The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
DIARY Book 199 June 24 - June 30, 1939 A - Book Page 199 334 Appointments and Resignations Stevens, Mr.: HMJr, Foley, McReynolds, and Gaston confer about appointment in case of war - 6/29/39 -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 Currie memorandum sent to FDR - 6/29/39 HMJr, White, and Currie confer on FDR's press conference; timing of bill to be sent up to Congress; et cetera - 6/27/39 a) HMJr says this must be a success because "all New Dealers either will have nothing to do with 84 271 118 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) HMJr 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 Haas memorandum on business situation based on conferences with officials of Sears, Roebuck and Company, International Harvester Company, and American Steel Foundries Company 6/30/39 179 416 -CCanada 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 Cotton See Spain China See Silver 448 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 a) Wait (Customs representative, Paris) advised Treasury will withhold notice until July 5 HMJr and Welles discuss delay Guarnieri and Wait confer - 6/28/39 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 Craig, Malin (General) Thanks HMJr for courtesy and says goodbye preparatory to leaving as Chief of Staff of War Department - 6/29/39 124,125 126 161 182 409 338 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 - 1,87 6/24/39 Resume of entire affair prepared by Butterworth - 6/24/39 White resume: "What happened to Czech gold in the Bank of England?" - 6/27/39 a) Discussed by HMJr, White, Lochhead, Cochran, and Bernstein - 6/28/39 25,37,100 114 163 -FFederal 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 -GBook 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 Review of market for week ending 6/24/39 Great Britain 49 76 See Silver -IItaly See Countervailing Duties -LLonigan, 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 a) Attorney General' S degree recently from 292 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 b) Foley memorandum: "Purchase of newly-mined domestic silver under Silver Purchase Act" 347 350 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) 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 a) HMJr tells Grace Tully to so inform FDR 6/30/39 Book Page 199 382 387 -PPoland See War Conditions -RRailroads For equipment program, see Business Conditions: Recovery Program Revenue Revision Hanes' proposed testimony reviewed by IDWr, 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 Silver See also Monetary Legislation Communications from HMJr to Treasury while en route to Washington by plane HMJr tells Barkley silver in London has broken 40$; consequently Treasury has made price 40$ - 6/27/39.. a) HMJr also tells Wagner b) HMJr authorizes drop to 38$ - 6/29/39 HMJr and Hull confer on status and opinion of silver Senators that price be 77$ - 6/27/39 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 Future Canadian purchases discussed between Hull and HMJr - 6/28/39 Josephus Daniels (Ambassador, Mexico) asks to be kept informed of action taken by Congress - 6/30/39 264 159 123 138 359 143 260 267 385 - 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: Hans reswar - 6/10-24/39 336 -TTaxation See Revenue Revision -UU.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 a) Jerome Frank notified b) Eccles notified Poland: Butterworth reports negotiations for armanents, raw materials, and cash between Polish delegation and British Treasury "drag on"; Polish request from French also reported on - 6/28/39 Devaluation of currencies of Poland, Turkey, Greece, and 302 324 330 244 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 -W - (Continued) Book Page 199 252 War Conditions - (Continued) Devaluation (simultaneous) by Italians and Germans on July 1st rumored by Bullitt - 6/28/39 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. Slivebown Leroy D. Stinebower Office of the Adviser on International Economic Affairs Mr. Frank Dietrich, Care of Mr. Lochhead's Office, Treasury Department. PARLIAMENTARY DEBATES 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 question can properly be held to imply that de jure recognition had been granted to the incorporation of Bohemin 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. NUMBER: 2 PAPER: CITY: DAILY TELEGRAIN LONDON M.P.S PROTEST AGAINST CZECH GOLD TRANSFER CHANCELLOR TO SEEK ADVICE DAILY TELEGRAPH DISCLOSURE RELEASE NOT ACT OF TREASURY NUMBER 2 MAY 27 1939 4 PAPER: DAILY TELEGRAPH NUMBER: CITY: LONDON DATE: 3 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 reference 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 Reichsbank 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 to himself in total actions Somewhat he ignorance out of his of way curiously the keep of that derived institution. 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 That so a on the of the is necessary country. part to the proper complete British functioning Government detachment 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. MAY 27 1939 DATE: GOVERNMENT & CZECH GOLD RELEASE CHANCELLOR TO TAKE LEGAL ADVICE NO LARGE SURPLUS OF ASSETS LIKELY The Government has undertaken to take further advice whether it acted wrongly in refraining from interfering with the B.I.S. release of London held Czech gold Germany This promise was given by Sir John Simon in the course of the the adjournment yesterday, but he warned Members the agreement with the B.I.S. was binding Both and the British on the House. that LONDON TALKS VERIFYING U.K. CLAIMS CRITICISM OF B.I.S. FEARS THE this PAPER: FINANCIAL NEWS NUMBER: CITY: LONDON DATE: 5 MAY 27 1939 FINANCIAL APPEASEMENT The question of recognition of the German conquest of CzechoSlovakia and the fate of the Czech assets in this country occupied Parliament for 41 hours yesterday to the exclusion of everything elsea 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 CzechoSlovakia, 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 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. 6 DATE: TRANSFER OF CZECH ASSETS AGAIN BEFORE COMMONS - MARE'S NEST .. STATEMENT: SIR JOHN SIMON'S EXPLANATION SETTLEMENTS BANK DIRECTORS CRITICISED NO POWER TO ACT GOLD STILL HERE? LEGAL QUIBBLES CZECH BALANCES MAY 27 1939 PAPER: CITY: MANCHESTER GUARDIAN NUMBER: 8 7 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 week was officially only a mare's nest" of Mr. Lloyd George's discovery That unfortunate phrase exonis erated Minister now from disowned, has responsibility been and dutifully the for Prime it by Sir John Simon: but this strange chapter is not at an end, and the House will undoubtedly return to it immediately after the Whitsuntide recess. It was clear yesterday that all parties and all shades of opinion are deeply disturbed at the possibility of handing over to Germany £5,000,000 to which her Government has no shadow of right. The same view was expressed in speech after speech, and it is a natural and just view. The invasion of CzechoSlovakia by Germany was a crime which has been vigorously denounced by all, and not with least vigour by the Prime Minister. The Government has not recognised it, and there is general agreement that no steps Bank is now a very different body from what it was when it was set up as an instrument of international recovery ten years ago. It has given way to German pressure in this case, and it is much to be hoped that. as Mr. Lloyd George suggested. the Chancellor and his advisers will be able to find some way of getting over the legal difficulties and so prevent this country from assisting in what was not too strongly called the robbery' of the Czech people. The incident brings up sharply the relations between the Bank of England and the Government. What is incredible is that for two months after the transfer of the gold was first mooted the British Government had apparently only an indirect knowledge of what was on foot and the general public no knowledge at all It is possible that the Government in one of its not infrequent moments of startling obtuseness failed to realise the anger such a proposal would towards recognising it should be cause if it were known. taken. To do anything which might imply recognition would be directly opposed to the whole trend of our foreign policy. That much is clear. apparently failed to reply with any indirect" protests and has actually begra conversations with German There remain, however, three things about this history to be cleared up how did the possibility of transfer arise, how far has it got, and how can it be prevented from going any farther? According to Sir John Simon. the Treasury heard 'quite indirectly' -that is to say, neither from the Bank of England nor 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 representatives over the Czech assets now blocked in London by statute. conversations that are admittedly linked up with de facto recognition of the German conquest The Germans may excusably have believed that there would in the end be no obstacle to full recognition and a full transfer of all Czech assets. Neither course should now be possible. It ER: DAILY HERALD : LONDON NUMBER DATE: There Must Be Control W HO decides Britain's foreign policy and financial 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 weaving 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. MAY 10 PAPER: DAILY HERALD CITY: LONDON MUMBER: 9 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 of England has been ordered to transfer to Germany. Everyone in the City who ought to know believes that the gold is still in the bank's Faced with a unanimous demand for further action. Sir John promised to re-examine the legal question and see whether the Treasury could not call upon the Bank of England to withhold the gold after all. Many legal and financial experts believe that this is the proper vaults. In Parliament yesterday nearly every speaker demanded that the Government should take immediate steps to prevent the gold finding its way to Germany Mr. Wedgwood Benn said that If the gold was still in the Bank of England's vaults, Sir John should send the Serjeant-atArms 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 transfer the £5,000,000 to the credit of the Reichsbank course, and that the Reichsbank should be forced to sue the Bank of England in the British courts, If it wishes to get the gold. Sir John's next move is awaited with very great interest in Parilament, in the City, and throughout the country NUMBER 10 DATE: LONDON MAY 30 1939 LOMBARD STREET SURRENDER OF CZECH GOLD: GOVERNMENT'S FURTHER ADMISSION clearly absurd to suggest that the Bank MONDAY EVENING is entitled to withhold information on may During the course of the debate on the subject If the Government demands it. Czech assets last Friday, the Chancellor of During the last few months the Government addressed repeated requests to all the Exchequer made an admission which escaped the attention it deserved. He con- banks, and even though it had no legal right to demand the execution of its re quests all banks willingly complied with them. Is it admissible that the Govern- fessed that the Treasury know. since the end of March, about the action taken by the German authorities to gain possession of the Czech gold deposited in London in ment should be entitled to expect loyal co the name of the Bank for International Settlements. On the other hand, our in formation is that the actual transfer did not take place until early in May. This operation in the public interest from any bank except the Bank of England POLITICAL BANKING means that the Treasury had ample time to 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. From the moment of its foundation it has been a centre of political activities, and, as one Conservative speaker remarked during the debate on Friday, a hotbed of Had the Treasury obtained its information in May only. at the same time as the Press did, it would have had a legitimate excuse for doing nothing on the ground that there was no time to take action. As it is, John Simon's confession amounted political intrigues." The transfer of the Czech gold was agreed upon, not on legal to an admission that, even though he had more than a month at his disposal, he pre- considerations, but purely as a result of ferred to abstain from doing anything beyond considering the matter." pre sumably within his own department would appear that he did not even take legal advice, judging by the fact that on Friday he promised to do so It seems, therefore, that his claim that he was as anxious as anybody to stop the transfer if possible was mild exaggeration The Gov ernment will have to give very concrete evidence of its desire to stop the transfer in order to make good its inaction between March and May. In the absence of such evidence it will be generally assumed that the Treasury deliberately abstained from taking the necessary steps, in pursuance of its policy of financial apprasement. IS THE GOLD STILL HERE? According to Sir John Simon's own admission, although he obtained his in formation from unofficial quarters towards the end of March he did not attempt to obtain official confirmation from Mr Norman Not even after the uproar caused by the disclosures in the Press and the Premier's categoric denial of these disclo sures did the Treasury consider it neces political pressure from Berlin, We understand that the pressure was resisted by French interests who wanted to await the ruling of a law court, but they received no support whatever from the British side Indeed, It seems reasonable to suppose that the British directors actually sup- ported the German claim for the immedate surrender of the Czech gold. Other- wise, the French general manager. M. Auboin supported by the French directors, would have put up better fight against the surrender. When in October and November 1937. Mr. Norman and Sir Otto Niemeyer insisted upon the appointment of German general manager, M. Fournier threatened to withdraw the French deposits from the bank, which would have forced the bank to liquidate Presumably the reason why Paris did not decide to take such a firm line on the present OCCA- sion was that the French authorities did not wish to disturb the relations between Paris and London, relations which have become much closer since 1937. THE LONDON 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 question would be raised on the adjourn- tives in London on the ground that such 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 still here, or even whether he had any right to ask the Bank of England for in against Ctecho-Slovakia are genuine. does not carry much conviction Surely it is pos- the House was asked to believe The Chancellor's statement conveyed the impression that, not only had he no desire enlist the assistance of the German Ministry of National Economy, and even the German formation This, at any rate. was what sible to verify the claims with the aid of documentary evidence. without having to Foreign Office. The presence of the latter's to take action to prevent the transfer. but representatives conveys the impression about the situation. Even if there is no perhaps confined to technical questions, as the House was led to believe on Friday. 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 that be had no desire even to be informed law under which the Bank could be com nelled to part with information it is that the London discussions are not authorities, since the Government has no right to retain these assets, The predominant majority of the Czech owners assets here would prefer however that their assets should remain blocked, NO 25.20 be out of the reach of the German authorities It is the latter and not the owners of the assets who are presumably pressing for a general release, after satisfaction of the British claims " is to be hoped that no arrangement will as made by which the Treasury will have to part with informa tion about the names of Crech holders a assets in London E CITY: FINANCIAL NEWS It PAPER: PAPER: FINANCIAL NEWS NUMBER: CITY: LONDON DATE: 12 11 MAT 30 1939 M.P.S AND CZECH GOLD RELEASE MORE QUESTIONS TO MINISTERS Further questions about the release to the Reichsbank of the 46,000,000 of Czech gold held in London on account of the Bank for International Settlements will be asked in the House of Commons when Parliament 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 promised that the Government would take legal advice on the question whether it 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 questions 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-Slo:akia or by any corporation In corporated before March is last, under nations in store Mill PAPER: CITY: FINANCIAL NEWS NUMBER: LONDON DATE: 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 henceforth 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.) ACL 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 chuld 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 Germany 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 Germany, 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 proceedings 12 MAY 31 1939 13 13 PAPER: FINANCIAL NEWS NUMBER: CITY: LONDON DATE: MAY 31 1939 LOMBARD STREET BANK OF ENGLAND DISCLAIMS KNOWLEDGE OF CZECH GOLD I TUINDAY EVENING. Following the debate on the Czech at jets in the House of Commons on Friday, the Treasury has been constantly conferring boards they sit. Sir Otto Niemeyer, how. ever. is chairman of the B.I.S., while Mr. Montagu Norman is one of the creators and the Pooh-Bah of the bank. with the Bank of England. The Bank BANKING SECRECY PLEA has apparently found a new explanation UNTENABLE for the conduct of the B.I.S. And the Bank now takes a totally different line from that of the Chancellor of the Exchequer in his reply to questions on May 23, and also in his statement last Friday. The Treasury's strong suit is that the Government was debarred from taking any action under The Hague Agreement of 1930 and the Brussels Pro tocol of 1936, by virtue of which the Govern- ment granted immunity to B.I.S. assets against seizure and confiscation. Whether or not this defence is watertight as far as the Treasury is concerned, it certainly does not cover the Bank of England. The latter was no party to the agreements, which were between the B.I.S. and the Govern ment. It is therefore not an unreasonable pre- sumption that both Mr. Norman and Sir Otto Niemeyer might be cognisant of the ownership of the B.I.S. gold deposits in London- all events, so far as important accounts, such as that of the Czecho-Slovak National Bank, were concerned. Nor is 11 possible to plead that the identity of the owners of the deposit had to be concealed, as a banking secret, in the Interest of the owners. The Czecho-Slovak National Bank itself never sought to hide the fact that part of its London gold deposit was held under the name of the B.I.S. In the present situa- tion It is obviously against the interests of the National Bank that its ownership should be concealed under the plea of banking secrecy. In these conditions, It may be doubted whether action In Parliament will per- Accordingly, the view adopted among international lawyers is that it was not for the Treasury but for the Bank of England suade the Bank of England to admit know- to prevent the surrender of the Czech gold mentary pressure is great enough to com- to Germany, by refusing to carry out the instructions of the B.I.S. pending a ruling by the Court. The Treasury, it is argued. is to be blamed only in so far as it failed to use its considerable influence first, to induce the British directors of the B.I.S. to resist the German demand for the sur render of the assets, and secondly, to induce the Bank of England to refuse to comply with the Instructions received from the B.I.S. HITCH IN THE DEFENCE The line of defence adopted by the Bank of England was elaborated to meet this line of attack. It consists of a simple dis. claimer of knowledge of the existence of ledge of the existence of the Czech goldunless, of course, the strength of Parlia- pel the Treasury to bring equally strong pressure on the Bank of England If so, the public feeling aroused by this affair is unlikely to die down. IS THE B.I.S. NON-POLITICAL? Even among those who are inclined to accept the Treasury's defence of its policy, there is a growing resentment against the attitude taken by the B.I.S. which in many quarters is regarded as the villain of the piece." The fact that the Chancellor of the Exchequer has re- peatedly emphasised his inability to obtain information about that bank from its any Czech assets in its vaults, beyond those British directors is also subject to much adverse criticism Sir John Simon's ex- National Bank, which are already blocked owing to the essentially non-political held in the name of the Czecho-Slovak under the Czecho-Slovakia (Restrictions on Banking Accounts, &c.) Act. The Bank of England maintains that it has no knowledge whatever of the ownership of the gold held on account of the B.I.S. and that, in the absence of information about the existence of a Czech gold deposit planation that such a result is inevitable. character of the B.I.S., fails to carry conviction. The Chancellor of the Exchequer can hardly have overlooked the well- known fact that one of the German directors of the B.L.S., Herr Funk, is a member of the German Government. It is difficult to imagine that, out of among the gold holdings under the name of the B.I.S., it would not be in a position enthusiasm for the principle of indepen- to refuse instructions by the B.I.S. con- cerning the transfer of part of its gold director of the B.I.S., conceals the knowledge acquired at Basie from Herr Funk, holdings. Adoption of this line of defence the German Minister of National Economy assembly of the House, less would be heard department. Thus, while the British about the immunity of Czech gold held by the B.I.S. than about lack of knowledge of its very existence Ingenious as this defence may appear. it Government is left in the dark (unless It happens to obtain information indirectly German Government receives full informa. has one very obvious flaw. Two of the directors of the Bank of England are on tion through the presence of one of 6 the board of the B.I.S. Admittedly, directors sometimes do not claim to possess Is not a non-political bank which counts would make it likely that, after the re- encyclopredic knowledge of the in- numerable details of businessed on whose dent Central Banking, Herr Funk, the - or from any other German Government from unspecified continental sources) the members at the board meetings at Basie. Herr Funk among its directors a contra- diction in terms ? P. E. 14 15 PAPER: DAILY MAIL CITY: LONDON NU BER: 14 DATE: SURRENDER ORDER FOR CZECH GOLD BALE, Tuesday. Bank for InterSettlements announced to-day that it had "been forced' " to authorise the handing over to Germany 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 Settlements said that their only part of the transaction was to verify the signature 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 who follow been converted sold the by into bullion Germany dollars. market in but London believe those that and the £6,000,000 is still in the Bank of England. MAY 31 1939 16 PAPER: THE TIMES CITY: LONDON NUMBER: 15 DATE: 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 best qualified to speak concerning something which was essentially 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 the gold 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 obligation to state for whose account, whether its own or that of 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 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 on both sides to any overwhelm weight to the argument put for- ward against the of the B.I.S. the argument aggressor country might be enabled thereby to get posses sion of any gold with the B.I.S. by its victim's bank. In compari- son with the material and otherwise suffered by victim, this specific item somewhat trivial and at time official policy envisages more solid support for the victims than blocking their gold 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 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 existence Moreover, if it is ever to carry out the practical tasks for which it was designed, the ar-reaching immunities which it enjoys must be pre served That need naturally, pre- clude the possibility to Protocols and the Statutes of the Bank to deal with the which have been revealed on such amendments be em- barrassing to seek to obtain At the same theoreti cal arguments that the future of the B.I.S. For obvious that % decision on the 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 use of the bank facilities unless the con itions under which works are altered as to make impossible for any thing the kind to recur. JUN 1 1939 17 PAPER: DAILY TELEGRAPH NUMBER: CITY: LONDON DATE: 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 Government. 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 were was bility ter. £6,000,000 Their essentially of setting aim of off preliminary gold the to held explore Czech by assets in the the charac- B.I.S.. possi- held in London against the sterling liabilities of the old Czechoslovak State. 16 JUN 1 1939 18 PAPER: DAILY TELEGRAPH NUMBER: 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 Financiere. 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 subject with any German institution. Any attempt at political pressure would have been stopped immediately by the B.I.S.' 17 JUN 1 1939 FINANCIAL NEWS NUMBER CITY: LONDON DATE: B.I.S. AND CZECH GOLD TRANSFER " PURELY TECHNICAL," SAYS PRESIDENT In an interview given to the Basie corre- spondent of the Paris Agence Econo- mique et Financière, Dr. Beyen, president of the Bank for International Settlements, is to the the £6,000,000 of Czech gold from the Bank of England reported question of have surrender said he regretted of that 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 editorial note, according to Reuter. that is public be better to instia adds opinion which an it is should apparently understandable shocked of regular by the that this nature transfer. continues the paper. be to carry out be more tution, in which It a would it position would be certainly liquidate than transactions let difficult It for the Reichsbank to achieve without it. See also Lombard Street," page 6. 18 JUN, 1 1939 18 . PAPER: PAPER: CITY: FINANCIAL NEWS NUMBER: LONDON DATE: 20 19 JUN 1 1939 LOMBARD STREET THE B.I.S. BREAKS ITS SILENCE : DR. BEYEN'S APOLOGIA WEDNESDAY EVENING It is nearly a fortnight since the first news of the surrender of the Czech gold by the B.I.S. to Germany During that IS LIQUIDATION ADVISABLE? Few tears would be shed if, as a result Slovak gold from the Bank of England of the Czech gold affair. the B.I.S. were forced into liquidation. A glance at the figures of the balance-sheet and monthly return shows that the bank is moribund and utterly lacks vitality. The ambitious schemes attached to it at the outset have come to nothing. At present, it fulfils no functions which could not be performed equally well by non-political banking institutions Its turnover, apart from the renewal of frozen credits, is almost negligible, and may decline further after the had been given political significance. Lest Czecho-Slovak affair. this statement, however, should be interpreted as suggesting repentance for the decision to make the transfer for political A first step towards the liquidation of an unfortunate experiment in monetary inter time-and more particularly since the confirmation of the news by H.M. Government on May 22, the Bank for International Settlements has been sharply criticised from all sides. To-day. for the first time. the bank, through its president. Dr. Beyen, has attempted to refute the criticisms Dr. Beyen is reported to have expressed regret that the question of the transfer of Czecho- considerations, Dr. Beyen hastened to add that the transaction was purely a technical matter, and that no pressure had been exercised from any quarter whatsoever. If these words are to be interpreted literally. we must assume that the B.I.S. was so anxious to oblige Berlin that it carried out Germany's wish without even being pressed to do so. Actually, Dr. Beyen does less than justice to his bank by suggesting that it cheerfully sacrificed the interests of its client, the CzechoSlovak National Bank, in this way. despite the fact that the instructions sent from Prague were obviously given under duress INDECENT HASTE Dr. Beyen is reported to have declared further. that under Swiss law the B.I.S. was under no obligation to examine the legitimacy of the orders given and to go into the question of possible duress. It nationalism would be the determination of the guarantee which secured immunity for B.I.S. assets This would remove practically the only inducement for Central Banks to keep part of their gold in London in the name of the B.I.S. France would undoubtedly follow Britain's example. In that case, B.I.S. deposits would retain their immunity only in one or other of the States bordering on Germany. Such a proposi- tion would hardly be attractive. Few people would be confident that any German army of aggression would respect the immunity of B.I.S. assets. GROWING STORM Though some quarters are suggesting that there has been over-much discussion of the surrender of the Czech gold deposited in London. a great deal more is likely to come. Public interest, far from abating continues to grow in strength. Last week the majority of daily newspapers confined themselves to reproducing might have been presumed as obvious, without any special examination, that the Czecho-Slovak National Bank would not. Parliamentary replies and debates on the of its own free will, have given instructions so obviously contrary to its own interests The President argues that It was not the duty of the B.I.S. to consider news, and comment is almost uniformly critical In the foreign Press, also, especially the French Press, the matter is re- this aspect, but does not pause to consider whether the B.I.S. had the right to part subject. without comment This week, however, the question is definitely ceiving its share of attention. Several M.P.s have declared their inten- with the gold. Yet, there is some evidence tion of pursuing the question further. satisfied with the legitimacy of the German arguments used by Sir John Simon during that even the B.I.S. was not altogether domination over the National Bank. The voting right represented by the 4,000 shares held by the National Bank was exercised at the shareholders' meeting not by the Reichsbank but provisionally by Dr Beyen In broadly similar cases, banks have frequently. in order to safeguard their clients' 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, There is widespread anxiety to refute the last Friday's discussion. Unless some action calculated to satisfy Parliamentary opinion results from the legal advice taken by the Treasury. the question may be a thorny one for the authorities P. E DAILY HERALD PAPER: NUMBER: 20 JUN LONDON CITY: DATE: CZECH GOLD: IT GETS ODDER By DOUGLAS JAY, 'Daily Herald" City Editor INDIGNATION about the recent transfer of £5,000,000 of Czeeh 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 transfer 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 contradiction with that of the British Government, which refused to release sterling 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 Parliament will want to know. whether they accept the view of the British Government 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 atrong demand that Sir John Simon should call on Mr. Norman raise the refuses understanding the to matter reverse again its that decision, at If the the the B.I.S. B.I.S Bank on to 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 1 1939 PAPER: FINANCIAL TIMES NUMBER CITY: LONDON DATE: CZECH ASSETS TOTAL JUN 6 1939 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 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 BRITISH CLAIMS OUTLINED Settlements, but that the Bank of England has no knowledge whether gold so held is in fact the absolute property of the Bank for International Settlements or is held by 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 WESTMINSTER Monday In the House of Commons to-day SIR JOHN MELLOR (C., Tamworth) asked the Chancellor of the Exchequer if he would state the aggregate amount of the assets so far ascertained to be subject to the Czecho-Slovakia Restrictions on Banking Accounts, etc.) Act and of claims against such assets. He also inquired whether he had now obtained sufficient particulars to enable him to form an approximate estimate of the total amount covered by the Act. CAPT. H. CROOKSHANK Financial Secre- tary to the Treasury, said the estimated amount of the assets so far ascertained to be subject to the Act and available for meeting claims was between £14,000,000 and £15,000,000. The claims included the repayment to the Treasury of the advance of $6,000,000. the transfer to the Czech Refugee Trust Fund of the unexpended balance of the Free Gift namely, £3,750,000 claims from British holders in respect of bank balances, etc., amount ing to about £3,500,000, and in respect of bonds with a face value of about £2,500 Claims had also been received from British holders in respect of partici- pation in industry. real estate, etc., which could not conveniently be expressed as a capital sum A notice had been issued in the Press that 17th June was the final date for registering claims and that no forms Settlements is the property of the National Bank of Czecho-Slovakia The same situation exists as regards cash balances held by the Bank to the order of the Bank for International Settlements. U.K. CANNOT STOP TRANSFER Now that the correct position is understood, a good many questions which were raised in the debate are disposed of But in addition to making inquiry of the Bank of England I at the same time sought the advice of the Law Officers on a number of points. What I am about to say is in accordance with their advice. H.M. Government are precluded by the terms of the Protocols of 1930 and 1936 from taking any steps by way of legislation or otherwise to prevent the Bank of England from obeying the instructions given to it by its customer the Bank for International Settlements to transfer gold as it may be instructed. The CzechoSlovakia Restrictions on Banking Ac. counts, Etc.) Act 1939. does not operate to prohibit the Bank of England from making such a transfer without the consent of the Treasury. Even if it did it would be breach of Treaty obligations to withhold Treasury consent. There is no validity in any of the suggestions made in the recent debate that the Bank of England would be entitled to refuse to obey the instructions given to it by the Bank for International Settle ments. And there are not means by which the Treasury could obtain a ruling of the Courts as to whether they have the power to prevent the Bank of England from the reasons for the delay were satisfactory making a transfer when ordered to do so until the question of the true ownership of the gold is finally determined regarded as even an approximately SETTLEMENTS BANK would be accepted after that date unless to the Treasury. Until all the claims had been received and until they had been examined the figures given could not be accurate estimate of the claims of British holders. CHANCELLOR ON THE RETURN FOR MAY QUESTION OF CZECH GOLD CZECH GOLD From OUR OWN CORRESPONDENT THE BANK'S POSITION The return of the Bank for International Settlements for May, just issued, shows a Further questions on the Czech gold were put to the Chancellor of the Ex chequer in the House of Common to-day MR. GREENWOOD (Lab., Wakefield), asked if the Chancellor could now give the result of the inquiries he undertook to make and of the advice he intended to seek on the subject of zecho-Slovakian assets entrusted to the Bank for International Settlements and alleged to be deposited with the Bank of England SIR JOHN SIMON replied: In the debate which took place ten days ago on the motion for the adjournment it was assumed by several speakers that the BASLE, 5th June. decline in the balance-shee total by Swiss Frs.13,000,000 (about 650,000 at current rates) to Frs.576,379,193 (£28,819,000) On the assets side. gold in bars increased by Prs.21,000,000 (£1,050,000), but cash is Frs.11,000,000 (£550,000) less, sight funds Frs.15,000,000 (£750,000) down and invest- ments Frs.17,000,000 (£850,000) lower. Among liabilities, short-term and sight deposits decreased by Frs.18,000,000 ($900,000). None of the changes is big enough to account for the surrender of the Czech assets to the German Reichsbank The same can be said about,the B.I.S. balance- Bank of England when dealing with gold or cash balances held by it to the order of sheets covering March and April. would be aware of the party to whom such become evident from either of the last the Bank for International Settlements assets belonged and, in particular, that gold entrusted by the National Bank of Czeeho-Slovakia to the Bank for International Settlem and deposited by the latter with the Bank of England would be held by the Bank of England with the knowledge that it belonged to the National Bank. If the transaction in question went through the books of the B.I.S. at all, the parting with the Czech assets must have three monthly balance sheets unless, of course. these assets are still held by the B.I.S. under the name of the German Reichabank. 