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263 PLAIN Peiping via N. R. Dated December 20. 1940 Rec'd 10:05 p.m. Secretary of State, Washington. 525. December 20. 11 a.m. Today's PEKING CHRONICLE featured the following Domei report from Nanking dated December nineteenth concerning the establishment of a new central bank at Banking: BEGIN REPORT. Extending its authority over the currency field, the National Government of Chine at six o'clock this afternoon announced the organization of the Central Reserve Bank. Simultaneously the government promulgated a law governing the establishment of the institution. a provisional law governing the unification of currency, and regulations governing the establishment of a foreign currency control commission. Mister Chou Fo-Hai, the Finance Minister. will be concurrently appointed a Governor of the Central Reserve Bank and Kister Cuien Ta-Kuei will become the Vice Governor. The Bank will open for business on January sixth at Wonking and other important cities. According to R manifesto issued by the Finance Minister the bank will issue notes which will be regarded as the -2- 264 legal tender and circulate provisionally at par with the existing notes issued by banks of the Chungking Regime. However, should the value of the currency drop further because of the increased quantities of notes issued by Chungking thereby causing confusion in the markets, pro- visional measures will be adopted in order to maintain the value of the new notes. Japanese military script will continue in circulation during the existence of the present state of war. Notes issued by the Federal Reserve Bank at Peiping will be permitted to continue in circulation in North China for the time being. The government will revoke the charter authorizing the Huahsing Commercial Bank in Shanghai to issue notes. End of report. Sent to the Department. repeated to Chungking by mail to Shanghai and Nanking. SMYTH NPL Copy:bj 265 December 20, 1940 Assistant Secretary Gastes Mr. with reference to the attached from Mr. viley and to Mr. Heaver's letter of December 17. may I make the following suggestions: 1. Neeers. Stepfers and Pissent from the British Tabasay continue to come to no directly on straight financial matters. whether of general interest to the treasury or of specific interest to Foreign Fund, Centrol. I provide copies of their communications to the Centrol, including Mr. Viley, and also provide everyone interested with any nemeranda which I prepare as a result of visite from these officers. It has been my understanding that the Secretary desired that this system be continued. There is a definite understanding between Mr. Pehle and Mr. Stepford and myself that Mr. Stepferd is entirely free to take up with Foreign Funds Central any question which he may have, and I sometimes refer his to Mr. Pehle for answers to questions posed to se orally or is writing. It was my further understanding that Assistant Secretary Gaston would be free to utilise the services of Mr. Wiley is connection with shipping transactions. including British intelligence work in this lold. I as not avare as to whether Mr. Gaston continues to have direct contact with Mr. Stepferd or utilizes Mr. Wiley for this purpose. 