must get by 20th do not appreciate how we could take the land to say whether they have got in their representatives to look after their interests. June, it might be called a de facto recog- action suggested in view of that fact; but cellars gold marked so-and-so. I agree To leave our own diplomatic representa- nition of German authority. That is by all means let us have any further that the Bank of England in some respects, tive, that is the Minister, in Prague after exactly the problem, and I am merely advice about it that we can get. is in a different position from ordinary be had ceased to have diplomatic status stating it. 1 might remind the House banks. and privileges would be an absurdity. He that this difficulty has arisen before. For Mr. G. Strauss: While making his in- quiries, will the right hon. Gentleman see Mr. Lloyd George: It is a great inter- would merely be a private person. The instance, in the case of Abyssinia. The that the gold does not suddenly depart national question. Legation was closed yesterday, and, as British Consul there from the very early my right hon. Friend the Prime Minister stages of the Italian invasion received by aeroplane or any other method? Sir J. Simon: I have done my best to informed the House on Wednesday, the the Italian exequatur long before there Sir J. Simon: I obviously cannot make a statement about this matter for British interests in Bohemia and Moravia was any question of de jure recognition. undertake anything of the kind. We have the information of the House, and I have are now in charge of the British Vice- The same thing, I am informed, was true not got the gold in the Treasury. Hon. told the facts as far as I know them. Consul. of Austria. Therefore, as far as pre- Members, while keen on the hunt, should Sir A. Sinclair: The right hon. Gentle- Then comes the question about the cedents go, I do not think it is very be prepared to recognise the manifest presence in that area of the British Consul, surprising that it has been found possible limitations under which the Government man has probably forgotten that be The German Government, in their com- to secure the protection of British act. The Government have no more promised in the earlier part of his speech interests in these areas without making authority than anybody else in this to explain to the House why it was that munication, said that Consular representa- tives in both provinces would cease to be the de jure recognition of these new House, We all want to do what is, in this information, which reached the Trea- the circumstances, the proper and just sury officials two months ago, some time recognised on and after 20th June unless, powers. in March, was not handed on to him. 50 in the meantime, the Consul obtains the thing. Mr. Alexander: The de facto recogni- that he could have commenced the nego- exequatur of authority. The House, no Mr. Bracken: I am sorry to interrupt doubt, knows that that is the form of tion of the Consul in Austria and tiations which he has promised the House document which gives the consul his Abyssinia followed as night follows day, my right hon. Friend, but I think this is this afternoon. important. When he is consulting with Sir J. Simon: The information did authority, It is under that that he is en- as events proved, but in Manchukuo we have heard of no report of any serious his lawyers, will he ask whether it will reach me. What I said was that on being titled to take under his wing British make any difference that the protocols subjects that need protection or repre- damage to British interests, nor has the examined it became quite clear that. in British Government up to the present which Germany and this country signed view of the Protocol, it was not possible sentations to be made. It also entitles have been torn up by the Germans, and to take the steps now suggested. If. him to send his official bag and to use a given de facto recognition. that the Germans have actually got physi- however, it is thought, in spite of BF cipher and to send information to the Sir J. Simon: The actual question now cal possession of the Austrian shares in statement, it is possible, I will do my best Gevernment. As has already been referred is as to our consular representative at the Bank and also of the Czecho-Slovak to get the best advice it is possible to to, in a case like Prague a very important Prague. The question is under considera- shares? matter is that in connection with refugees. tion, and we are in consultation with obtain. The question which has to be considered other Governments about it. I can give Regraded Unclassified HOUSE OF COMMONS Crecho-Slovakia Adjournment- 26 MAY 1939 Safety in Mines 2772 2769 Adjournment- 2770 2771 is overdrawn or that it has been with. best. I hope the House very grateful to him for the statement he the House an assurance that no relevant [Sir J. Simon.] drawn. It is extremely difficult to imagine have feels that done in my this matter the Treasury has has made that he is going to endeavour action will be taken about the matter that unilateral administration is the best, acted in a straightforward way. I have to prevent this £6,000,000 worth of gold until the House resumes. If, without prejudicing the interests of no more desire to see our institution so being handed over to the Nazi Govern- those concerned, you could get a detailed The right hon. Member for Hills- operated as to give assistance to the ment. That is the point that is really borough (Mr. Alexander) has just referred schedule of the claims, arrived at by aggressor-which possibility the right at the root of all our feelings. I do not agreement, as a result of the examination hon. Gentleman so roundly denounced- want to enter into criticism of whether to another matter, on which I have some of accounts on both sides, I do not think than any man in this country. This is he ought to have acted before, or whether responsibility. It is true that in that case the British Government and the then able. anyone would say that that is not prefer. a very complex question, in regard to the Treasury ought to have been in- which it is necessary to keep one's head, formed by the Bank of England. Those Foreign Secretary secured at the League of Nations the adoption of the principle I think that the popular impression that and I hope that what I have said has are points that might have been urged, we have a very large amount blocked shown that there was a good and but they are no longer relevant once the that there should not be acknowledgment here, will be found to be exaggerated. In sufficient explanation for the matters right hon. Gentleman gives to the House or recognition of a conquest or annexa- the article which the right hon. Gentle- which have been so naturally raised his assurance that he will do his very tion which had taken place in breach of the Covenant or the Kellogg Pact. It man quoted a figure was given which to-day. utmost to stop this money being sent was I as Foreign Secretary who proposed is a much larger figure than we calculate away. upon. On the other hand, the claims 2.52 p.m. that at Geneva, it was I who got it Mr. Tinker: I want to turn away from That is the only point I wish to make, carried by the League, and I received the against that figure are genuine and sub- these international questions, because on but it is a very vital one. Here we are thanks of the American Government for stantial. There is the debt which must the Motion for the Adjournment there are going about urging our people to enlist, doing so. Therefore, I am perfectly be repaid to us, because we lent money to other matters to discuss. Certainly, the urging them to accept new forms of mili- familiar with the precedent. I am, how- the old Czecho-Slovak State, and we must House of Commons ought to realise that tary compulsion; here we are paying taxes ever, bound to say that I do not think get it back. Then there is a considerable there are other things to deal with. I on a gigantic scale in order to protect sum required for the refugee account. Us. ourselves. If at the same time our anybody would agree that the everlasting recognise that this is a grave problem exclusion of British consular assistance questionably, we must take those amounts that we have been discussing, but it is mechanism of government is so butter- in an area would be in the interests of out. Then there are claims for British not a domestic problem although it may fingered that this £6,000,000 of gold can British trade. I noticed the point of the holders. Most of them may be current be transferred to the Nazi Government of be disappointing for the right hon. Mem- right hon. Gentleman, which was that claims, but there may be capital claims ber for Epping (Mr. Churchill) that I Germany, which only wishes to use it, one must perhaps draw a distinction be- of a different sort. It is all extremely have been called instead of him, I want and is only using it, as it does all its tween some sudden, immature acknow- complicated. I understand that what has him to realise that there are other ques- foreign- exchange, for the purpose of in- ledgment of a situation which takes a new been done by the Treasury, apart from tions creasing its armaments, if this money is to shape, which may be an action which we examining books, is purely preliminary tos be transferred out of our hands, to come repudiate and deplore and which becomes seeing whether it is possible to draw up Mr. Churchill: I should have stood for back in certain circumstances even a portion of a more permanent strtucture. such a scheme. Whether there will be any only two or three minutes between the quicker than it went, it stultifies alto- The case of Manchukuo is an instance, balance at all seems to be more than right hon. Gentleman and the subject gether the efforts our people are making the only instance so far as I know, of doubtful from the figures that I have seen, which the hon, Member for Leigh (Mr. in every class and in every party to secure almost a general decision not to recognise but I must not exclude the possibility. Tinker) wishes to raise. There were, National Defence and rally the whole a changed Sovereignty which has been brought about by means contrary to the The question will then be, if there is however, two points arising from the forces of the country. The Chancellor of statement of the Chancellor of the Ex- the Exchequer has shown himself very Covenant. a balance, whether we are entitled in the chequer to which I wished to refer. properly forward in the matter of the circumstances to say that we will not Czech balances. I cannot understand There remains one further matter about allow that balance to go to various inst- Mr. Tinker: I am prepared to give even after the explanation, how it could which we might dispute for a long time, tutions or persons in Czecho-Slovakia, way to the right hon. Gentleman to allow have escaped him, but I accept his state- and that is the administration of the because we have strong reasons for fear- him to put his point. ment that he will do all he can with all Czech balances which are blocked by the ing that if it reaches them it may be Mr. Speaker: If the hon. Member for the resources of his legal brain, and with recent act. That is a very complicated taken from them. I am as fully alive matter, No doubt it is conceivable that to that possibility as anybody, but il Leigh (Mr. Tinker) gives way, then I all the energy he possesses, to prevent we might have to deal with them entirely some private trader in Bohemia happens have no objection. what would be a public disaster, namely, the transference of this £6,000,000 of by unilateral action, That course has to have an account here and his account 2.53 p.m. Czech money into the hands of those who some inconveniences, One inconvenience, is not needed for settling our undoubted Mr. Churchill: I thank the hon. Mem- have overthrown and destroyed the Czech for example, is that while you want these claims, I find it difficult to understand, ber very much. I should like to say, Republic. assets to be available for British citizens on what principle we are to say that be having listened to this Debate and to the who have claims against Czecho-Slovakia, must go without it. I have asked the speech of the Chancellor of the Ex- are you to take everybody's word that Treasury to give me a report-I have not chequer, that we must all wish to com- they have a good claim? Are you simply seen it yet-and I am going to consider pliment him on his fairness, his good going to allow anybody to register by it, and I hope to give an account to the House of how the matter stands temper, and his readiness to answer ques- saying: I have such and such an tions. We recognise, as I said in an amount owing to me from a Bank in when we reassemble. interruption, that as an old Parliamen- Czecho-Slovakia." That may be an These are the three subjects dealt with tarian he understands the conversational honest statement, or there may be an and although I have no doubt that I manner in which the business of the overdraft, or it may be that the account have failed to answer every question. House is so often conducted. We are Regraded Unclassified Enclosure No. 1 to despatch No 2776 of JUNE 1939 from the Embassy at London, England. 98 PARLIAMENTARY DEBATES NUMBER: House of Commons 26 May 1939. London. Cols. 2713-2772. Np 1933 London, England. NUMBER: CITY: LONDON DATE: MAY 27 1939 M.P.s CRITICISE TRANSFER OF CZECH GOLD TO GERMANY Chancellor Does Not Know Where It Is ATTACKS ON ACTION OF TWO BANK OF ENGLAND DIRECTORS FROM OUR PARLIAMENTARY CORRESPONDENT WESTMINSTER, FRIDAY. messenger might be sent from the A sustained, and at times House to find out where the gold was. passionate, attack upon the attitude The protocol was the ground upon which Sir John took his final stand. of the Government and of directors reproving Mr. Lloyd George for of the Bank of England towards the speaking of an international obliga- evil consequences of Germany's tion as a 'miserable legal quibble." seizure of Czecho-Slovakia was But even this ground shook beneath the blows of Mr. Bracken and Mr. delivered by members of all parties Boothby (C.), who asked whether during the adjournment debate Germany had not already torn up to-day. Not a single speaker, except similar protocols signed by Austria Sir John Simon himself, treated the and Czecho-Slovakia and whether the Government with entire respect. The Czech bank which originally provided the assets was the same as the present Chancellor was, indeed, in a most one painful position. If be supposed when These questions placed sufficient he came down to the House that be doubt on the validity of the transac- tion to justify, in the view of Mr. had a cast-iron case, he must certainly Lloyd George and others, a legal have realised when he rose to reply inquiry. Finally Sir John promised that it had been riddled with holes, to take further advice about the pro- and nothing but the most glutinous tocol, and this tentative concession sediment could remain in it. was immediately turned by Mr. Churchill into a pledge by the Chan- First, the transfer from the Bank of cellor to make his " utmost England to the Reichsbank of between endeavour" to prevent the money £5.000,000 and £6,000,000 on the being paid over to the Nazis. Thus instruction of the Bank for Interna- the report which Mr. Chamberlain tional Settlements which held this had dismissed as "a mare's nest" a sum as a Czech asset. Here the week ago proved to be rather more House encountered the peculiar con- substantial. stitution of the Bank for International Settlements and the still more DE FACTO RECOGNITION peculiar relation between Mr. Mon- The second point of the debate was tagu Norman as Director of that the propriety of extending de facto Bank and Mr. Montagu Norman as Governor of the Bank of England. recognition to Germany's conquest by Mr. Lloyd George and Mr. Pethick- appointing a consul to Prague. This Lawrence (Lab.) insisted that what- gave Sir John a slightly easier ever might be Mr. Norman's legal passage, though he was driven near position as a director of the Interna- the rocks. He said that the Govern- tional Bank he would certainly be ment would not reach a decision regarded by the other directors as a before