23 PAPER: FINANCIAL TIMES CITY: LONDON 2 NUMBER: DATE: JUN 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 Parliament the statements of fact which ended the debate would, if made at its commencement, have avoided much of and undignified Obviously, the Bank will more and more tend to become a bankers' cul- tural and statistical centre. No formal measure will be needed to effect this transformation, which eircumstances have been accelerating for some considerable time. The task of its application appears to signal disregard of the importance of the principles involved. Although it is clear that neither the Treasury nor the Bank of England could have done other than it did, it is difficult to avoid the impression that the British repre- confusion altercation. original handling As thought for the of the have Bank Czech shown itself, sentatives on the Bank for International Settlements have been at fault. The possibility that such a situation might arise must have been evident to them from the moment of the German occupation of Prague. Yet the transfer of the Czech assets held by the B.I.S. took place without them registering any protest or promoting any discussion of an issue of obvious importance for the B.I.S. in its capacity as a periodic round-table conference of international bankers. It may be that the political eircumstances of to-day and the Bank's own constitution would have rendered such a protest ineffective, but that fact does not make it any the less that the opportunity was of involved. regrettable ciples not taken publicly International airing the opinion prin- would certainly have been more favourably impressed than by a procedure which seemed to imply comIn of the Bank's of discussion plaisance. such future interest. is thancircumstances, academic of has little ance As an its more institution impotence practical been import- heavily the Czech to underlined On the other by hand, declare gold episode. its total abolition would be to take unnecessarily drastic action against an institution which can still perform certain useful functions. rehabilitating the Bank for International Settlements is bound up with the task of restoring political sanity and confidence to the world. The only way in which the Bank can be made to function healthily once again is to provide a reasonable degree of assurance that there shall be no more such events as the annexation of CzechoSlovakia. To alter the constitution of the Bank so that it would not be legally required to transfer the assets of conquered clients would be to act on the assumption that the new British foreign policy is to be entirely ineffective. It would be better. for the time being. to be resigned to the pros- pect of the Bank losing its clients, in the hope that sooner or later conditions will become more propitious for an experiment in international central banking. PAPER: FINANCIAL TIMES NUMBER: CITY LONDON DATE: 3 UN 9 1990 COULD B.I.S. HAVE STOPPED CZECH GOLD TRANSFER ? POINTS THAT SHOULD HAVE BEEN CONSIDERED FULL STATEMENT DESIRABLE From A CORRESPONDENT Other existed, however, and Allowing for recent territorial which the B.I.S. might well have insti- changes and new allegiances, the kind before transferring the gold sympathetic to them commanded 83,814 tuted international inquiries of some to the Bank had not ceased to have any standing made that the Moravia. and its returns have not in cluded assets and liabilities relating without INSTRUCTIONS TO BANK FOREIGN REACTIONS Point< of this kind may possibly during the past 12 months The right If, of England compliance tion of the B.I.S. directors or officials before the Czech instructions were translated into an order on the Bank of England to transfer the gold But until some official statement on the functions and the B.I.S. published in THE TIMES on 24th and 27th tions were either overlooked for Central Banks but under do not the the Bank's conduct circumstances. that sircumstances require in this country show plainly it has by no means satisfied opinion in Europe Application of its to this individual case have obviously been at variance with the Did ideas of many of the countries partici the B.I.S. should to meet the Czech Bank demand for its London gold to be transferred: and if so, what legal power had the B.I.S. to demur or pating in its formation. The very considerable represents axis and allied countries tion the directorate of the B.I.S. may to postpone compliance? No. of INSTITUTIONS Bank sider whether the transfer order was regularly executed England 19,772 Bank of Belgium 19,772 Bank of France Bank of Italy It has been hinted that the instruc was not. in effect in order. since 19,773 Reichabank not signed by the officials Industrial Bank of Japan First usually subscribing on behalf of the York National decidedly mixed composition of Bank Bank that created by the absorption of techo-Slovakia by Germany. If such code had been in existence it may be doubted whether the London gold transfer would ever have taken place The opportunity having been missed and the transfer made, the position cer- tainly calls for two measures by the Bank for International Settlements The first is the preparation and pub- Publication of statements on these Bank of Hungary National of in But if recent trends had been the should make known the line of policy it would propose to adopt if by any similar circumstances were Rumania of but under Swiss law and under ordi order. particularly as the German no means an easy matter in view taken in by the Bank Secondly National authenticity perhaps less difficult. might still be transaction and an explanation of the Bank Greece The were certainly such put the B.I.S inquiry desirable political influence, although lication of a detailed account of the Dansig Bank 19,776 4,000 National Bank who had supplanted them There is no need to take that suggestion thing more than a forensic point On the evidence of Dr Beyen's state is fairer to assume that the the demand left DC feetly 19,776 National Bank Czech institution. but by Germans Some alteration of the Bank's statutes to provide against any un- correctly observed steps might at least have been taken to devise in advance a code for dealing with situations such March, was as follows given it. the Bank had only to con- B.I.S. would present enormous difficulties FINANCIAL TIMES on 1st June, the dis countries, based on figures at 31st end of last month Dr Beyen pointed out that in carrying out instructions MISSED OPPORTUNITY It may be admitted that any recasting of voting power in the case of the the Bank position of votes carried by various on these that made by Dr. Beyen, the B.I.S. resident. at the the mercial bank possibly have influen ced its policy As shown in an article in THE OFFICIAL VIEW The only official statement have practice. was demand in an industrial company or a com- that if the B.I.S. has satisfied the articles, but the Individual There can be no doubt that a trend of this kind would have been observed long ago. and its implications sensed, transfer in foreign centres as of the Board on the administra the rules and their adaptation banking or any event, the reactions to the raised by the Czech its representatives of the democratic ignored financial ing the heaviest voting power to fall into two opposing camps were the countries on the Board the subject is forthcoming there must be room for suspicion that such ques- made clear that to to have realised and dealt with the tendency for the nations have been cleared up to the satisfac- automatically, the action of must be brought into used an instrument for carrying out the financial operations incidental to the acquisition of new territories by aggressor countries That position has not been reached in It has certainly been patent owners the B.I.S in its turn the Bank of England to the gold to Germany grounds for assuming Banks and may. on the contrary, be dealing with asset instructions of only one of the instance of the Ger- doubt may cease to fulfil its purpose assisting the co-operation of Centra partly to Slovakia and the B.I.S. has laid itself open to criticism On of the Czech Bank the occupation. and man B.I.S. has thus fallen into position in Slovak State. Presumably therefore, the gold of the former bank of its identity official might easily influence the policy of the B.L.S. to a disquieting extent result of political developments Europe during the past decade the become the Bank of Bohemia and Germany with the Bank of Eng gold, votes were energetically used they more important questions. the B.I.S. any control over the bank's operations, but if. as may be assumed, the axis Since 15th March the former National Bank of Czecho has Bank from Bank Czech institution should have raised the of Central as That proportion is far from giving The recent change in the scope of the Inter- for POLITICAL CHANGES been questioned whether the National The responsibility has hifted from quarter Bank votes out of a total of 200,000. to such. it might have has the axis Powers and those likely to be Since the Czecho-Slovakian State had Bank Yugo-Slavin lines might sustain the waning in the B.I.S. Failure to issue them would undoubtedly the demand for the winding up the Bank or the withdrawal of Albania given to it by the demo- 25 PLAIN CJ 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 information 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 institutions and applied to balances, securities, and gold held on behalf of any institution, firm or resident institution, firm or resident in Czechoslovakia in a 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 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 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 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 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 Earmarked 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 DEAD 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 Czechoslovak assets to the Bank for International 23 -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'snest. (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 Internationnl Settlements 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 before March, 1939". Since the FINANCIAL NEWS story was basically true the Prime Minister's phrase " a more'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 assets 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 SEENS 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 considerable 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 representat ions; 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 overwhelming 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 a ttribute 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 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 Czechoslovak 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 antecedents 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 European 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 ideological 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 public opinion that it interpreted 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 1st. 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 convenient. 35 -11- #896, June 24, 8 p.m., from London. venient. 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 re- lationship and for nationalization of the Bank of England. 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 deVELOPMENTS 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 (*) Apparent omission NPL 03V13038 prop as MILI THEMITHA930 YAURAPET extress visistant all 37 THIS IS A CORRECTED COPY OF MESSAGE RECEIVED ON SATURDAY. PLAIN CJ 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 Czech 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 resident 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 delegation 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 2.4, of p.m., from London. would thus be created. After n 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 C. Cabinet decision no 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 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 TELE- GRAPH 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 t 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 tc 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 Czechoslovak 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 r e fugees from CzEchoslovakia apart from SOME releases of small amounts to pay trade debts due under contracts made before March, 1939." Since the FINANCIAL NEWS' story was basically true the Prime Minister's phrase "a marc'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 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 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 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 telephone with Montague Norman. At any rate although Fournier later protested against the release ct 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. 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 considerable 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, 8 p.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 overwhelming majority 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 Earlier 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 communicated with Norman, for it is unlikely that Norman would not have 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 afternoon 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 Czechoslovak 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 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 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 nati onals included unfulfilled British Government 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 required Energetic action and it was motivated by these considerations and not by ideological 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 public opinion that it interpreted the Treasury move as "retaliation 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 opposition in the HOUSE of Commons saw "apprasement" raising its head; 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 46 -10- #896, June 24, 8 p.m., from London my written report No. 2776 of June 1st. 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, Bonnet's public statement of June 21st has laid the Prime Minister and the Chancelor of the Exchequer open to C charge of 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 developments 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, iiny 23, 6 p.m.; 749, May 26, 6 p.m.; 779, June 5, 6 p.m.; 828, June 14, 7 p.m. 3113038 KENNEDY PEOI THA930 HPD YRUPACIT 49 TREASURY DEPARTMENT INTER OFFICE COMMLINICATION Prepared by: H. C. Murphy Assisted by: Wesley Lindow DATE June 24, 1939 and V. L. Eyre 48 Secretary Morgenthau TO Mr. Haas OK Subject: Recent Financial Developments; Average of High- FROM 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 exhibited the most strength during the preceding rise (Chart I). (2) Excess reserves have decreased by $70 millione 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 behind Governments during the spring rise. Highgrade corporates continued to advance during the recent decline in Governments, sharply reducing 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 average 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 remembered, 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 18sues -- 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 of gain to to Feb. 21 June 5 June 19 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 + .09 20 2-3/4's 1960-65 2.54 2.26 2.32 - .45 - .28 + .06 21 Adjusting for the change in the composition of the average on June 15. 51 Secretary Morgenthau - 3 Treasury notes were also soft during the two weeks ending 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 preceding maturity. The weakness in the new notes is easily seen in Chart I, where this issue is 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 increasing 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 crease in excess reserves, 80 that the entire decrease which did actually occur is 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 excess reserves was probably not a significant factor in the review would have been such as to have caused a continued in- 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 1e a logical outcome of the June financing. When it was announced on June 1 that an issue of notes would be offered 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 sensitivi ty because so many of the bonds included in it were selling above their call prices. To guard against this, the Treasury average included only noncallable 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 selling 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 satisfactory average may be derived, since every "high-grade" callable 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 free" to move, and so 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 so 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 4-1/2's 1960 Pennsylvania Railroad 1996 Norfolk and Western Railway 41g 4-1/2's 1961 New England Tel. and Tel. Bell Telephone of Penna. 5's 1960 Standard 011 of New Jersey 2-3/4's 1953 : : June 21 : : Price Yield June 21 120 3.19 122-5/8 3.15 128-1/2 2.58 133-3/4 2.66 106 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 -- is, of course, very high-grade, and is given considerable freedom of movement, despite 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 differential 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 percent 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. Chart I 55 YIELDS OF TREASURY BONDS AND NOTES Based on Closing Prices 1954 1952 1950 1948 1946 1944 1942 1940 1956 1960 1958 1968 1966 1964 1962 1970 PER CENT PER CENT 2.75 2.75 250 250 225 Feb. 21 225 2.00 200 Note: June 5 June 19 1.75 1.75 1.50 1.50 1.25 125 Notes de 100 1.00 Bonds WITH no call period 75 Bonds with call period o 75 Arrows to zero line indicate 50 negative yield 50 Bonds 25 25 o DOLLARS 0 Millions DOLLARS Millions 3,500 Amount Outstanding As of June 19. 1939 3500 3,000 Notes Bonds 3000 2500 2.500 2000 2000 1,500 1,500 1,000 1,000 500 500 0 0 1940 1942 1944 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 Note For callable bonds are computed to and issues plotted ** of the earliest call date if the bond . selling above por and os of the final moturity date , the bond . selling below par The smooth curves are fitted by eye Dollar amounts shown in descriptions of issues are in millions issues for which an exchange offer has been made and how expired are excluded 1966 1968 1970 1938 1939 1036 1937 1934 1935 o o NEW YORK CITY 1 1 N. Y. CITY OUTSIDE 2 2 3 3 MEMBER BANKS ALL 4 4 WEEKLY 5 5 BILLIONS OF DOLLARS BILLIONS OF DOLLARS EXCESS RESERVES OF MEMBER BANKS Chart II 56 Chart III U.S. GOVERNMENT SECURITY HOLDINGS 57 WEEKLY REPORTING MEMBER BANKS Cumulative Net Change From Feb 21, 1939 Mar Feb Apr May June July DOLLARS DOLLARS Millions Millions New York City +600 +600 400 +400 Bonds Total +200 +200 Bills 0 0 -200 -200 Notes -400 -400 Mar Feb Apr +1000 May June July +1000 All Other +400 +400 Bonds +200 +200 0 0 Bills -200 200 Total -400 -400 Notes -600 600 Mar Fab +1000 Apr May June July +1000 All Cities +800 +800 +600 600 Bonds +400 400 #200 +200 Total 0 0 200 Bills 200 400 -400 Notes 600 -600 800 Feb -- Mar -800 Apr May June July I 1939 Office of the Security of the Treasury F-III 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 1939 1938 JAN FEB MAIL APR MAY .. JUNE " JULY AUG SEPT. OCT. NOV. DEC JAN FEB MAR APR MAY JUNE JULY AUG SEPT " OCT. " NOV DECInverted Scale Inverted Scale PER CENT PER CENT 2.2 2.2 2.4 Long Term Treasury" . (12 years or more to date) 2.4 2.6 26 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 CENT PER CENT Old Index 80 80 Spread Between Long Term Treasury and Corporate 60 60 New Index 40 40 20 20 0 74 IS JULY 1938 24 JUNE . MAY AUD 1939 SEPT OCT 59 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION CONFIDENTIAL DATE June 26, 1939 TO Secretary Morgenthau FROM Mr. Haas Subject: The Business Situation, Week ending June 24, 1939. Summary (1) The contra-seasonal rise in business activity continues 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 to during the week ended June 17. (See Chart index for that week rose 89.8 week. of the two leading on the chart) steel activity has contributed most to index, the 1) continued previous The adjusted gain industries to 90.6 the (shown from 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. 80 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 orisis 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 shook 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 companies 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 deoline 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 reduced 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 operating 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 improving 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 decline in residential awards in June had been foreshadowed 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 a further decline in residential contract awards, but suggests that they are likely to level out during July and August at approximately the June rate. 83 BUSINESS ACTIVITY PER Seasonally Adjusted CENT Est Normal =100 110 100 37 36 90 38 39 80 70 N.Y. Times 60 JAN. MAR. JULY SEPT. NOV. COTTON MILL ACTIVITY STEEL INGOT PRODUCTION PER PER Est. Normal - 100, Adjusted CENT 1921-31-100 Adjusted ENT MAY 140 20 39 120 00 36 37 36 100 80 -38 39 80 60 30 60 40 NX Times NY Times 20 JAN MAR office of the Secretary of the Ter of Research and Stativies MAY ary 40 JULY SEPT NOV THE JAN MAR MAY JULY SEPT. NOV. C-235-1 Chart 2 64 COMMODITY PRICE INDEXES IN U.S. AND U.K. 1939 1939 APRIL 16 9 2 JUNE MAY 23 30 7 14 21 28 18 11 4 25 PER PER CENT CENT DOW-JONES UTER, MOODY DAILY 162 54 53 159 52 156 51 153 COMMODITY FUTURES (DOW-JONES) 1924 - '26 = 100 150 50 147 49 144 48 141 47 138 46 MOODY'S INDEX IN U.S. 135 45 DEC. 31, 1931 = 100 REUTER'S INDEX IN U.K. SEPT. 18, 1931 = 100 132 44 43 29 42 26 2 9 16 APRIL Official - the Secretary of the Treasury of Research and Statistics 23 30 1939 7 14 MAY 21 28 4 1939 18 11 25 JUNE P - 148 - F-3 PRICES OF INDUSTRIAL MATERIALS AND FARM PRODUCTS 1926=100 1938 1939 D o o M PER TTT 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 $ A A o M D F N 1938 D J 1939 SOURCE: BUREAU OF LABOR STATISTICS Office of the Secretary of the Treasury Division of Remarks and State P - 171-1 A 66 . CONSTRUCT I ON Chart 4 Daily Average, Seasonally Adjucted Total DOLLARS DOLLARS Millions Millions 16 16 14 14 1939 12 12 1938 10 10 June 1-15 6 8 8 6 4 4 Jan. Mar July May Sept. Nov. Residential 8 8 6 6 1930 4 June 1 is 4 1938 2 2 0 0 Jan. Mar. May July Sept. Nov. . CONTRACTS AMARDLU-F.P. DODGE CORP. of the Secretary of the Treasury Ovean of Research and Statistics c 143-A-1 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 "HUST" 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 DV SENATOR PITTHAN AS AN 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 PITTHAN'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 HONEY BILL WOULD BE "DISCUSSED THOROUGHLY* BEFORE THEY WOULD PERMIT ITS PASSAGE. THE BILL MUST BE SIGNED BY THE PRESIDENT BY MIDNIGHT JUNE 30 TO PREVENT EXPIRATION OF THE ADMINISTRATION'S NONETARY PROGRAM. ADMINISTRATION LEADERS SAID THAT IF THE SILVERITES CONTINUED TO PROLONG DEPATE, THE SENATE WOULD BE HELD IN SESSION TONIGHT--TNX FIRST NIGHT SESSION OF THE YEAR. 6/26--RS1246P 69 ADD MONETARY BILL, SEMATE AFTER THE DEFEAT, PITTHAN OFFERED ANOTHER AMENDMENT TO PEC 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 PITTMAN 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 SENATORS 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 BANKREAD, 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 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 (TINED 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 VOTER TO REQUIRE THE TREASURY TO PAY 77-1/2 CENTS AM OUNCE FOR DOMESTICALLY MINED SILVER. THE EXISTING PRICE IS 64.64 CENTS. 6/26--R217P ADD MONETARY BILL, SENATE THE SILVER VOTE WAS 48 TO 30. 6/26--2217? 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, DOWNEY, GERRY, GLASS, HAYDEN, HERRING, HOLT, MCCARRAN, MURRAY, O'MAHONEY, PITTMAN, RADCLIFFI, SCHWELLENBACH, TYDINGS, VAN NUYS, WALSH, WHEELER, JOHNSON OF COLORADO AND KING. REPUBLICANS (17) AUSTIN, BARBOUR, BRIDGES, CAPPER, DANANER, DAVIS, FRAZIER, CURNEY, MALK, HOLMAN, JOHNSON OF CALIFORNIA, REED, TOBY, TOWNSEND, VANDENBERG, WHITE AND WILEY. FARMER LABORITE (1) SHIPSTEAD. FOR DEVALUATION (31) DEMOCRATS (28) BANKHEAD, BARKLEY, BILBO, BYRNES, ELLENDER, GEORGE, GREEN, CUFFEY, MATCH, WILL, HUGHES, LEE, LOGAN, LUCAS, MALONEY, MCKELLAR, MILLER, MINTON, NEELY, OVERTON, REYNOLDS, RUSSELL, SLATTERY, SMATHERS, STEWART, THOMAS OF OKLAHOMA, TRUMAN, AND WAGNER. REPUBLICANS (1) BORAN. PROGRESSIVES (1) LA FOLLETTE. INDEPENDENT (1) NORRIS. 6/26--R232P 72 ADD MONETARY BILL, HOUSE DEMOCRATIC LEADERS SAID LATER THAT WHEN THE BILL IS SENT TO CONFERENCE WITH THE HOUSE--FROBABLY 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 ANENDMENT (48) DEMOCRATS (30)--ADAMS, ANDREWS, ASHURST, BANKHEAD, BILBO, BONK, BULOW, CLARK OF IDANO, CLARK OF MISSOURI, DOWNEY, ELLENDER, MATCH, HAYDEN, HERRING, JOHNSON OF COLORADO, KING, LEE, LOCAN MCCARRAN, MILLER MURRAY, NEELY, O'NAHONEY, OVERTON, PITTMAN, SCHWELLENBACK, STEWART, THOMAS or OKLAHOMA, VAN NUYS, AND WHEELER. REPUBLICANS (16) AUSTIN, BARBOUR, BORAH, BRIDGES, CAPPER, DANANER, DAVIS, FRAZIER, CURNEY, HALE, HOLMAN, JOHNSON OF CALIFORNIA, REED, VANDEMBERC, WHITE AND WILEY. PROGRESSIVE (1) LAFOLLETTE. FARMER LABOR (1) SHIPSTEAD. AGAINST THE AMENDMENT (30) DEMOCRATS (27) BAILEY, BARKLEY, BROWN, BURKE, BYRD, BYRNES, GEORGE, SERRY, CLASS, GREEN, SUFFEY, HILL, HOLT, NUGNES, LUCAS, MALONEY, NCKELLAR, MINTON, RADCLIFFE, REYNOLDS, RUSSELL, SLATTERY, MATHERS, TRUMAN, TYDINGS, WALSH AND WAGNER. REPUBLICANS (2) TOBEY, TOWNSEND. INDEPENDENT (1) MORRIS. 6/26--2305P 73 ADD MONETARY BILL, SENATE THE SENATE REJECTER, 28 TO 39, AN AMENDMENT BY THOMAS OF OKLANOHA, TO REQUIRE THE GOVERNMENT'S FISCAL AUTHORITIES TO STABILIZE THE DOLLAR 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--24 ADD SILVER ACT, SENATE THE SENATE ADOPTED AN AMENDMENT BY SENATOR JOHN 6. TOWNSEND DESPITE THE PLEAS OF MAJORITY LEADER BARKLEY THAT THE REPEAL WOULD REFLECT IN OUR TRADE WITH FOREIGN COUNTRIES. SENATOR ASHURST DENOURCES THE SILVER PURCHASE ACT AS A FAILURE AND TOLD THE SENATE THAT "UE 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 NIGHT BE PURCHASED. 6/26--R433P 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--2434P ADD SILVER ACT, SENATE THE TOUNSENS AMENDMENT REPEALED ONLY THE SECTIONS OF THE SILVER PURCHASE ACT PROVIDING FOR FOREIGN ACQUISITIONS. THE BILL, WHICH ALSO PROVIDES FOR BONESTIC PURCHASES, REQUIRES THAT THE AMOUNT OF SILVER IN THE U. S. TREASURY BE ONE-FOURTH OF THE TOTAL CURRENCY. 6/26--B65P 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 DEVALUATION POWER, RAISING THE GOVERNMENT PRICE ON DOMESTIC SILVER AND BANNING FUTURE FEDERAL PURCHASES OF FOREIGN SILVER. 6/26 ON625P ADD MONEY BILL, SENATE THE $2,000,000,000 STABILIZATION FUND WAS EXTENDED FOR TWO YEARS WITHOUT CHANGE. A LAST MINUTE ATTEMPT BY SENATOR 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 MERELY "THE NOSE UNDER THE TENT." "YOU WOULD DESTROY THE FOUNDATION OF AMERICAN STABILITY, NK SAID. THE ACTION OF THE SENATE TODAY DOES NOT DISTURB THE THOMAS AMENDMENT TO THE AAA UNDER WHICH THE PRESIDENT HAS THE POWER TO ISSUE $3,000,000,000 IN "GREEN-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 COLD RESERVE ACT. 6/26--RB641P TREASURY DEPARTMENT 76 INTER OFFICE COMMUNICATION DATE June 26, 1939 TO Secretary Morgenthau FROM W. H. Hadley Review of the Government Market Teek 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 5/32nda 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 June 17 Week ended June 24 20.3 23.0 33.8 49.5 25.8 22.6 Treasury bonds Treasury notes (1 year) Treasury notes (1-5 yrs.) Treasury bills - 22.8 8.9 H.O.L.C. bonds F.F.M.C. bonds 129.6 Net Change - 29.2 - 2.8 + 11.2 - - 23.3 5.6 106.0 + 0.5 - 3.3 - 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 bends 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 authorisation. 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 TO June 26, 1939 The Secretary FROM Miss Lonigans L. 