2. I have speines with Mr. Knoke several times in regard to possible further cooperation between the Federal Reserve Bank of New York and the F. B. I. asting as fast finder for the Treasury. If, however, is may be desired by the Treasury that there be as extension of the present system of cooperation. which night possibly involve contact with the entire Federal Reserve System, it is my suggestion that any proposed request for cooperation be definitely eet down in writing with the thought that the Secretary night care to refer 19 to the Board of Governors of the Federal Reserve System. If the plan is only for the New York Federal Reserve Bank. it would be simple for an official letter to be addressed to that institution. 3. It is reggested that we send to the Department of State two official letters, one containing the draft of a proposed cablegram to the American Tabasay at Rio de Jameire asking for specific information is regard to disposition of certain Italian official funds takes to Brasil, and the second letter containing a draft of a tele(Yes to the American at Mexico City requesting a report on the Italian funds that vere picked up is Mexico. I am aware that one of our men is the Rebessy at Rio do Jameire has especially close contact with the Bank of Brazil and should be in a of position to obtain the desired information. with respect to the general question the soliciting the cooperation of other departments of this Government in covering first movement of funds is South America OF elsewhere, I believe it better to deal the with individual eases as they come up. such as the above two cited. and leave we general question of cooperation through our Foreign Service is abayance until know Just what our own program of central is to be. EXC:lap-12/21/40 December 20. 1940 COMPIDENTIAL Dear Mr. Knoke: Permit me to acknowledge. en behalf of Secretary Morgeathan, the receipt of your letter dated December 19. 1940 enclosing your compilation for the week ended December 11. 1940 showing dollar disbursements out of the British Repire and French accounts at the Federal and the means by which these expenditures were financed. Faithfully yours, E. Marle Geohras Technical Assistant to the Secretary b. W. Encite. Require, Vice President, Federal Reserve Bank of New York. New York, New York. HNC:lap-12/20/40 copy for Serie diles 207 Cochran motca 8. FEDERAL RESERVE BANK M. OF NEW YORK December 19, 1940. CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. Merle Cochran Pursuant to Mr. Cochran's request, I enclose our compilation for the week ended December 11, 1940, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, L. W. Knoke, Vice President. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, VIA Washington, Enclosures TECHNICV OLHICE of THE 010 DEC so will DECEIVED 268 (In Millions of Dollars) Aug. 31 Sept.27 Sept.28 Nov. 94.3 106.7 3.6 5.8 Other Securities Total Debits Credits 90.7 207.8 142.0 185.4 100.9 Other Credits Gold 3.2 (St.) (b) 33.6 52.6 (insl. adj'ts) -11.2(d) Net Inor. (+) or Dear. (-) in Balance +113.5 Total Debits Expendi- Other tures(s) Debits Total Credits 13.4 11.3 6.0 19.4 86.2(e) 35.3 88.6 23.0 10.4 85.9 78.6 22.5 86.8 11.4 61.5 51.8 191.7 97.7 8.9 8.7 182.8 89.0 105.8 57.8 75.2 50.6 25.0 14.2 54.8 124.2 115.5 113.4 100.9 16.8 15.4 14.5 26.1 23.6 38.0 108.8 101.0 87.3 43.4 108.3 20.6 56.7 60.9 46.8 17.8 17.9 21.5 13.4 93.2 7.1 25.9 25.3 101.4 283.2 249.7 137.9 301.3 212.2 267.4 5.1 2.0 12.9 156.7(1) 127.3(1) 10.8 7.3 6.3 1.0 26.4(1) 36.1 24.7 33.7 8.9 1,356.1 211.2 35.0 7.9 196.7 241.0 145.3 156.7 180.2 605.6 244.3 167.8 201.1 Nov. 20 52.4 40.2 12.2 27 58.6 50.4 31.7 8.2 10.6 5.4 1940 Jan. Feb. 1-28 Feb. 29 Apr. 3 Apr. 4 May 1 May 2 - 29 May 30 July 3 July 5-31 Aug. 1 - 28 First year of war Aug. 29 Ost. 2 Oct. 3 30 Oct. 31 Nov. 27 Nov. 28 Dec. 31 261.1 1793.2 316.8 WESK ENDED Dec. 4 11 42.3 47.8 42.4 77.3 93.0 80.9 1,187.6 72.5 28.9 39.9 94.0 86.4 126.2 319.3 225.0 294.8 .829.2 308.9 198.5 259.5 64.5 England (through June 19) England (since June 19) 260.9 21.5 27.0 5.6 54.8 5.4 18.0 19.2 6.1 44.0 126.2 335.6 75.4 60.7 9.5(1) 3.0 0.2 0.5 10.9 10.4 0.5 866.3 416.6 449.7 3,095.3 900.2 195.1 8.6 4.4 4.2 1.3 0.3 0.1 0.2 0.5 0.7 0.7 6.0 4.0 5.8 16.7 29.6 3.2 50.6 1.3 50.1 31.5 345.1(1) 0.8 2.0 22.4 1.0 8.4 + 18.5 1.4 + 4.3 15.3 109.2 29.4 31.5(m) 7.0 9.1 27.8 58.7 55.4 44.4 18.0 9.3 55.1 93.9 - 28.1 29.4 57.0 0.5 2.0 76.2 82.9 35.9 + 1.8 +12.1 8.1 84.8 31.4(k) 0.4 1,3 - 0.4 - -31.9 0.6 -33.4 1.3 - - Transfers from British Purchasing Commission to Bank of Canada for French Account $ 4.5 million Week ended Dec. 11 101.5 million Cumulation from July 6 0.6 1.3 in Balance 12.4 32.8 32.0(1) 7.9 Other Credits 41.2 72.7 99.6 6.0 14.4 27.6 million 11.6(g) 26.2(h) Sales Net Inor. (+) or Decr. (-) 11.3 55.9 71.5 105.0 78.7 145.4 6.0 50.0 59.1 million 15.9 33.7 105.4 Priseeds of Gold 35.0 30.0 39.9 63.7 271.5 160.5 210.0 57.3 10.4 Average eekly Expenditures Since Outbreak of War $19.6 million France (through June 19) 5.0(f) ) Nov. 2 29 Nov. 30 Jan. 3 CREDITS Gov't - 1939 Proceeds of Sales of DEBITS Confidential FRANCE OF 0.2 0.2 0.3 0.1 1.3 0.5 - PERIOD tures(a) BANK CREDITS - Total Debits Gov't Expendi- BANK OF ENGLAND (BRITISH GOVERNMENT) 1 DEBITS Strictly Week Ended Dec. 11, 1940. - - - - - 1.2 +188.4 - 4.1 + 2.0 +229.0 - 7.3 - ANALYSIS OF BRITISH AND FRENCH ACCOUNTS 0.7 - 0.1 0.2 0.2 + 0.2 0.3 0.1 -0.2 -0.3 -1.2 (See footnotes on reverse side) (a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber Control, and Ministry of Shipping. June 19, these figures represent total sales of American securities in Second District reported for account of the United Kingdom. Through of these sales, however, may not have been credited to the Bank of England's account in all cases.) Beginning with the week ended private deals. (b) (Proceeds the figures represent transfers from the Bank of Montreal, New York Agency, which is oustodian for requisitioned American securities held June 26, in this country. The transfers apparently reflect proceeds of official security sales, including those handled through From June 17 to July 19, transactions in securities payable in specified foreign currencies, including dollars, by United Kingdom residents were prohibited. Includes payments for account of French Air Commission