the House reassembled, though representative of the British Govern- ment. Mr. Brendan Bracken (C.) he did not say that the House would flung the most bitter criticism at Mr. be consulted before the decision was Norman and his co-director, Sir Otto final. His mishap arouse out of a Niemeyer, for agreeing to the transfer search for precedents for the appoint- of stolen goods" and thus in effect ment of consuls on captured territory. recognising Germany's conquest. There were two-Abyssinia and They should have protested, he Austria. The Chancellor had exposed argued, and if their protest had been the source of apprehension about the vain they should have resigned. appointment of a consul it might lead, as it had led, to full recognition. GOVERNMENT AND THE BANK In reference to the third topic-the Czech assets blocked in London under Many members found it almost Act of Parliament-Sir John Simon impossible to believe that this trans- had to answer criticism that when fer was approved by the International outstanding claims had been met the Bank without any report from Mr. Government contemplated handing the balance to Germany. The total Norman to the Treasury yet accord- value of these assets, said Sir John, ing to Sir John Simon the Treasury had been exaggerated, but in any only heard of the transaction, which case it was difficult to see how the took place in March, as a rumour claims upon them could be met by reported by a third-pay He had unilateral action. The heat and force not Internatio made any inquiries, because the of the debate arose from the belief, expressed by Mr. Alexander (Lab.), nal Bank was protected by ST. Archibald Sinclair (L.), and a Locol from any political interfer- ence, and British directors never Ead others, that Czech rights should be reported to the Government. One protected by Britain, and that nothing should be done, by the transfer of gathered from Sir John that he and gold. to facilitate German rearma- Mr. Norman were on little more than ment. Czech rights, Mr. Lloyd George bowing terms. Sir John did not know argued, would have to be remembered whether the gold was in London. He at the peace conference which he did not like to ask the Bank, Have foresaw-without war-as a result you got in your cellars gold marked the Russian alliance to the credit of So-and-so? Mr. Wedgwood Benn suggested that a [Debate : ADDRESS OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, D.C. 100 DEPARTMENT OF STATE WASHINGTON June 26, 1939. My dear Mr. Dietrich: I am enclosing herewith a copy of despatch No. 2811 dated June 6, 1939, from the American Embassy, London, on Czechoslovak Assets in the United Kingdom. I have now sent to you within the last three days all of the written reports to which reference is made by Butterworth in the next to the last paragraph of his telegram No. 896 of June 24, 8 p.m. Sincerely yours, Leroy D. Stinebower Leroy D. Stinebower, Assistant to the Adviser on Inter- national Economic Affairs. Enclosure: No. 2811 of June 6 from London. Mr. Frank Dietrich, Care of Mr. Lochhead's Office, Treasury Department. 101 QUINTUPLICATE Me: 2811 London, June 6, 1939. SUBJECT: Czechoslovak Assets in the United Kingdom The Honorable The Secretary of State, Washington. Sir: I have the honor to refer to despatch No. 2776 of June 1, 1939, and previous reports regarding the controversy which arose out of the Caechoslovak (Reatrictions on Banking Accounts, etc.) Act of 1939, 1/ and to transmit herewith the Hansard text of the answers which the Chancellor of the Exchequer made in the House of Commons to the questions asked him on June 5, 1939. These statements of Sir John Simon do not modify in any Regraded Unclassified 102 =2= any way the purport of the despatch under reference. Incidentally, a professor at Eton College has written to The Times to suggest that if the Bank for International Settlements has no motto, the following would be appropriate: B.I.S. dat qui cito dat. Respectfully yours, For the Ambassador: Herschel V. Johnson Counselor of Embassy Enclosure: 1. Parliamentary Debates, Hansard of June 5, 1939, Cols.34-41, in quintuplicate. I TRUE COFY OF THE MONED WWB/MW MW Regraded Unclassified Oral Answers 5 JUNE 1939 Oral Answers 33 34 Second Reading of the Official Secrets Mr. Elliot: If my hon. Friend will give Bill. At the moment I can only say that me details of that, I will look into it. the Government are unable to agree to any proposal for extending the scope of the Bill. CZECHO-SLOVAKIA (ASSETS). Mr. Davidson: In view of the fact that 49. Sir J. Mellor asked the Chancellor the Prime Minister himself, in answer to of the Exchequer the aggregate amount questions in the House, definitely assured of the assets so far ascertained to be sub- the House that the Bill would apply and ject to the Czecho-Slovakia (Restrictions extend only to questions of espionage, on Banking Accounts, etc.) Act and of and in view of the fact that the Bill does claims against such assets; and whether nothing of the kind, will not the Prime he has now obtained sufficient particulars Minister take steps to see to it that this to enable him to form an approximate is made clear in the Bill before it comes estimate of the total amount covered by up for Second Reading? the Act? The Prime Minister: The powers under The Financial Secretary to the Treasury Section 6 of the old Act have been con- (Captain Crookshank): The estimated fined in the Bill to cases of espionage. amount of the assets so far ascertained to be subject to the Czecho-Slovakia (Re- strictions on Banking Accounts, etc.) Act TOWN PLANNING (AIR MINISTRY and available for meeting claims is be- SITES). tween £14,000,000 and £15,000,000. The 48. Sir J. Mellor asked the Minister of claims include the repayment to the Health whether, having regard to the Treasury of the advance of £6,000,000, the transfer to a Czech Refugee Trust arrangements made between himself and Fund of the unexpended balance of the the Secretary of State for War for con- Free Gift, namely, £3,500,000, claims sultation between county Territorial from British holders in respect of bank Associations and town planning authorities balances, etc., amounting to about in connection with the selection of sites £3,500,000, and in respect of bonds to a for Territorial Army purposes which face value of about £2,500,000. Claims arrangements were communicated to local have also been received from British authorities by Circular 1821, and, in view holders in respect of participation in in- of the absence of any similar arrangements in relation to the selection of sites for the dustry, real estate, etc., which cannot conveniently be expressed as a capital purposes of the Air Ministry, he will con- sum. A notice has been issued in the sult with the Secretary of State for Air Press that 17th June is the final date for in order to ensure, without prejudice to registering claims, and that no forms rapidity of action, such consultation would be accepted after that date unless between the Air Ministry and the town the reasons for the delay are satisfactory to planning authorities as may be in the the Treasury. Until all the claims have interest of all concerned? been received and until they have been The Minister of Health (Mr. Elliot): examined, the figures given cannot, of For some time arrangements for consulta- course, be regarded as even an approxi- tion between the Air Ministry and plan- mately accurate, estimate of the claims of ning authorities have been in operation British holders. through my Department. My hon. Friend Mr. G. Strauss: Can the Financial will appreciate that, owing to the various Secretary make any statement about the technical considerations involved in the Czech gold held by the Bank of England requirements of the Air Ministry, it is under the Bank for International Settle- desirable that consultation should in each ments? case be effected through my Department in the first place. Captain Crookshank: That is another question. Sir J. Mellor: Can my right hon. Friend say why this procedure was not followed Mr. Bellenger: Will all these claims, if in the recent instance of the acquisition accepted as genuine, be dealt with on an of a site by the Air Ministry in the Solihull equal basis, without any discrimination urban district? between any classes of claimants? Oral Answers HOUSE OF COMMONS Oral Answers 35 36 Oral Answers 5 JUNE 1939 Oral Answers 38 Captain Crookshank: I should like But, in addition to making inquiry of notice of any question as to how the 37 question, I cannot, I think, add more than the Bank for International Settlements to the Bank of England, I at the same time claims will be dealt with: this is only a sought the advice of the Law Officers to explain to the House, as I have done, transfer it to Germany, to the Reich in a number of points. What I am about on what, as the result of the inquiries, the some form or other, either to Prague or question of how much they were. circumstances be expected to go beyond position actually is. I cannot in the to Germany? Mr. Greenwood (by Private Notice) to say is in accordance with their advice. His Majesty's Government are precluded Sir J. Simon: The right hon. Gentle- asked the Chancellor of the Exchequer by the terms of the Protocols of 1930 and that. man, I think, will see, if he will be good whether he can now give to the House 1936 from taking any steps, by way of Mr. Pethick-Lawrence: The right hon. enough to look at my answer, that really the result of the inquiries he undertook legislation JI otherwise, to prevent the Gentleman is dealing with the second part both the questions he has put are to make and of the advice he intended Bank of England from obeying the in- of the transaction, and I am dealing with answered. If he asks me whether I can to seek on the subject of Czecho- structions given to it by its customer the the first part, and asking the right hon. tell him where the gold is, he is making Slovakian assets entrusted to the Bank Bank for International Settlements to Gentleman whether, in future, he cannot the assumption that there is or may be for International Settlements and alleged transfer gold as it may be instructed; the undertake to see that when these gentle- in London, with the knowledge of the to be deposited with the Bank of Czecho-Slovakia (Restrictions on Banking men go as British representatives to the Bank of England, a block of gold which England? Accounts, etc.) Act, 1939, does not Bank for International Settlements their belongs to the Bank of Czecho-Slovakia. The Chancellor of the Exchequer (Sir operate to prohibit the Bank of England policy on matters of high international The answer I have given to the House from making such a transfer without the importance will be in accord with the shows that that is not so. As for the right John Simon): In the Debate which took consent of the Treasury. Even if it did, place ten days ago, on the Motion for policy of His Majesty's Government? hon. Gentleman's other question, namely, it would be a breach of treaty obligations the Adjournment, it was assumed by whether or not the gold is liable to be to withhold Treasury consent. There is Sir J. Simon: I really think that the several speakers that the Bank of transferred under an order of the Bank for no validity in any of the suggestions hon. Gentleman introduces a little con- England, when dealing with gold or cash International Settlements, the answer I made in the recent Debate that the Bank fusion when he speaks of British repre- balances held by it to the order of the of England would be entitled to refuse to have already given shows that it is. I am sentatives. These gentlemen are not Bank for International Settlements, advised, that unless we are prepared to obey the instructions given to it by the British representatives in the relevant would be aware of the party to whom break treaties that we have signed, no Bank for International Settlements; and sense. They do not represent the British such assets belonged, and in particular there are no means by which the Government; they do not represent British other course is possible. that gold entrusted by the National Bank Treasury could obtain a ruling of the of Czecho-Slovakia to the Bank for In- policy. They are individuals, who, by Mr. Lloyd George: With regard to the courts as to whether they have the power virtue of their office, are members of the ternational Settlements and deposited by first question, surely there is £6,000,000 of to prevent the Bank of England from directorate of the Bank for International the latter with the Bank of England making a transfer when ordered to do so gold somewhere which formerly belonged Settlements, and I really cannot be asked would be held by the Bank of England to Czecho-Slovakia? It was deposited, I with the knowledge that it belonged to until the question of the true ownership to indicate what the policy would be. understand, here. Where is that gold? the National Bank. of the gold is finally determined. Mr. Pethick-Lawrence: Are not the Mr. Pethick-Lawrence: Does the right Really, we ought to know, that £6,000,000 As soon as the Debate was over I made hon. Gentleman really mean to convey that formerly belonged to Czecho-Slovakia, inquiries of the Bank of England as to Governor of the Bank of England and that an important British institution-the and which we still maintain belongs to the facts, and it is plain that the assump- another director of the Bank of England directors of the Bank for International Bank of England-is to be allowed to the same people now. Where is it? tion to which I have referred is incorrect. have representatives going to act on the Under whose orders is it? The Bank of England states that it holds Settlements-and not only directors, but Bank for International Settlements in from time to time amounts of gold in on the executive of that body-and do matters of high policy contrary to the Sir J. Simon: The right hon. Gentle- safe custody for the Bank for Interna- not they in that capacity know the true views of the Government? man,I am sure, sees that that is a ques- tional Settlements, and holds such gold facts? Further, is the right hon. Gentle- tion which neither I nor anybody else to the order of the Bank for International man now prepared to give an assurance Sir J. Simon: I do not know any- could answer. [An HON. MEMBER: It Settlements, but that the Bank of to this House that the British representa- thing about matters of high policy. I is in the Lloyd George Fund."] I have England has no knowledge whether gold tives on the Bank for International Settle- know that when an international bank already explained that it was a mistake so held is in fact the absolute property ments in matters of high international located in Switzerland has its directorate, to suppose that there was a quantity of of the Bank for International Settlements policy will not act contrary to the policy the members of that directorate must act gold belonging to the Czecho-Slovak or is held by the latter in whole or in of His Majesty's Government? according to their authority and judg- authorities which was in London as far as part for the account of others. The Bank Sir J. Simon: With regard to the first ment, and they do not get that authority either the Treasury or the Bank of of England is, therefore, not aware from the British Government. England know. But the Bank of whether gold held by it at any time in question, it is, I believe, a fact that it is England holds a considerable quantity- the name of the Bank for International laid down in the constitution of the Bank Mr. Lloyd George: Has the right hon. I know nothing about £6,000,000-on Settlements is the property of the National for International Settlements that it Gentleman had time to ascertain where account of the Bank for International Bank of Czecho-Slovakia, should include among its directors, I the gold is? Is it in the Bank of England Settlements. Where it comes from is not The same situation exists as regards think, the Governor and, in the case of at the present moment, or has it been a matter for them. cash balances held by the Bank to the the Bank of England, a second member transferred to somewhere else; and, if so, Settlements. order of the Bank for International of the bank. I am not aware whether they to whom? I also ask, in the second place, Sir Irving Albery: Is it not the fact are members of the executive committee. if it is in the Bank of England, what is that, if such restrictions as are suggested the obligation of the Bank of England by right hon. Gentlemen and hon. Gentle- Now that the correct position is under- Mr. Bracken: One is chairman. according to the interpretation of the right men opposite were imposed upon the stood, a good many questions which were raised in the Debate are disposed of. Sir J. Simon: I can only say that I was hon. Gentleman? Are they to pass it Bank of England, the only result would not aware of it. With regard to the second over? Are they bound by the orders of be that it would be impossible on future Enclosure No. to despatch N2811 of 6 THE 4024 HOUSE OF COMMONS Oral Answers from the Embassy at London, England. Oral Anim PARLIAMENTARY DEBATES Gentlemen will face the facts as I have NUMBER: 103 39 [Sir 1. Albery.] for the Bank for International any given them, they will see that I have House of Commons stated the position correctly. 