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 1937 Weekly W.P.A. Employment WILLIONS MAY NOV 1938 1539 MAR TWILLIONS WORKERS MAY MAR. SEPT. WORKERS 3.5 MILLIONS WORKERS 3.5 3.4 3.2 3.2 1.4 3.3 1.3 3.2 2.8 3.2 2.8 3.1 3.1 3.0 3.0 2.4 2.4 2.9 2.5 2.8 2.1 2.0 2.0 2.7 2.1 1.6 1.0 2.6 is 2.5 2.5 2.4 2.4 2.3 1.2 2.3 1.2 2.2 2.2 2.1 2.1 .8 2.0 2.0 1.9 1.9 .4 1.8 1.0 1.7 1.7 0 1936 1937 1938 111 1.6 1939 DWY 1938 un mail SEPT. 1.6 1935 SOURCE: WORKS PROGRESS ADMINISTRATION Office of the Secretary of the Treasury Z 221 B WORKS PROGRESS ADMINISTRATION Number of Workers Employed - Weekly United States Week ending 1938 October 1 October 8 October 15 October 22 October 29 Number of Workers (In thousands) 3,228 3,224 3,266 3,300 3,346 3,364 November 5 November 12 November 19 November 26 3.349 3,319 December 3 December 10 December 17 December 24 December 31 3,287 3,241 3,186 3,124 3,094 1939 3,070 3,030 January 7 January 14 January 21 January 28 2,986 February 4 February 11 February 18 February 25 2,966 2,966 3,011 3,043 March 4 March 11 March 18 March 25 3,032 3,009 3,015 3,009 April 1 April 5 April 12 April 19 April 26 2,980 2,906 2,761 2,752 2,751 May 3 May 10 May 17 May 24 May 31 2,734 2,660 June 7 June 14 2,594 Source: Works Progress Administration. a Confidential. 3,001 2,622 2,609 2,598 2,590 a 81 82 WORKS PROGRESS ADMINISTRATION Number of Workers Employed - Monthly United States Number of Workers 1936 June (In thousands) July August September October November December 2,256 2,249 2,377 2,482 2,581 2,483 2,192 1937 January February March April May June July August September October November December 2,138 2,146 2,115 2,070 1,999 1,821 1,569 1,480 1,451 1,476 1,520 1,629 1938 May 1,901 2,075 2,395 2,582 2,678 June 2,767 July 3,053 3,153 January February March April August September 3,219 October 3,346 November December 3,094 1939 3,319 January February 2,986 3,043 March April 3,009 May 2,751 2,598 a 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 OFFICE OF THE PRESIDENT CHURCH STREET June 26th, 1939. NEW YORK 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 yours, W.C. Dickerman WCD BDD Fon. Henry Morganthau, Jr. Secretary of the Treasury, Washington, D.C. 86 GRAY EG London Dated June 26, 1939 Rec'd 1:28 p.m. Secretary of State, Washington. 901, June 26, 6 p.m. FOR TREASURY FROM BUTTERYORTH. ThE British fund did practically no business in the spot dollar today; the rate WC.S 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 WETE 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 0 prof is THA930 OFFICIAL COMMUNITY TIONS TO THE SECRETARY OF STATE 87 WASHINGTON, D.C. DEPARTMENT OF STATE WASHINGTON June 26, 1939. reply refer to 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, Resy D Stereborne Leroy D. Stinebower Office of Adviser on International Economic Affairs Enclosures: 1. From London, no. 2299, 2. March 20, 1939. From London, no. 2776, June 1, 1939. Mr. Frank Dietrich, Care of Mr. Lochhead's Office, Treasury Department. 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 Czechoalovakia 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 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 610,000,000 which had been placed at the disposal of the National Bank of former Government of Czecho-Slovakia, which was Czecho-Blovakia, and that has been done. The amount that has been withdrawn by Czecho-Slovakia since this advance was first made available - last October - 18 63,250,000. The balance of 66,750,000 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 89 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 610,000,000 until the situation has been cleared up and definite conclusions reached. I may say that I have no reason to suppose that the 63,250,000 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 telegram 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/jo 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 given by the Prime Minister and the Chancellor of the Exchequer to questions regarding the administration of the Czechoslovak (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 ad journment of the House of Commons for the Whitsun recess. There is 1/ enclosed the Hansard text of the debate which took place on 91 -22/ on May 26, together with the summary of the debate that appeared in the Manchester Guardian of the following der 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 reflected British public opinion which has hardened immeasurably 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 propaganda as to the rapidity of British rearmament the need for compromise concessions is no longer held necessary. Therefore, at some point this divorgency 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 Czech gold affair. As reported 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 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 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 required energetic action and it was motivated by these considerations and not idealogical or political concepts in impounding Czech 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 seisure, 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 Treasury 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 against German aggression 93 -4- aggression, as a 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 UnderSecretary for Foreign Affairs was even recalled from the League meeting at Geneva and had some difficulty in persuading Sir John Simon, who is sufficiently ambitious to wish to avoid unnecessary difficulties, that the controversy 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 intended 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 International 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 a 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 94 -5- matters in view of the annexation of CzechoSlovakia to the German Reich. The diplomatic representative could not continue, because the German Government had required that after 25th May diplomatic representatives in Frague should not enjoy extra territorial rights which they had previously been allowed to enjoy. AS regards the Legation, 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 representatives 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 privileges would be an absurdity. He would morely be a private person. The Legation was closed yesterday, and, as my right hon. Friend the Prime Minister informed the House on Wednesday, 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. tion, said that Consular representatives in The German Government, in their communica- both provinces would cease 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 givea the consul his authority. It is under that that he is entitled to take under his wing British subjects that need protection or representations to be made. It also entitles him to send his official bag and to use a oipher 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 leaving 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 a 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 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. Certainly, 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 German authority. That is exactly the problem, and I am morely stating it. I might romind the House that this difficulty has arison 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 go, I do not think it is very surprising that it has been found possible to secure the protection of British interests in those 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 is under consideration, and we are in consultation with other Governments about it. I can give the House an assurance that no relevant 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 prinor recognition of a conquest or annexation which had taken place in breach of the Covenant or the Kellogg Pact. It was I as Foreign Secretary who proposed that at Geneva, it was I who got it carried by the League, and I received ciple that there should not be acknowledgment the thanks of the American Government for doing so. 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 of 96 -7- of British trade. I noticed the point of the right hon. Gentleman, which was that one must perhaps draw a distinction between some sudden, immature acknowledgment of a situation which takes a now shape, which may be an action which we repudiate and deplore and which becomes a portion of a more permanent structure. The case of Menchukuo is an instance, the only instance 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 Guardian of May 27, 1939, entitled "K.p's Criticise Transfer of Czech Gold to Germany", in quintuplicate. WWB/JC & TRUE COPY OF THE SIGNED ORIGINAL RR 97 Written Answers 26 MAY Written Answers 1939 2712 2711 view to supplying official information to supplement that already given in the National Service Handbook, and in the under the usual conditions applicable to agricultural employment. Press from time to time? Mr. E. Brown: I have been asked to reply. The supply of information for persons who are anxious to participate in National Service but are uncertain in what AGRICULTURE. DERELICT LAND CULTIVATION. Mr. W. R. Duckworth asked the Minister of Agriculture whether he has National Service Committees established any statistics showing the extent to which farmers without any subsidy are clearing semi-derelict acreage for the purpose of in each locality. In London. a Central Information and Recruiting Bureau has give any details? capacity they can most usefully do so is a matter in the first instance for the been in operation experimentally for the past five weeks; and National Service Committees have recently been invited to cultivation; and, if so, whether he can Sir R. Dorman-Smith: I regret that the information is not available. consider whether similar bureaux might usefully be opened in their respective SHEEP, OATS AND BARLEY (STATISTICS). localities. Agriculture what was the number of sheep LAND ARMY VOLUNTEERS. Sir R. Glyn asked the Minister of Agriculture whether he can arrange for the names of those who entered their names in the National Register for service T the land army to be communicated to appropriate authority in each county that a scheme may be devised for such persons to have the opportunity to Mr. Lambert asked the Minister of and acreage of oats and barley in the United Kingdom for each of the last five years? Sir R. Dorman-Smith: The following statement gives the number of sheep and the acreages of oats and barley in the United Kingdom as returned by the occupiers of agricultural holdings in June in each of the last five years. volunteer to obtain experience in assisting b carry this year's harvest under proper rage conditions laid down by the Wages Year. Board? 1934 Sir R. Dorman-Smith: If my hon. and allant Friend will refer to the National ervice Handbook, he will see that women ere invited to enrol in the Women's and Army to undertake farm work in be event of war. As stated in the reply hich I am giving to-day to my hon. friends the Members for Tamworth and levizes respectively, arrangements are eing made to provide training facilities 1935 1936 1937 1938 Barley. Sheep. Oats. Number. Acres. Acres. 2,498,301 2,518,221 2,513,692 2,298,830 2,395,016 959,282 871,272 893,999 906,420 24,943,828 25,061,719 25,040,177 25,540,905 26,775,421 987,857 BRITISH ARMY (RECRUITS, VACCINATION). Mr. Groves asked the Secretary of State for War whether the paragraphs of the Land Army volunteers in time of cace. While the primary objective of Regulations for the Army Medical Service regarding the vaccination of recruits after reaching the depot will be altered to meet ricultural labour supply available in compelled to be vaccinated? ch training is an addition to the the case of conscripts, who cannot be me of war, there is no objection to any ember of the Women's Land Army dertaking farm work in peace time Mr. Hore-Belisha: Any necessary altera- tion of regulations will be made. B No. 111 HOUSE OF COMMONS I ADJOURNMENT (WHITSUNTIDE). Resolved, That this House, at its rising this day, till Monday, 5th June: if Speakerthat provided do adjourn that it is Government represented totheMr. by public that the House meet time during the is satisfied that at and interest His any Mr. Majesty's earlier requires Speaker Adjournment should the public interest does so require, he may give notice that he is so satisfied. and thereupon the House shall meet at the time stated in such notice and the Government Business to be transacted on the day on which the House shall so meet shall subject to the publication of notice thereof in the Order Paper to be circulated on the day on which the House shall 10 meet, be such as the Government may appoint, but subject as aforesaid the hope Czecho-Slovakia that hon. 2744 Members, not for the cth day of June or any subsequent act owing to illness or other cause, the Chair- man of Ways and Means, in his capacity as Deputy-Speaker, be authorised to act in his stead for the purposes of this Resolution (Sir J. Simon.] CZECHO-SLOVAKIA the Prime Minister and his colleagues in It is natural that I should bitterly regret what has now occurred, but do not let us on the Cabinet, without giving a verbal answer to the questions, have un- when we raise the matter in questions this that account be deflected from our course. indication of their view of this clear happened on many occasions in the con- which is causing us so much anxiety. matter I duct of foreign affairs since the Prime Minister took executive power in that Leader of the Opposition gave notice that he would to-day raise the question of the possible consideration by His Majesty's Government of the recognition of the existing situation since the aggression of Germany in Czecho-Slovakia I would remind the House that on Wednesday the Prime Minister was asked by the hon. of all parties in this country the Prime made by the Secretary of State for Minister two days later made a speech at Birmingham. Then he made one or two Foreign Affairs. On 20th March he said statements which, I think, will strongly effected in Czecho-Slovakia by German mill there should be noconsideration even given legality. to the question of the recognition of the state of affairs in Czecho-Slovakia The Prime Minister made use of statements of tary action and have said that in our Yes those changes are devoid of any basis That was a very authoritative and des statement by the Secretary of State for considered When he was further pressed, he said that the House would have its own way of expressing its approval, and he asked these questions which are extremely important Is this the last attack upon a small State, That, again, was a most powerful state ment of what I think was the peoper view for His Majesty's Government If take of the situation. What concerns B or is it to be followed by others? Is this, in fact. a step in the direction of an attempt to dominate the world by force? These are grave and serious questions. I am not going to attempt to answer them to-night. now is something which was summed 10 statement by the Secretary of State ROYAL ASSENT Message to attend the Lords Commis- remember as I was listening to him at the time that he said: Every country which is Germany sioners; The House went; and, having re- turned; Mr. SPEAKER reported the Royal Assent of the Prime Minister to satisfy the House on this point on Wednesday last. every one of those countries will be more to certain of the morrow. To-day ought be an occasion when we can get to Military Training Act, 1939CZECHO-SLOVAKIA ment-at least I hope we can-from Government that no such action as of us fear may take place will, in fact. br put into operation. I should like port what I have quoted from the tary of State for Foreign Affairs by Prim ences to the statements of the put in that statement. Since that date doubtedly by their arrangements with Poland, Greece, Rumania and Turkey, and their negotiations with the U.S.S.R. given what seems to be a practical answer to the problem of having reasonable safe- guards for the future. Now after the statement of the Prime Minister on Wednesday we are once more disturbed lest those very actions which have been taken partially in answer to the questions which the Prime Minister postulated will, in fact, detract from those measures and lessen the degree of security that we all want to see. Therefore, we submit to-day that not only should the Government not give actual recognition to the annexation of Czecho-Slovakia, but ought not even to consider it. It is not necessary for us to set out at length the tragic story of Czecho-Slovakia. The bare fact is that the German Government, having tricked the Czechs into surrendering one of the strongest strategic positions in Europe, subsequently without a shadow of right annexed the whole country and brought to an end, to quote the words of one of His Majesty's Ministers, the existence of a sovereign State. This was done despite the agreement which had been come to between Herr Hitler and the Prime Minister himself at Munich It in a short subsequent phrase in the SET I submit that to-day, in view of the failure answer caused very great concern to hon. Members on this side, and my right hon. Friend asked whether the Government were contemplating such action The Prime Minister then replied, rather cryptically, that the matter was being this character at Birmingham on 17th March. He expressed indignation that hopes had been wantonly shattered. He said that Hitler had taken the law into his own hands, Surely that is not a basis for considering recognition now. Then State by force and by the violation of what must regard as the elementary rules of inte national conduct. Czecho-Slovakia by Germany without this no such assurance Obviously, that reinforce our contention this morning that We have protested against the change neighbour is now uncertain of the mottor House being first consulted, and the department of the Government's activities in this House, he may again wobble from what is the proper course for this country to take. After great pressure from people Slovakia by Germany had taken place I think I might quote first the statement Member for Norwood (Mr. Sandys) to give an assurance that no recognition would be given to the annexation of Prime Minister replied that he could give What some of us fear is that, as has is necessary before we go any further to remind ourselves of the views which west Foreign Affairs. In a subsequent passage of this week my right hon. Friend the his actions may be. I recall that he the Government, hope that Members the House, whatever their party may will give the Government to-day a in his statement on that day, he said: We are confronted with the arbitran suppression of an independent sovereip Mr. A. V. Alexander: On Wednesday pressing Czecho-Slovakia, but that he had not answered the questions which he had said That this House do now adjourn.' 11.33 the Prime Minister had made a statement at Birmingham which was of very great importance in its expression of view with regard to the action of Germany in sup- House, or by allowing its feelings expressed on such an occasion as Motion made, and Question proposed (Captain Margesson.] the actual operations were still proceeding 2716 there is an actual Resolution before when latest aggression in March against Czecho day shall be appointed for the day on which the House shall so meet; provided also that in the event of Mr. Speaker being unable to ment in the House on 15th March while Czecho-Slovakia in Czecho-Slovakia. It is partly his attitude that day which make us fear what it shall so meet. and any Government Orders Motions that may stand on the Order Book appointed with the tenor of his state- will feel that it would also have its way of expressing its disapproval. can do so either by formal vote, expressed by leading Members of His Majesty's Government as soon as the of the Day and Government Notices of 26 MAY 1939 Minister himself. We were all dis- on this side, but in all parts of the meiling House been duly adjourned to the day on which House shall transact its business as if it had Royal Assent 2715 I Adjournment- 2713 Question again proposed, That this House do now adjourn. a.m. Mr. Alexander: When the Debate was interrupted I had just been saying that No. 111 was also done in defiance of the guarantees given by His Majesty's Government to the Czech Government, on the faith of which the Czech Government made their surrender in the interests of European peace. The British Government made, in fact, no effort to redeem its pledges with regard to those guarantees, and many people to-day regard the Government as being in the position of a defaulting guarantor. Therefore, in my view it is unthinkable that they should now propose to recognise the action of Germany. I would go further and say that even from the point of view of his own self-respect I should have thought the Prime Minister would not even have considered it. But. after B2 Adjournment- HOUSE OF COMMONS Czecho-Stovakia Adjournment- 2718 2719 [Mr. Alexander.] all, there is something at stake far more important even than the self-respect of the Prime Minister Such recognition, if company of the law-breakers in the that by his return he may appease hope 1 in their actions. It is curious that in them the discussions and statements about all it were to be given, would be, in our U.S.S.R. the Prime Minister the view, entirely contrary to the principles of the League of Nations On sundry occasions in the past few apparently, not been prepared to let has single friendly word pass his lips in rela. tion to that country, but nevertheless be sends his Ambassador to the victory march of General Franco to watch the parade of years those principles have been abandoned by the Government, but we had begun to hope that they had really learned their lesson. We thought that the tragic dismemberment of CzechoSlovakia and the ruthless acquisition of Albania by the other dictator had at last put a stop to a policy of so-calied appeasement by complicity in illegality and violence, and that there was to be a return to the principles upon which alone can there be civilised intercourse between nations. The formation of a peace front which we understand or we hope we understand is almost completed surely implies a return to the conception of the rule of law instead of the reign of anarchy. No doubt hon Members have noted the speech made by the Secretary of State for Foreign Affairs at the Council of the League of Nations at Geneva during the past few days. I take a few words from it: One principle is common to all these obligations that we have assumed namely, resistance to the imposition of is solution by the method of force which if continued must result in reducing civilisation to anarchy and destruction Everything that the Government have done is in strict conformity with the spirit of the League Covenant." Can any of us really maintain that the recognition of Germany's annexation of Czecho-Slovakia is in accord with the spirit of the League? The more one considers the actions of the Prime Minister in these matters the more they give ground for the gravest suspicion From time to time the right hon. Gentleman does not appear to be following wholeheartedly the new orienta- tion, as it has been called, of foreign policy. which is a return as far as may be and as quickly as possible to the principle of collective security From the manner in which the Prime Minister treats these matters I doubt very much whether he appreciates the importance of the rule of law. In fact, it has been suggested that in these international matters the Prime Minister has pronounced recidivist tendencies, because he is constantly seeking to return to the 26 MAY 1939 . doubt. be followed by other nations in such questions where aggression has The effect of the principle will be that violation of the pledges which were given Czecho-Slovakian conquest. Is it not plain to Members of the House that such backslidings from the proposals to return to collective security must depress the friends of peace abroad? At best they are examples of the havering and dithering which have in the opinion of a Member of the Government, characterised Govern ment policy in another matter. respect of the question which should be put to the Government in this matter. Government would be well advised to reconsider the position from that point of view, and to make it plain to the House of Commons that they will not consider de facto recognition The Prime Minister might argue in defence of recognition that the Covenant of the League cannot be held to mean that no change in the existing status of the members of the also the actual legal position. I have tried to put before the House what I feel is the right political position which we ought to adopt in this matter, but there is also the I cannot possibly to sense an matters ininterauthority pretend upon legal legal position. be in any can ever made and that on it be national affairs, but there are open to us authorities at which we can look from time to time for our personal views, and quote evidence as is available to us that if de facto recognition takes place, the British course of time international law may have to develop a rule corresponding to prescription, in order to validate a position courts thereafter will have to give recognition to the validity of the action of the German authorities in CzechoSlovakia. For no other reason than that may have been at its which has been de which ception. but wrong facto in- accepted for a long time. this House ought immediately to persuade In that matter I have been looking up the Government to refuse to consider de facto recognition. The other point I would bring to the notice of the Prime Minister is that there has grown up in the last few what authorities were in national of law that periods and I find of systems available to me, prescription are legal for from years when there has years in international law a clear to cognition of a principle to be observed in In the case of to honour of Slovakia, democracies tragic their of the bond, Czecho- failure left and dismembered a inpledges of the Prime to by in Minister's uncertainty dictator, spite finally it is two months since the boundaries. final only guarantee its set of brutal aggression was performed. I therefore submit that there is DO conceivable case for recognition by ' present in the minds of some hon. Members, particularly the procedure which has taken place with respect to the Bank for International Settlements. hope later on in the Debate that my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) will say a word or two on this question In conclusion, I would say that if the British Government were to grant recognition to Germany over the annexation of Czecho- Slovakia at this time, such an action would be inconsistent with the Covenant of the League just at the time when the speech of the Secretary of State at the League Council this week has given us hope that we were more inclined to a sane view in these matters. Secondly, it would be impossible for such an action to be reconciled with the previous decisions of the Council and of the Assembly. Thirdly, it is contrary to international law as accepted by the American States; and, grounds of prescription. Such action will strike a very heavy blow indeed at the hopes we have of beginning to rebuild a proper recognition of international law. It is not justified by the actions of the Government in the past. They still have not recognised Manchukuo; we still hope they will not recognise Albania as a conquest of Italy; and I beg this House to make it clear to the Government to-day that it is strongly of opinion, in all parts of this Assembly, that the Government ought not even to consider recognition of this brutal aggression at this stage. that victim not to recognise. This is of fundamental importance in the post-War legal position of international relationships. The state ment which was made by Mr. Simpson over the invasion of Manchuria by Japan was one of the precedents which will. In the course of my remarks I have referred to other matters which have been of possession effective 10 to 30 dispute concerning rights been no these matters, which is that in this 50 called non-recognition there must be definite act taken by way of resolving port from all parties in the House in fourthly, it is impossible to justify on of practical be politics might necessary grounds League to recognise changes made by armed force. It may be admitted that in the if necessary. It is plain from such have made a sufficiently good case to Covenant of the League, or signatories to the Pact of Paris with the principles there laid down, must refrain from giving de facto or de jure recognition. I shall pacific means, nor the validity of any occupation or acquisition of territory brought about by armed force. The I ask the Chancellor of the Exchequer when he replies to this Debate to consider cerning prescription I could quote obtain independent and sympathetic sup- Exchequer will be good enough to look it up, because I think he will find there is another precedent in this matter to be found in the Treaty which was concluded in 1933 by the Latin-American States and to which, by the way, both Italy and the United States of America adhered. The Treaty stated that the high contracting parties recognised no territorial arrangements that were not obtained through seems to hanker after recognition of the analogy from rules of national law con- nations who are signatories to the be glad if the Chancellor of the to him directly by the Italian Government. The right hon. Gentleman now 2720 many other authorities, but I hope I taken place. Italian troops, who are still in Spain in Czecho-Slovakia I 2717 12.6 p.m. Sir Archibald Sinclair: There is no doubt that the right hon. Gentleman the Member for Hillsborough (Mr. A. V. Alexander) has constructed a massive case in opposition to the proposal for the recognition of the German annexation of Czecho-Slovakia. I do not intend to follow him into the main aspects of that case, though I was the first to raise I 2721 [Sir A. Sinclair.] in my speech on Friday of I wish to my- of a consul at inevitable result that we for an exequatur from self the last question in week. particular To-day possibility Prague, confine of with the 2723 2722 aspect of the man important Government question balances is, of in that of the Czech with which, I my I the Member course LondonFriend right hon. understand for Car- Personally, as I said last Friday, I dis. ment of those principles when Herr Hitler invaded and annexed CzechoSlovakia but until then we felt confident of the principles for which we stand. But are you really standing for any principle of resistance to aggression? Many for the appointment of a consul there, because there you are recognising not some foreign Government but this new Slovak Government, which is an independent and indigenous Government For my own part I regard it as a puppet of these moderate men have pleaded with me to use such little influence as I possess to strengthen the Government against any condonation of this annexa- Government in the hands of the Germans, Boroughs (Mr. Lloyd to deal in hisGeorge) speech ashe wasis narvon going the first to raise that question. It seems to me that to apply for this exequatur to the German Government in Berlin and thus to recognise de facto Ger- : man rule in Czecho-Slovakia would be absolutely inconsistent with the main principle of His Majesty's Government's foreign policy, or at least, the principle which they profess to have made the main principle of their foreign policy, namely, that of collective resistance to aggression We are engaged it seems to me, on a very dangerous enterprise very necessary enterprise but a very dangerous enter- we set ourselves across the path of these two dictators in Germany and Italy, and when we give guarantees a very dangerous enterprise, and one which we shall not be able to bring to success without a tremendous national effort here at home. and without securing the loyal and confident support of a very large number of friends abroad. Anything which sows distrust between us and our friends in Europe and in other con- tinents of the world must inevitably diminish greatly the chances of our tion. and to make it clear that we do but I realise that it is possible to take different view. It is, however, quite in possible to take a different view of the appointment of a consul in Prague. Is that case you have to apply for your exequatur to the Government in Berlin, stand on the principle, not of protecting British interests, the British Empire and British possessions, but of protecting the world. including the British Empire, from the threat of aggression. I would like to ask the Chancellor of and that would necessarily involve recog- the Exchequer what interests in Slovakia, nition of the German annexation This would undoubtedly have a very serious affect on opinion in France, and I believe in the first place, we are protecting by the appointment of this consul at Brati- it would have a very serious effect on opinion in the United States of America I hope we shall have, in answer to the speech of the right hon. Gentleman the Member for Hillsborough, a declaration slava, and what are the interests that we should be protecting by appointing a consul in Prague? No doubtv e have a certain amount of trade still with those countries, and these consuls would perform a use- from the Government that they approve of the Stimson doctrine of non-recognition of the fruits of forceful aggression. I wish we could have that declaration. Nothing ful function: and there are, of course, the interests of the refugees to be considered I can quite understand and I Government. Moreover, the Czech legion- am not denying for a moment, that there are such interests, some of which would be very important interests: but I would ask the Chancellor of the Exchequer, can they really be weighed in the balance against the suspicion and uncertainty that aries have a very strong influence 00 public opinion in the United States of America and in Russia, and this con would be aroused in this country and throughout the world if His Majesty's Government were to take any action templated action in regard to recognition which involved recognition of the German annexation The Government have long been considering this question. As long ago as last Friday the Under-Secretary of State told me clearly that an application to the German Government for an exequatur would amount to recognition. He said could be more likely to strengthen the understanding between ourselves and the United States of America than the making of such a declaration by His Majesty's of the German annexation in Czecho Slovakia would swing the whole of that success in this enterprise. I venture to influence of the Czech legionaries against say that the attitude of the French Government to this proposal of the Russia, and, indeed, in all Slav countries appointment of a consul in Prague must 26 MAY 1939 what principles we stand for, although many of us are shocked at the infringe- understand that a case can be made out appointment the to apply should The the other have Gerin Berlin. Adjournment- any real principle in the world. We know Government in appointing a British consul at Bratislava. like the idea of this appointment of British consul at Bratislava, but I can to the to countries in Eastern Europe like Poland Rumania and Greece. It is Czecho-Slovakia a Adjournment- HOUSE OF COMMONS us in the United States of America, in Moreover, what would the Germans be clear from the answer which was think of it? In the last 12 months I given to the Question of the hon. Member for Norwood (Mr. Sandys) this morn- have had a great many interviews with Germans, from Gauleiters on the one asic for an exequatur from the German Govern- hand to refugees on the other, and a great man reminded us. amount to the de facto re- ing. It was quite clear from that answer that the French Government have so far refrained from appointing a consul in Slovakia Although they were approached by His Majesty's Govern- No decision whatever has been taken to ment which would as the right hon. Gentlecognition CIAL of Bohemia and Moravia many people in between those classes and apart from the extremes on either side the Gauleiters and the refugees. who 347. REPORT. 