and French Purchasing Commission. (d) Includes adjustment for (b) above. About $85 million transferred from accounts of British authorized banks with New York banks. (f) About $11 million transferred from accounts of British authorized banks with New York banks. (g) About $8 million transferred from accounts of British authorized banks with New York banks. (h) About $10 million transferred from accounts of British authorized banks with New York banks. (e) (e) (1) Adjusted to eliminate the effect of $20 million paid out on Jane 26 and returned the following (1) About $2 million transferred from accounts of British authorized banks with New York banks. (k) About $2 million transferred from accounts of British authorized banks with New York banks. (1) About $4 million transferred from accounts of British authorized banks with New York banks. (m) About 36 million transferred from accounts of British authorized banks with New York banks. (x) day: ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS DEBITS (In Millions of Dollars) OF CREDITS 17.5 0.6 9.6 0.3 1 9.9 2 - 29 30 Jan. 3 0.7 30.0 - 1940 23.5 23.1 42.3 - 31 1 - 28 3 38.2 1 37.9 2 - 29 by 30 July aly 3 -31 30.0 22.8 23.5 - 23.1 - 15.0 44.1 28.2 18.7 26 16.7 14.4 - - - 16.1 42.3 23.2 29.5 29.3 42.9 24.8 37.9 50.2 72.5 72.2 18.7 - 12. st. 3 - : 30 31 Nov. 27 28 Dec. 31 323.0 2 first year of war bg. 29 Oct. 44.3 26.7 35.2 16.6 306.4 14.0 49.2 - 26.7 28.6 35.2 69.6 For French - - - 3.0 - - - - - - 15.0 - - - - - 20.9 16.4 - - - Credits Dear. (-) to Total Debits in Balance A/C 0.8 2.1 50.0 96.3 53.9 412.7 44.3 A/C 21.1 117.6 73.6 504.7 43.9 - - 15.1 7.3 13.3 13.3 25.7 17.0 44.1 28.2 - 21.8 16.9 9.3 9.2 For Own - Sales Transfers 5.9 7.3 1.1 6.5 + 4.3 + 7.1 + 4.5 Official British Proceeds Other Debits Total Credits A/C Net Inor. (+) or Credits Deor. (-) Other of Gold Sales in Balance - - - - t.28 Nov. Gold Other Net Inon. (+) or - Sept. 27 Proceeds Transfers from Official of British A/C - 1939 4 - May Debits Total Credits A/C PERIOD 29 Apr. Other - Total Debits Official British COMMONWEALTH BANK OF AUSTRALIA(including Govt. Acct DEBITS CREDITS - to Confidential - Transfers Strictly Week Ended Dec. 11, 1940. CANADA - 1.9 1.9 2.5 5.8 5.8 0.1 4.9 3.2 3.0 2.2 0.3 2.7 3.3 2.4 2.2 1.6 0.6 - 2.3 1.0 2.3 2.0 2.6 1.8 1.7 0.2 5.9 4.4 1.5 4.6 - - 7.2 2.5 4.6 2.2 0.9 6.1 0.2 12.8 5.2 3.3 3.0 3.1 + 4.7 2.3 0.2 12.3 0.3 28.4 1.2 2.3 - 0.3 0.2 - - BANK 0.3 0.2 2.1 89.4 4.6 0.8 54.9 6.8 3.0 3.8 5.0 5.0 4.2 0.2 3.4 1.6 32.4 +181.7 -1.8 31.2 27.3 36.1 30.0 6.1 +4.9 27.3 14.3 0.2 0.3 0.4 1.9 8.7 6.2 10.1 2.6 8.0 7.9 -0.7 -2.2 3.7 + 34.4 3.1 2.5 3.6 6.7 6.5 2.1 1.3 1.4 16.7 3.9 2.5 7.5 0.6 1.5 +0.5 - 10.8 5.4 - - 10.8 21.4 21.4 5.4 14.4 5.8 - 0.5 - 0.7 9.6 2.9 0.7 - - 4.5 4.1(a) eekly Average of Total Debite Since Outbreak of War (Canada alone) million Through December 11 6.6 (a) of which 84 million transferred from a New York bank by order of a large Canadian bank, +21.1 1.1 0.4 0.7 0.7 +2.6 1.1 0.1 1.0 0.2 +10.6 0.8 0.1 9.0 0.8 0.8 0.8 - - 11 29.7 8.2 33.3 10.8 0.3 - - Dec. 4 - 8.2 12.2 -1,9 -0.9 -0.8 -0.3 19.2 - 27 - 3.3 19.5 38.7 - - 12.2 +1.9 +1.4 +3.6 +0.4 - 0.9 KEEK ENDED Nov. 20 - 0.7 0.2 0.1 0.3 -0.4 -0.9 -0.7 -0.5 269 FEDERAL RESERVE BANK OF NEW YORK December 19, 1940. CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. Merle Cochran Pursuant to Mr. Cochran's request, I enclose our compilation for the week ended December 11, 1940, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expendi- tures were financed. Faithfully yours, /s/ L. W. Knoke L. W. Knoke, Vice President. Honorable Henry Morgenthau, Jr.. Secretary of the Treasury, Washington, D. C. Enclosures if COPY ANALYSIS OF BRITISH AID FRC of ACCOUNTS In Millions of Dollars) GOVERNENT) DEBITS BANK OF ENGLAND (BRITISH CREDITS Procedd or Gov't Total Debito PERIOD Expenditures(a) Other Debits Sales of Total Credits Gold PAIX DEBITS Credits (+) or Securities final. Dear. (-1 (St.) (5) adj'to) in Balance Total +113.5 29.4 35.3 86.6 85.9 78.6 Cov't Expendi- tures( Debits Tor. 2 - 29 94.3 3.6 106.7 191.7 5.8 97.7 ST. 30 - Jan. 3 8.9 8.7 90.7 100.9 185.5 89.0 207. 142.0 105. 76.: 105.4 33.6 -11.2(d) 3.2 52.6 85.2(e) CREDITS 57.9 £3.0 50.6 23.0 14.2 10.4 29.5 Pr code Other Debito 6.0 ) Sept.28 - Nov. 1 86.8 13.4 Total Credito of Gold Other Sales Credits 11.3 76.2 11 1793.2 316.8 196.7 605.6 244.3 167.8 93.0 80.9 1187.6 72.5 241.0 201.1 52.4 58.6 42.3 40.2 47.8 50.4 31.7 42.4 61.5 15.9 72.7 11.6(c) 21.5 13.4 7.1 99.6 84.8 25.9 + 25.3 5.1 12.9 36.1 2.0 1.0 10.3 24.7 86.4 46.8 126.2 319.3 225.0 93.2 301.3 212.2 294.8 267.4 28.9 1,829.2 308.9 198.5 39.9 259.5 356.1 271.5 160.5 210.0 64.5 50.6 6.0 7.9 +12.1 57.3 50.0 1.4 2.0 9.3 - 1.3 2.0 4.0 7.0 -31.9 -33.4 12.2 8.2 10.6 5.4 10.4 14.4 Average Weekly Expenditures Since Outbreak of Har $19.6 million France (through June 19) England (through June 19) England (since June 19) 5.0(f) 27.6 million 59.1 million 1.3 211.2 6.0 27.0 20.2(h) 26.4(1) 30.0 39.9 63.7 55.9 50.1 5.8 5.6 71.5 54.8 16.7 105.0 145.4 345.1(1) 29.6 18.0 19.2 1.2 5.4 55.4 44.4 29.4 75.4 60.7 89.9 6.0 31.4(k) 32.0(1) 18.0 31.5(m) 9.1 29.4 57.0 127.3(1) 6.3 0.5 416.6 4.4 78.7 0.2 4.1 8.4 10.9 0.5 2.0 449.7 0.99.3 10.4 900.2 195.1 +2:9.0 4.2 1.3 1.3 7.3 866.3 8.6 1.8 0.5 0.3 0.2 0.5 18.5 0.8 0.1 0.7 0.7 0.4 - Transfers from British Purchasing Commission to Bank of Canada for French Account eak ended Dec. 11 million Cumulation from July 6 101. $ +188.4 3.0 7.9 0.6 1.3 9.5(1) 6.1 44.0 3.2 8.9 0.4 126.2 335.6 4.3 1.0 33.7 35.0 250.9 22.4 31.5 39.8 35.9 101.4 156.7(1) 7.3 27.8 15.3 109.2 - Dec. 137.9 156.7 180.2 11.4 33.7 12.4 58.7 - 27 145.3 26.1 17.9 17.9 21.5 8.1 41.2 18.1 - - Nov. 20 23.6 20.6 36.7 60.9 43.4 + First year of war Bug. 29 Ost. Oct. 3 - 30 Oct. 31 Nov. 27 Sov. 28 Dec. 31 113.4 100.9 283.2 249.7 261.1 101.0 87.3 77.3 108.3 94.0 + by 28 3 36.0 108.8 11.3 105.4 0.6 1.3 - 0.5 - Apr. 4-May May 2-29 May 30 July July 5-31 3 1 Feb. 29 - Apr. 16.8 15.4 14.5 in Balance $1.0 0.7 - Feb. - 28 54.8 124.2 115.5 Net Inor. (+) or Decr. (-) 35.0 55.1 93.9 1940 Jan. 4 - 31 Confidential FRAICH OF Other Net Insr. 1939 Aug. 31 - Sept.27 Strictly Week Ended Doc. 11, 1940. 0.2 - 0.2 - 0.3 0.1 - - 0.2 0.2 0.3 0.1 0.1 -0.2 +.0.2 -0.3 -1.2 (See footnotes CC reverse side) Incl Cont (b) Thro (Proper June bold ments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry7 apply Timber Ministry of Shipping. 