5, June, 1939. occasions to have any account or London, Cols. 34-41. Settlements deposits with the Bank of England? Mr. Noel-Baker: Is not the funda. Mr. Article 2 of the Convention the right Harold Macmillan: In view of the of mental fact that under international law Germany has no claim to any Czech fact that January, 1930, to which provides assets until she has received de jure goth Gentleman has referred, disputes recognition for the conquest of Czecho- Slovakia, and will the Chancellor consult hon. arbitral settlement of any applica- for the to the interpretation nit and lays with the Governor of the Bank of relating the present Convention. before England to find means by which Germany tion of the international tribunal the can be prevented from taking stolen down any such matter relating to not goods? which Convention should be brought, should the be taken for this matter as to of the Sir J. Simon: I am very ready to take 41 Oral Answers 5 JUN steps of otherwise of the action to be into consideration what is suggested, but Sir J. Simon: No I do not believe there propriety for International Settlements the I am afraid that it will not be found to is any ground for thinking that there was dealt Bank with under Article 2 of be easy. any irregularity. But I must most Convention? Mr. G. Strauss: Does the right bon. respectfully submit that I cannot be ex- Sir J. Simon: I am speaking only from Gentleman want the House to understand pected to answer for the Bank for Inter- national Settlements. memory. I have not the Article before that the Governor of the Bank of England I think it had to do with a dispute of does not know whether this gold is in Mr. Stephen: Will the right hon. Gen- me. to the construction of the Articles London or not, and, if he does know, has tleman not agree that the difficulty arose as the Convention. So far as I know there he been asked to give an explanation to from the fact that the Governor of the is no such dispute, and no competent the Treasury; and if he has been asked, Bank of England wants Germany to get authority doubts what I have just stated. has he refused to do so? this money? Mr. Bracken: The right hon. Gentle- Sir J. Simon: I have every reason to Mr. Harold Macmillan: Would my man said that he was most anxious to believe that the information I have been right hon. Friend be prepared to consider, make representations to the British keep this gold in London, and will he given is completely candid and honour- as a pure matter of international law, directors of the Bank for International able, and I accept it. whether under Article 2 of the 1930 Con- vention it is not possible for His Majesty's Settlements that they should go to Basle Mr. Greenwood: Is it the case that. if Government to bring this dispute with and ask for a reconsideration of that Mr. Montagu Norman, as Chairman of the Swiss Government, for having allowed decision. and, if reconsideration is not the Bank of England, was at the meeting this action on the part of the Bank for given, will be cancel the special privileges of the Bank for International Settlements International Settlements, before the granted to the Bank for International which took this decision, he does not know Tribunal laid down in this Article, or Settlements by His Majesty's Govern- his other half and does not know where alternatively whether it is not competent ment? the money really is? Can the right hon. under the terms of the Convention for the Sir J. Simon: I entirely share the view Gentleman say whether the Executive Bank of England to bring the dispute which others, I am sure, hold, that we Committee at that meeting which took with the Bank for International Settle- do not want to see additional assets going this very important decision was fully ments before the Tribunal so laid down to Germany out of the conquest of representative of the members of the in the Convention? Czecho-Slovakia-I am as anxious about bank. Sir J. Simon: I do not like to offer an that as anybody-but the methods pro- opinion on a complicated legal matter posed are not effective for the purpose. Sir J. Simon: I really cannot answer across the Floor of the House, but as far It is not for me to cancel the authority matters that have to do with the con- as I am aware there is no dispute as to which is given to the Bank for Inter- on duct of the Bank for International Settle- whether the action of the Bank for Inter- national Settlements. It is the creation ments. It is not for me to say how a national Settlements was contrary to law. of an international conference and of decision of this sort would be taken. Mr. c. S. Taylor: Has my right hon. international treaties. If we were our- Mr. Greenwood: If the right hon- Get- Friend seen a statement issued from Basle selves to refuse to take further part in it, it would not alter the fact that the Bank tleman were to declare that that meeting. by the Bank for International Settlements which took that decision, was in his view not that they had come to this decision with for International Settlements exists under not properly representative. would it the very great reluctance? those treaties. I can assure my hon. Friend that I have considered this with be his duty to press on the board of the Mr. De la Bère: Does not the whole every sympathy from his point of view. Bank for International Settlements the matter still remain highly unsatisfactory? I am not seeking to escape by any subter- British Government's views on fuge at all. If right hon. and hon. matter? Regraded Unclassifie 104 JR GRAY Paris Dated June 26, 1939 Rec'd 2:20 p.m. Secretary of State, Washington. All 1197, June 26, 5 p.m. FOR THE TREASURY. Statement of situation of Exchange equalization fund published in JOURNAL OFFICIAL of June 25 shows that fund possessed about 17,423 million francs gold at the End of February compared with 14,321 million at the End of January (please SEE my telegram No. 958 of May 17). No transactions are reported between Exchange equalization fund and rentes fund during the month of February. A semiofficial notice published in the FINANCIAL PRESS indicates that the French Government has not yet officially received notification of the signature of the Franco-Japanese commercial agreement, and that official quarters consider that "an EXAGGERATED importance" has been given to the negotiations. It is Explained, with respect to payment arrangements, that the agreement links up purchases of Japanese merchandise by France and her colonies to purchases by Japan of French Regraded Unclassified 105 -2- #1197, June 26, 5 p.m., from Paris French products so as to lead Japan to utilize in France the francs arising from payments made to Japan for deliveries to France and colonies. In this respect it is pointed out that the substantial commercial balance in favor of Japan has up to now been at the free disposal of the latter. END SECTION ONE. WILSON WHC :CSB 106 EG GRAY Paris Dated June 26, 1959 REC'd 2:15 p.m. Secretary of State, Washington. 1197, June 26, 5 p.m. (SECTION TWO). It is stated that the adverse balance for France in its commercial relations with Japan up to between 85 and 90% 1s offset by French Indo-China trade with Japan. It is indicated finally that in CASE of necessity the arrangement will not prevent France from joining with Great Britain in reprisals that the latter may bE led to take to protect European interests in the Far East. It is stated in today's press that in accordance with the decision rendered by the civil tribunal at La Rochelle on June 21 declaring valid the distrnint claim of private banks in the Bilbao regions 9000 CASES of Spanish gold and valuables which have been hEld in La Rochelle since May 1937 are about to bE shipped back to Spain. The Paris Tribunal of Commerce has decided that moneys owing to citizens of the former Czechoslovakia must bE paid by the debtor to his credit or in person and 107 -2- #1197, June 26, 5 p.m. (SECTION TWO) from Paris and not to the Commissar appointed by the German Government to administer the creditors affairs. Business on the Exchange market was on a small scale and movements in rates were narrow. The funds bought some sterling. ThE security market was de- pressed and inactive with rentes and variable revenue securities showing fractional losses. (END MESSAGE) WILSON CSB 0JV13038 pror is MID 108 Diam JR PLAIN London Dated June 27, 1939 Rec'd 2:30 p.m. Secretary of State, Washington. 904, June 27, 6 p.m. FOR TREASURY FROM BUTTERWORTH. 1. The dollar opened offered and remained so all day due to a rumor which is alleged to have been reproduced in the Paris press to the Effect that the President if deprived of the power to devalue the dollar after July 1st would USE the Existing power to devalue the dollar before July lst. NEW York also came in a seller of dollars and the British fund was a buyer. The turnover was larger than in recent days, NEEdless to say the British would view with complacent satisfaction the Expiration of the devaluation powers. ) 2. The action of the Senate as regards purchases of foreign silver caused a drop of 11/16 in both spot and forward silver at fixing. HOWEVER the amount done at fixing was not large and the selling was mainly by speculators and India. There were some post-fixing dealings at a sixteenth above the fixing price. The silver market 109 -2- #904, June 27, 6 p.m., from London. market is of course at SEA as to what will EVENTUATE. Silver shipments invoiced today are as follows: 400,152 fine ounces, valued at $161,061 by the NI EUW AMSTERDAM (which sailed June 23) from the Anglo Metal Company to the American Metal Company; 107,730 standard ounces valued at pounds 8,640 from Sharps and Wilkins to Handy and Harman; 108,446 standard ounces valued at pounds 8,867 from Sharps and Wilkins to Handy arl 1 Harman; 216,098 standard ounces valued at pounds 17,895 from Mocatta and Goldsmid to Irvington Smelting; 108,011 standard ounces valued at pounds 8,550,19.0 from Samuel Montagu to American Smelting. The latter shipments are by the QUEEN MARY. 3. BEWLEY tells mE that the directors of the Chinese stabilization fund are satisfied with the manner in which the spot squeeze is operating. Having allowed the Chinese dollar to fall to a level at which it could bE more easily defended in the face of the pressure of increased importations into China, the restrictions of bank withdrawals have had the desired Effect of reducing the volume of currency, thus strengthening the Exchange position of the Chinese dollar. 4. DUE to the news from Tientsin and the absence of any specifically encouraging news regarding the Anglo-Russian negotiations the London Stock Market has bEEn marking 110 -3- #904, June 27, 6 p.m., from London. marking time. 226 bars were sold at gold fixing of which 14 were married and over one hundred supplied by the British fund. KENNEDY CSB M 111 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: June 27, 1939, 4 p.m. NO.: 1201 FOR THE TREASURY DEPARTMENT. Today the apathetic condition of the exchange market continued. Not much business took place. A fair amount of sterling and dollars was obtained by the fund, there having been offerings of dollars in particular. Almost no change in continental currencies. In a sagging market for securities, business was almost at a standstill. The French financial press has given much notice to the barter arrangement recently concluded between Great Britain and the United States, but there has been no enthusiasm aroused thereby. The fact that it has been considered necessary to return to medieval trading methods is regarded as regrettable. Surprise is expressed that apparently the United States and Great Britain have forgotten their ardor for development of liberal inter- national commercial transactions. Further, it is noted that the arrangement is neither an economic, commercial nor monetary one, and therefore it is suggested that it 112 - 2 - it probably is a political arrangement. It is pointed out in this respect that the initiative was taken at the moment when Congress received the proposed amendment to the neutrality law. The arrangement is also regarded as a tentative one foreshadowing the adoption of more extensive methods of trading one commodity for another commodity. END MESSAGE. BULLITT. EA:LWW RECEIAED efet is MIN. THENTSA930 ett to will eximal set of subject united 45(e) M/C LI 60M-M FEDERAL RESERVE BANK OF NEW YORK 113 OFFICE CORRESPONDENCE DATE June 27, 1939. CONFDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH TO L. W. Knoke BANK OF ENGLAND. FROM Mr. Bolton called at noontime today. They had bought $13,000,000, he said, which were offered on rumors that the President was going to exercise his power to devalue, before June 30. Holders of dollars had sold and attempted to go into gold which was quoted at the moment around 34.78 against 34.76 1/4 this morning. I explained to him what the perliamentary procedure was going to be in connection with yesterday's vote and that the outcome of the conference was unpredictable. People seemed to think, however, I continued, that the stabilization fund would be maintained. LWK:KW BECEINED prot as MIII att to with retual united Regraded Unclassified TREASURY DEPARTMENT 114 INTER OFFICE COMMUNICATION DATE June 27, 1939 TO Secretary Morgenthau FROM Mr. White Subject: What Happened to the Czech Gold in the Bank of England? The following picture emerges from the different versions of the Czech gold affair which have appeared: On March 14 (and possibly for some days later) the Czech National Bank held 800,000 ounces of gold (or $28 mil- lion) with the Bank for International Settlements. This gold was held by the B.I.S. on earmark with the Bank of England. On March 15, Prague was occupied by the German Army. On March 16, the British Treasury requested the Bank of England not to make any exceptional transfer of gold or bal- ances on Czech account without prior reference to the British Government. On March 17, the British Treasury requested all financial institutions to block all Czech assets. On March 27, British legislation was finally enacted legalizing this impounding of Czech assets. However, 1t is now known that these $28 million of assets were transferred to the German Government some time between March 15 and March 31. Some time after the occupation of Prague by the Germans -- the exact date 18 not known to us -- the responsible officials of the Czech National Bank signed the necessary papers request- ing the B.I.S. to transfer assets held on behalf of the Czech National Bank to the Reichsbank. The Germans thereby obtained title to the $28 million of gold held in London in the name of the B.I.S. The source of this information 18 Butterworth. (Whether the Czech National Bank officials signed the papers voluntarily or under duress 1s not divulged.) Prepared by Mr. Adler 115 Secretary Morgenthau - 2 It is not known precisely when the title to the golá was transferred to the Germans and it is not known when the Germans utilized that gold. According to Butterworth, the Germans did not ask for the transfer of the $28 million at one time. (One reported source -- The Week -- Cluins that the title was transferred on March 17 and gold was released on March 21, 