19th May, 19392 col. 1889, Vol. There can. therefore be no dispute ment. and were informed by His take, of course, the extreme view either side-moderate people in Germany Majesty's Government of what they in- to an assurance, not that no consul will living there now, many of them in have in tended to do, they have neither appointed a consul themselves nor expressed any approval of the action of His Majesty's about that, and the House is entitled now be appointed. is not what I am portant and responsible positions, said to me. We are doubtful whether for you, the democracies, are standing asking that the present vice- consul may not be continued in his func6 Czecho-Slovakia 2724 tions We hout the necessity for applying for any exequatur, and therefore with- out the necessity for according any de facto recognition I can quite understand that points of that kind may require more consideration What I am pressing for is an answer to this point. Will the Chancellor assure us that the ultimate decision will be one which will in no case involve recognition of the German annexation of Czecho-Slovakia? The the question of consultation with Parliament has been raised. I fully recognise that the constitutional posi- tion is that the Government have a perfect right to recognise the annexation of Czecho-Slovakia without consulting Parliament, and we should have no ground for complaint. But politically that that is not true. Politically it would be an act of the highest and gravest signifi- cance if the Government did that. Politically the Government have no right to commit this country to condonation of a crime without consultation with the representatives of the people. The Prime Minister, for example, recognised the political aspect of a similar question when in the House of Commons in November last he referred to the terms of the guarantee of the frontiers of Czecho-Slovakia He ended a passage of his speech by saying: Of course, before anything was settled the terms of such a guarantee and the names of those taking part in it would be brought before the House. (OFFICIAL REPORT. 1st November, 1938; col. 79. Vol. 340.] Obviously, because it was a matter of such very grave consequence. But so is this and, if it was right then to give that assurance to the House of Commons, it is right now to give us the assurance for which we ask, that no such departure in policy will be made without consulting the House. If we are going to carry to a successful conclusion this hazardous enterprise of collective resistance to aggression, we must be prepared to make some sacrifices of financial interest, of economic advantage and of commercial convenience to the main purpose of rallying the world forces of resistance to aggression. To recognise the annexation of Czecho- Slovakia would be to poison the relations between those who are engaged together on this great enterprise. I beg the Government to give us the assurance that whatever action they may take to protect our interests or to help the refugees- ) COMMONS Czecho-Slovakia think my hon. Friend will quarrel with [Sir A. Sinclair.] I am not asking them to tell us exactly what that action may be will not involve that definition of the primary function of the banker which in these days is so often forgotten. In the particular case under recognition of the German annexation of l handling of the very difficult technical Mr. Gurney Braithwaite: We have just listened to two right hon. Gentlemen and, according to all accounts, we are shortly to listen to three more. I hope the House will pardon an intervention from a back problem of passing reparation payments aross unstable and fluctuating exchanges yesterday should characterise our proceed the present situation, which is that this country should withhold recognition, either de facto or de jure, for a lengthy period, as an indication of our indignation point -although logic is not everything in these matters it seems to me difficult to withhold indefinitely recognition in these circumstances unless one is France. I do not think I am unfair in viction, all would be well. I felt that treme. But I hope that in the present situation there will be no question, for at least a very considerable period, of any such recognition either de facto or de jure. upon certain financial consequences arising from this matter, and it is upon this that I should like to say a word. It affects the situation which has arisen in connection with the Bank for Inter- K that was an experiment which must be tried, and I think this country was right at the time, under the leaderhip of the right hon. Gentleman opposite, to enter the League of Nations and to make an do well to remember is often forgotten in these days when economic theorists flourish-that the primary function of the banker is to take care of his depositors money and to produce it when required Even if the bank manager knows that it is being withdrawn for mischievous or even im- the International Bank in its crudest form. [Interruption.] I was trying to give the actual situation, but I do not believe that that will have to be on the the facts. If I state them incorrectly I basis of economic co-operation, with many hope the Chancellor will interrupt me. which the League embarked on its career Bank for International Settlements-co understand the position to be that the monly known as the B.I.S. held certain assets for the Bank of Czecho-Slovakia, and deposited them in the form of gold with the Bank of England. A few days ago the authorities of the B.I.S. gave instructions to the Bank of England to hand those assets over to the German Reichsbank. This instruction either has function to perform to-day. I had the honour of being interrupted just now by my hon. Friend the Member for North Paddington (Mr. Bracken), who has had great experience in these matters, and who, through one of his organs, has been pressing this matter eloquently, and I think wisely, in the last few days. agree with what he said about money being handed over under duress. That is the method employed in bank rob- Sir A. Sinclair: Do you approve of it? Mr. Braithwaite: beries, when insufficient staff is provided that I trying amCertainly, to saypolicy. I support the well have been continued, but I felt that be Bank, of joint stock Banks and even of rebuilt, and rebuilt in our time, but I order that the Debate may thereafter run both as regards the main issue of recognition by the Government and the subsidiary issue of what is to happen to the Czech currency. I should like to begin by a statement of what I believe to be I doubt very much whether the Bank various totalitarian and semi-totalitarian States in order to resist the challenge that is being made by other totalitarian States It is true of the Post Office Savings to convenient to the House if I raise this matter on somewhat general lines, in for International Settlements has a useful impatiently and stridently, by hon produce the cash as and when required relating to the Bank for International deleted wheel has gone full circle, and this has a bearing on the financial situation. After denouncing alliances as being out of date. the Government are now being urged, right hon Gentleman will be patientthat after the War I felt that the system of military alliances was one which might Settlements. Therefore, perhaps it will be of the more sentimental clauses with alliances with the least possible delay with Czech deposits. I think we should longed logically or even fairly. In the man the Member for Epping (Mr. Members opposite to enter into military national Settlements in connection with Mr. Pethick-Lawrence: The hon. Member for Holderness (Mr. G. Braithwaite) has opened up a very important question Churchill) will at least allow me to say this who hope that the League will be attempt to operate it. But today the The right hon. Gentleman the Member for Hillsborough (Mr. Alexander) touched 12.31 p.m. saying that, at least in this House, at the moment internationalism is being interpreted as the fulfilment of democratic aims. I welcome that new definition, but I doubt whether this facade can be profinancial, as well as the military sphere, we cannot be controlled at this period from either Basle or Geneva. I am one of those and I hope the right hon. Gentle- was out of date and that all hopes were now centred in the new peace experiment, the League of Nations, and that if only the requisite number of genuflexions was made at the mention of the word Geneva and the formula collective security repeated with sufficient con- prepared by force to restore the status quo. Those who take that view must be prepared in the event to go to that ex- point of view, while apologising for stand- ing between hon. Members and other Privy Councillors who want to speak. accordance with the wishes of Britain and Europe. I was told that that method and abhorrence at this annexation of Czecho-Slovakia. From a logical stand- British and French deposits from the Bank, which would have the de factoif that is the correct term effect of preventing a similar lamentable incident. I would humbly submit to the House that fort because it is not functioning in member very well immediately after the War coming home, very thankful to be alive, and being sternly rebuked for suggesting that a simple continuation of the war-time alliance was the best method of preserving peace on the Continent of but I want to put a layman's view of the matter. That is, to withdraw the some discontent and considerable discom- theory in this case. I think a parallel exists in the military situation. I re- ings. I have no knowledge of the diplomatio niceties of these matters such as is possessed by many right hon. Friends, there is another method of dealing with machinery has been set up, and there is consequences which have resulted from this attempt to operate the international of the brief character that we were told Assembly- Members will correct me if I am wrong. If that is not possible, I have. The international financial I should like to indicate some of the bench. I can assure them it will be matter in connection with which I once presented a Private Member's Bill, which made no progress. But I want to make this final observation as the moral of this lamentable occurrence. I want to suggest quite seriously that the Bank for International Settlements has no longer a I useful function to perform. It should be, think revived, if and when the League the League of Nations system should tried. The wheel has now gone full circle. and I feel that we should support the system of the balance of power in Europe 6 2728 quire a two-thirds majority of the Geneva atmosphere or technique, but he has more experience on the subject than alism de luxe. Czecho-Slovakia the moment it is a hotbed of intrigue. I believe that its winding-up would re- side of the arrangement than on the It is, in fact, an example of internation 1939 is reconstructed, on the economic basis that I have endeavoured to indicate. At Mr. Churchill: Would the hon. Member agree that the policy might be linked up with that of the League of Nations? Mr. Braithwaite: If it is possible to have the best of both worlds, I have no objection. The right hon. Gentleman has great experience of League matters. I prefer to Jean rather more heavily on the military national Settlements established at Baste to perform certain functions, notably the 12.20 p.m. 26 MAY 2727 review, we have the Bank for Inter. echo-Slovakia. moral purposes it is still his duty Adjournment- 2726 I Adjournment- OF been or is shortly to be obeyed. The facts of this transfer were referred to on Friday last by the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George), who, in his usual picturesque way, made certain comments upon it, and incidentally charged the Treasury with being a party to the agreement. The Prime Minister, speaking on that day, said that the whole story was a mare's nest, and added that the only releases that had been made were of relatively small sums to refugees in CzechoSubsequently, in answer to Slovakia, questions, the Chancellor of the Exchequer and the Financial Secretary I 2725 HOUSE 2729 Czecho-Slovakia Czecho-Slovakia 2732 1731 The Chancellor of the Exchequer would have us believe that he knew nothing N [Mr. Pethick-Lawrence.] stated the facts in somewhat the same terms as I have done. but said that what was untrue in the statement of the right hon. Gentleman the Member for Car- about what was happening, that he heard of it only by accident from a third party, and that the decision taken by the B.I.S. in no way necessarily represents the views of the Government was his charge that the mind says, theI am were in any way We in this House, knowing the legalistic The no will the narvon Treasury transaction Boroughs Chancellor responsible has not for corrected my statement of facts; therefore, I assume that I have stated them that believe of what foreign the Chancellor he Governments of but Exchequer, believe certain correctly it. They do not work in that way. When they have representatives of their country representing their central bank sitting on some important body- this very body -they take very great care that the views that these representatives put forward are the views of their Government am told that in every one of the other The Chancelior of the Exchequer (Sir John Simon): In certain respects the made the right not right. me to statement man is quite by He invited hon. think Gentle- I interrupt him, but 1 do not can deal with his points one at a time. It would not be convenient for me to pop up every minute in order to do that. cases this may be exaggeration views of the Government are put forward by the representatives on the B.I.S., and Mr. Churchill: Will my right hon. Friend deal with the matter early in the Debate, so that the House may know I certainly do not think that the Chancellor of the Exchequer will be believed what the position is? abroad when he puts over the story that these representatives act on the whole in Sir J. Simon indicated assent. of England, was the Bank of That England is cases, directly at variance with the views right hon Gentleman will correct me when of the Government he speaks, but I do not believe that I We come now to the second question, have made any serious misrepresentation of the facts. These facts raise certain highly important questions The first question of supreme importance is the relationship of the Government to the British representative on the B.I.S. We none of us dispute that Mr. Montagu Norman and Sir Otto Niemeyer are on the Bank for International Settlements what in fact were the views that the not as direct representatives of the Gov- to recognise, and I suggest that the British representatives put forward? Did they in fact, on the B.I.S. support the transference of these Czech assets to the Reichbank? Because if they did this it is a most important thing. Even if the Government were contemplating recognition, they had not at that time decided decision that the Czech assets are to be handed over to the Reichbank constitutes a recognition of some kind at any rate of the control and the hold of Germany over the country that was Bohemia and part of Czecho-Slovakia That is the second question, and it is a very grave one. ernment but as representatives of the Bank of England but that is not to say, what apparently the Chancellor of the Exchequer said. that, in consequence of that. they are neither bound to consult with the Government before taking any action on the B.I.S., still less are they to take a line in accordance with what I do not believe that the foreign the Government wish on vital international Governments will for a moment credit this matters, and finally, that they are not even to be expected to report a decision Government with an attitude different position of the Government vis-a-vis these the B.I.S. supply, and we in this House are at least entitled to know what WD from the one which the representatives of that they have taken on these international questions If that really is the representatives of the Bank of England it is a most grave and serious admission. I go further. I venture to think that in this case we have had, if that be true, a direct conflict of attitude between the moments, but I would like to say, on the a bound to carry them out? that can be argued, and is open to But, granting of that it no course argument matter argument. had International for other the sake Settle- when the Bank for ments had taken that decision, that does not in the least release the Government from their share of responsibility for the action that these men took when they were dealing with the matter in the B.I.S. The fourth matter that arises is the statement that was made by the Prime Minister in this House. I know that the Prime Minister is a very busy man, and I do not in the least charge him with a breach of faith, but there was an interval between the statement of the right hon. Gentleman the Member for Carnarvon Boroughs and the Prime Minister's reply, and I have no doubt whatever that the Prime Minister made his statement as a result of information received from the Chancellor of the Exchequer on behalf of the Treasury. dependently, and, possibly, in certain Mr. Pethick Lawrence: Perhaps the a Government and these men, who are in very representative position on the B.I.S. 26 MAY 1939 Adjournment- 2730 Mr. Pethick-Lawrence: He said so the other day. I can quite understand, and I think on the basis which the Chancellor of the Exchequer now says it might have been correct for the Prime Minister to say that the facts mentioned by the right hon. Gentleman were not correct, meaning by that that the Treasury were not responsible, it is a matter of argument. But it was quite possible to say that. He did not say that, but that the whole story said. We have to distinguish in this matter between the purely practical side of conducting normal business relations with a certain part of Central Europe- I mean by that the appointment of a consul or vice-consul to represent British business interests and the question of recognition either de jure or de facto of Czecho-Slovakia, I believe that, in the opinion of this House and of the country, any kind of recognition by the British Government of the annexation of CzechoSlovakia is quite unthinkable. and I cannot believe that His Majesty's Government are contemplating any such step. There would be the same kind of uproar -much worse, in my opinion- greeted the Hoare-Laval proposals when they first came up. That is the kind of thing that would happen if the Government proposed or even contemplated taking such a step. Therefore, I am sure that the position to assure us that they do not contemplate taking any such step. What I really want to speak about for a moment or two is the financial aspect raised by the right hon, Gentleman the Member for East Edinburgh (Mr. PethickLawrence) and to say that, with regard to the Bank for International Settlements, I believe that the Government are on obviously untrue, and when he went on to say that the only releases that have been bound by these Statutes to hand over any was mare's nest. That is made have been releases of small amounts to refugees from Czecho-Slovakia, he finally painted a that was facts. We have when a statement to contrary complain to the picture responsible the entirely right which is not correct is allowed to be made by a Minister These are the important issues: first of all, the position of the British representatives on the B.I.S. to the Government; secondly, the attitude that these representatives actually took at the B.I.S.; and thirdly, the mis- The third question and it has been statement of facts which the Treasury allowed the Prime Minister to make on B.I.S. gave these instructions to the Bank Gentleman the Leader of the Liberal Party sound ground from the purely legal point of view. From my reading of the Statutes of the Bank of International Settlements, the view of these British representatives policy of the Chancellor of the Excheque all through these discussions to try the make the House believe that this was only issue involved is, if and when the political side, that I listened with complete agreement to what the right hon. Chancellor of the Exchequer will be in a Mr. Lloyd George: He said so. a Adjossment- HOUSE OF COMMONS Friday last, 12.43 p.m. Mr. Boothby: I do not propose to detain the House for more than a very few I believe that the Bank of England is funds that may be entrusted to them. What we complain about, and have the right to complain about, is the evident lack of liaison between the British representatives on the Bank for International Settlements and the Treasury. I think that the right hon. Gentleman is quite right when he says that very few foreign countries would believe for a moment that these two directors could have acted on the Board of the Bank for International Settlements independently of the Treasury and of the Government My right hon. Friend the Chancellor of the Exchequer told the House afterwards that he had heard of the transaction from another source, subsequently I should like to know from whom he heard it. We always assume in this House there is the closest Adjournment- 2733 HOUSE OF COMMONS [Mr. Boothby.] continuous contact between the Chancellor of the Exchequer and the Governor of the Bank of England. We imagine that the Governor sees the Chancellor of the Exchequer frequently and that they discuss all the aspects of financial policy. once described the position of the I Governor and the Chancellor of the Exchequer as corresponding to the position of the First Sea Lord and the First Lord of the Admiralty. The Governor tenders technical advice and the Chancellor of the Exchequer decides on policy, and be- tween them they must make the thing work. It seems almost incredible that the Governor of the Bank of England, in close contact with the Chancellor of the Exchequer in so many ways, as the agent of the Treasury, did not mention this matter to the right hon. Gentleman about the transfer of some £5,000,000 or £6,000,000. The position of the British directors on the Bank for International Settlements is a very invidious one if they are to proceed on their duties regardless of the Treasury. Such an invidious position leads one to think that we ought to examine the position of the Bank for International Settlements itself. I am by no means certain that this Bank has not long since ceased to fulfil a useful function or purpose. The main purpose for which the Bank was established, namely, to facilitate international transfers of funds can no longer be carried out in respect of many countries, and if it is to exist for the sole purpose of enabling transfers of funds to be made from the democratic States to the totalitarian States, which seems to be its main function at the moment, then the sooner it is wound up, the sooner our directors are withdrawn and our deposits withdrawn. the better for this country and for Europe. The Chancellor of the Exchequer would do well to consider the whole position of the Bank for International Settlements at the present time for. in the words of the hon. Member of Evesham (Mr. De la Bère), it is highly unsatisfactory We ought not to confuse the question of the recognition of the annexation of Czecho-Slovakia, either de jure or de facto, with any negotiations that may take place between the Treasury and the representatives of the Reichsbank with regard to the settlement of outstanding Adjournment- Czecho-Slovahia 2734 claims on our side arising out of blocked Czech assets in this country. the was made perfectly plain in the Debate 26 MAY 1939 #735 made by the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) was a mare's nest. I should like to draw on the Bill that British holders the attention of the House to the fact that or bonds and bona fide Czech residents cash markable statement of the Prime Minister have been contradictory. I should, there- balances in Prague in the form of of in this country who have claims in spect to cash or bonds, ought to com re- pensated to the full out of the blocked assets that we hold in this country, fore there is any question of transferring be anything to the German authorities Once those claims are compensated of the assets that we now hold, thanks out to the quick and resolute action of the Chancellor of the Exchequer, I should like the remainder of the assets to be put into a suspense fund and used for the benefit of refugees of one kind or another and for the assistance of Czechs outside Czecho-Slovakia, In any case, I think the Government spokesmen in trying subsequently to explain away that refore, like them to try and explain away those contradictions. It will be remem- The only other point is that I believe hold in London should be treated as one unit with the Czech National Bank Before the annexation these banks held their funds by permission of the Czech National Bank: they were included in the weekly statement of the Czech National Bank and could not be sold or transferred without permission of the Czech National Bank. I hope that in the negotiations with the German Govern ment, which will take formal shape in the near future, we shall treat the assets of the Czech Bank held in London as one unit, and I hope that in his negotiations with the Germans the Chancellor of the Exchequer will not give away the advantage that we have got, but that he will drive a hard bargain for the benefit of British claimants against Czecho-Slovakia and for the benefit of Czech residents here who may have claims and who are desperately hard up at the present time. p.m. Mr. G. Strauss: I should like to follow the main line of argument which has been adopted and to ask the Government few questions. The first question is in regard to the Prime Minister's statement last Friday, when he said that the statement the House of Commons. Let me come to another point, which was dealt with by the hon. Member for East Aberdeen (Mr. Boothby) and my right hon. Friend the Member for East (Mr. Pethick-Lawrence) namely the position of Mr. Montagu Norman and Sir Otto Niemeyer on the Board of the Bank for International said that the story, which we now know to be substantially true, was a mare's Settlements. The Chancellor of the Ex- nest, the Financial Secretary to the Trea- chequer said sury said It is certainly not the fact that the Governor of the Bank of England reports to the British Government on a matter of this sort. It is a mistake to suppose that the Governor of the Bank of England serves on the Board of the Bank for International Settlements as nominee of the British Government [OFFICIAL REPORT, 23rd May, 1939: cols. should like to make it clear that my right hon. Friend (the Prime Minister) has no means of knowing whether the facts are, or are not. as stated by the hon. Member for North Lambeth (Mr. G. Strauss) -[OFFICIAL facilitated and quickened by direct nego- the assets of the Czech banks which MY anxious to withhold information which was in their possession than to give it to Question which I put on the Tuesday asking why it was that the Prime Minister REPORT. 