1.e., six days after the Germans occupied Prague and five days after the British Treasury requested the Bank of England not to make any exceptional transfer of gold on Czech account without previous reference to the British Govern- ment.) Some time before March 24 the French Manager of the B.I.S., Mr. Auboin, objected to the transfer of gold and re- ported the matter to the Governor of the Bank of France, who in turn reported it to the French Government. On March 24 the French Government made representations to the British Government opposing the transfer of gold to Germany. (Butterworth got the impression from the British that the transfer of gold occurred about that date.) On May 19, Lloyd George asked Chamberlain in the House of Commons whether it was true that a German official was negotiating with the British Treasury which had "agreed to release 5 million pounds of Czech assets in this country to the Bank for International Settlements to be earmarked for the use of the Reichsbank". Mr. Chamberlain replied that on that particular point "the whole story is a mare's nest" and that "the Treasury had not agreed to release any Czech- oslovak assets to the Bank for International Settlements or to anyone else". From May 19 on criticism of the transfer of gold to the Reichsbank g thered in force and more questions were asked in the House of Commons as to actually what had happened. During the next two weeks British Government officials attempted to Justify the release of gold on the grounds that they did not have the authority to stop it or even the power to investigate. Sir John Simon emphasized that the Bank for International Settlements was non-political in character and therefore had to follow legal precedent, and furthermore that the Bank of England was of such private character that Norman W&S under no obligation to inform the British Treasury of affairs of the Bank for International Settlements and was under no obligation to take instructions on such matters from 116 Secretary Morgenthau - 3 the British Treasury. (The British Government, he said, was under treaty obligation not to violate the immunity of all holdings of the B.I.S. in London.) On May 26, Sir John Simon stated in the House of Commons that he did not even then know where the gold was and that he was not over-certain that the Treasury had the power to find out. Yet two months earlier, on March 17, Lord Halifax (in Paris at the time) informed Cochran that he had discussed the question of the Czech assets with Simon and that Simon had stated that the Bank of England believed it could not refuse to honor drafts on gold held for the account of Czechoslovakia presented to them. Thus the Treasury and the Bank of England had already discussed the matter before March 17 and it would appear that in spite of the Treasury order to the Bank of England to block the Czech assets they had both decided not to block them permanently. The House of Commons has not yet been informed nor does the public know -- nor do we know -- whether any of the $28 million of gold is still on earmark with the Bank of England or whe ther the Reichsbank has converted that gold into other assets. When, on May 26, Sir John Simon was asked to find out whether any of the gold was still in the Bank of England he questioned whether he had the authority ot obtain such infor- metion from the Bank of England and promised to find out what he could. On June 5, he reported that he had inquired from the Bank of England 8.8 to the facts and was informed that the Bank of England has no knowledge whether the gold it holds on earmark for the B.I.S. is the absolute property of the B.I.S. or not and therefore is not aware whether any gold held by it in the name of the B.I.S. is the property of the Czech National Bank or not. It 18 a fact that the B.I.S. permitted the title to the Czech gold to pass from the Bank of Czechoslovakia to the Reichsbank probably some time in March. It 1s not known whether Beyen, the President of the B.I.S., obtained the approval -- formal or informal -- of some of the directors. (Beyen had resigned earlier from the B.I.S. to take an ap- pointment with 8 London company, Lever Bros., which has large investments in Germany, but had not yet terminated his position with the B.I.S.) Regraded Unclassified 117 Secretary Morgenthau - 4 On May 30, Beyen stated in an interview that the ques- tion of transfer was a purely technical one and that no pressure had been exercized on the B.I.S. from any quarter. It is known, however, that pressure by the French Manager of the B.I.S., Mr. Auboin, was exerted on Beyen to prevent him from acting so quickly. It is also known that Fournier at the end of March protested to the transfer at a meeting of the Board of Directors. On June 21, Bonnet told the French Foreign Affairs Committee that Beyen did not consult the B.I.S. Board of Directors and that Beyen had handled the transfer himself. Other Czechoslovakian sterling assets in London. It has been estimated that the amount of Czechoslovakian assets impounded in London totals about 141 million pounds of re- alizable assets. According to Butterworth the British Treasury decided to impound the Czech assets in London be- cause "it did not propose to repeat its experiences over Austria, namely, to turn over all assets in effect to the German authorities and then have to make a play, without this trump card, for the settlement of obligations to British nationals". These obligations to British nationals included unfulfilled British Government orders to Czech munition firms on which, in accordance with standard European munitions practice, one-third of the purchase price had already been paid. On May 19, negotiations between the British and German officials began with respect to the dis- posal of the Czech assets. 118 June 27, 1939 12:40 p. m. Present: Dr. White Mr. Currie Mrs. Klotz HM,Jr: I want to tell these gentlemen this: I put up the following suggestion to the President: that he had a press conference at which people like Carmody, Baldwin of Farm Security and Stewart MacDonald come and explain the thing. I suggested we have a dress rehearsal, and give each man 15 minutes. He first said he would have a special one Thursday and then he said, "No; I will do it at my regular press conference Friday.' And I've got some of the heads in today. I let Lowell Mellett handle it. I suggested Lowell Mellett because Steve Early isn't here. Now I, in the room, thought we would do a nice job first. And he said, "We will do half one day and the other half on Monday. Let Jones go over until Monday. Work out the technique, first. That was my thought. I have put Carmody and Baldwin and MacDonald on Friday. Dr. White: How about Adams of REA? Going to let Carmody handle that? HM,Jr: Let him designate whoever he wants. The President wants to do it at his press confer- ence, which I think is all to the good. That gives you (Currie) additional time to do railroads. But by that time somebody will have to be willing to go to the Presi- dent's press conference. I don't know whether on Monday or Tuesday -- I guess Tuesday, somebody will have to go and say this is the way we are going to do it, but this gives you a full week. Don't you think that's a good idea, Harry? Not only does it give it to the press, but also gives the President a chance to learn what it is all about. Regraded Unclassified 119 -2- Mr. Currie: What about timing? Sending up the bill? HM,Jr: I don't know. Last I talked to Foley he had not heard from Jones. Mr. Currie: Kades told me this morning that Hamilton, General Counsel of R. F. C., had made a alterna- tive suggestion. Put it this way: don't ask for addi- tional legislation. R. F. C. could do it now by setting up a corporation for which common stock would be subscribed by railroad equipment companies and RFC would loan to this corporation. HM,Jr: What Jones always does 1s, he would rather trade than eat. Any time! He will go without food to get a good trade and he will start trading on this thing. This is typical and he will make the thing Just as involved as possible. Well if it's correct it does not need legis- lation, why has he not done it in the last five or six years? Mr. Currie: That's your answer. Sure! HM,Jr: A nd I think the mood the President is in, I don't think he will stand for it. I want to say another thing to you "hall room boys", that we have got to pretty well sell this thing and I am doing it today and I want ideas, because Hanes tells me, for instance, that Walter Stone, of Scripps Howard, has been talking to Ickes and all so-called New Dealers and all wash their hands of it; either said they would have nothing to do with it or are opposed to it. I was willing to start the people today and the President said no, he wanted to do it at his press confer- ence. He will start Friday and will do it again Tuesday. And in the meantime I am going to press for this legisla- rion. Jones will put up a placid resistance; very hard to move him. Dr., White: What he will do will be to divertit into other channels. That will be his technique, rather than opposing. He probably senses the President's keen- Regraded Unclassified 120 -3- ness and he feels if he has control he can take care of it later on. HM,Jr: I knew we would have this trouble with Jones. That's why I am putting it over to Tuesday. The stage will be. set on Friday and those people will go down the line. It will be very easy for the Presi- dent to say, "Jesse, you saw what I did Friday on these other things which I want done." I talked to the President early this morning. He was just as fine, chipper; everything is all right. I méan on the monetary thing. He said, "Everything 1s grand! Fine! This 1s good fun. If So it is not a thing for the Treasury to hang its head about. Of course, the amazing thing is Sterling 18 very strong on the rumor that the President is going to de- value between now and Friday, as a result of which the English are able to recover some of their dollars, which they are short. 121 June 27, 1939. MEMORANDUM MRG TO: Secretary Morgenthau FROM: Mr. Gaston SUBJECT: Luncheon conference on lending activities. Those present at the luncheon conference in your dining room at one o'clock today, Tuesday, June 27th, were: Secretaries Morgenthau and Wallace Jesse Jones John Carmody Lowell Mellett Mr. Hanes Mr. Foley Mr. Gaston You explained that you had had a talk with the President as a result of which you wished to enlist the help of leaders in the Admin- istration, particularly those who would have something to do with the execution of the new lending program, in making it successful. You explained that the President wished to hold one or more press confer- ences at which the objectives and the methods of operation of the new self-liquidating program would be explained. At this press conference, or conferences, the President desired to have present the four or five men who would be charged with the responsibility for execution of the program and he would ask them individually to explain to the press how the thing would work. You explained that since Steve Early was fog- bound on the Yankee Clipper somewhere in New Brunswick, the President wished Lowell Mellett to have charge of making the necessary plans for the press conference. You invited an expression from Mr. Jones as to the program in general. He said that he didn't thoroughly understand all of it but that he was ready to obey orders. He referred to the conference at the White House last Friday afternoon, when the legislative leaders were present, and said that he had assi gned Mr. Hamilton of the R.F.C. legal staff to confer with Mr. Foley, according to instructions, on the text of a. bill. Foley reported that he had had a conference with Hamilton and that a revised draft of & bill had been prepared. He was, however, Regraded 122 - 2 - awaiting a memorandum from Hamilton. The text of the proposed bill had been shown to all of the agencies affected. It calls for a single lending corporation which will market its securities and turn over the proceeds as required to the various agencies for their self-liquidating loans. Officers of this corporation are to be the Secretary of the Treasury, the Secretary of Agriculture, and the Chairmen of the works and loan agencies. Questioning by Mr. Jones elicited 8. detailed explanation from Mr. Carmody as to the methods under which the Rural Electrification Administration now operates and the prospect for additional capital outlays. Mr. Carmody said that the payment record, both of interest and principal instalments, on the loans they had so far made was good and there was an extensive field for additional projects. Among the states making largest use of the R.E.A. facilities are Texas, Iowa and Minnesota. It was explained that the new program WELS for the dis- bursement of $500,000,000 over a period of seven years end there was no limit within that amount on the loans to be made in the next fiscal year, but it was estimated that the new program would result in an additional $20,000,000 of actual expenditure within the next fiscal year. Mr. Foley said that the R.F.C. had suggested that the railroad equipment program be expanded by adding authority to lend funds for the construction and equipment of railroad shops, which would be leased, with an option to purchase, as in the case of rolling stock. Mr. Carmody regarded this as highly important since, he said, railroad shops were characteristically poorly equipped and would furnish a large market for drill presses, modern lathes and similar equipment which would benefit the whole machine tool industry. You asked various ones of the group who they would assign to represent them at the President's conference. Mr. Jones said that he would go himself; Mr. Carmody said that he could represent both R.E.A. and the new works agency since the character of the loans to be made by the new works agency would be very similar in pattern to those being made by the R.E.A. and since he was to be the head of the new works agency. He argued against calling in anybody from PWA, as suggested by Mr. Foley, on the ground that Secretary Ickes is unsympathetic and that none of his men would make a satisfactory appearance. Mr. Wallace said he would undoubtedly ask McDonald to appear on roads and someone from Farm Security to appear as to their program. Mr. Jones would take care of representation on railroad loans and foreign loans. Was Regraded Unclassified 123 - 3 - Mr. Mellett remarked at this point that it was highly important that there should be a dress rehearsal of this press conference before Friday, whereupon you invited all those present to come to your house for dinner and a conference tomorrow night at seven o'clock. You in- vited Mr. Jones, Mr. Wallace and Mr. Carmody to bring any of their assistants they desired. Mr. Carmody said it would not be necessary for him to bring anybody, but Mr. Jones said he would like to bring Warren Pierson for the foreign loan end and somebody else for the railroad phase. Secretary Wallace said he would bring McDonald and Baldwin, or some other, from Farm Security. As to the foreign loans Mr. Jones explained it Was his belief that they already had the authority to make such loans. He called attention to the statement he had made yesterday at a press conference and you remarked that you thought it a very good statement. As the conference broke up you made the suggestion that we should have a chart of the new lending activity, showing the organiza- tion of the agencies through whom the loans would be granted, the source of funds in the public market, the lending corporation and the flow of funds to the various projects. You instructed Mr. Foley and me to call in Mr. Haas and get to work preparing such a chart, to be ready if possible for the meeting at your house Wednesday evening. Mr. Mellett added that we should have copies of this chart available for the press. Mr. Foley, Mr. Mellett, Mr. Haas and Mr. Kades met immediately after- ward with me in my office and discussed what was wanted, whereupon Mr. Hans went back to his office to start work on it. I called Mr. White and Mr. Bell, explained to them what was being done, and invited them to the meeting tomorrow evening. ver 124 JR GRAY Rome Dated June 27, 1939 Rec'd 1:40 p.m. SECRETARY of State, Washington. RUSH. 237, June 27, 6 p.m. FROM WAIT FOR TREASURY. On account of death of Costanzo Ciano, President of the Italian Chamber and Government participation in funeral away from ROME, my appointment to discuss bounty situation may have to bE postponed a fEW days. Is Department willing to postpone issuance notice on silk for a few days and if so until what date in order that conversations may bE had before order is issued. 