22nd May, 1939: col. 1928, Vol. 347.] a very strong position because we have in our hands very considerable sterling assets. questions we have put, particularly in regard to Spain, where it was evident that the Government have been much more Edinburgh My question was whether the Czech balance in the hands of the Bank for International Settlements deposited in London would be handed over The and in those negotiations we shall occupy 2736 bered that in answer to a Supplementary the whole of this business might be tiations with the German Government, Czecho-Slovakia Financial Secretary to the Treasury said that the Prime Minister had no means of knowing whether that had happened and that consequently he was justified in his , ignorance of the matter. However, the next day the Chancellor of the Exchequer said: should like to make it plain to the House that the Treasury did hear indirectly that it was believed that the German Reichsbank was 2089-90, Vol. 347.] Then whose interests does he represent on the Bank for International Settle- ments? Is it seriously suggested that he is merely the representative of the interests of the shareholders of the Bank of England? Nobody in this country and nobody in any other country would swallow that story. He is obviously there as the representative of the Government Yet on a matter so directly and seriously affecting the national interests of this country and affecting possibly the lives of trying to get from the Bank for International many people in this country-for this Settlements an amount of gold with which it money which is going to Germany is used had Bank been entrusted by the Czech National mainly for the purpose of building up Sir J. Simon: Surely that is a different thing. Mr. Strauss: I do not think so. First, the Financial Secretary says that the Gov- ernment cannot know anything about it in the circumstances, and then the Chan- cellor of the Exchequer, the next day, says: As matter of fact we did hear it about it, and not only did we hear about but we made investigations. There is a very obvious contradiction in the stateof ment of the Financial Secretary and that the the Chancellor of the Exchequer, and tion House is entitled to a further explana- the of the matter. We on this side of House are particularly suspicious in regard to this matter, because we have to been accustomed in the last year or two answers from the Treasury Bench on their armaments- are told that Mr. Montagu Norman does not even report on the matter to the British Government If that be so, I suggest that it is an intolerable situation. If that is really true, and if the Governor of the Bank of England and Sir Otto Niemeyer sit on the Board of the Bank for International Settlements either in their personal capacity or as representing the shareholders of the Bank of England, then that is the strongest argument that has ever been put forward for the nationalisation of the Bank of England and for making the Governor of the Bank of England the servant of the British people. Indeed, we are always told by hon. Members opposite, when we argue that case, that in point of fact the Bank of England is in matters affecting the financial interests of this country the agent of the Government, but in a Adjournment- 2737 HOUSE OF COMMONS 2738 Mr. Strauss. critical matter of this sort we find that the directors not only do not follow the interest depositor party. from England to the United States of America? The United States did not sign the agreement which was signed by What is the position now in regard to this money? I understand that the gold is still in the Bank of England, that it has not been taken away. If the prevent it being taken away by the and handed over to a third Government really want to act in this I also understand, again from some matter in the direction in which I am perfectly certain the House wants it to act, could still prevent that gold reaching my legal friends, that if I have a deposit of the vaults of the Reichsbank by giving at a bank and the bank knows that the money I hold there is being kept for certain guarantees to the Bank of other purpose, is in trust for some other some necessary legislation. If the Government are anxious to prevent this money going to Germany, why do they not act? There is further a serious danger for the Chan- England and then putting through the party, and I give an order to the bank deliver the money, which the bank knows I am trust for some pose, to a party, to my I have this country and, therefore the deposits of the Bank for International Settlements cellor of the Exchequer. One of these days it may be that an independent bookmaker, holding third in if perhaps one, other in pay those pur- to would not be immune from confiscation or seizure or temporary restraint, in the United States, i should have thought that these directors on the Bank for International Settlements, if they thought there was a slightest danger of the money in London being taken by Germany. might have thought it desirable to transfer the circumstances the bank is entitled not to part with that money when it knows that the deposit is held in trust. If customer A has a deposit at a bank and asks for Czecho-Slovakia will arise and say to the Bank of England and to the British Treasury You held £6,000,000 of our money. but you handed it over to a third party without our permission. We want the money to be given to Y. the bank according to British law, can say The money is held in trust for X, and there that money back. In those circumstances I am told that the National Bank of Czecho-Slovakia would have a very good case for demanding that the money fore. we cannot allow it to be paid out to Y. I submit that the facts in this case fall into such circumstances. The Bank for International Settlements held this money in London in point of fact in trust money to the United States. If it is argued that the directors of the Bank of England acting on the Bank for International Settlements are in a minority position and that the Bank for International Settlements is under the influence. as has been alleged. at the moment of the Fascist countries, that again is an unanswerable argument for the abolition altogether of the Pank for Inter- should be refunded to the Bank of The next point I want to put is, could the British Government, taking into account the Protocol and British law, and knowing the facts, have stopped the trans- fer of this money to Germany? I suggest the Chancellor of the Exchequer. There is another very extremely important point. I want to ask the Chancellor of the Exchequer whether he will elucidate far more clearly than he has up to the moment what is the position of Czech balances which are being held here, quite apart from the issue of the Bank for International Settlements. What is under duress by the German Government the Government had really been anxious that when those claims have all been fully satisfied the balance will be sent back to the Czech National Bank, which in fact means to the German Government That is one attitude that can be taken. The Government can look upon the deposit which they are keeping here under restraint as a negotiating instrument to until the legal aspect had been settled of until legislation had been passed by But neither the Bank of Parliament England nor the Treasury seemed at all anxious to prevent this transfer of money their chief concern seems to have been satisfy British claims. On the other hand, they can look upon the money as being ' I hope the right hon. Gentleman the Chancellor of the Exchequer will make himself quite clear on the matter. From the statement that he made, it would appear that the Government contemplate making a general release to Germany of what balance there may be. On Tuesday, the Chancellor said that there will be no general release of the assets unless and until a satisfactory arrangement has been made in regard to the financial obligations of Czecho-Slovakia to British holders, from which one gathers, by inference, that when such an arrangement has been made there will be a release of the assets to the Czech National Bank and to Germany. I submit that this matter is of considerable importance not that, in spite of all the pacts that have been entered into and the guarantees that have been made by the Government dur- ing recent months, they are continuing a policy of appeasing and satisfying the dictators by making sacrifices to those dictators at the expense of small nations, then I think the world will have little faith in any change of policy by the policy of appeasement. money here in order that British nationals or institutions who have claims against Czecho-Slovakia shall be satisfied and prevent Germany they money being the transfer handed good legal case for holding up and those of world peace. see, they can pursue one of two policies. They can say that they are holding the over to had quite a trust for the Czecho-Slovak people and will in no circumstances be handed back to Germany where, as we know, it would be used for purposes quite contrary to the interests of the Czecho-Slovak people Government and will be convinced that the Government are continuing their old pending action in the courts of law. of should have come to Parliament and asked for the direction of Parliament If to this Czech balance there may be and there may be a considerable will be kept here in the policy which the Government are pur- suing in this matter? As far as I can money. In view of the doubt which exists in this matter, I submit that the Govern ment should have held the money back people and say that after the claims have been properly and fully settled, what see what is the foreign policy of the Government at the present time. If it appears matter has not escaped the attention of certainly tell them not to part with the there are two grounds on which they could have done so if they wanted. In the first place, it is clear that the Bank for International Settlements was put held in trust for the Czecho-Slovak independent Czecho-Slovakia. I hope that International Settlements then asked the Bank of England that the money should be handed over to a third party. of England is running the danger of committing, if it has not actually committed a breach of trust, and I am informed by my legal friend that the matter is open to considerable doubt, and that if he were advising the Bank of England he would 2740 only to the people of this country, but to the people of the world. The people of the world are watching anxiously to would have to find the £6,000,000 in order to hand over to the bank of an England knew that: and the Bank for Czecho-Slovakia Czecho-Slovakia, and the British taxpayer for the Czech people. The Bank y In these circumstances I think the Bank national Settlements. Parliament or the country. L it I want to put a further question about the actions of Mr. Montagu Norman and Sir Otto Niemeyer on the Board of the Bank for International Settlements. want to ask whether they considered at any time the transfer of this Czech money prevent the matter being made public to third party, the bank in those stances is entitled to keep the deposit circum- 26 MAY 1939 2739 has placed with the bank and the knows that the customer does not bank to do so, but is being forced to do want instructions of the Government here but do not even bother to report back to the Government matters of immense national I There was, in fact, considerable opposition to this move. I understand that influential Czech circles pressed that the transfer should not take place, but the demand was made. and acting under duress the Bank for International Settlements felt that they had to give way. am not a lawyer, but I understand from some of my legal friends that the law of Switzerland, as well as of this country, is that when a customer of a bank demands to take away a deposit which he Adjournment- Czecho-Stovakia Therefore, I think it is desirable, first from the point of view of the Bank of England, that the position in this respect should be clear. It may well be that the Bank of England, after what has happened, may no longer be looked upon as the safest place in the world and that the phrase "as safe as the Bank of England may no longer apply. The Czech people and other peoples may look upon the Bank of England as being very unsafe, and the pbrase may become " as unsafe as the Bank of England.' The deposits of small countries may go to HOUSE OF COMMONS Czecho-Stovakia Secondly, this matter is very important Bank for International Settlements represent the Bank of England. I am certain that my right hon. F. the Exchequer-I should be very much obliged if my hon. Friend the Member for Southend-on-Sea (Mr. Channon) would not hold a discussion with his lord and master the Under Secretary for Foreign Affairs: I have no doubt he has important information to impart to him, but I sug- the Chancellor of the Exchequer Win give and us an admirable legalistic defence of British Government's arrangement with the regard to the Bank for International Settlements' deposit. The Chancellor would be right in maintaining that the gest that he should do it outside the House. I am sure that the Chancellor will agree that Sir Otto Niemeyer and the other director read the Czecho- British Government have no power what from the point of view of the safety of this country. It would be a very serious thing if £6,000,000 of free money were handed over to Germany for the purchase of raw materials for armaments which might be used in some great war in ever over the deposits of the Bank for International Settlements, whether held in London or elsewhere. The Bank for point of view and from the point of view of the confidence of countries such as the United States of America Russia and the smaller countries in Europe, whose con- put outside the scope of the laws of the many countries which were its founders, so that the Government can make out a very good case for possessing no power over its deposits. It is most distressing to learn that the British directors on the Board of the Bank fidence we must have if we are to have for International Settlements did not think fit to inform the Treasury of the any real peace pact against aggression, arrangement to transfer Czech gold to it is essential that we should make it abundantly clear that we are no longer pursuing the policy of appeasement and giving in to the demands of the dictators when they make them, not as a sacrifice from this country, but as a sacrifice from small countries which are unable to resist those demands If we hand over to Germany any part of the Czech money that the Nazi gangsters who have bludgeoned and robbed Czecho-Slovakia. The Chancellor told us that he heard of it from an unofficial Continental source. I think my right hon. Friend has been very badly treated by the two directors of the Bank of England who sit on the Board of the Bank for International Settlements entirely agree with my hon. Friend the is held in this country, we shall be Member for East Aberdeen (Mr. shaming ourselves, and such reputation as we may have gained during the last Boothby) who described so well the relationships that exist between the Bank of England and the Chancellor of the Exchequer. My hon. Friend described the position as being that of the First few months of standing up against aggression will instantly disappear. 1.10 p.m. who First Sea of course, is connection with the present Chancellor of the Exchequer, because now the Treasury have a much greater control over the goings on in the Threadnerdle Street department of national financial affairs. But it is very hard indeed o the Chancellor that he should have to de pend on an unofficial Continental source for information of such vital importance. Bank of International Settlements, knew that £6,000,000 of gold belonging to the Czechs was deposited in London, and also that the Germans were pressing for a return of that money. MEMBERS: Hear, hear.' The Chief Mr. Bracken: I am not a lawyer. [HON. Whip who is behind Mr. Speaker's chair says hear, hear,' which I suggest is out of order, but even gorgeously arrayed as he is to-day, I would say this to him. We all know that directors of any institution, whether in Switzerland or in Eng- to tell us what to do, but in view of land, who definitely break a trust with the fact that we did foster this Act, we should like to know the opinion of the Government on what our duty should be. I say that they should have gone their depositors or shareholders, may be shot at in the courts. I do not believe it is possible that the Governor of the Bank of England or Sir Otto Niemeyer further. I say that the two directors will be called upon to pay this £6,000,000. should not only have notified the Chancellor but should have gone to Basle and made the strongest possible protest. If their colleagues had attempted, in disregard of their views, to hand over this money to the Germans, they should have resigned from the Board and withdrawn the British deposits from the Bank. say that these two British directors of the Bank for International Settlements are trustees for the unfortunate CzechoSlovakians. They had a duty to those But I think they might be subjected to a good deal of what is known as legal mangling in the courts in Switzerland and I, personally, would like to see some mangling. It seems to me that they adopted the attitude, The Nazis have got control of Czech bank balances by violence and we have to hand over the money to the gangsters who have broken into Czecho-Slovakia and seized the title deeds of the property of the Czechs. The directors of the Bank for Inter- they were who bludgeoned the to had for retain whom been trustees, by those Germans, to the gangsters, We realise that you that money until they got a are right. I think of these directors, decision from the courts in Switzerland. it must be said that they came, they saw and they capitulated. I ask the hon. Member for Holderness (Mr. G. Braithwaite) what would be the attitude of a British banker if a gangster came into his bank and attempted to of to be sued in regard to this matter. I do not believe be necessary for us to I that Indemnity it will Bill to protect thepass Bank an of perience proved conclusive from our point International Settlements, Sir Otto Niemeyer, is a former Controller of by the hon. Member about the sealed lips policy of the two directors of the Finance at the Treasury. I presume of that he has access to the Chancellor the Exchequer, and would regard it who nourished England, but hope Czecho-Slovak state if I were a the that the of Czecho-Slovakia would one day be reshould take some trouble under No 6 think that is a sound point. It is also clear that the British directors of the under Swiss law? for for the North Bank England it is possible as until the Swiss courts had ruled on the legality of the German occupation. have occurred to them that they should mention to the Chancellor of the Exchequer that they, as directors of the I do not agree with the hon. Member Lambeth that One of the directors of the Bank of England on the Board of the Bank for possible, through diplomatic negotiations, to have prevented the transfer of the gold Niemeyer might in certain circumstances that the Chancellor has no legal power often wondered who was First Lord and Swiss law to find out what my trustees did when the Germans attempted to get hold of this money. It might have been be held personally liable for this debt, They could have said: We realise Lord and the First Sea Lord. I have Mr. Bracken: I agree with a good many of the remarks made by the hon. Member of view. I agree with what was said 2744 Mr. Boothby: Does my hon. Friend suggest that Mr. Norman and Sir Otto Surely, having read that Act, it must I nents, and which might result in the destruction of millions of lives in this country. Thirdly, from the international of the Bank of England, and that ex- Gzecho-Slovakia Bank for International Settlements made no effort to protect those people, who had put their trust in them. Let us recognise that fact. Slovakia (Restrictions on Banking Accounts, etc.) Act that was passed by the House. They would do so in their capacity as directors of the Bank of England. International Settlements is what parsons call a peculiar. It is a bank that was which England and Germany were oppo- think it is very unlikely that we should his consult with the Chancellor of who I other countries, and not to the Bank of England unless the Chancellor, even now, says that he will take what action he can to prevent money belonging to the Czecho-Slovak peopl and still in the vaults of the Bank Oi England, from going into the hands of a third party. ever be asked to provide £6,000,000 to satisfy damages against the Bank of England as a result of a law case that was won by a Czech national. I believe that once there was an experience of that kind in connection with a debt of £3,000,000 26 MAY 1939 2743 [Mr. Strauss.) for North Lambeth (Mr. G. Strauss). but I think he rather exaggerated the dangerous position of this House in relation to the deposits of Czech money in the Bank for International Settlements. Adjournment- 2742 national Settlements simply said, in effect, cash a cheque signed by one of his customers, when he knew that that customer was under duress? It is perfectly clear that the banker would not cash the cheque, but would send it back c I 2741 Adjournment- I 2745 Adjournment- HOUSE OF COMMONS Adjournment- Czecho-Slovakia 2746 for further and better particulars, and remember reading in Swift a criticism ofthe theworks Irishof Dean communicate with the police. He would go in for all sorts of delaying processes in was very true that the bishops who [Mr. Bracken.] tiations, which may shortly become formal are highly dangerous, and no one in this House approves them. I agree with the hon. Member for East Aberdeen when he says that if the public find out that not only are the Government now in their place, and greatly discredited tell- gion in that country. Somebody is try. willing to recognise the German conquest ing to steal the clothes of the Chanceller of Czecho-Slovakia, but are also going to take the savings of the Czecho-Slovakian people and transfer them to Germany in order to facilitate her rearmament, there of the Exchequer andaffair, of our Treasury officials in this Czech kind of lawyer. Consider the irony of the position The Bank for International I have not attempted to make any cal culation of what shall be left by way of Settlements, which was set up to facilitate international banking transfers and to promote good will in international relationships, is the bank which sanctions the most notorious outrage of this generation, the rape of Czecho-Slovakia. will indeed be as mighty an uproar as surplus, but there should be a fairly substantial surplus when the rights of there was over the Hoare-Laval proposals. British claimants have been met, and I entirely agree with my hon. Friend the 1.28 p.m. Sir John Wardlaw-Milne: It is one of the great advantages of the House of Commons that in a Debate of this kind Member for East Aberdeen about the des tination of that surplus. The object of I do not want to be very controversial. What I have said so far will lead no one to believe, I am sure, that I have been in any way over censorious of the Gov- these informal negotiations is clear. The Nazi bosses of Czecho-Slovakia are trying to get as much Czecho-Slovak money or assets as they can for transference to the Reichsbank in Berlin. What are the ernment But now I propose to say a word or two about what the Prime Minis- we are able to hear both sides of a ques- doing here otherwise? Does anybody think that they are sitting round a table ter calls the informal negotiations which are going on between the Nazi here talking amiably with Treasury German representatives of the Reichsbank in London and our Treasury officials. My hon. Friend the Member for East Aberdeen to my great surprise, blessed those negotiations. The Prime Minister is not so sure about them. He calls them informal. What are the Government negotiating about? The assets and savings officials about the weather and the price of fowls? No, they are trying to get as much of these assets as possible to take back to Germany in order to buy various metals of war which will be required (c) the day when Messrs. Hitler and Com pany really believe that the major smash be with the Czechs, but not at all. They are negotiating with the Nazis who garrotted Czecho-Slovakia and robbed her of her possessions. Those are the people with whom we are negotiating Not one Czech is present at these negotiations. They created these assets, they own this property but they are not represented. The gangsters who came in and captured International Settlements, I am bound to say that I found it impossible to follow him. As I understand his argument, it is that two directors, being a small propor- tion of the total Board of the Bank for International Settlements, should have objected to that bank giving an order to the Bank of England to dispose of assets which did not belong to the latter, but to the Bank for International Settlements, and that, if they had found that the rest of their colleagues did not agree with them they should have made a public protest and resigned from the Board. Mr. Bracken: I must that at issue is The British the point this, say that again the two question. present by-elections in out and the of last the directors on the Bank for Inter- various political developments any few months show that that policy at national Settlements were perfectly aware that the British Government had passed an Act, called the Czecho-Slovakia (Restrictions on Banking Accounts, etc.) Act, rate is dead and damned but some form deat of appeasement is still, apparently, they to the heart of the Government so No ' Sir J. Wardlaw-Milne: It would be of great advantage if we did not mix up two things. I am dealing only with the position of these directors in connection with the demand on the Bank of England for the transfer of money which belonged to the Bank for International Settlements. I am not at the moment concerned with the issue as to whether they felt it their personal duty to make a public protest and resign-that is a matter entirely for themselves I am concerned with the position of the Bank of England, which had money deposited with it by another bank. As I see it, the Bank of England had no other course but to follow the instructions which they received from the The people who owned the money. money was the property, not of the Bank entitled to say to the Bank of England, Transfer this money to America, to Japan, or to Germany, or to anywhere but when he was dealing with the position the time is, of course, their country are those with whom the Government are negotiating. I am staggered by this idea of informal negotiations between our Treasury officials, whose austere head sits in this House if their colleagues would not take notice of them, they should have resigned. of England, but of the Bank for Inter- of the British directors of the Bank for Really, this is the most squalid form appeasement. Political appeasement their duty to go to Basle and protest against this surrender of Czech assets and, Bracken) will understand when I say at once that I think I disagree with at least three-quarters of what he has just said. Of course, I do not disagree with every word, and I .appreciate, as, I am sure, in which he put his argument forward, are actively helping the German rearmiment programme, and our Treasury off cials are sitting round a table talking to people about stolen goods or about how much of those stolen goods should be given back to Germany in order to facili tate her rearmament programme. ing? One would imagine that it would Slovakia. They are two of the most influential directors of the bank and are regarded as its co-founders, and it was tion. Therefore, my hon. Friend the Member for North Paddington (Mr. did the whole House, the very breezy way and-grab raid is ripe for delivery. So that we at the present time, in London of the Czecho-Slovak people, lodged in London With whom are they negotiat- I and the representatives of such men. course, that I am recommending any such stole their robes and went to Ireland the Chancellor of the Exchequer how this can be done. provided you have the right not recognise the Government of Czecho- action. I say that these informal nego- added, it was evident that when they be were crossing Hounslow Heath they seized upon by highway robbers were who or three years. They would have been perfectly within their legal rights in starting inquiries into the real ownership of these assets. Nobody knows better than and that the British Government would the highest reputation for morality, scholarship and discretion. But, England and, when they had been in respondence which would have lasted two 2748 very squalid form of financial appease- secrated in London, left this city with con appointed to Ireland by a Government were under duress might escape. That is the sound line to take in such a case. The Bank for International Settlements could, by engaging a lawyer to communicate with the Reichsbank, have started a cor- Czecho-Slovakia in for financial appeasement. But it ment, because they are appeasing the Germans with the money of the unfortunate Czechs. I think it would be a better form of financial appeasement to give them some us our own money-not of in the eighteenth century. Swift bishops said the hope that the man who was held 26 MAY 1939 2747 national Settlements, who were perfectly they choose. The proposition which has been put forward several times in this Debate, that a banker in the position of the Bank of England, holding funds belonging to some other party, should be able to dispose of those funds in a way contrary to the wishes of the owner, merely because they think that the owner has no right to the funds or is giving improper instructions, is, to me, one of the most extraordinary statements that I have ever heard I completely fail to understand that attitude, but I want to say that that does not necessarily mean that I disagree with anything that has been said this morning regarding the desirability or otherwise of continuing the Bank for International Settlements. I am not at all sure that I do not agree that the time has come when the Bank for International Settlements might well disappear. I think it has perhaps served its period of usefulness, but that is quite a different problem from the problem, which has been so often stated this morning in one form or C Adjournment- [Sir J. Wardlaw-Milne.] another that for some reason, namely, because we have sympathy- and I have as much sympathy as has any other hon. Member with the position of Czecho- Slovakia, the Bank of England under the instructions of the Government of this country, should have taken an action which no man could possibly take without being in the position of not fulfilling his trust. The hon. Member for North Lambeth (Mr. G. Strauss), I noticed with interest, said that the phrase Safe as the Bank of England would soon disappear if the policy that he advocated was not followed but surely it would more quickly disappear if we had the position in which a banker was entitled Adjournment- Czecho-Slovakia 2750 in the Government and the German author rities, and made the statement, which have no doubt is correct, to the effect that no Czechs were represented in those if the facts were such as they were represented to be by this important newspaper. Sir J. Simon: It came indirectly to us. The statement which appeared in the newspaper said that the Treasury had agreed to this transaction. I naturally Mr. Lloyd George: He knew about it; that is what I am saying. as anxious with him, but the point which he suggests are in violation of the trust, surely the hon. Member will agree that the banker under those circumstances is acting correctly to disobey those instructions, sub- ject to confirmation inquiry, and so on? Sir J. Wardlaw-Milne: That is a very hypothetical case, but as I see it a banker is entitled to disobey his instructions only is, as I understand it, that there is little fact. it was very disingenuous. The Prime these negotiations are in connection with claims on behalf of British subjects, and it may very well be that it is much to the interests of British subjects that these negotiations should go on. I should strongly object if the negotiations meant the transfer of a great deal of money to Germany, but if these negotiations mean, the settlement of a large number of claim Where did you get the money? Did you get it correctly? This is a posi- tion in which definite instructions were given by the owners of the property to those who had it in trust, and clearly the Bank of England had no other course than to carry out their instructions. Mr. Bracken: Let me give my hon. Friend a specific case. After Austria was attacked by the Germans, the Reichsbank in Berlin wrote to certain London banks and asked them to deliver moneys held on Austrian account to various branches of the Reichsbank and these London banks refused to deliver that money. Sir J. Simon: Perhaps the right hon. Gentleman will be willing to read the sentence. in favour of British subjects I do not Mr. Lloyd George: He said: think we should take up the attitude that of England was the only possible attitude posited the money with them. They could not go behind them and say, Minister stated that he repeated in the House what he had been told by the Treasury. Obviously, therefore, it was the Treasury who were responsible. Let us see what the Prime Minister said in reference to this. He said that I took a very gloomy view of this transaction to Germany at all because the bulk of national Settlements did not give the instructions or had not the right to give the instructions that would be quite a different position. But here is a case in which the Bank of England could not go farther back than the people who de- was Nobody now will say that the explanation was fair or straightforward In likelihood of any money being transferred could be proved that the Bank for Inter- given illegally, and if in this case it asked the Treasury what the explanation tiations. be transfer assured So far of that he is Germany to avoid nego- we are not prepared to negotiate. My main object in rising was to emphasise the point that the attitude of the Bank if he has reason to believe that they are knew about it. He has said so. If rights of a Member of Parliament to ask that from a Minister. I drew some conclusions as to what the effect would be way contrary to the instructions of the instructions to the banker which he knows this I was perfectly well within the accordance with the procedure which any Reichsbank Would anyone have believed from the Prime Minister's statement that that transaction had occurred It occurred with the consent of two of our representatives on the International Bank. The Chancellor of the Exchequer private banker would adopt. The hee Member for North Paddington referred to the dangers of negotiations between any money to be can the whole House is Mr. G. Strauss: Will the hon. Gentleman answer my question? If a depositor has a trust fund with a banker and sends when I was speaking I diverted from the topic which I was developing and I summarised the statement from memory. said to the right hon. Gentleman I think we ought to have some explanation of authorities may have done, it does not give me much confidence that we should follow such a course. To me it is quite clear that our actions must be England have been handed over to the that what I read was so startling that knowledge of anything that the German my 2752 £6,000,000 Czecho-Slovakian assets which were deposited in the Bank of able Conservative newspaper. I thought which I know nothing, but from of Czecho-Slovakia of £5,000,000-and I think nearer Mr. Lloyd George: That is the one I happened to read- is a highly reput- Sir J. Wardlaw-Milner I cannot. course, say anything about a case of to deal with money entrusted to him in a people who owned the money. 