9.03. PHILLIPS KLP 125 JR GRAY Rome Dated June 27, 1939 Rec'd 6:23 a.m. SECRETARY of State, Washington. 235, June 27, 11 a.m. FROM WAIT, TREASURY ATTACHE, FOR TREASURY DEPARTMENT. Have appointment with Italian officials for Wednesday. Will try to dispose of silk question that day and advise result immediately. Thursday holiday here. 4.92. PHILLIPS DDM 126 June 27, 1939. AMEMBASSY ROME (ITALY) Your 237, June 27, 6 p.m. Advise Wait Treasury will withhold notice on silk goods until July 5. /Text telephoned by Mr. W.R. Johnson, Treasury Dept.] EA:LS:LWW (Initialed) WRJ HC EHF,Jr. 127 JUN 27 1939 Secretary Morgenthau E. E. Foley, Jr. Tobacco produced in Bulgaria is exported to Germeny. Subsequently, without in the meantime having been manufectured or processed, it is exported to the United States. The exporta- tion from Germany 1a the subject of a grant or bounty by the Germen Government. Section 303 of the Tariff Act of 1930 provides that "Whenover any country : . shall pay or bestow, directly or indirectly, any bounty or grant upon the manufacture or produe- tion or export of any article of merchandise manufactured or produced in such country ... " thon upon the importation of such article, provided it is dutiable, there shall be levied en additional duty equal to the net amount of the bounty or grant. It is my opinion that countervailing duties may not be applied to imports of tobacco as above described. The question was submitted informally to Justice and it concurs with this view. The only method now available to close up the loophole in the statute 1e legislation. There 1a a danger, however, that, if we attempt to enend the statute, the State Department may take the opportunity to urge its repeal. Customs legislation is referred to the Ways and Means Committee of the House. (Initialed) K. d. F., Je, HC/op Regraded Unclassified EXTRA CONFIDENTIAL 128 June 27, 1939 3:07 p.m. Marriner Eccles: when the Open Market Committee met HMJr: Yeah. E: and gave authority to the Executive Committee to let some bills run off. HMJr: Uh-huh. E: Now, it is all subject to devel opments, of course, in the interim. HMJr: Yeah. in And this is the way the thing sets at the present time, unless you see some reason why we should do otherwise. HMJr: Yeah. E: The bills yesterday -- let's see, we had 44 -- 44 million eight hundred and eighty-five thousand come due -- this last weeks' bills. HMJr: Yeah. E: And we had already replaced a million five hundred and seven thousand. Now we have 43 million three hundred and seventy-eight thousand. HMJr: Yeah. in And what we're doing is replacing those, àll but about thirteen million three hundred and seventy-eight thousand. You see most of the bills are bought by the dealers and the dealer banks HMJr: Um-hm. E: and they can leave them with all bills they bought. HMJr: Yeah. in The first week would be pretty drastic, 80 what we were proposing to do was to let about 13 million of the total run off. HMJr: Yeah. 129 - 2 - E: banks. That will pretty well clean up the dealers and the dealer HMJr: Yeah. E: You see? HMJr: Yeah. E: So that there will be a very small amount of bills that-- that would be with the dealers. HMJr: Yes. E: And it would be an indication to them then that in the future when they're buying bills -- of course, in the past what they've done, they've -- they've bought these bills and never even paid for them; they just act as an agent. HMJr: Yes. then E: They buy the bills and/just immediately turn them over to the Fed. and take their commission. HMJr: Yeah. E: And they don't care what they pay for them at all be- cause they don't have to go to the market with them. HMJr: Yeah. E: You see? Now, what we would -- this would show up in our statement that comes out Friday morning. HMJr: Yeah. E: And what we expected to do on Thursday, that would be tomorrow -- or, day after tomorrow, 1s to give this statement to the press. I'll read it to you: "As a result of a reduction in the holdings of Treasury bills, this week's statement of condition of the Federal Reserve Banks shows a decline of blank dollars If HMJr: Yeah. 130 - 3 - II is in the system's open market account." HMJr: Yeah. E: "This is in accordance with the action taken by the Federal Open Market Committee on June the 21st, 1939." HMJr: Yeah. E: "For some time past Treasury bills have been purchased for the system's account at or near a no yield basis, and the account at times has had difficulty in replacing its maturing bills." HMJr: Yeah. E: "It was decided that it would serve no useful purpose to continue further replacement of maturing bills, the supply of which is not always equal to the market demand." HMJr: Yeah. E: "This action is in response to technical condi- tions in the bill market and does not represent a change in general credit policy." HMJr: Yeah. E: Now, that's the story. HMJr: Well, I have no objections. E: Well, I -- I didn't think you would, but I didn't know what -- should the situation -- if there was something I didn't know of. HMJr: No, you don't -- there's nothing that E: But it seems to me that -- although I, personally, at the end of last year was somewhat against action at that time, +The situation now is considerably different than it was at that time and I, personally, have been favorable to this sort of thing now. HMJr: I just want -- got one question. How many -- what's the maximum that you fellows will let run off? - 4 - 131 real is That we will let off in the future? HMJr: Yeah. in Well, of course, that -- I -- I couldn't say that. I couldn't you mean out of the total amount? HMJr: Yes. E: Well, that'll be -- that'll depend entirely on the market condition -- what the reaction 18, that we HMJr: I mean, have you an authorization to let 80 many millions run off? in Well, we could let them all -- all the bills we have, run off over the next ninety days. HMJr: Well, you've got six or seven hundred million. E: No, five -- a little less than five; four or five hundred. HMJr: I see. E: In the aggregate. HMJr: I see. E: Which -- which as a matter of fact, doesn't amount to -- the excess reserves will likely build up through -- through Treasury disbursements and through gold imports faster than -- faster than our bills will mature, 80 that the excess reserves in New York will likely -- even -- even if all the bills should run off HMJr: Yeah. E: which I don't contemplate 1s what we'd do at all. My idea of this thing would be to continue in the market for bills in order to stabilize the market. HMJr: Well, you'd check with us next week, wouldn't you? E: We -- we will check with you any week. You can call us up any time where you feel that the thing is not satisfactory. HMJr: That's fair enough. - 5 - 132 at E: And we have no -- we have no program and we're just doing this now and next week we may take them all. HMJr: Yeah. Well E: If -- if the situation was such that it affected the market and there seemed to be any un -- an unstabilized condition, we'd take them all next week in order to -- if there was any question about the bill rate going up too fast, see? HMJr: That's fair enough. But E: And my idea is that the bill rate would continue very, very low and 1f it -- and if it doesn't, I would cer- tainly think we should stay in the market. HMJr: Well, thank you very much for letting me know, and I can't possibly have any objection. E: Yeah. Well, all right then. HMJr: Thank you. E: Good bye. Listen, Henry HMJr: Yeah. E: Just a minute. It's -- of course, It's awfully important that -- that this be kept very confidential until after it comes out in the paper. HMJr: Yeah. Well, I'll tell E: Instead of HMJr: I'll tell Hanes and Dan Bell. E: And tell them how important it is and we've -- we've kept it around here for a week or -- with -- among HMJr: Well, I'll guarantee to keep it for a month. E: All right. Fine ! HMJr: All right. E: Good bye. HMJr: Thank you. 133 June 27, 1939 12:30 p.m. HMJr: Hello. Operator: Senator Barkley. HMJr: Thank you. 0: Go ahead. HMJr: Hello. Alben Barkley: Hello. HMJr: Alben B: Yeah. HMJr: I thought you'd like to know that silver in London today broke forty cents. B: It did? HMJr: So after this consulting with the President for a half an hour or so -- I just got in, just flew in -- we 've made our price forty cents. B: Uh-huh. HMJr: Here -- that's for foreign silver. That' B: That -- that is HMJr: three cents less. B: Yeah. You mean for foreign silver. HMJr: For foreign silver. B: Yeah. Well HMJr: We -- we dropped B: I felt sure that the result of this thing yesterday would break the price of silver. HMJr: Now, I don't know how you doped it, but it seemed to me that it was bad any way you looked at it for us to con- tinue to pay forty-three cents with it dropping continually in London. 134 - 2 - B: That's right. HMJr: And that if -- if the foreign silver was forty cents, well then sixty-four and a half looked to us that much sweeter. B: Yeah. HMJr: It looks three cents sweeter, doesn't it? B: That's right. HMJr: Was I arguing all right? B: Yeah. It seems to me SO. HMJr: Ah B: Of course, I don't know what we -- I don't know when the conferees will meet on this thing. HMJr: Yeah. B: It may be that we can't get the thing worked out before Friday because we're taking the Relief up and we'll have to have some odd sessions on that, so I think probably it's very good strategy not to be in too big a hurry. HMJr: You do? B: Or -- what do you think? Of course, I realize the 1m- portance of the Stabilization and the Devaluation part. HMJr: Yeah. B: And I haven't any doubt that we can -- that the silver people would agree without any trouble if we'd agree to their silver increase -- that they'd go along with the devaluation. HMJr: Yeah. Did you talk to the President today? B: Yeah, he called me about a half an hour ago. HMJr: Yeah. B: He gave a press -- he had a press conference this morning in which he gave out a lot of information about the history 135 - 3 - HMJr: Yeah. B: of the devaluation, but not 80 much the silver. HMJr: Yeah. He told me -- he said, "I just had a magnificent press conference and I told them why not fix the price on hogs, corn, and wheat, and everything." B: That's right. HMJr: Huh? B: Yeah. Well, I'll be interested in reading what they say about it. HMJr: But the main thing, I wanted to get your horseback op- inion. Do you think it's all right that I dropped the foreign price? B: Why, I don't see anything else you could do. HMJr: Right! I don't B: Yeah. HMJr: If you see Bob Wagner, you might tell him. B: I will. HMJr: Thank you. B: We're in re cess now just waiting for the Appropriations Committee to report the Relief Bill. HMJr: Well, of course B: Let me ask you, how -- how important is this -- this foreign purchase of silver? HMJr: The foreign purchase of silver? B: Yeah. HMJr: Not important at all. B: I argued against the -- the amendment yesterday on the ground that it would handicap some of the nations in buying stuff from us because if we didn't buy their silver they couldn't pay for it. HMJr: Well 136 - 4 - B: But it didn't do them any good. HMJr: Well, you're being consistent. B: Yeah. HMJr: With what we've been doing here B: That's right. HMJr: but you're asking me a point blank question. Of all the things, I think the foreign silver 18 the least important. B: Well I think that's true too. HMJr: And B: But I didn't know how well it was regarded as of any great consequence or not. HMJr: No, because we've cleaned up most of the silver in the world. B: Uh-huh. HMJr: And poor old China has practically none left that she can sell, that isn't in the hands of the Japanese. B: Yes. HMJr: You know -- you know there's a big quantity of silver in ten cents. B: Yeah. HMJr: And that's one of the things that the Japanese are after. B: Yeah. Why did they leave it there? Why didn't they move it out? HMJr: They weren't able to. B: Oh, yeah. HMJr: They tried their best. No, I -- I'd hate to see the Stabilization Fund lapse on me. B: Well I would too. - 5 - 137 HMJr: Yeah. B: Of course, I don't know what sort of concessions we'll have to make, if any. The House, I think, will stand pat. HMJr: Yeah. When will the conferees meet? B: I don't know. HMJr: Uh-huh. B: I don't know. HMJr: Oh. B: It all depends on how we get along with the Relief Bill. We have to sort of do it between meals. HMJr: Well, if you don't mind, I'd like to call you up again. B: Yes, I'll keep in touch with you. HMJr: Thank you. B: All right, Henry. 138 June 27, 1939 2:20 p.m. HMJr: Hello. OPerator: Senator Wagner is not in his office and he's not on the floor. HMJr: Well just leave word that when Wagner -- Senator Wagner is ready, I am. 0: All right. HMJr: Thank you. 2:33 p.m. HMJr: Hello. Operator: All right. Go ahead. HMJr: Hello. Robert Wagner: Hello. HMJr: Bob? W: Hello, Henry. HMJr: Can I sell you a little silver at about thirty cents? W: Ah -- well, if you give me -- make -- make it twenty. HMJr: What? W: (Laughs) How is the pound going today? Any HMJr: Well, the pound is strong and I'll tell you why. W: Yeah. HMJr: The British, or the speculators, think that the President 1s going to devalue between now and Friday night. W: Oh, I see. HMJr: And on that basis they're selling the dollar and buying pounds. W: Oh, I see. - 2 - 139 HMJr: And for that reason it's a little bit strong, but when they wake up Saturday morning and find that he didn't, why I think you'll find that the sterling will be weak. W: Yeah. HMJr: But that W: Now, listen -- that was a great combination. HMJr: (Laughter) W: I just I couldn't believe it, you know. They -- they kind of -- Pat told me in the morning that they had it. HMJr: Yeah. V: Well, I -- I just wouldn't believe that the Republicans would vote the way they did. HMJr: Yeah. W: Trying a. hold up, but it's -- would you have believed that? HMJr: Ah W: Vandenberg and fellows of that kind voting HMJr: No, no. I, personally, think it's one of the blackest pages in our history. V: I do too. It was a pure holdup. HMJr: Yeah. W: There's no doubt about that. HMJr: I V: But now we've got to think over night what to do, you see. HMJr: Yeah. V: Put on your thinking cap. HMJr: Yeah. It's on. W: And 140 - 3 - HMJr: For what it's worth. V: Well, I wouldn't ask you if I didn't think it was worth it. HMJr: Thank you, sir. W: (Laughs) Ah -- but, of course, we were all sorry about it, Henry, but there -- there's nothing you can do against a combination like that. HMJr: Well now, I talked to the President twice today and I understand he has talked to Barkley. W: Yes. HMJr: And he thinks he's sitting pretty. V: Just leave it alone? HMJr: Well, he thinks that you fellows can take care of this thing in conference. W: Well, that isn't so easy. HMJr: That's not so easy. W: Not votes. I mean -- we -- we've got the vote -- I mean, I -- I made up the conference committee myself. We've got the three votes that'll stand up undoubtedly. HMJr: Yeah. W: But we will have to -- we may have to come back to the Senate, you see, because -- to get further instructions and inform them that the House will not proceed. The thing to do is to be sure that the House appoints con- ferees that'll stand up for them, don't you know? HMJr: Yes. Well, is there any chance of doing anything be- fore Friday night? W: Well that's what I'm worried about now. That seems an awful short time if we get tied up. I was even think- ing of -- but they won't let us do that I don't believe - getting unanimous consent to push -- rush through a bill to continue the Stabilization Fund, and then have the other 80 that we can -- so that -- that that at least will be available on -- on July first. 