26 MAY 1939 #751 I 2749 HOUSE OF COMMONS The right hon. Gentleman 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 that could have been taken up in the 1.37 p.m. Mr. Lloyd George: I really ought to at all, because it is the general desire of the House that it should be conducted mainly by private Members, and I can well sympathise with that, having been a Private Member longer than anyone in the House. As. however, this incident has developed as the result of my inter vention in the debate last Friday, I feel bound to say a few words in regard to Sir J. Simon: I am not making any quarrel about it, but I will explain how far I had any intimation. Mr. Lloyd George: Here were two representatives of the British Government on the Bank for International Settlements. I am amazed at the way in which the position of the Bank of England has been misrepresented. It is treated as if it were purely an ordinary bank with no responsibilities to the Government no responsibilities to Parliament, except the responsibilities that we all have as citizens of this realm, and no responsibilities to the Treasury. That was never the attitude adopted by the Bank of England or the Treasury in the days when my right hon. Friend the Member for Epping (Mr. Churchill) or I and others were at the Treasury, or even the Prime Minister. It is the statement in the Daily Tele- They were always consulting us. If there were anything that involved a great principle or a matter of policy, and certainly graph " which I have summarised I am glad to be able to cheer up the right hon Gentleman on that particular apologise for taking part in the discussion about it. was to release (5,000,000 of Czecho-Slovakian assets to the Bank for International Settle ments for the benefit of the Reichsbank. circumstances. he denies it I can quote what he said point, because the whole story is a mare's test. Herr Wohltat-the name of the gentleman-is not in London at all, as it happens, and anyhow the Treasury has not agreed to if there were anything which involved foreign affairs, they were constantly in touch with us. They would not have dreamt in the old days of entering into a transaction of this kind without seeing the Chancellor of the Exchequer. This discussion on behalf of my hon. Friends due under contracts made before March 1930 That is a small matter.- below the Gangway on foreign affaits and (OFFICIAL REPORT: 19th May, 1939: Cols. is a slackness, a looseness of treatment. which must have been introduced within the last year or two. because that is not the view which any other Chancellor of the Exchequer or any other Governor of the Bank of England would have taken as to the relations between the Bank and 1841-2, Vol. 347.] the Government. Would anyone have believed from that what the transaction really was? Let us tain line which impinges upon foreign release any Czecho-Slovakian assets to the Bank of International Settlements or to any one else. The only releases that have been made have been releases of small amounts to refugees from Czecho-Slovakia, apart from debts some releases of small amounts to pay trade it. I came here last Friday to initiate 1 On my way I read the newspapers there found a statement in several news papers take as it is generally admitted now Sir J. Simon: It was the Daily Tele by everybody in the House, An amount graph. A ( When the Bank of England takes a cerpolicy there is nobody, either in this coun- try or any other country. who does not Adjournment- 2753 HOUSE OF COMMONS Czecho-Slovakia Adjournment2754 Mr. Lloyd George.) believe that it is the policy of the Government. Chancellors of the Exchequer have very often held different views from those held by the Governor of the Bank of England on questions affecting foreign countries. I did not take the same view as the Governor of the Bank of England with regard to Reparations, for instance, but he never on his own authority as Governor of the Bank of England not merely declared that policy but acted upon even if he would have had the power to do so. He had a perfect right to put his views before the Government of the day, but he knew perfectly well Epping, pressed it, and at last we were sold that the House could rest assured Government are always in con- it were known that it was the burglar blame him. was that I tact do with the not the He General giving Staff. who was asking for the cash, would any bank manager give him the money? Of course not. Legally when they are pre- you get them? Have you got them honestly or otherwise? -that is the whole point of bearer bonds If you knew that they had been burgled, if you knew the date, if you knew how he had broken into the bank, knew the weapons used, knew how he burst the safe and took them out, what sort of a fool a affected a great many other nations as well as our own without first obtaining the sanction of the Government of the day: and it is a most extraordinary doctrine that these two gentlemen who are England one of them being the Governor and the other a very important director. and they could not have absolved themselves from the responsibility which they had under those circumstances as directors of the Bank of England. Sir J. Wardlaw-Milne: Are they appointed by the Government? Mr. Lloyd George: The Chancellor of the Exchequer tells me they were not appointed by the Government Sir J. Simon: 1 have already said they were not Mr. Lloyd George: I do not want to make any point of that, but they were which have been used upon that assump tion are thoroughly false, are thoroughly misleading, and I shall be very much surprised if the Chancellor of the Exchequer will support any contention of that character The facts are that £5,000,000 or £6,000,000 of gold has been transferred to the Reichsbank That gold belongs to the people of CzechoSlovakia The Reichsbank have no more a is concerned, national bank, national institution It is not in the same position as the Midland or the Westminster Bank. and all the arguments General Staff is one way out; but everybody was under the impression that the General Staff had been consulted before that guarantee. It was intended to convey that impression. That impression And here is another one, here is a state- those bonds? It is nonsense to treat this question with these miserable legal quibbles First of all, you know they are stolen goods, you know that they are going to be used whole transaction will be reopened again when the legal claimant may have a chance of putting his case in a higher court. But all these facts were left out of the explanation of the Prime Minister It was all a mare's nest. The nest had been captured by the brigands, but the mare was in our stable, and from all I can understand it is still there. I have other questions to put to the Chancellor of the Exchequer, because I do not want to keep this argument merely on the level of a dispute between the Prime Minister and myself on a matter of explanation But there it is. After what he said there I am going to ask the Chancellor of the Exchequer this: The cash is here now, so I hear. I noticed that he did not contradict it when the statement was made by an hon. Member behind me, and I asked a couple of hours ago about it. I told him that I had just heard that it was still here. Is that so? The right hon. Gentleman cannot contradict it? Sir J. Simon: 1 cannot contradict it because I do not know, but if the right hon. Gentleman will be good enough Mr. Lloyd George: This is very important. I asked about this matter more tion. I gave notice to the right hon. Gentleman that I would ask the question, tunity of ascertaining whether the £6,000,000 is in the Bank of England or millions of stolen money had been taken away for ever, passed on to the robbers, and it had been done with the consent of whether it is now in the possession of Herr Hitler for the purchase of armaments and Sir Otto Niemeyer, who, I believe, is president of the Bank. At any rate he and Mr. Norman are both directors of the of material for making war. If he finds out that it is here I am asking him now whether the Government will reconsider their attitude. Let him put this point to Bank of England them, because I think it has not been put: Mr. Lloyd George: I will say something about that directly. Not only that, but been transferred to the Reichsbank. No one would have believed that we had the Treasury, knowing it, took no action, and in so far as their conduct was conearned the transaction had gone through refugees and in payment of some small. without any interference. It is amazing trivial that these people should have gone there, holding their position in a great national bank in the great national bank, the official bank of this country and never given a single intimation to the Govern- this. We had the same thing in the ment of what was going on. Did the whether the Government had secured the debate on Friday. I put a question as to Chancellor of the Exchequer complain of it when he heard of it when he was advice of the General Staff before they informed, when some gossip came along committed us to that extraordinary and said something about it? Did he pledge to guarantee Poland and Rumania without any assurance of support from No hear nothing from the representatives of the Czecho-Slovakian Government in this country? Not a word? That is rather extraordinary. Where did it come from? We entitled to know. Why should A going on, when we are representing 47,000,000 people in this country? think we ought to know. were the main facts of the story, that £6,000,000 of Czecho-Slovakian gold had Russia. I asked a second time. answer. I asked it of the War Minister, my right hon. Friend the Member for only people who are not to know what is and I hope that he will have an oppor- is no one here who believed that I agree with my hon. Friend behind me that there has been far too much of that fact be concealed from the House of Commons? Why are we to be the The Daily Telegraph .. statement was that they had agreed. Well, in the circumstances, there is not all that differ- man Government. conveyed. 2756 than two hours ago and I said I was going to ask the right hon. Gentleman a ques- Mr. Ellis Smith: The friends of the Ger- bills. That was the impression Czacho-Slovakia ment which would convey the impression that there was nothing whatever in the story about the £5,000,000 or £6,000,000, and that £5,000,000 or £6,000,000 had not been passed to the Germans. The question whether the Treasury merely acquiesced or gave its consent is, I agree, an important point. They decided not to act, which means that they acquiesced. once between the two, At any rate, there parted with any to directors of the Bank of England which for all practical purposes, as far as policy hands. It was not true. To say that, generally, they are in contact with the would be a false one. to your detriment, you know that the ment-[Interraption At any rate, they were directors of the Bank of and consulting something which had been put into his sented the bank has no right to enter into an argument and ask, 7. Where did knave would the manager be who cashed England but representatives of the Government, who are appointed by the Gov- 2755 right to it than a burglar who has captured bearer bonds would have a right to take them to a bank and ask for the cash. If that he could not act upon a matter which representatives, not of the Bank of 26 MAY 1939 I am very hopeful that war will be avoided and I am more hopeful since the Government have decided to bring Russia in. I cannot conceive of men of the extraordinary position, shrewdness and per- spicacity of Herr Hitler and the Italian Duce engaging in a war in which their chances have been so conspicuously diminished by the introduction of the greatest military power in the worldalthough it has been said that there is a certain madness in men, making them fling themselves into impossible enterprises. That is the incalculable thing in human nature upon which you cannot depend. I personally am sanguine that war will be averted the moment that that agreement is signed, and if it is entered into to the extent of agreement between the general staffs and obvious preparations on the part of the three Powers to co-operate. But that is not peace. It must be followed 2757 Adjournment- HOUSE OF (Mr. Lioyd George.] by settlement, and the settlement will be a long business. It was a long business COMMONS Czecho-Slovakia 2758 this as if it were an ordinary banking transaction. It is the result of a when had men on the same a blunt piece of banditry perpetrated raid, aggressors who have already stolen by months. If you had men that as if it were an ordinary banking the in very cussing you thing Paris. had side It took with dis- different interests who made mutual concessions, it would have taken well over a 2759 country after another. You cannot treat one transaction. Bankers do not deal those principles with men of that descrip Adjournment- 26 MAY 1939 Czecho-Slovakia 2760 nest, he gave to the House the full hon. Gentleman made his observation, I feel sure he thought, and undoubtedly the article to which he referred implied, that what had been done had been done by the Treasury under that Act by way of release. Unquestionably that was the effect of the article, and it was plainly implied in what the right hon. Gentleman said. Members of the House, that what was being suggested was that, in connection information that he had. There was a feeling that the expression " mare's nest was too strong a term. At the time I did not think so, for it was quite plain to me. and I think to most year. What will be the position then withthe When he came to this, his power of drama with the authority which I have over regard to Czecho-Slovakia? If tion. But when you meet these CODE tries, as I hope you will, when it is quite came out, and it is the fact that, having Government are taking steps one by one clear to the aggressors that they cannot 2 plainly suggested that something had been to build up recognition of the German any further, and they themselves begin to be anxious for a conference, let it a conference with the knowledge that done by the Treasury under the Act which it should not have done, and that this was simply a concession due to the Treasury the blocked Czecho-Slovakian assets, I had just released a great block of them. I had done nothing of the kind. moment. but the Treasury have practically acquiesced and acquiescence is only a cowardly method of agreeing. Those are all questions which ought to be settled as part of the general settle- ment. What are you going to do with Sudetan Germany, with Bohemia, with Czecho-Slovakia? You cannot give beforehand everything they want and then call them to a conference. They will say You have already recognised our con- quest of Czecho-Slovakia. It belongs to us now. Here it is: you have appointed officials there, you have treated us as the de facto governors, rulers and pos- sessors of that country Would it not be better that, in the interest of any conference which they may have to summon or to attend, as they must if you are to have real peace in the world after these gentlemen realise that their career of aggression is to come to an end and until you do that it is impossible to deal with them that the Government should protect honour of England and these is behind it for Czecho-Slovakian the keep this peasants cash the Germany. be They would brought in not, the by the box. Germany have say to to would her, be Where did you get it: whom did you take it from: what right have you to it? You burgled the safe: is that your case? Is your claim the burglar's jemmy? They would have to go into the box and make their claim. It is no use treating They are not merely robbers, for we are now going to see that they are the receivers of stolen goods with the sanction of the British Chancellor of the Exchequer, and I hope that before this Debate is over we shall have some explanation of that [OFFICIAL REPORT 10th May, 1939: col. 1823; vol. 347-] I daresay hon. Members who were in the House observed that, that not knowing what the right hon. Gentleman had been referring to, I consulted the officials under the Gallery and there was no one there who had come prepared with this: but a note came hastily down stating in very plain terms that it was not the case that any release had been given. The Prime Minister said it was not true that the German representative named was in this country engaged on this matter. but that the gentleman in question was not in what is conveniently called some pettifogging legalistic spirit. I do not think that that is at all a fair criticism I The first thing I must deal with, and I wish to deal with it very plainly and at once, is the suggestion that the Prime Minister, on the ground of the answer which he gave to the right hon. Gentle man on Friday last, could really come under any reproach. Whoever may be blamed Mr. Lloyd George: He said it rested really with you. in London at all, and anyhow the Treasury had not agreed to release any was if since it was a it did and I rather Czecho-Slovakian assets Sir J. Simon: The Debate on that day Settlements or to-day, Friday, started think early the right as Gentlemen mentioned having perhaps or action would Sir J. Simon: He pointed to me and plain as simply as I can the very impor tant matters which have been raised in the discussion to-day. I am not in the least disposed to regard them as unimportant, or as matters to be put on one side, and I wish the House to believe the when I say that I do not approach them Whether the decision is by our courts say that I think the suggestion made was said: but I think it is right that I should ex- to go weallow have a take this steps cash anduntil cannot legal decision upon it. mouth. Perhaps he would prefer me to the Act. Sir J. Simon: The hour is not perhaps a very convenient one for detaining hon Members in large numbers in the House I International else. All that perfectly to the true, to Bank anyone and, for had known at the time that some parellel reference was involved certainly should have informed the Prime particular point, which the right hon Minister. At any rate, the Prime seen it in a newspaper as he was coming want to make that clear. I am down to the House, would be raised. related to the Czecho-Slovakia (Restric- Minister had no knowledge of it, and I to take but my quite right prepared hon. entirely any blame, Friend is completely without blame. He simply repeated at very of Accounts, carried the House short notice the note that had been given to him while the right hon. Gentleman tion I Banking through etc.) attention and which which a has been the subject of close in was speaking. It did not in fact deal my part, and I was perfectly well with this other matter at all, and apart from the use of the expression mare's formed as to what was happening in right COD nection with that Act. When the I a Equine metaphors were rather numerous in that Debate as the the right hon. Gentleman had been talking about looking a powerful gift horse in the Mr. Lloyd George: I never mentioned 2.8 p.m. hon. Gentleman started it. Neither my right hon. Friend nor anyone else, as fit as I know, had the least idea that this now say We giving its consent which the Act requires It in the world on that basis; but that is what they are doing. All this talk about appointing consuls, this transference of £6,000,000 of the assets of CzechoSlovakia to Germany-what is that but recognition? It is very substantial recognition. True, it is only recognition by Mr. Montagu Norman at the present power us, and of poor I conquest, leaving nothing but the copingstone to be put on. you will not get peace an attempt to put a particularly large cuckoo's egg into my nest, and. as I had nothing to do with it, I naturally refused it. That, I hope, will show to everyone in this House and outside that there is no sort of reproach on the Prime Minister at all. I do not think it has been appreciated by the House that this other matter to which our attention is being directed is not one that has just happened. It happened months ago. It did not happen at the moment when the newspaper article in question appeared, or at the time when we were then discussing it. It was certainly two months ago, I am informed, that this other question was first raised [Interruption] It was in March, and not in May. Mr. Lloyd George: When the Bank decided on the transference to Germany? Sir J. Simon: It was towards the end of March- cannot give the exact date- that information, coming indirectly, reached the Treasury that the Bank for International Settlements was taking steps to transfer this gold. At the end of March a rumour of this had reached the Department. I cannot state from what it What is important to is that we were not so the source Bank of nor by appreciate came, England informed by the Czecho-Slovakian Legation It is one of those pieces of information which do not come in such a form that I can state the source. That was the extent of our know- ledge. I considered that it would be right to take the opportunity of making a statement which would show what the facts were as far as we knew them. It was not the fact in the least in the world OF 2761 [Sir J. Simon.] that had given any authority for anyall. I had not been asked to. considered that it to refuse refused. It was readily it thing within If had at my power assumed I would would that have be was I who was responsible for this, and it was not so at all. Towards the end of March the Treasury heard indirectly that the Bank for International Settlements either had given, or was giving, instructions for the transfer of this gold and I thought, that being the case, that I ought to take the opportunity- and I did of making what was really a quite full statement on the subject. Sir A. Sinclair: When was that? Sir J. Simon: On 23rd May. Sir A. Sinclair: Is it not very extraordinary that if the Treasury heard of this transaction at the end of March, at a time when legislation was being proposed to stop the transfer of similar balances lying in London, the right hon. Gentleman's own officials did not disclose it to him? Sir J. Simon: I think the right hon. Gentleman will see how that works out. I perfectly understand the concern of the House, and I ask to be allowed to state as clearly as I can my knowledge of the matter. I was going to observe on the question of the hon. Gentleman opposite whether the answer given by the Financial Secretary corresponded to what I stated the next day. That is so. The question asked was whether any transfer in respect of this deposit had recently taken place. It was in connection with that that the Financial Secretary made it clear that I had no means of knowing whether the facts were or were not as stated by the hon. Member for North Lambeth (Mr. G. Strauss). That is perfectly accurate. As, however, the Treasury had received this hint, I made the statement on 23rd May. We must pay some attention to what is the nature of the Bank for International Settlements It is a bank with very exceptional immunities 1 have refreshed my memory as to its statutes and the Treaties signed by a number of countries, which have given it an immunity which is altogether exceptional. It is an entirely non-governmental institution, Its directors consist of the Governors of Central COMMONS Czecho-Slovakia Adjournment- 2762 Settlements. That is the Banks, and representatives of etc. are not common International very thing which by treaty, in at all and with all the other States, we must not do. British They Government appointed industry they by are the I might point out that it was for that not answerable to the British Government in any sense. Disputes about the interpretation of the Statutes of the Bank have to be referred to the International Court at the Hague and, for the rest, order to make it quite clear that the Bank should be free from any governmental in tervention or interference, the Governments concerned with this agreement, in cluding His Majesty's Government, the French and all the other Governments gave it by Treaty and Protocol complete immunity from all forms of restriction and interference and it is expressly stipulated that this complete immunity applies both to the property and assets of the Bank itself and property and assets which the Bank holds for the account of others. reason, among others, that when we drew Czecho-Slovakia members, but the British members of the Bank ought, in his view, to be in close communication with the British Govern- ment. I can only say that they most certainly are not in communication with the British Government on the affairs of this bank in Switzerland. It might be suggested, perhaps, that the present in- cumbent of my post is responsible for that, and that no doubt there were better arrangements made before. I have inquired into this at the Treasury, and I am told that the position has always been as all reference to this. It is very easy tog dismiss these things as miserable legal it is now. I agree that this is a very special kind of bank. It was established in 1930 as a result of the activities of Lord Snowden at the Hague, under first of all, a series of articles of association, but- the very fact that this is the nature of the protection enjoyed by the Bank for tressed up by these protocols. International Settlements by international Mr. Lambert: Was it established by the treaty which would have prevented IS from effective interference. Labour Government of that day? Sir J. Simon: I do not think that that is a fair point. Mr. Pethick-Lawrence: The right her Gentleman is really getting away from the Mr. at all. point. The main point is not whether when the Bank for International Settle that the rightwould opposite may say, said, you likeBank to see theasof England nationalised, but in this con- way that it should not be affected by international politics; and its decisions are not decisions in which the British We have heard from my right hon. Friend who has just spoken that the British members not the Government others, that the Treasury here is to blame The right hon. Gentleman entirely omitted hon. Gentleman right hon. Gentleman quite plainly implied that something was happening to which I had given my consent, the answer was given. perhaps a little hotly, but at any the case. embargo or restraint being put on its assets or any assets for the account of say, if you like, that you do not approve of that arrangement. You nection the Bank for International Settiements is not an institution in the affairs of which the British Government have right to interfere. It was set up in such a a rate quite truthfully, that that was not lieving it from any possibility of an 2764 up our legislation we did not include this. We could not include it unless we were prepared to break the treaty obligations that we had. That was why, when the I think it is a little rash to assume that having entered into treaties with the other countries of Europe that that shall be the nature of this Bank, and completely to quibbles but the fact is that the Bank has been created in that form. I must say regard it as not without importance that we should respect its constitution. It was 26 MAY 1939 2763 I HOUSE Adjournment- Government can interfere. the position, and if thinks doubtedly it should That anybody is un- be altered they are going much further than this issue. Mr. Gallacher: You are evading the issue. Politics are introduced when the money is taken to Germany. Sir J. Simon: I am merely trying to make the position clear. The Bank for International Settlements is, by that very constitution, not concerned with political issues. It carries out instructions re- ceived in accordance with what it conceives to be its legal obligations, and the Bank of England, in this matter, is not speaking for the British Government. Although it is the Government's it a bank. all is sorts not of Government things thatThere thebanker, Bank are of England do which are not matters for the Government at all. It has been asked where these assets are now held: as I said, I really have no information on that. But, be that as it may, I will certainly have it considered immediately, with the information that I can get, whether in this matter we have gone wrong. But if, as I believe, these protocols involve an absolute assurance to the Bank for International Settlements that their orders shall Wedgwood Benn: It is not a point be obeyed I do not see how we can fail to obey them except by breaking our treaty obligations. Sr. Simon: We cannot in this matter to blow hot and up the Bank for International claim ject of Settlements cold. a The obwas setting to have ments made a decision we could resist The question is what part our represents tives took in coming to that decision? Sir J. Simon: I do not think I am parting from the point. It is a matter which concerned withpolitics the be great not of in central the least institution, would Europe. I have no doubt is which has been carefully intheand it has a very House very hon direct canvassed Gentle beat reasons why the directors of the one Bank-certainly of the that that have the British directorsthe consistently taken the view that ing on the matter the right man now mentions. I must make point good before I go further. His clearly out of the question for with that business of the Bank is not a matter they could discuss with and I am assured Government has always the that British that Majesty's Government to interfere for the transfer of assets by the Bank been the position. You may ( Mr. Lloyd George: I hope that when the Chancellor is seeking an opinion he will not put the question in that form- Was I wrong I think that is very important. Will he ask whether it is within the power of the Treasury to raise the issue in any court, in order to obtain a legal opinion as to his right to suspend payment until the question of ownership is finally settled? Sir J. Simon: I think that is quite a reasonable suggestion, and I am grateful to the old solicitor. I do not want to Adjustment- 2765 [Sir J. HOUSE OF COMMONS Simon.] mislead anybody or get away cheaply, but my own view. and the view of my advisers, is that as long as these protocols exist, which bind us not to put any embargo on the claims of the Bank for International Settlements, we cannot get over that. Czecho-Slovakia courts. Mr. Benn: Will the Chancellor tell us, of is a a rise at 'clock, whether the in the Bank of before gold Bank is we England 4 only England? mile and The half away. If he will not tell us, can we send the sergeant to inquire? Mr. Boothby: Is the present Czech National Bank the same bank which origi- nally held the deposits? I believe it is quite a different bank. Sir J. Simon: There are quite a number of points which arise, and on a proper Sir J. Simon: I shall be very any other that any is good to am obliged to my hon Friend. consider make, that and hon. and I Member suggestion glad enough to Mr. Stokes: Cannot we have, before the the Bank an the gold or not? whether it has got Sir Stanley Reed: On a point of Order May we not be allowed to hear this im portant statement from the Chancellor of the Exchequer without these continual interruptions? Sir J. Simon: I am not aware to what extent it is really legitimate for the Gov. ernment to address the Bank of England and inquire whether they have or have not gold in their cellars. [Interruption. I wonder whether the right hon Gentle man will allow me to proceed. Mr. Benn: I am not interrupting. occasion I could deal with them. But I think the House will agree that we have to respect these protocols. At present, I Sir J. Simon: I was saying that I am not aware to what extent the Treasury have the right to press the Bank of Eng do not appreciate how we could take the action suggested in view of that fact: but land to say whether they have got in their by all means let us have any further that the Bank of England in some respects, advice about it that we can get. cellars gold marked so-and-so. I agree is in a different position from ordinary banks. Mr. G. Strauss: While making his inquiries, will the right hon. Gentleman see that the gold does not suddenly depart by aeroplane or any other method? Sir J. Simon: I obviously cannot undertake anything of the kind. We have not got the gold in the Treasury. Hon. Members while keen on the hunt, should be prepared to recognise the manifest limitations under which the Government act. The Government have no more authority than anybody else in this House. We all want to do what is. in the circumstances, the proper and just thing. Mr. Bracken: I am sorry to interrupt my right hon. Friend. but I think this is important When he is consulting with his lawyers. will he ask whether it will make any difference that the protocols which Germany and this country signed have been torn up by the Germans, and that the Germans have actually got physi- cal possession of the Austrian shares in the Bank and also of the Czecho-Slovak shares? 26 MAY 1939 Czecho-Slovakia 2768 2767 land House question could rises be this of whether asked afternoon, answer of Eng. Mr. Lloyd George: Access to the Adjournment- 2766 Mr. Lloyd George: It is a great inter national question. Sir J. Simon: I have done my best to make a statement about this matter for the information of the House, and I have told the facts as far as I know them Sir A. Sinclair: The right hon. Gentle man has probably forgotten that be There are two other points that were mentioned and although I am occupying more of the time of the House than perhaps I ought, I would really like to make a short statement upon them. First of all, there is the question which is more of a Foreign Office question perhaps, than a Treasury question and has to do with the appointment of a consular representa- tive in Prague. Prior to 15th March we had in Prague at our Legation our Minister as diplomatic representative. Since then the question has necessarily arisen how we are to arrange matters in view of the annexation of CzechoSlovakia to the German Reich The is, what our action should be in that situation. It would be no use leaving anybody in Prague unless he had consular authority. Where we do have consuls, they enjoy 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 a 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. diplomatic representative could not continue, because the German Government had required that after 25th May diplomatic representatives in Prague should It will be appreciated that there are in fact considerable British interests that we not enjoy extra territorial rights which they had previously been allowed to enjoy. As regards the Legation, we are withdrawing our Minister, and certain Minister's words on Wednesday were to be understood as contemplating any de jure recognition at all. Certainly, 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 recog- 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 representatives 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 privileges would be an absurdity. He would merely be a private person. The Legation was closed yesterday, and, as my right hon. Friend the Prime Minister informed the House on Wednesday, the British interests in Bohemia and Moravia have at least to bear in mind. I was not myself aware that the Prime nition of German authority. That is exactly the problem, and I am merely stating it. I might remind the House are now in charge of the British Vice- that this difficulty has arisen before. For instance, in the case of Abyssinia. 