141 - 4 - HMJr: Well now, I'm in this position. The President last week said he wanted to handle this himself and he said that again this morning. V: He what? He wanted to handle it himself? HIJr: Yeah. V: Well that's all right. HWr: So I can't make any commitment V: Yeah. H.Jr: from this end of the Avenue because he's talking %: Well, I haven't talked to Barkley yet today, because everybody's been tied up and they had a meeting all morning of the Banking Committee. HMr: But I -- naturally I want to do all I can to help, but I mean, I might say, "Yes, I'd like just to have the Stabilization Fund," or "I want devaluation." :: Yeah. Well, I -- I don't think we can do that anyway. HMJr: But he -- he's talking directly to Barkley and I -- I don't want to come between. I sort of W: Well that's all right. I'm just hoping that a -- an- other day will -- will make these fellows realize what a lousy deal they went through. You see? H/Jr: Now you know, at noon today I dropped the price of foreign silver three cents. W: Yeah, I heard that. HMJr: Do you think that's good or bad? V: Good! HMJr: Well, that's what Barkley said. I asked Barkley to try to tell you. Is that all right? W: Yeah. I think that's good. HMr: What? 142 - 5 - V: That's good. Maybe you'll drop a little more tomorrow. HMJr: Well, it's possible, because it makes the 642 cents look three cents sweeter. W: Yeah. HMJr: Is that right? W: Yeah. HMJr: That's what I thought. W: Yeah. Well all right, Henry, I'll get in touch with you again then. HMJr: Thank you 80 much. W: All right. HMJr: Bob W: Yeah. HMJr: I appreciate tremendously the fight you made. W: Well, it's one of -- I'll tell you, when you're up against pure -- just fighting for -- for what you might call - well, I don't want to characterize HMJr: That's all right. W: you can't -- you can't do anything about it, don't you know? HMJr: Well, I -- I still say I appreciate tremendously the fight you put up. W: All right, Henry. HMJr: We're not licked yet. W: Oh, heck no 1 HMJr: No. W: No. HMJr: O. K. W: Good bye. 143 June 27, 1939 2:47 p.m. HMJr: I'm back. Cordell Hull: I've got a little memorandum on that thing I'll send you over -- on that Finnish thing. I think that's all you want to see. HMJr: I see. H: Now on the other -- this other business HMJr: What's that? H: This action of the Senate yesterday about the purchase of silver. HMJr: Yeah. H: What is this -- what do you think is the real status of that over there? HMJr: Well, I think this, Cordell. I've talked both to Barkley and to Wagner and in the first place, these silver fellows want 77 cents for silver. H: Yes. HMJr: Number two, they don't want the President to have the right to continue/devalue the dollar. to H: Yes, that's the silver fellows don't. HMJr: No H: That's the other fellows. HMJr: It's a -- well, it's a -- it's a special bloc . I don't know what you'd call them - fellows like Carter Glass H: Yeah. HMJr: ......Adams, and that whole group. H: Well, the silver fellows went in with them? HMJr: They -- I think the President called it "an unholy alliance." - 2 - 144 H: Yes, I see. HMJr: ...... between the non-devaluationists and the silver bloc. H: Yeah. HMJr: And -- no one knew it was coming. Wagner said he didn't know it was coming. He said he didn't know it was there until they sprung it on him. H: Yes. Well HMJr: So H: what do you think they'll do in the House? HMJr: Well, I think they're going to stand pat. H: You don't think they'll accept that amendment? HMJr: I'm -- well, I'm -- I'm fairly sure they won't. I'm not sure of anything after what happened yesterday. H: Well then, would the President -- do you suppose he'd veto it if it passes? HMJr: Well -- do I think so? H: Yeah. HMJr: My guess is yes. H: Uh-huh. HMJr: My guess is -- because he gave me the impression that he was just going to sit tight. H: Yes, I see. HMJr: He -- well, I'll put it this way so -- this is just be- tween the two of us. He said he will not take the higher price for silver. H: Yes, I see. HMJr: He definitely H: It's now 65, isn't it? 145 - 3 - HMJr: 64.64. H: Yes. HMJr: But he said he definitely will not take the higher price for silver. H: Yeah. HMJr: Now, he didn't say anything about vetoing, but he made that flat statement. H: Yeah. Well HMJr: So -- and now, silver opened in London today below forty cents. We've been paying forty-three. H: Yeah. HMJr: So, again between us, the President didn't want me to buy any foreign silver today. H: I see. HMJr: SO I said, "Mr. President, we've been doing it right along. I think the shock to the world would be too great." H: It might drop down to nothing. HMJr: To nothing. So he said, "Well, what do you think"? I said, "Well, what we'd do normally, if there was no bill or anything, we'd pay forty cents." H: Yeah. HMJr: So he said, "All right, pay forty cents." H: Yes. Is there much -- much coming in today? HMJr: I think they bought -- I think they bought -- I think they bought around four million ounces, I think. H: Yeah. Well, HMJr: They've got H: maybe we get -- you see, we can have something Just like the Mexican oil matter, even if we had to ad- just that to a point, and something like this - 4 - 146 suddenly happened over there and you know nothing about it and we know nothing about it, and the Mexicans think that it's sanction we're putting on them, you know. HMJr: No. No. H: It shows how delicate those things HMJr: Well, as I say, I only -- I spoke to Wagner within the hour H: Yeah. HMJr: and he tells me that the thing was completely sprung on him; he knew nothing about it, and he didn't know that Key had the combination or anything else. H: Yes, I see. HMJr: Now, again, both last week and again this week the President has told me he wanted to handle the thing himself on account of neutrality. H: Well, we didn't know anything about it, you know. HMJr: Well, of course, now Wagner tried to get a commitment out of me, you see? Would I take this or that. And I said, "Wait a minute, Senator. The President has told me twice that he's handling this himself direct so I'm sorry I can't make any commitments." H: I see. to HMJr: I mean -- he said -- he wanted, you know,/put me -- say, would I take this or that; and I said, "There's no use asking me because when I talked to Barkley" -- oh, I don't know, somet ime around noon -- "he said he'd just been through talking with the President on this thing, and the President is talking directly to Barkley." H: Yeah. HMJr: So I -- I sat by and kept my mouth shut and hoped for the best. H: Well, you can't do both. You (Laughs) can't keep your mouth shut and hope for the best. 147 - 5 - HMJr: (Laughs) Well, I'm going through that phenomenon right now. But that -- that's the background and if silver -- and if silver should drop further in London tomorrow, I'm going to drop it again. H: Yes. Well, I -- I'd like to keep in touch with you because this Mexican matter we are -- we are pressing everything to the ninety-ninth on this oil negotiations and those politicians start up a report immediately that we have put -/ putting coercion on them, you know. are HMJr: Well the report on the ticker tape said that the Mexicans shut down on their foreign exchange but they blamed the United States Senate. They didn't blame the President or the Treasury. H: I know the real knowing ones -- but the politicians get busy, you know, and they carry things before them. HMJr: Now, another thing, so that you've got the whole picture. Normally, at this time of the month we send a letter up to the bank in Canada agreeing to buy a million two hundred thousand ounces for the next month. H: Yeah. HMJr: And I'm holding that letter up. I'm not letting it go out. H: Oh, I see. HMJr: Because I -- if -- if the bill went -- if the thing was on Saturday, the first of July the way it 1s now, I wouldn't have the authority to buy it. can H: Yes, I/see that. HMJr: So I don't want any outstanding commitments. H: Exactly! Well let me HMJr: But that' 8 H: keep in touch with you, Henry. HMJr: What's that? H: Let me keep in touch with you. 148 - 6 - HMJr: Well, Cordell, call me and I'll come over any time you want me. H: Well, just a word over the phone is all that's neces- sary now and then. HMJr: But that -- that's the whole picture. H: Yes. Well, thank you 80 much. HMJr: Good bye. H: Good bye. DEPARTMENT OF STATE 149 THE SECRETARY June 27, 1939. STRICTLYCONFIDENTIAL MEMORANDUM FOR SECRETARY MORGENTHAU The attached memo may be of interest. It is my person- al copy and I would appreciate its return at your convenience. C.H. LOAN-TO-FiNLAND. DEPARTMENT OF STATE DIVISION OF EUROPEAN AFFAIRS 250 Strictly confidential June 27, 1939. MEMORANDUM The International Political Situation of Finland in Relation to an International Loan. At the present time Finland occupies an important position in the European political situation. The joint efforts of Finland and Sweden to obtain approval by the Council of the League of Nations of the proposed remilitariza- tion of the Aland Islands was blocked by the Soviet Union. Finland desires to proceed at once with the fortification despite Soviet opposition, but the Swedish Government is inclined to be more cautious. The Soviet Union is bringing pressure on Finland to cede some Finnish islands in the Gulf of Finland off Leningrad in exchange for a strip of Karelia. Soviet opposition to the Aland fortifications may be part of this pressure, although some commentators have pointed to Soviet distrust of Finland's relations with Germany and to the possibility that the Soviets themselves may wish to seize the Alands in the event of war in order to prevent German access to Swedish ore. It would seem reasonable to suppose that Finland would be willing to make the proposed exchange were Regraded Unclassified - 2 - 151 were it not for the opposition of Germany. A loan the size of that proposed, which for a country like Finland 18 very considerable, would certainly strengthen the hand of that country in resisting Soviet pressure. I assume that the loan would be used chiefly for armaments, for there appears to be little other justification for a loan of this size. The total public debt of Finland amounts 000. to only 3,543,000, Finnish marks (roughly $71,000,000) and according to a statement in the Bulletin of the Bank of Finland for April, the ordinary budget for the current year assumes that the State would raise loans of 550,000,000 marks. The Bulletin stated that the Government had decided to issue an internal bond loan of this amount at 4-1/2 percent interest, the loan running for 25 years. Although such a loan would make possible a very consider- able strengthening of Finnish defenses, it can scarcely be. argued that the loan would have any direct bearing on the question of the refortification of the Aland Islands, as the cost of these fortifications would not appear to be a material factor. According to press reports, the cost would amount to only 426,000,000 Finnish marks (about eight and three- quarters million dollars), only 100,000,000 marks of which would be spent in the current year. On April 21 the Legation reported that Finland had floated a loan on April 1 in the amount of 30,000,000 Swedish crowns (about seven and one-half million dollars) for purchases of materials and equipment for - 3 - 152 for defense and the Aland question would appear to be important enough to Sweden for that country to give Finland any necessary assistance were the expense of fortification an important factor. (On June 2 the Legation at Helsinki reported a confidential statement of the Foreign Minister that legislation providing the appropriation for the fortification of the Alands would be passed very soon.) Finland has shown itself anxious to maintain its neutrality in every possible manner, and the Finnish Government may well feel that the United States 18 almost the only country in which it could obtain a loan of this size without giving the impression that it was abandoning this policy. A loan from Great Britain, even a large commercial loan, would probably cause resentment in Germany and give rise to charges that Finland was joining the anti-axis powers. If the application for a loan became public knowledge it would seem. likely to receive a bad press, and would make possible the charge that the only country now meeting its debt payments to the United States was trying to "cash in" on its good faith. From the standpoint of our relations with Finland it would be unfortunate if the loan had to be refused because of public or Congressional opinion. A further 153 - 4 - A further disadvantage to the loan would appear to be the risk that in spite of this financial assistance Finland, caught between the pressure of the Soviet Union and that of Germany, may be forced to go over to one or the other, and either choice would be unfortunate 80 far as the United States 18 concerned. (It was widely reported that the resignation of Foreign Minister Holsti last year was the direct result of German pressure.) On the other hand the loan would materially strengthen the possibility of Finland's maintaining its neutrality along with its northern neighbors, and if Finland succeeds in accomplishing this the ability of Sweden and Norway to do 80 will be strengthened. Finally it may be pointed out that opposition to a loan to Finland, added to the opposition already existing to the contemplated loans to Latin American countries might be sufficient to jeopardize the whole program of loans to Latin America. Jobing everything into account, 9 feel quite strongly that this propand governmental loan to Finland should be rejected quietly without any publicity. There are indivit political implications to toit which are inescapable. LET Jwak. Eu: Thompson: MLD Regraded Unclassified DEPARTMENT-OF STATE THE SECRETARY June 27, 1939. TRiCTLY LY CONFIDENTIAL MORANDUM FOR SECRETARY MORGENTHAU The attached memo may be interest. It is my person- copy and I would appreciate 8 return at your convenience. C.H. DEPARTMENT OF STATE DIVISION OF EUROPEAN AFFAIRS Street fidential June 27, 1939. MEMORANDUM The International Political Situation of Finland in Relation to an International Loan. At the present time Finland occupies an important position in the European political situation. The joint efforts of Finland and Sweden to obtain approval by the Council of the League of Nations of the proposed remilitariza- tion of the Aland Islands was blocked by the Soviet Union. Finland desires to proceed at once with the fortification despite Soviet opposition, but the Swedish Government 18 inclined to be more cautious. The Soviet Union is bringing pressure on Finland to cede some Finnish islands in the Gulf of Finland off Leningrad in exchange for a strip of Karelia. Soviet opposition to the Aland fortifications may be part of this pressure, although some commentators have pointed to Soviet distrust of "inland's relations with Germany and to the possibility that the Soviets themselves may wish to seize the Alands the event of war in order to prevent German access to dish ore. It would seem reasonable to suppose that land would be willing to make the proposed exchange were Regraded Unclassified - 2 - were it not for the opposition of Germany. A loan the size of that proposed, which for a country like Finland is very considerable, would certainly strengthen the hand of that country in resisting Soviet pressure. I assume that the loan would be used chiefly for armaments, for there appears to be little other justification for a loan of this size. The total public debt of Finland amounts or to only 3,543,000, Finnish marks (roughly $71,000,000) and according to a statement in the Bulletin of the Bank of Finland for April, the ordinary budget for the current year assumes that the State would raise loans of 550,000,000 marks. The Bulletin stated that the Government had decided to issue an internal bond loan of this amount at 4-1/2 percent interest, the loan running for 25 years. Although such a loan would make possible a very consider- able strengthening of Finnish defenses, it can scarcely be argued that the loan would have any direct bearing on the question of the refortification of the Aland Islands, as the cost of these fortifications would not appear to be a material factor. According to press reports, the cost would amount to only 426,000,000 Finnish marks (about eight and three- quarters million dollars), only 100,000,000 marks of which would be spent in the current year. On April 21 the Legation reported that Finland had floated a loan on April 1 in the amount of 30,000,000 Swedish crowns (about seven and one-half illion dollars) for purchases of materials and equipment for Regraded Unclassified - 3 - for defense and the Aland question would appear to be rtant enough to Sweden for that country to give Finland any necessary assistance were the expense of fortification an important factor. (On June 2 the Legation at Helsinki reported a confidential statement of the Foreign Minister that legislation providing the appropriation for the fortification of the Alands would be passed very soon.) Finland has shown itself anxious to maintain its neutrality in every possible manner, and the Finnish Government may well feel that the United States 18 almost the only country in which it could obtain a loan of this size without giving the impression that it was abandoning this policy. A loan from Great Britain, even a large commercial loan, would probably cause resentment in Germany and give rise to charges that Finland was joining the anti-axis powers. If the application for a loan became public knowledge it would seem likely to receive a bad press, and would make possible the charge that the only country now meeting its debt payments to the United States was trying to "cash in" on its good faith. From the standpoint of our relations with inland it would be unfortunate if the loan had to be refused cause of public or Congressional opinion. A further Regraded Unclassified - 4 - A further disadvantage to the loan would appear to be the risk that in spite of this financial assistance Finland, caught between the pressure of the Soviet Union and that of Germany, may be forced to go over to one or the other, and either choice would be unfortunate 80 far as the United States is concerned. (It was widely reported that the resignation of Foreign Minister Holsti last year was the direct result of German pressure.) On the other hand the loan would materially strengthen the possibility of Finland's maintaining its neutrality along with its northern neighbors, and if Finland succeeds in accomplishing this the ability of Sweden and Norway to do 80 will be strengthened. Finally it may be pointed out that opposition to a loan to Finland, added to the opposition already existing to the contemplated loans to Latin American countries might be sufficient to jeopardize the whole program of loans to Latin America. Johny everything into account, 9 feel quite strongly that this proposed governmental loan to Finland should be rejected quietly without any publicity. There are indirect political implications to it which are inescapake LET Jwst. Thompson: MLD Regraded Unclassified 159 Tuesday, June 27, 1939 The following radio message was received from the Secretary of the Treasury at 10:31 a.m. this morning while he was enroute by plane to Washington: "FOR MRS KLOTZ AND LOCHHEAD CAN YOU DELAY FIXING PRICE OF SILVER UNTIL I ARRIVE PERIOD FIND OUT IF THE PRESIDENT WILL SPEAK TO ME ON TELEPHONE AS SOON AS I ARRIVE PERIOD TELL GRACE TULLEY I WANT TO TALK TO HIM ABOUT FIXING PRICE OF FOREIGN SILVER PLEASE REPLY SIGNED MORGENTHAU" Mrs. Klotz telephoned Miss Tulley at Hyde Park and made arrangements for the President to speak to the Secretary, and the following radio was dispatched to the Secretary at 10:47 a.m.: "FIXING PRICE OF SILVER CAN BE HELD UNTIL YOU ARRIVE PRESIDENT CAN SPEAK TO YOU A FEW MINUTES BEFORE HE GOES TO LUNCH AT 1300 (1 p.m. daylight saving time) OR AT 1400 (2 p.m. daylight saving time) PERIOD HENRIETTA KLOTZ" The Secretary instructed Mrs. Klotz and Mr. Lochhead to meet him at the Washington Airport, and Mrs. Klotz made arrangements for a telephone call to be put in to the President a few minutes before 12 o'clock (Standard time). Regraded Unclassified +60 -2- The Secretary arrived at the Airport at 11:55 a.m. Mr. Lochhead advised him that the price of silver had declined in London owing to the Senate action yesterday and was fixed at 39.90 per ounce. The Secretary immediately communicated with the President by telephone and stated that in view of the fall of the price of silver in London he thought it would be a good idea to reduce our buying price for foreign silver in New York today. The President at first suggested that the Treasury cease purchasing silver entirely today but finally agreed with the Secretary that it would be better to simply reduce the price we were paying. The Secretary then advised reducing the price to 40¢ per ounce, to which the President agreed. This decision was made at 12 noon and Mr. Morgenthau immediately telephoned Mr. Gaston to advise the newspapers of the new price so that there would be no possibility of anyone taking advantage of a possible leak in the news and Mr. Gaston announced the price to the newspapers immediately. **** Later in the afternoon the question of the Canadian Agreement was raised by Mr. Lochhead. The Canadian Agreement expires on June 30th. A new letter has been prepared as usual for the following month, but under the Secretary's instructions we are holding this letter pending his further orders. Regraded Unclassified 161 June 27, 1939 4:03 p.m. HMJr: Hello. Sumner Welles: Hello, Henry. HMJr: How are you? V: Fine. I hope you are. HMJr: I am. W: Good! HMJr: Sumner, in order to save you writing desperate letters to the President, we just got this one from Philips saying Costanzo Ciano. V: Count Ciano's death, I just read it in -- a few minutes ago. HMJr: Yes. Well, I don't know who that 18, but anyway V: It's the father of the foreign minister and the President of the Facist chamber senate. HMJr: Well, if we give them until the 5th of July would that help them? V: Well, I think it would be very helpful in view of this, yes. HMJr: Shall we say the 5th of July? W: I'd appreciate it greatly. I think that would cover what we agreed upon if it hadn't been for this hitch. HMJr: Well I say now the 5th of July. W: Fine. Thank you so much. HMJr: Thank you. W: Will you send ordersthento your men, or do you want me to send word? HMJr: Well, Foley and Cairns are sitting here and they'll get off the cable to our men. W: All right. Regraded Unclassified 162 - 2 - HMJr: And you can send one to Philips if you will. W: Right. Thank you very much indeed, Henry. HMJr: We'll send one to our man immediately. V: All right. Thanks a lot. HMJr: Are you -- do you want -- can I sell you a little silver? W: (Laughter) I should think -- I should think you'd have plenty on your hands. HMJr: Exactly. All right. V: All right, Henry. HMJr: Good bye. W: Good bye. 163 June 28, 1939 Present: Dr. White Mr. Lochhead Mr. Cochran Mr. Bernstein (for part of meeting) (Mr. Lochhead gave the Secretary the attached copy of a cable, which the Secretary signed and added "Rush! !." Mr. Lochhead: Better report the whole cable because that hooks up HM,Jr: I take it you (Cochran) know the tech- nique. Mr. Cochran: Yes. Yes. And that would not necessarily go through Rome. HM,Jr: I have talked with Butterworth this morning and asked him to check up and I talked to Bullitt and he said he would. Take that story in the Times that they are going to devalue in Danzig. They have carried that same story in London this morning. Now, I want you to get that off right away. I read Butterworth's cable on Czech gold. When you boil it all down, this 1s what I get out of it: that the 6,000,000 pounds of BIS gold in London was almost immediately transferred. Dr. White: Date unknown, but certainly within 12 days, probably within 5 or 6 days, the title was transferred. HM,Jr: And all thie stuff that it was Mr. Benes or whether this fellow consulted this fellow, that does not interest me. But the other point, the 16,000,000 pounds 164 -8- of gold is still locked up in London and they have got it through the Parliament formally the right to hold it. Dr. White: That's deposited. HM,Jr: And all this thing that Mr. Lloyd George read one paper and did not read the other 1s all very amusing, but when you boil it all down, for my purpose, the 6,000,000 BIS gold was given to the Germans, but the 16,000,000 is still there. Mr. Lochhead: That's right. Mr. Cochran: Yes, but it's the 6,000,000 that they have been discussing in Parliament. Legislation would not touch the other. Dr. White: There is the question -- the legislation said "all Czech assets". Whether that was a Czech asset or BIS is a fine point. HM,Jr: Again, BIS gold 18 gone, 80 that's water over the dam, no matter who's guilty or not guilty. Mr. Cochran: BIS statute provides for that immunity and also for special protocol with the British Government. HM,Jr: So the 16,000,000 is still there and the Czechs still have a chance. Dr. White: It is of interest to know that the French Government did object to the transfer and wasn't able even to postpone the transfer and that the French Government did object to the British Government and the British Government said they not only knew nothing about it, but were not in position to make an investigation to find out; that when they were finally pressed, later, and said they would find out, although there 18 evidence they did know about it earlier, they were told by the Bank of England that the Bank of England could not tell whose gold it was. To them it was BIS and they were in no po- sition to know or investigate. HM,Jr: That part is all Dr. White: It's of interest to us because a year ago we took the position that that might happen and we 165 -3- didn't want to deal with BIS -- permit BIS to transfer a fund -- because we anticipated some possibility of the sort. HM,Jr: Well, it's dirty business whichever way you look at it, because England claims the French never did protest. Dr. White: That comes from the French. HM,Jr: No, but coming from the British, the British Treasury won't admit it. But all I wanted was a way to boil it down, and the 16,000,000 is still there. Is that right? 16,000,000? Mr. Lochhead: Originally started at that. Prob- ably have made some adjustments and paid out some amounts as soon as they established that the thing is to go to the Czechs. HM,Jr: Are we all right? Mr. Lochhead: We are all right. I talked up in New York on silver. Very few people have any news from the other side and the bets are running 39¢ to 38¢ -- banks are betting on the price. HM,Jr: What I wish you (Lochhead) would do, get hold of your lawyer -- Bernstein -- and I wish in the next 24 hours if he could give me a page brief. You fellows have got so damn many regulations, this 6 months' stuff and all the rest of the stuff. Let's do this and get him right on it. Go on the assumption that the first of July the present method is overboard. Now we start on the first of July. You have got me all tied up. A fellow can dump silver here for six months. W1ll he be able to do it after the first of July? (At this point, the Secretary phoned for Mr. Bern- stein to come to his office.) You have all kinds of rules and regulations. Mr. Lochhead: On foreign purchases we haven't a Regraded Unclassified 166 -4- single rule or regulation. What we do, we simply buy silver for spot or forward delivery. We buy silver fof forward delivery up to 5 months if it comes within the requirements. No regulations. With spot, any minute we want .... HM,Jr: ... But wait a minute. On the first of July, Handy and Harmon announce they have silver for 6 months' delivery. We go on the assumption this bill has passed. Mr. Lochhead: If they offered, we can't buy be- cause we can't set a price. Dr. White: He has reference to delivery matter -- we settle two months ago -- the warehouse and 80 forth. HM,Jr: But on July 1? Mr. Lochhead: No regulation out. If we don't put a price, we stop ..... HM,Jr: If I put a price, are you still going to have regulations under the Silver Purchase Act? Mr. Lochhead: If you put out a price and you have no authority to buy foreign silver, no reason to put a price. (At this point, Mr. Bernstein came in.) HM,Jr: Bernstein, I want a brief from you to- morrow that If this monetary bill doesnot pass and I want to buy, if we should decide to buy domestic silver what rules and regulations have you got as to delivery to the Mint, etc., etc. Would any of these be in force or would you have to draw up new regulations. That's number 1. Number 2: if we buy foreign silver, what about methods of delivery under the Silver Purchase Act after the first of July? Mr. Bernstein: If the bill does not pass? HM,Jr: If the bill does not pass. First of July, I operate under the Silver Purchase Act. What kind of rules and regulations will there be in effect 167 -5- as to delivery of foreign silver and domestic silver? Mr. Bernstein: I can tell you right away. On foreign silver there would be no change. You would do it under the Silver Purchase Act, under what- ever procedure you have been following. HM,Jr: I am not buying silver under the Silver Purchase Act. Mr. Lochhead: That's the only Act you can buy it. HM,Jr: I thought we were buying under the Thomas Amendment. Mr. Lochhead: No! No! HM,Jr: Well, I am glad to be set right. Do we have the same rules and regulations for foreign silver after the first of July? Mr. Bernstein: There are on an informal basis. HM,Jr: Can you put them down on a piece of paper so I can see what they are? Mr. Bernstein: Yes. With respect to domestic silver, you wouldhave to have an entire new set-up. The present 18 under the President's proclamation, under the Thomas Amendment, and that expires when the proclamation expires, on June 30th, and you would have to work out a new set of regulations if you were to buy any. In Many respects it would be the same, but existing regulations would not do. HM,Jr: But it's certainly fair to ask you to give me tomorrow, Thursday, a draft of what kind of rules and regulations you think I ought to operate under, under the conditions that I am setting up. Mr. Bernstein: Got in mind any sort of particular price? Regraded Unclassified 168 -6- Dr. White: No. And I don't think there should be the same leeway that you gave with respect to time of delivery. HM,Jr: You are getting it, Mr. White! Mr. Lochhead: You mean on the domestic. Dr. White: On the domestic. Mr. Bernstein: You won't have the same spread of price. Dr. White: I am not speaking of price. I am speaking of delivery. HM,Jr: A fellow has how many months to deliver on domestic? Mr. Bernstein: Five months; same as foreign. Mr. Lochhead: The basis of 5 months 18 we check into the market, we find out to a great extent that silver that comes out of the mine by the timeit 18 through process- ing and can be delivered, it will be about five months. Some go shorter, but five months would be the figure. HM,Jr: Think it all over and look it over and come back tomorrow and see me tomorrow. Huh? Mr. Lochhead: Yes. 000-000 Regraded Unclassified 169 JR PLAIN London Dated June 27, 1939 Rec'd 2:30 p.m. Secretary of State, Washington. 904, June 27, 6 p.m. FOR TREASURY FROM BUTTERWORTH. l. The dollar opened offered and remained so all day due to a rumor which is alleged to have been reproduced in the Paris press to the Effect that the President if deprived of the power to devalue the dollar after July 1st would use the Existing power to devalue the dollar before July 1st. NEW York also came in a seller of dollars and the British fund was a buyer. The turnover was larger than in recent days. NEEdless to say the British would view with complacent satisfaction the Expiration of the devaluation powers. 2. The action of the Senate as regards purchases of foreign silver caused a drop of 11/16 in both spot and forward silver at fixing. HOWEVER the amount done at fixing was not large and the selling was mainly by speculators and India. There were some post-fixing dealings at a sixteenth above the fixing price. The silver market +70 -2- #904, June 27, 6 p.m., from London. market is of course at SEA as to what will EVENTUATE. Silver shipments invoiced today are as follows: 400,152 fine ounces, valued at $161,061 by the NIEUW AMSTERDAM (which sailed June 23) from the Anglo Metal Company to the American Metal Company; 107,730 standard ounces valued at pounds 8,640 from Sharps and Wilkins to Handy and Harman; 108,446.standard ounces valued at pounds 8,867 from Sharps and Wilkins to Handy and Harman; 216,098 standard ounces valued at pounds 17,895 from Mocatta and Goldsmid to Irvington Smelting; 108,011 standard ounces valued at pounds 8,550,19.0 from Samuel Montagu to American Smelting. The latter shipments are by the QUEEN MARY. 3. BEWLEY tells ME that the directors of the Chinese stabilization fund are satisfied with the manner in which the spot squeeze is operating. Having allowed the Chinese dollar to fall to a level at which it could bE more Easily defended in the face of the pressure of increased importations into China, the restrictions of bank withdrawals have had the desired Effect of reducing the volume of currency, thus strengthening the Exchange position of the Chinese dollar. 