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 Then comes the question about the surprising that it has been found possible Consul presence in that area of the British Consul of Austria. Therefore, as far as precedents go, I do not think it is very to secure the protection of British promised in the earlier part of his speech The German Government, in their com- interests in these areas without making to explain to the House why it was that this information, which reached the Trea sury officials two months ago, some time in March, was not handed on to him. 50 that he could have commenced the negotiations which he has promised the House this afternoon. munication said that Consular representatives in both provinces would cease to be recognised on and after 20th June unless, in the meantime. the Consul obtains the powers. Sir J. Simon: The information R reach me. What I said was that on being examined it became quite clear that it view of the Protocol, it was not possible If to take the steps now suggested. however, it is thought, in spite of IF statement, it is possible, I will do my best 11 to get the best advice it is possible obtain. exequatur of authority. The House, no doubt. knows that that is the form of document which gives the consul his It is under to take under his British titled authority. subjects that that that wing he is en- need protection or representations to be made. It also entitles him to send his official bag and to use a cipher and to send information to the Gevernment As has already been referred to, in a case like Prague a very important The matter is that in connection with refugees. question which has to be considered the de jure recognition of these new Mr. Alexander: The de facto recogni- tion 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 is under considera- tion, and we are in consultation with other Governments about it. I can give Czecho-Slovakia Adjournment2770 is overdrawn or that it has been [Sir J. Simon.] the House an assurance that no relevant drawn, It is extremely difficult to imagine with action will be taken about the matter that unilateral administration is the best until the House resumes. The right hon. Member for Hills- to on some Alexander) has borough another (Mr. matter, which I just have referred responsibility. It is true that in that case the British Government and the then Foreign Secretary secured at the League of Nations the adoption of the principle that there should not be acknowledgment or recognition of a conquest or annexation which had taken place in breach of the Covenant or the Kellogg Pact. It was I as Foreign Secretary 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 so. Therefore, I am perfectly familiar with the precedent. I am. how- ever, 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 of British trade. I noticed the point of the right hon. Gentleman, which was that one must perhaps draw a distinction between some sudden, immature acknowledgment of a situation which takes a new shape, which may be an action which we repudiate and deplore and which becomes a portion of a more permanent structure. If, without prejudicing the interests those concerned, you could get a detailed of schedule of the claims, arrived at agreement, as a result of the examination by of accounts on both sides, I do not think anyone would say that that is not prefer. able. I think that the popular impression that we have a very large amount blocked to be the the man a was given upon. the is a figure than we much On larger the other hand, calculate claims against that figure are genuine and sub- the and get there is a stantial. There is the debt which must be repaid to us, because we lent to it back. Czecho-Slovak Then for State, considerable money we must sumoldrequired the refugee account Un. questionably, we must take those amounts out. Then there are claims for British holders. Most of them may be current claims, but there may be capital claims of a different sort. It is all extremely complicated. I understand that what has been done by the Treasury, apart from examining books, is purely preliminary to seeing whether it is possible to draw up such a scheme. Whether there will be any balance at all seems to be more than the only instance so far as I know. of doubtful from the figures that I have seen almost a general decision not to recognise but I must not exclude the possibility. The question will then be. if there is a balance, whether we are entitled in the circumstances to say that we will not allow that balance to go to various institutions or persons in Czecho-Slovakia Covenant There remains one further matter about which we might dispute for a long time, and that is the administration of the which are blocked the is a Czech recent matter. balances act. That very complicated by No doubt it is conceivable that we might have to deal with them entirely because we have strong reasons for fear- ing that if it reaches them it may be taken from them. I am as fully alive to that possibility as anybody, but I by unilateral action. That course has some private trader in Bohemia happens to have an account here and his account some inconveniences. One inconvenience, is not needed for settling our undoubted for example, is that while you want these assets to be available for British citizens who have claims against Czecho-Slovakia, are you to take everybody's word that a good claim? Are anybody to you simply by going they have to allow register saying have such and such an amount owing to me from a Bank in Czecho-Slovakia.' That may be an honest statement, or there may be an overdraft, or it may be that the account claims, I find it difficult to understand on what principle we are to say that be must without it. I have to me a reportTreasury go asked have consider not the seen it give and I am acted in a straightforward way. I have no more desire to see our institution so operated as to give assistance to the aggressor-wix possibility the right hon. Gentleman so roundly denouncedwhich it is necessary to keep one's head, shown that there was a good and sufficient explanation for the matters which have been so naturally raised are points that might have been urged, but they are no longer relevant once the right hon. Gentleman gives to the House his assurance that he will do his very utmost to stop this money being sent to-day. away. 2.52 p.m. That is the only point I wish to make, Mr. Tinker: I want to turn away from but it is a very vital one. Here we are these international questions, because on the Motion for the Adjournment there are other matters to discuss. Certainly, the House of Commons ought to realise that there are other things to deal with. recognise that this is a grave problem that we have been discussing, but it is not a domestic problem although it may be disappointing for the right hon. Mem- ber for Epping (Mr. Churchill) that I have been called instead of him, I want him to realise that there are other questions Mr. Churchill: I should have stood for only two or three minutes between the right hon. Gentleman and the subject which the hon. Member for Leigh (Mr. Tinker) wishes to raise. There were, however, two points arising from the statement of the Chancellor of the Exchequer to which I wished to refer. Mr. Tinker: I am prepared to give way to the right hon. Gentleman to allow him to put his point. Mr. Speaker: If the hon. Member for Leigh (Mr. Tinker) gives way, then I have no objection. 2.53 p.m. Mr. Churchill: I very much. I should like to ber having listened the hon.and Memto thank this Debate tosay, the speech of the Chancellor of the Exchequer, that we must all wish to com- on his his when we reassemble. interruption, that as an old Parliamen- and although I have no doubt that ment. That is the point that is really at the root of all our feelings. I do not want to enter into criticism of whether the Treasury ought to have been informed by the Bank of England. Those and I hope that what I have said has tions. pliment temper. We and him fairness, ques- good have failed to answer every question. 2772 he ought to have acted before, or whether than any man in this country. This is a very complex question, in regard to and Igoing tothe an it, yetHouse hope give to account the of how matterstands These are the three subjects dealt with Safety in Mines very grateful to him for the statement he has made that he is going to endeavour to prevent this £6,000,000 worth of gold being handed over to the Nazi Govern- have done my best. I hope the House feels that in this matter the Treasury has here, article will quoted be which found figure right exaggerated. hon. Gentle which In The case of Manchukuo is an instance, a changed Sovereignty which has been brought about by means contrary to the 26 MAY 1939 2771 his readiness to answer recognise, as I said in an tarian he understands the conversational manner in which the business of the House is so often conducted We are going about urging our people to enlist, urging them to accept new forms of military compulsion; here we are paying taxes I 2769 HOUSE OF COMMONS Adjournment- on a gigantic scale in order to protect ourselves. If at the same time our mechanism of government is so butterfingered that this £6,000,000 of gold can be transferred to the Nazi Government of Germany, which only wishes to use it, and is only using it. as it does all its foreign exchange, for the purpose of increasing its armaments, if this money is to be transferred out of our hands, to come back in certain circumstances even quicker than it went, it stultifies altogether the efforts our people are making in every class and in every party to secure National Defence and rally the whole forces of the country. The Chancellor of the Exchequer has shown himself very properly forward in the matter of the Czech balances. I cannot understand even after the explanation, how it could have escaped him, but I accept his state- ment that he will do all he can with all the resources of his legal brain, and with all the energy he possesses, to prevent what would be a public disaster. namely, the transference of this £6,000,000 of Czech money into the hands of those who have overthrown and destroyed the Czech Republic. Enclosure No. I to despatch No 2776 of 1 JUNE 1939 from the Embassy at London, England. PARLIAMENTARY DEBATES House of Commons 26 May 1939. London. Cols. 2713-2772. NUMBER: 98 No. 2 the dramation NR2776 London, England DATE: LONDON 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. A sustained and at times passionate, attack upon the attitude of the Government and of directors of the Bank of England towards the messenger might be sent from the House to find out where the gold was. The protocol was the ground upon which Sir John took his final stand reproving Mr. Lloyd George for speaking of an international obliga- tion as miserable legal quibble. evil consequences of Germany's seizure of Czecho-Slovakia was But even this ground shook beneath delivered by members of all parties Boothby (C.), who asked whether during the adjournment debate to-day. Not a single speaker, except Sir John Simon himself, treated the Government with entire respect. The Chancellor was, indeed, in a most painful position If he supposed when he came down to the House that he had a cast-iron case, he must certainly have realised when he rose to reply the blows of Mr Bracken and Mr Germany had not already torn up similar protocols signed by Austria and Czecho-Slovakia and whether the Czech bank which originally provided the assets was the same as the present one These questions placed sufficient doubt on the validity of the transac- tion to justify, in the view of Mr Lloyd George and others, a legal inquiry Finally Sir John promised to take further advice about the pro- that it had been riddled with holes, and nothing but the most glutinous tocol, and this tentative concession sediment could remain in it. Churchill into a pledge by the Chan- First, the transfer from the Bank of England to the Reichsbank of between £5,000,090 and £6,000,000 on the instruction of the Bank for International Settlements which held this sum as a Czech asset Here the was immediately turned by Mr cellor to make his utmost endeavour to prevent the money being paid over to the Nazis Thus the report which Mr Chamberlain had dismissed as mare's nest week ago proved to be rather more substantial House encountered the peculiar con- stitution of the Bank for International Settlements and the still more peculiar relation between Mr. Mon. tagu Norman as Director of that Bank and Mr. Montagu Norman as Governor of the Bank of England Mr. Lloyd George and Mr. Pethick Lawrence (Lab.) insisted that what- ever might be Mr. Norman's legal position as a director of the Interna- tional Bank he would certainly be regarded by the other directors as representative of the British Govern- DE FACTO RECOGNITION The second point of the debate was the propriety of extending de facto recognition to Germany's conquest by appointing a consul to Prague. This gave Sir John a slightly easier passage. though he was driven near the rocks He said that the Government would not reach a decision before the House reassembled, though he did not say that the House would ment. Mr. Brendan Bracken (C.) flung the most bitter criticism at Mr final. His mishap arouse out of a Niemeyer for agreeing to the transfer search for precedents for the appoint ment of consuls on captured territory Norman and his co-director, Sir Otto of stolen goods and thus in effect recognising Germany's conquest They should have protested, he be consulted before the decision was There were Abyssinia and Austria The Chancellor had exposed the source of apprehension about the argued. and if their protest had been vain they should have resigned appointment of a consul it might GOVERNMENT AND THE BANK Czech assets blocked in London under Many members found it almost impossible to believe that this trans fer was approved by the International Bank without any report from Mr Norman to the Treasury yet accord. ing to Sir John Simon the Treasury only heard of the transaction, which took place in March. as a rumour reported made not by a third-pack He had any inquiries, because the Internatic nal Bank was protected by ocol from any political interference, and British directors never Ead reported to the Government One lead, as it had led, to full recognition In reference to the third topic-the Act of Parliament-Six John Simon had to answer criticism that when outstanding claims had been met the Government contemplated handing the balance to Germany. The total value of these assets, said Sir John, had been exaggerated, but in any case it was difficult to see how the claims upon them could be met by unilateral action. The heat and force of the debate arose from the belief, expressed by Mr Alexander (Lab.). SIT Archibald Sinclair (L.), and others that Czech rights should be protected by Britain and that nothing should be done. by the transfer of gold, to facilitate German rearma- gathered from Sir John that he and Mr. Norman were on little more than bowing terms Sir John did not know whether the gold was in London. He ment. Czech rights, Mr Lloyd George argued would have to be remembered you got in your cellars gold marked the Russian alliance did not like to ask the Bank, Have to the credit of So-and-so Mr. Wedgwood Benn suggested that a at the peace conference which he without a result (Debate 1933 MAY 27 1939 a CITY: 1.JUNE NUMBER: OFFICIAL THE SECRETARY OF STATE 100 WASHINGTON 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, Lersy D.D. Stinebown Leroy Stinebower, Assistant to the Adviser on International Economic Affairs. Enclosure: No. 2811 of June 6 from London. Mr. Frank Dietrich, Care of Mr. Lochhead's Office, Treasury Department. 101 QUINTUPLICATE London, June 6, 1939. No: 2811 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 Czechoslovak (Restrictions 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 102 =20 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 Embasay Enclosure: 1. Parliamentary Debates, Hansard of June 5, 1939, Cole.34-41, in quintuplicate. WWB/MW Oral Answers Oral Answers 5 JUNE 1939 34 33 Second Reading of the Official Secrets Bill. At the moment I can only say that the Government are unable to agree to any proposal for extending the scope of the Bill. Mr. Davidson: In view of the fact that the Prime Minister himself, in answer to questions in the House, definitely assured the House that the Bill would apply and extend only to questions of espionage, and in view of the fact that the Bill does nothing of the kind, will not the Prime Minister take steps to see to it that this is made clear in the Bill before it comes Mr. Elliot: If my hon. Friend will give me details of that, I will look into it. / CZECHO-SLOVAKIA (ASSETS). 49. Sir J. Mellor asked the Chancellor of the Exchequer the aggregate amount of the assets so far ascertained to be subject to the Czecho-Slovakia (Restrictions on Banking Accounts, etc.) Act and of claims against such assets; and whether he has now obtained sufficient particulars to enable him to form an approximate estimate of the total amount covered by the Act? up for Second Reading? The Financial Secretary to the Treasury The Prime Minister: The powers under 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 - TOWN PLANNING (AIR MINISTRY SITES). Sir J. Mellor asked the Minister of Health whether, having regard to the arrangements made between himself and the Secretary of State for War for con- sultation between county Territorial Associations and town planning authorities in connection with the selection of sites for Territorial Army purposes which arrangements were communicated to local authorities by Circular 1821, and, in view of the absence of any similar arrangements in relation to the selection of sites for the purposes of the Air Ministry, he will con- sult with the Secretary of State for Air in order to ensure, without prejudice to rapidity of action, such consultation between the Air Ministry and the town planning authorities as may be in the interest of all concerned? The Minister of Health (Mr. Elliot): For some time arrangements for consulta- tion between the Air Ministry and planning authorities have been in operation through my Department. My hon. Friend will appreciate that, owing to the various technical considerations involved in the requirements of the Air Ministry, it is desirable that consultation should in each case be effected through my Department in the first place. Sir J. Mellor: Can my right hon. Friend say why this procedure was not followed in the recent instance of the acquisition of a site by the Air Ministry in the Solihull urban district? be subject to the Czecho-Slovakia (Restrictions on Banking Accounts, etc.) Act and available for meeting claims is between £14,000,000 and £15,000,000. The claims include the repayment to the Treasury of the advance of £6,000,000, the transfer to a Czech Refugee Trust Fund of the unexpended balance of the Free Gift, namely, £3,500,000, claims from British holders in respect of bank balances, etc., amounting to about £3,500,000, and in respect of bonds to a face value of about £2,500,000. Claims have also been received from British holders in respect of participation in industry, real estate, etc., which cannot conveniently be expressed as a capital sum. A notice has been issued in the Press that 17th June is the final date for registering claims, and that no forms would be accepted after that date unless the reasons for the delay are satisfactory to the Treasury. Until all the claims have been received and until they have been examined, the figures given cannot, of course, be regarded as even an approximately accurate, estimate of the claims of British holders. Mr. G. Strauss: Can the Financial Secretary make any statement about the Czech gold held by the Bank of England under the Bank for International Settlements? Captain Crookshank: That is another question. Mr. Bellenger: Will all these claims, if accepted as genuine, be dealt with on an equal basis, without any discrimination between any classes of claimants? Oral Answers HOUSE OF COMMONS Oral Answers Oral Answers question of how much they were. Mr. Greenwood (by Private Notice) asked the Chancellor of the Exchequer whether he can now give to the House the result of the inquiries he undertook to make and of the advice he intended to seek on the subject of CzechoSlovakian assets entrusted to the Bank for International Settlements and alleged to be deposited with the Bank of England? John ten ontook The Chancellor of the Exchequer (Sir the was by several that place Simon): days In ago, the Debate the which Motion for when or cash England, Adjournment, speakers dealing it with the assumed gold Bank of balances held by it to the order of the Bank for International Settlements, would be aware of the party to whom such assets belonged, and in particular that gold entrusted by the National Bank of cho-Slovakia to the Bank for In- ternational Settlements and deposited by the latter with the Bank of England would be held by the Bank of England with the knowledge that it belonged to the National Bank. 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 holds from time to time amounts of gold in safe custody for the Bank for International Settlements, and holds such gold to the order of the Bank for International Settlements, but that the Bank of England has no knowledge whether gold so held is in fact the absolute property of the Bank for International Settlements the Bank of England, I at the same time of sought the advice of the Law Officers a number of points. What I am about on to say is in accordance with their advice. His Majesty's Government are precluded by the terms of the Protocols of 1930 and 1936 from taking any steps, by way of legislation or otherwise, to prevent the Bank of England from obeying the instructions given to it by its customer the Bank for International Settlements to transfer gold as it may be instructed; the Czecho-Slovakia (Restrictions on Banking Accounts, etc.) Act, 1939, does not operate to prohibit the Bank of England from making such a transfer without the consent of the Treasury. Even if it did, it would be a breach of treaty obligations to withhold Treasury consent. There is no validity in any of the suggestions made in the recent Debate that the Bank of England would be entitled to refuse to obey the instructions given to it by the Bank for International Settlements; and there are no means by which the Treasury could obtain a ruling of the courts as to whether they have the power to prevent the Bank of England from making a transfer when ordered to do so until the question of the true ownership of the gold is finally determined Mr. Pethick-Lawrence: Are not the Governor of the Bank of England and another director of the Bank of England directors of the Bank for International Settlements not only directors, but on the executive of that body and do not they in that capacity know the true facts? Further, is the right hon. Gentleman now prepared to give an assurance to this House that the British representatives on the Bank for International Settle- ments in matters of high international policy will not act contrary to the policy or is held by the latter in whole or in of His Majesty's Government? part for the account of others. The Bank Sir J. Simon: With regard to the first question, it is, I believe, a fact that it is laid down in the constitution of the Bank of England is, therefore, not aware whether gold held by it at any time in the name of the Bank for International Settlements is the property of the National for International Settlements that it Bank of Czecho-Slovakia should include among its directors, I think, the Governor and, in the case of The same situation exists as regards cash balances held by the Bank to the the Bank of England, a second member of the bank. I am not aware whether they are members of the executive committee. order of the Bank for International Settlements. Now that the correct position is understood, a good many questions which were raised in the Debate are disposed of. I cannot, I think, add more than But, in addition to making inquiry Mr. Bracken: One is chairman. Sir J. Simon: I can only say that not awareo With regard to the second to the House, as as theexplain result ofI have thedone, the question, to what, inquiries, to Germany? position actually is. I cannot in the Sir J. Simon: The right hon. Gentleman, I think, will see, if he will be good enough to look at my answer, that really circumstances be expected to go beyond that. Mr. Pethick-Lawrence: The right hon. Gentleman is dealing with the second part of the transaction, and I am dealing with the first part, and asking the right hon. Gentleman whether, in future, he cannot undertake to see that when these gentlemen go as British representatives to the Bank for International Settlements their both the questions he has put are answered. If he asks me whether I can tell him where the gold is, he is making the assumption that there is or may be in London, with the knowledge of the Bank of England, a block of gold which belongs to the Bank of Czecho-Slovakia The answer I have given to the House shows that that is not so. As for the right policy on matters of high international importance will be in accord with the hon. Gentleman's other question, namely, policy of His Majesty's Government? whether or not the gold is liable to be Sir J. Simon: I really think that the transferred under an order of the Bank for International Settlements, the answer I have already given shows that it is. I am advised, that unless we are prepared to hon. Gentleman introduces a little confusion when he speaks of British representatives. These gentlemen are not British representatives in the relevant sense. They do not represent the British break treaties that we have signed, no other course is possible. Government: they do not represent British Mr. Lloyd George: With regard to the policy. They are individuals, who, by virtue of their office, are members of the directorate of the Bank for International Settlements, and I really cannot be asked to indicate what the policy would be. first question, surely there is £6,000,000 of gold somewhere which formerly belonged to Czecho-Slovakia? It was deposited, I understand, here. Where is that gold? Really, we ought to know, that £6,000,000 that formerly belonged to Czecho-Slovakia, Mr. Pethick-Lawrence: Does the right hon. Gentleman really mean to convey that an important British institution the and which we still maintain belongs to the same people now. Where is it? Bank of England- to be allowed to Under whose orders is it? have representatives going to act on the Bank for International Settlements in matters of high policy contrary to the Sir J. Simon: The right hon. Gentleman,I am sure, sees that that is a ques- views of the Government? Sir J. Simon: I do not know anything about matters of high policy. know that when an international bank I Captain Crookshank: I should like notice of any question as to how the claims will be dealt with: this is only a 38 the Bank for International Settlements to transfer it to Germany, to the Reich in some form or other, either to Prague or 37 35 Oral Answers 5 JUNE 1939 36 located in Switzerland has its directorate, the members of that directorate must act according to their authority and judgment, and they do not get that authority from the British Government Mr. Lloyd George: Has the right hon. Gentleman had time to ascertain where the gold is? Is it in the Bank of England at the present moment, or has it been transferred to somewhere else; and, if so, to whom? I also ask, in the second place, if it is in the Bank of England, what is the obligation of the Bank of England according to the interpretation of the right hon. Gentleman? Are they to pass it over? Are they bound by the orders of tion which neither I nor anybody else could answer. [An HON. MEMBER It is in the Lloyd George Fund." I have already explained that it was a mistake to suppose that there was a quantity of gold belonging to the Czecho-Slovak authorities which was in London as far as either the Treasury or the Bank of England know. But the Bank of England holds a considerable quantity- I know nothing about £6,000,000-0 account of the Bank for International Settlements. Where it comes from is not a matter for them. Is it not the fact that, such restrictions as are Sir if Irving Albery: hon. suggested Gentleby right hon. Gentlemen and men opposite were imposed upon the Bank of England, the only result would be that it would be impossible on future Enclosure No OF HOUSE Oral Answers COMMONS to despatch N2811 of from the Embassy at London, England. Oral Answers PARLIAMENTARY DEBATES Gentlemen will face the facts as I have House of Commons 39 (Sir Albery.] the occasions any have any or account Macmillan: Harold the of Article Convention 2 that fact to which of right the 1930, the to relating of tion down settlement arbitral the the of interpretation the present international such matter applicaand Convention lays before tribunal relating to mental fact that under international law Germany has no claim to any Czech assets until she has received de jure recognition for the conquest of Czecho Slovakia, and will the Chancellor consult 20th hon. January, Gentleman has referred, of any provides disputes for the Convention which any should be brought, should not the with the Governor of the Bank of England to find means by which Germany can be prevented from taking stolen goods? Sir J. Simon: I am very ready to take be taken for this matter as to of steps of otherwise of the action to the be into consideration what is suggested, but propriety Bank for International Settlements of the Article be easy. with under 2 dealt 5, June, 1939. London, Cols. 34-41. stated the position correctly. Mr. Noel-Baker: Is not the funda the Settlements deposits with to the Bank of England? view of In Mr. given them, they will see that I have International for Bank for Convention? Sir Simon: I am speaking only from memory. I have not the Article before I think it had to do with a dispute of me. to the construction of the Articles as the Convention So far as I know there is no such dispute, and no competent authority doubts what I have just stated. Mr. Bracken: The right hon. Gentlesaid that he was most anxious to man keep this gold in London and will he make representations to the British directors of the Bank for International Settlements that they should go to Basle and ask for a reconsideration of that decision. and, if reconsideration is not given. will he cancel the special privileges granted to the Bank for International Settlements by His Majesty's Government? Sir J. Simon: I entirely share the view which others, I am sure. hold, that we do not want to see additional assets going to Germany out of the conquest of Czecho-Slovakia am as anxious about that as anybody- but the methods proposed are not effective for the purpose. I am afraid that it will not be found to Oral Answers 5 JUN 41 Sir J. Simon: No I do not believe there is any ground for thinking that there was any irregularity. But I must most Mr. G. Strauss: Does the right bon Gentleman want the House to understand that the Governor of the Bank of England does not know whether this gold is in respectfully submit that I cannot be expected to answer for the Bank for International Settlements. Mr. Stephen: Will the right hon. Gen- London or not, and, if he does know, has he been asked to give an explanation to the Treasury; and if he has been asked from the fact that the Governor of the Bank of England wants Germany to get has he refused to do so? this money? Sir J. Simon: I have every reason to believe that the information I have been given is completely candid and honour- tleman not agree that the difficulty arose Mr. Harold Macmillan: Would my right hon. Friend be prepared to consider, as a pure matter of international law, able, and I accept it. whether under Article 2 of the 1930 Convention it is not possible for His Majesty's Mr. Greenwood: Is it the case that, if Mr. Montagu Norman, as Chairman of the Swiss Government, for having allowed the Bank of England, was at the meeting of the Bank for International Settlements which took this decision, he does not know his other half and does not know where the money really is? Can the right hon. Gentleman say whether the Executive Committee at that meeting which took this very important decision was fully representative of the members of the bank. Sir J. Simon: I really cannot answer Government to bring this dispute with this action on the part of the Bank for International Settlements, before the Tribunal laid down in this Article, or alternatively whether it is not competent under the terms of the Convention for the Bank of England to bring the dispute with the Bank for International Settlements before the Tribunal so laid down in the Convention? Sir J. Simon: I do not like to offer an opinion on a complicated legal matter across the Floor of the House, but as far It is not for me to cancel the authority on matters that have to do with the COD- which is given to the Bank for International Settlements It is the creation of an international conference and of international treaties. If we were our- duct of the Bank for International Settle as I am aware there is no dispute as to whether the action of the Bank for Inter- ments. It is not for me to say how national Settlements was contrary to law. selves to refuse to take further part in it, decision of this sort would be taken. Mr. C. S. Taylor: Has my right hon Mr. Greenwood: If the right hon. Get- it would not alter the fact that the Bank tleman were to declare that that meeting. for International Settlements exists under which took that decision. was in his view not those treaties. I can assure my hon. Friend that I have considered this with every sympathy from his point of view. not properly representative, would of it the am not seeking to escape by any subter- I fuge at all. If right hon. and hon. be his duty to press on the board the Bank for International Settlements the British matter? Government's views on Friend seen a statement issued from Basle by the Bank for International Settlements that they had come to this decision with very great reluctance? Mr. De la Bère: Does not the whole matter still remain highly unsatisfactory? 