4. DUE to the news from Tientsin and the absence of any specifically Encouraging news regarding the Anglo-Russian negotiations the London Stock Market has been marking 171 -3- #904, June 27, 6 p.m., from London. marking time. 226 bars were sold at gold fixing of which 14 were married and over one hundred supplied by the British fund. KENNEDY CSB 03V13338 PPOT 82 10/21 YOURATHE DATE -- in 1000 What will V. webs 172 June 28, 1939 To: Dr. Feis From: Mr. Lochhead will you please send the following cable to the American Embassy at Berlin and the American Embassy at Rome: Reference is made to cable from American Consulate General, Milan, dated June 22, reading as follows: "An American company was today informed by a leading Milan bank that beginning the first of July the Bank of Italy will no longer give further foreign exchange guarantees on clearing transactions with Portugal and Germany. With regard to the other 15 countries, there is no change in the situation. However, in business circles the action is interpreted as perhaps presaging early and simultaneous mark and lira devaluation. Sholes" Please comment on this rumor and investigate fully and keep us constantly informed as to any information you are able to secure. Regraded Unclassified 173 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate General, Milan, Italy DATE: June 22, 1939, 6 p.m. An American company was today informed by a leading Milan bank that beginning the first of July the Bank of Italy will no longer give further foreign exchange guarantees on clearing transactions with Portugal and Germany. with regard to the other 15 countries, there is no change in the situation. However, in business circles the action is interpreted as perhaps presaging early and simultaneous mark and lira devaluation. SHOLES. EA:LW BECEIAED eeer as MIN. THEMTRATIO YRURA39T natural off to mill - of st - - Regraded Unclassified 174 June 28, 1939 While at home today, the Secretary phoned to Mr. Butterworth along the same lines as his phone conversation with Ambassador Bullitt at 10:08 am today. 175 June 28, 1939 12 noon Present: Mr. Lochhead Mr. Duffield Mrs. Klotz HM,Jr: The price 18 381 cents. Two things I want you to point out: by a strange coincidence, this is half of 77 cents. (This is the President of the United States.) And the other thing -- you can have this -- this is the way the British feel about it -- the red part underlined. Give that to the boys. Have the cable in your hands. (The Secretary referred to cable 904, dated June 27, 1939, from Butterworth) 176 June 28, 1939 4:15 pm Present: Mr. Lochhead Mr. Duffield Mr. Lochhead: Bernie (Bernstein) had an inter- esting suggestion. He said you might consider stop buying forward foreign silver right now. HM,Jr: Are we doing that? Mr. Lochhead: That's the regular thing. Five months delivery. We can change that in a moment. If you wanted to change it on the 30th, you would not be doing anything new. HM,Jr: Well, I wouldn't want to do that until after the 30th. (Mr. Duffield came in at this point.) This 1s another idea. From the French. This is the French. This is another idea. (Cable #913 from London, excerpt of which reads: "Incidentally, the French Financial Attache got in touch with me to inquire about the dollar devaluation powers. He expressed the hope that the new legislation would contain such powers because he feared that the movement of capital from Europe to the United States would receive a new impetus should the potential threat of any further dollar deval- uation be entirely removed." Pass that along to the boys. You could say this 18 the French viewpoint. They like to get that stuff. Mr. Duffield: You bet they do. HM,Jr: Doesn't it help them? Mr. Duffield: You bet! 000-000 Regraded Unclassified 177 P June 27, 1939 To: The Secretary From: Mr. Hanes This is the original from which I will read tomorrow, if it meets with your approval. Herbert Gaston has some reservations as to whether the latter part of the statement conforms to Treasury policy. In my opinion it does but I want to be sure. Will you be good enough to call me at my house tonight after you have finished with it? Dictated over telephone by Mr. Hanes - 6:50 P.M. Regraded Unclassified 178 Prepared by Lawrence H. Seltzer TREASURY DEPARTMENT IH 179 INTER OFFICE COMMUNICATION DATE June 28, 1939 Secretary Morgenthau TO FROM Mr. Haas BA Subject: Position and Prospects of the Automobile Industry as Reported to Mr. Seltzer by Messrs. Knudsen, Keller, and Others I. Plans and Sentiment The general feeling in automobile circles in Detroit is more optimistic than it has been at any time this spring. All danger of unwieldy field stocks appears to have disap- peared and plans for the 1940 model year are being made in a rather confident atmosphere. It appears at the moment that the basic output forecast for the 1940 model year, which largely determines the pricing and cost amortization per car, will run in terms of 3.5 mil- lions units -- the same as this year's anticipated production. While no increase apparently is going to be counted on, it is significant that the present estimates involve no decrease, for the tendency is to make this estimate a relatively con- servative one. II. Current Retail Demand The retail demand for automobiles during May and the early part of June has been better than had been anticipated; and fragmentary reports indicate that the strong demand 18 continuing. GENERAL MOTORS SALES in the first ten days of June were 66 percent ahead of the same period in 1938, as compared with a 42 percent gain in May. CHRYSLER DEALERS sold 15,700 cars in the week ended June 24, a gain of 11 percent over the pre- ceding week and a gain of 47 percent over the same period last year. 180 Secretary Morgenthau - 2 FORD AND MERCURY RETAIL SALES for the second 10-day period of June surpassed those of the same period last year by 62 percent -- the greatest percentage gain in any 10-day period since the introduction of the 1939 models. III. Field Stocks The excellent volume of retail sales 1s rapidly reduc- ing field stocks, with some small chance that shortages will develop in particular models, particularly if strikes should retard the scheduled introduction of the 1940 cars. IV. Output Output is expected to approximate 275,000 in June, 165,000 in July, and 135,000, or less, in August. Produc- tion in September should step up sharply to perhaps 250,000, with output being well maintained in October and November -- barring labor troubles. The industry is in process of winding up produc- tion on its 1939 models and 1s actively preparing for the introduction of the 1940 models. During July, Chevrolet will be the only General Motors unit to be turning out finished cars. Chrysler, which was held back by about two weeks by the Briggs strike early in June, will continue produc- tion on this year's models until about the middle of July. Ford may continue a week or two longer. General Motors has scheduled total July production at 78,000 cars and trucks (including 3,000 in Canada), all of which will be for Chevrolet; and Chrysler has scheduled 39,000 for July. V. Steel Releases Steel releases against the 1940 models are being made now by both parts makers and manufacturers. The big releases Chrysler has bought its complete steel requirements for the for body parts are scheduled for about the middle of July. rest of the calendar year (during the period of acute price weakness in May), and this is believed to be substantially true of General Motors. 181 Secretary Morgenthau - 3 VI. Labor Situation Employment will fall off very sharply during July and August -- perhaps by 40 percent -- by reason of the assembly line shut-downs incident to the changeover to 1940 models. Employment will begin to rise again some time in August and will probably reach a peak some time in October or November. Both Mr. Knudsen and Mr. Keller are concerned about the possibility of labor trouble shortly. A strike vote 1s to be taken among the tool-and-die makers for General Motors; and if the strike should materialize, the introduction of new models may be considerably delayed. Mr. Keller has heard reports that John L. Lewis intends to begin his campaign for a closed CIO shop in the industry by demands upon Chrysler before the new models are out. Many labor sympathizers in Detroit believe, however, that there will not be serious labor trouble this summer and fall be- cause the rank and file are not at present disposed to wage another strike. +82 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Rome NO.: 238 DATE: June 28, 1939, 3 p.m. Before leaving Rome, the Minister of Foreign Trade and Exchange arranged this morning to see Wait. Both the Commercial Attaché and an Embassy secretary were present and after a general conversation, the Minister of Foreign Trade and Exchange put Mr. Wait in touch with the appropriate federation authorities. Mr. Wait will make a report of the results of his investigations. It is Guarnieri's opinion that the premium which the Italian Government pays to silk growers is comparable to the assistance which the United States Government gives to United States producers of cotton and wheat. He stated that if the United States Government should find it neces- sary to apply Section 303 to silk products imported from Italy, he might be forced to adopt the same measures with reference to imports from the United States which receive similar assistance. However, he thought that it could be shown after careful study that if the intent of the law were justly applied, the necessity of our imposing counter- vailing duties would be obviated. It was made clear by Guarnieri that in case the action of Regraded Unclassified 183 of the United States Government resulted in the reduc- tion of Italian imports into the United States, it would be necessary for him to reduce imports from the United States into Italy by a like amount, since he could not afford to buy from a market in which he could not sell, because of the scarcity of foreign exchange in Italy. PHILLIPS EA:EB Regraded Unclassified 184 June 28, 1939 9:30 am Present: Mr. Hanes Mr. Gaston Mrs. Klotz (Mr. Hanes began reading his tax statement be- ginning at the top of page 38 and read without interrup- tion to the very end of page 41.) HM,Jr: What's the part Gaston objects to? Mr. Hanes: I guess I am coming to that now. (Continued reading aloud beginning at the top of page 42. At the end of the second sentence on page 44, "Only one individual has been subject to the 75 per- cent rate since it was established," the Secretary in- terrupted the reading.) HM.Jr: Only one individual? Mr. Hanes: Yes. Mr. Gaston: Yes. John D. Rockefeller, Jr. (Mr. Hanes resumed reading from that point on and continued without interruption to the end of his statement.) HM,Jr: Well, now, I have one criticism before I hear Herbert's and it isn't even a criticism; it's policy and maybe you have said it, but that is to say the thing which I said in my statement, that the key to the whole thing, doing away with tax-exempt securities, must come first. After they have done that, the other thing follows. Mr. Hanes: Let me just start the statement. This is the premise upon which the whole statement is based. "During your recent hearings relating to tax revision for the 185 -2- "purpose of encouraging business enterprise, Secretary Morgenthau ,ade the statement that 'we should by all means pass legislation to make it impossible in the future to issue any more tax-exempt securities. This having been accomplished first, it would then be fair and logical to reexamine the question of whether the present surtax rates on very large incomes may not be so high that they discourage the limited number of in- dividuals subject to them from taking normal business risks'. Mr. Gaston: First we have quoting you on that policy. Then we have an argument for removing exemption on Governmental securities. Then we have a totally in- dependent argument for lowering high surtax rates and the closing of the address is an argument for lowering high surtaxes, which is not dependent or contingent on the matter of eliminating exemptions and the point I made was while you start out on the policy outlined, you don't finish on that note and there should be some conclusion which says that the two things are interdependent and I would be satisfied if he had Just one paragraph, such as this: "For all of these reasons, it 1s our belief that when action has been taken to abolish the exemptions on the future issues of Gov- ernment securities, the Congress should then give prompt attention to a revision of the higher surtax rates. Thw two actions seem to me to be interdependent and it is believed that action on both would improve our tax system.' Mr. Hanes: I can't say that. I can't agree that both are interdependent. Mr. Gaston: You have already proved in your speech that they are. Mr. Hanes: We have proved -- we made out a 37-page case on the removal of the tax-exempts. There is a 10- page brief on surtaxes and, in my opinion, both economically and from a common-sense standpoint, the two things are as far apart as the poles. However, we connect them. I put them together at the very first shot out of the box. I said these two things are absolutely bound together in Unclassified 186 -3- one place and I quote what you say and go ahead to de- velop the argument on each one to give the strongest argument that I can give and I give the weakest argument I can on surtaxes. Mr. Gaston: I am only concerned with the matter of consistency of policy and if I were writing a news story on this speech I would say "Modifying the position the Treasury has heretofore taken, Under-secretary Hanes today made an argument before the Ways and Means Committee for prompt revision of high surtaxes." Mr. Hanes: But you could not say that honestly and not read that first page. Mr. Gaston: I say two arguments are presented quite independently and you end on the note that high surtaxes should be reduced and that differs from the policy outlined in the Secretary's speech. HM,Jr: I know nobody has tried to hold a gun to my head, but I can't do an intelligent thing on as import- ant a matter as this. I just can't. It's silly for me to try. I mean, I can't at five minutes of ten get in on it. I don't know when you (Gaston) saw it. Mr. Gaston: We worked on it all day yesterday and we didn't come to this until 5 'clock yesterday afternoon. HM,Jr: The only suggestion I have: instead of saying that last thing, say having accomplished this first, "I mean, bring in this quote at the end. Would that satisfy you, Herbert? Mr. Gaston: Yes. Or it would satisfy me to say everything he has said there and then say this (Mr. Gaston's suggestion as above). HM, He does not want to say that, but instead of saying what's on here (last page) can you work in what I have said on this? Can you bring in this sentence again saying "This having been accomplished" -- I don't know. Mr. Hanes: I don't know, Henry. It just strikes Regraded Unclassified 187 -4- me that it is such an inocuous thing ..... HM,Jr: The way I feel, John, is I would rather not take any responsibility for what you say because I can't think this way. Mr. Hanes: Let's cut off the last page. I will stop at the end of the page before. HM,Jr: I think that that would help. Mr. Gaston: Let's see what that does. HM,Jr: But I would much rather have you take the responsibility on that with Herbert. I am always will- ing Mr. Gaston: That would please me moderately well to just drop the last page, but I would much prefer to drop the last page and put this thing Mr. Hanes: I can't, because I don't believe it. Mr. Gaston: It's only something the Secretary says in his own statement. It's a paraphrase of the Secretary's own statement. Mr. Hanes: I will just take that last paragraph off and not say it at all. o0o-o0o