6- JUNE 4020 NUMBER: 104 GRAY JR Paris Dated June 26, 1939 Rec'd 2:20 p.m. Secretary of State, Washington. M 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 105 -2- #1197, June 26, 5 p.m., from Paris French products so C.S 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 WVC:CSB 106 GRAY EG Paris Dated June 26, 1939 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% is 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 00V13038 108 given PLAIN JR London Dated Junc 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 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 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 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 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 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 hag 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 international 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 03V13338 open is MIN rids maintain sit al 45(e) MISC 1.2 60M-6-33 FEDERAL RESERVE BANK OF NEW YORK DATE OFFICE CORRESPONDENCE CONFDENTIAL FILES SUBJECT: L. W. Knoke 113 June 27, 1939. TELEPHONE CONVERSATION WITH BANK OF ENGLAND. 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 parliamentary 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 03V13338 prot as MIII - what 114 TREASURY DEPARTMENT 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 balances on Czech account withcut 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, it 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 is 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 title to the $28 million of gold held in London in the name of the B.I.S. The source of this information is Butterworth. (Whether the Czech National Bank officials signed the papers voluntarily or under duress is not divulged.) National Bank to the Reichsbank. The Germans thereby obtained Prepared by Mr. Adler 115 Secretary Morgenthau - 2 It is not known precia when the title to the gold 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 c ns that the title was transferred on March 17 and gold was released on March 21, i.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 Government.) 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 Reichabank". 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 Czechoslovak assets to the Bank for International Settlements or to anyone else" From May 19 on criticism of the transfer of gold to the Reichsbank gathered 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 was 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 authori ty ot obtain such infortion 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 as 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 is a fact that the B.I.S. permitted the title to the Czech gold to pass from the Bank of Czechoalovakia to the Reichsbank probably some time in March. It is 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 appointment with a London company, Lever Bros., which has large investments in Germany, but had not yet terminated his position with the B.I.S.) 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 realizable assets. According to Butterworth the British Treasury decided 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". 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 disposal 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 President'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. 119 -2- the bill?Mr. Currie: What about timing? Sending up 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 additional 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 is, 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 legislation, 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 conference. He will start Friday and will do it again Tuesday. And in the meantime I am going to press for this legislarion. Jones will put up a placid resistance; very hard to move him. into Dr. White: What he will do will be to divert it other channels. That will be his technique, rather than opposing. He probably senses the President's keen- 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' 8 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 President 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 mean on the monetary thing. He said, "Everything is grand! Fine! This is good fun. . 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 devalue 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 TO: Secretary Morgenthau FROM: Mr. Caston Mrh 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 Administration, 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 conferonces 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 fogbound 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 Hemilton and that a revised draft of a bill had been prepared. He was, however, 122 -2awaiting 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 a 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 was for the disbursement of $500,000,000 over a period of seven years and 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. Wes 123 -3Mr. Mellett remarked at this point that it was highly important that there should be a dress rehearsal of this press conference before Friday, whe reupon you invited all those present to come to your house for dinner and a conference tomorrow night at seven o'clook. You invited 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 organization 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 afterward 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. was 124 GRAY JR 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 GRAY JR 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. 7 EA:LS:LWW (Initialed) WRJ HC EHF,Jr. 27 JUN 27 1939 Secretary Morgenthau E. H. Foley, Jr. Tobacco produced in Bulgaria is exported to Germany. Subsequently, without in the meantime having been manufactured or processed, it is exported to the United States. The exportation from Germany is the subject of a grant or bounty by the German Government. Section 303 of the Tariff Act of 1930 provides that shall pay or bestow, directly or indirectly, any bounty or grant upon the manufacture or production or export of any article of merchandise manufactured or . "Whenever any country produced in such country . then 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 0.3 above described. The question was submitted informally to Justice and it concure with this view. The only method now available to close up the loophole in the statute is legislation. There is a danger, however, that, if we attempt to amend the statute, the State Department may take the opportunity to urge its repeal. Customer legislation is referred to the Ways and Means Committee of the House. (Initialed) K. d. F., Jr. HC/ep 128 EXTRA CONFIDENTIAL June 27, 1939 3:07 p.m. Marriner when the Open Market Committee met Eccles: HMJr: E: HMJr: E: HMJr: E: Yeah. and gave authority to the Executive Committee to let some bills run off. Uh-huh. Now, it is all subject to developments, of course, in the interim. Yeah. And this is the way the thing sets at the present time, unless you see some reason why we should do otherwise. HMJr: E: HMJr: E: Yeah. The bills yesterday -- let's see, we had 44 -- 44 million eight hundred and eighty-five thousand come due -- this last weeks' bills. Yeah. And we had already replaced a million five hundred and seven thousand. Now we have 43 million three hundred and seventy-eight thousand. HMJr: E: Yeah. And what we're doing is replacing those, all 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. and they can leave them with all bills they bought. E: HMJr: E: Yeah. The first week would be pretty drastic, so what we were run off. proposing to do was to let about 13 million of the total HMJr: Yeah. 129 -2- E: 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-- HMJr: Yes. E: banks. that would be with the dealers. 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: E: HMJr: E: HMJr: E: Yes. then They buy the bills and/just immediately turn them over to the Fed. and take their commission. Yeah. And they don't care what they pay for them at all because they don't have to go to the market with them. Yeah. 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, is 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. -3in the system's open market account." " E: HMJr: E: HMJr: E: 130 Yeah. "This is in accordance with the action taken by the Federal Open Market Committee on June the 21st, 1939." Yeah. "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: E: Yeah. "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: E: HMJr: E: HMJr: E: HMJr: E: HMJr: Yeah. "This action is in response to technical conditions in the bill market and does not represent a change in general credit policy." Yeah. Now, that's the story. Well, I have no objections. 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. No, you don't -- there's nothing that But it seems to me that -- although I, personally, 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. I just want -- got one question. How many -- what's the maximum that you fellows will let run off? -4- 131 pun E: HMJr: E: HMJr: E: HMJr: E: That we will let off in the future? Yeah. Well, of course, that -- I -- I couldn't say that. I couldn't -- you mean out of the total amount? Yes. Well, that'll be -- that'11 depend entirely on the market condition -- what the reaction is, that we I mean, run off? have you an authorization to let so many millions 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: E: HMJr: E: I see. In the aggregate. I sec. 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: E: Yeah. which I don't contemplate is 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: E: Well, you'd check with us next week, wouldn't you? 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- E: 132 And we have no -- we have no program and we're just doing this now and next week we may take them all. Yeah. Well 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 -iftoo there was any question about the bill rate going up fast, see? HMJr: That's fair enough. But And my idea is that the bill rate would continue very, very low and if it -- and 1f it doesn't, I would certainly think we should stay in the market. 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. Good bye. Listen, Henry HMJr: E: Yeah. 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 Instead of HMJr: I'll tell Hanes and Dan Bell. And tell them how important it is and we've -- we've kept it around here for a week or -- with -- among HMJr: E: HMJr: Well, I'll guarantee to keep it for a month. All right. Fine ! 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 B: today broke forty cents. 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: HMJr: B: Uh-huh. Here -- that's for foreign silver. That's That -- that is three cents less. HMJr: You mean for foreign silver. B: Yeah. HMJr: For foreign silver. B: Yeah. Well HMJr: We -- we dropped B: HMJr: I felt sure that the result of this thing yesterday would break the price of silver. 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. -2B: HMJr: 134 That's right. 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? That's right. Was I arguing all right? B: Yeah. It seems to me so. HMJr: Ah HMJr: B: B: HMJr: B: Of course, I don't know what we -- I don't know when the conferees will meet on this thing. Yeah. 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 im- portance of the Stabilization and the Devaluation part. HMJr: B: Yeah. 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 -3HMJr: Yeah. of the devaluation, but not 80 much the silver. B: 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 opinion. 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: HMJr: B: We're in re cess now just waiting for the Appropriations Committee to report the Relief Bill. Well, of course 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 -4 - HMJr: But it didn't do them any good. Well, you're being consistent. B: Yeah. HMJr: With what we've been doing here B: B: HMJr: 136 That's right. but you're asking me a point blank question, Of all the things, I think the foreign silver is 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: HMJr: B: HMJr: Uh-huh. And poor old China has practically none left that she can sell, that isn't in the hands of the Japanese. Yes. 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 B: HMJr: B: HMJr: B: after. Yeah. it out? Why did they leave it there? Why didn't they move They weren't able to. Oh, yeah. They tried their best. No, I -- I'd hate to see the Stabilization Fund lapse on me. Well I would too. -5HMJr: B: 137 Yeah. Of course, I don't know what sort of concessions we'll have to make, if any. The House, I think, will stand pat. B: Yeah. When will the conferees meet? I don't know. HMJr: Uh-huh. B: I don't know. HMJr: Oh. HMJr: B: It all depends on how we get along with the Relief Bill. We have to sort of do it between meals. HMJr: B: Well, if you don't mind, I'd like to call you up again. 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 the floor.Wagner is not in his office and he's not on HMJr: Well just leave is ready, I am. word that when Wagner -- Senator Wagner 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: W: HMJr: W: Can I sell you a little silver at about thirty cents? Ah -- well, if you give me -- make -- make it twenty. What? (Laughs) How 18 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 W: is going to devalue between now and Friday night. Oh, I see. HMJr: And on that basis they're selling the dollar and buying pounds. W: Oh, I see. -2- HMJr: 133 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. Yeah. HMJr: But that Now, listen -- that was a great combination. HMJr: W: HMJr: (Laughter) I just -- I couldn't believe it, you know. They -- they kind of -- Pat told me in the morning that they had it. Yeah. Well, I -- I just wouldn't believe that the Republicans would vote the way they did. HMJr: Yeah. Trying a hold up, but it's -- would you have believed that? HMJr: HMJr: Ah Vandenberg and fellows of that kind voting No, no. I, personally, think it's one of the blackest pages in our history. I do too. It was a pure holdup. HMJr: Yeah. There's no doubt about that. HMJr: I But now we've got to think over night what to do, you see. HMJr: Yeah. Put on your thinking cap. HMJr: Yeah. It's on. W: And 140 -3- HMJr: W: HMJr: For what it's worth. Well, I wouldn't ask you if I didn't think it was worth it. Thank you, sir. (Laughs) Ah -- but, of course, we were all BORRY 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 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 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 understand he has talked to Barkley. thing in conference. mean, I -- I made up the conference committee myself. We've got the three votes that'll stand up undoubtedly. HMJr: W: HMJr: W: Yeah. 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 conferees that'11 stand up for them, don't you know? Yes. Well, is there any chance of doing anything before Friday night? Well that's what I'm worried about now. That seems an awful short time if we get tied up. I was even thinking 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 so that we can -- so that -- that that at least will be available on -- on July first. -4- HMJr: 141 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. He what? He wanted to handle it himself? Yeah. Well that's all right. So I can't make any commitment Yeah. 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. 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. But he -- he's talking directly to Barkley and I -- I don't want to come between. I sort of 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? Now you know, at noon today I dropped the price of foreign silver three cents. Yeah, I heard that. Do you think that's good or bad? Good ! HMJr: Well, that's what Barkley said. I asked Barkley to try to tell you. Is that all right? Yeah. I think that's good. HMJr: What? -5- 142 HMJr: That's good. Maybe you'll drop a little more tomorrow. Well, it's possible, because it makes the 641 cents W: Yeah. HMJr: Is that right? W: Yeah. HMJr: That's what I thought. W: W: look three cents sweeter. Yeah. Well all right, Henry, I'll get in touch with you again then. HMJr: W: Thank you 80 much. All right. HMJr: Bob W: Yeah. HMJr: W: HMJr: W: I appreciate tremendously the fight you made. 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 That's all right. 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 ! HMJr: No. W: No. HMJr: O. K. W: Good bye. 143 June 27, 1939 2:47 p.m. HMJr: Cordell Hull: I'm back. 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 HMJr: Yeah. of silver. 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 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 H: HMJr: H: HMJr: right to continue/devalue the dollar. to know what you'd call them - fellows like Carter Glass Yeah. Adams, and that whole group. Well, the silver fellows went in with them? They -- I think the President called it "an unholy alliance. -2- 144 Yes, I see. H: HMJr: bloc. between the non-devaluationists and the silver Yeah. H: 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: HMJr: Yes. Well So what do you think they'11 do in the House? H: 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 H: HMJr: not sure of anything after what happened yesterday. Well then, would the President -- do you suppose he'd veto it if it passes? Well -- do I think so? Yeah. HMJr: My guess is yes. H: Uh-huh. HMJr: My guess is -- because he gave me the impression that H: Yes, I see. HMJr: He -- well, I'll put it this way so -- this is just be- he was just going to sit tight. 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 -3HMJr: 64.64. Yes. But said he definitely will not take the higher pricehefor silver. Yeah. HMJr: Now, he didn't say anything about vetoing, but he made that flat statement. Yeah. Well HMJr: So -- and now, silver opened in London today below H: Yeah. HMJr: H: HMJr: forty cents. We've been paying forty-three. So, ,again between us, the President didn't want me to buy any foreign silver today. I see. SO I said, "Mr. President, we've been doing it right along. I think the shock to the world would be too great." HMJr: It might drop down to nothing. To nothing. So he said, "Well, what do you think"? H: Yeah. H: I said, "Well, what we'd do normally, if there was no bill or anything, we'd pay forty cents." So he said, "All right, pay forty cents." 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. Yeah. Well HMJr: They've got maybe we get -- you see, we can have something just like the Mexican oil matter, even if we had to adjust 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: H: HMJr: H: HMJr: H: HMJr: Well, as I say, I only -- I spoke to Wagner within the hour Yeah. 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. Yes, I see. 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. Well, we didn't know anything about it, you know. 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." I see. HMJr: to I mean -- he said -- he wanted, you know,/put me -- say, would I tak e this or that; and I said, "There's no use asking me because when I talked to Barkley" -oh, I don't know, sometime 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 can't keep your mouth shut and hope for the best. (Laughs) -5- 147 (Laughs) Well, I'm going through that phenomenon right HMJr: now. But that -- that's the background and if silver -- and 1f silver should drop further in London tomorrow, I'm going to drop it again. H: because this Mexican matter we are -- we are pressing Yes. Well, I -- I'd like to keep in touch with you everything to the ninety-ninth on this oil negotiations and those politicians start up a report immediately that we have put are --/ putting coercion on them, you know. 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: HMJr: I know the real knowing ones -- but the politicians get busy, you know, and they carry things before them. 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: HMJr: Oh, I see. Because I -- if -- if the bill went -- if the thing was on Saturday, the first of July the way it is 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. HMJr: Exactly ! Well let me But that's keep in touch with you, Henry. HMJr: What's that? Let me keep in touch with you. -6- HMJr: H: HMJr: 148 Well, Cordell, call me and I'll come over any time you want me. Well, just a word over the phone is all that's necessary now and then. But that -- that's the whole picture. H: Yes. Well, thank you so much. HMJr: Good bye. H: Good bye. 149 DEPARTMENT OF STATE D THE SECRETARY June 27, 1939. STRICT LY CONFIDENTIAL MEMORANDUM FOR SECRETARY MORGENTHAU The attached memo may be of interest. It is my personal copy and I would appreciate its return at your convenience. C.H. LOAN-TS-FINLAND+ DEPARTMENT OF STATE 250 DIVISION OF EUROPEAN AFFAIRS Strintly 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 remilitarization of the Aland Islands WAB 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 -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 Boviet 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. 000. The total public debt of Finland amounts 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 equipmentfor -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 is concerned. (It was widely reported that the resignation of Foreign Minister Holeti 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. Taking everything into account, 9 feel quite strongly that this properd governmental loan to Finland should be rejected quietly without any publicity There are indirect political implications to it which are inescapate LET Eu: Thompson:MLD gwt. DEPARTMENT OF STATE THE SECRETARY June 27, 1939. TRicTLYConFiDER NTIAL ORANDUM FOR SECRETARY MORGENTHAU The attached memo may be interest. It is my personcopy and I would appreciate return at your convenience. C.H. DEPARTMENT OF STATE DIVISION OF EUROPEAN AFFAIRS Strint filentent 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 remilitarization of the Aland Islands W&B 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 the event of war in order to prevent German access to dish ore. It would Beem reasonable to suppose that land would be willing to make the proposed exchange were -2were it not for the opposition of Germany. A loan the size of that proposed, which for a country like Finland 1e 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 on 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 -defense and the Aland question would appear to be rtant enough to Sweden for that country to give Finland necessary assistance were the expense of fortification 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 Alanda 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 W&B trying to "cash in" on its good faith. From the standpoint of our relations with and it would be unfortunate if the loan had to be refused ause of public Congressional opinion. A further -4A 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 1B concerned. (It was widely reported that the resignation of Foreign Minister Holeti 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. taking everything into account, 9 feel quite timely that this propered governmental loan to Henland should be rejected quietly without any publicity There are indirect political implications to it which are inescapate LET Eu: Thompson:MLD JUSH 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). +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 ent irely 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. 161 June 27, 1939 4:03 p.m. HMJr: Summer Hello. Welles: Hello, Henry. HMJr: How are you? W: 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. W: Count Ciano's death, I just read it in -- a few minutes ago. HMJr: W: Yes. Well, I don't know who that is, but anyway 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? W: 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 HMJr: W: what we agreed upon if it hadn' t been for this hitch. Well I say now the 5th of July. Fine. Thank you so much. HMJr: Thank you. W: Will you send orders then to your men, or do you want me to send word? HMJr: W: Well, Foley and Cairns are sitting here and they'11 get off the cable to our men. All right. 182 -2- HMJr: And you can send one to Philips if you will. Right. Thank you very much indeed, Henry. HMJr: We'll send one to our man immediately. HMJr: All right. Thanks a lot. Are you -- do you want -- can I sell you a little W: HMJr: silver? (Laughter) I should think -- I should think you'd have plenty on your hands. Exactly. All right. 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 technique. Mr. Cochran: Yes. Yes. And that would not necessarily go through Rome. HM,Jr: I have talked with Butterworth this and he said he would. Take that story in the Times that they are going to devalue in Danzig. They have carried morning and asked him to check up and I talked to Bullitt 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 is 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 -2- 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 is 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 is 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 is 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 position 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. Probably 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: Areawe all right? Mr. Lochhead: We are all right. I talked up 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 1f he could give me a page brief. You fellows have got so damn many regulations, this 6 months' in 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. Will he be able to do it after the first of July? (At this point, the Secretary phoned for Mr. Bernstein to come to his office.) You have all kinds of rules and regulations. Mr. Lochhead: On foreign purchases we haven't a 166 -4- rule or regulation. What we do, we simply buy silver for spot or forward delivery. We buy silver for forward delivery up to 5 months if it comes within the requirements. No regulations. With spot, any single 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 so 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 tomorrow that if this monetary bill doesnot pass and I want to buy, 1f 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. it. Mr. Lochhead: That's the only Act you can buy 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 would have 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 tomorrow, Thursday, a draft of what kind of rules and conditions that I am setting up. regulations me you think I ought to operate under, under the price? Mr. Bernstein: Got in mind any sort of particular 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. of price. Mr. Bernstein: You won't have the same spread 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 is we check into the market, we find out to a great extent that silver that comes out of the mine by the timeit is through processing 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. 000-000 189 PLAIN JR 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 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 170 -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 THANK - to 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 pressging 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. 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:LNW 03/13/33 are as MIN. YRUPANT --.-I returns ell to with 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 is 38 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 interesting 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. FiveIf months delivery. We can change that in a moment. 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 is 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 devalIf uation be entirely removed. Pass that along to the boys. You could say this 1s 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 t 177 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. 178 Prepared by Lawrence H. Seltzer Att TREASURY DEPARTMENT 179 INTER OFFICE COMMUNICATION DATE June 28, 1939 Secretary Morgenthau TO FROM Mr. Haas OK 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 disappeared 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 millions 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 conservative 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 is 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 preceding 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 is rapidly reducing 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 is 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 production 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 The being big releases made now by both parts makers and manufacturers. middle of July. for body parts are scheduled for about the for the Chrysler has bought its complete steel requirements of acute price rest year (during the period substantially weakness of the in May), calendar and this is believed to be true of General Motors. T81 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 is 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 because the rank and file are not at present disposed to wage another strike. 182 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 Attache 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 ootton and wheat. He stated that if the United States Government should find it necessary 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 countervailing duties would be obviated. It was made clear by Guarnieri that in case the action of 183 of the United States Government resulted in the reduo- 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 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 interruption 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 interrupted 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 1s the premise upon which the whole statement is based. is "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 90 high that they discourage the limited number of individuals 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 independent 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 is our belief that when action has been taken to abolish the exemptions on the future issues of Government 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 If 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 10There is case on the removal of the tax-exempts. page brief on surtaxes and, in my opinion, both economically and from a common-sense standpoint, the two things are I as far apart as the poles. However, we connect them. a put them together at the very first shot out of the box. I said these two things are absolutely bound together in 186 -3- one place and I quote what you say and go ahead to develop 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 o'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,Jr: 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 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 just drop the last page, but I would much prefer to drop the last page and put this thing to 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. 000-000