19, these figures represent total sales of American securities in Second District reported for assount of the United Kingdo ended these sales, however, may not have been credited to the Bank of England's account in all cases.) Beginning with the week the figures represent transfers from the Bank of Montreal, Now York Agency, which is oustodian for requisitioned American societies this country. The transfers apparently reflect proceeds of official security sales, including those handled through private deals. From June 17 to July 19, transactions in securities payable in specified foreign purrencies, including dollars, by United Kingdom residents were hibited. I Includes payments for account of French Air Commission and French Purchasing Commission. (d) (o) Includes adjustment for (b) above. (o) About 86 million transferred from accounts of British authorized banks with New York banks. m million transferred from accounts of British authorized banks withwith Now York banks. New York banks with New York banks. transferred with New York eliminate the paid's on 26 and returned+the following day (f) (b) (B) About about About no 3 million Million transferred transferred effect from from of accounts accounts $20 million of of British British out authorized authorized Jane banks banks. (1) (1) Adjusted About #2 to million from accounts of British authorized banks banks. banks. (k) About 2 'million transferred from accounts of British authorized banks with New York (1) About H million transferred from accounts of British authorized banks with New York banks. (a) About IS million transferred from accounts of British authorized banks with Now York banks. (b) C*T ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS (In Millions of Dollars) OF CANADA CREDITS Official British Other Total Debits Credits A/C PERIOD 1932 Sept. 27 Nov. 1 2 - 29 30 - Jan. 1940 4 - MAY 1 - July 3 4-31 1 - 28 7.3 30.0 22.8 13.3 13.3 3 - 30 31 Nov. 42.3 38.2 18.7 & Oct. 2 44.3 - - - 15.0 - 16.6 - 26.7 27 2.1 16.7 14.4 323.0 201 year of war - 9.3 37.9 44.1 28.2 2 - 29 0.8 9.2 - 3 15.1 0.3 - 1 - 28 A/C 0.7 - 35.2 - 23.5 25.7 23.1 42.3 23.2 17.0 29.5 29.3 42.9 24.8 37.9 50.2 50.0 44.1 72.5 72.2 28.2 18.7 306.4 44.3 117.6 96.3 73.6 53.9 412.7 26.7 28.6 69.6 35.2 - 504.7 43.9 For French A/C 9.9 23.5 23.1 4-31 21.8 For Own Sales 17.5 9.6 30.0 3 19 - Apr. 16.9 0.6 Gold 21.1 16.1 - - 3.0 - - 20.9 16.4 14.0 - - 49.2 Dear. (-) Debits in Balance A/C 5.9 7.3 4.3 1.1 4.5 6.5 7.2 2.5 7.1 - Proceeds to Official British Total Other Debits Credit Net Incr. (+) or Credits Deor. (-) Other of Gold in Balance Sales - - - - - - - - 1.9 1.9 2.5 5.8 5.8 - - 1.9 3.3 2.2 5.2 0.3 4.9 3.3 3.0 0.3 6.1 3.3 0.1 3.2 2.2 0.2 -0.9 - 0.2 12.8 0.3 2.7 1.6 0.6 - 0.8 3.1 0.2 4.7 3.0 2.3 2.4 2.2 2.3 2.0 1.8 -0.3 IN 0.2 2.6 1.7 0.2 0.9 5.9 4.4 4,2 1.5 +3.6 0.8 1.6 +0.4 - 1.8 +4.9 - 12.3 0.3 28.4 19.2 2.1 19.5 38.7 0.2 89.4 54.9 32.4 +181.7 - - Credits (+) or Total 4.6 - - Other 0.9 - 15.0 Transfers Net Inor. - - Total Debits Proceeds Transfers from Official of British A/C - to COMMONWEALTH BANK OF TRALIA(including Govt. Acct. DEBITS CREDITS - Transfers Confidential - BANK DEBITS Strictly Week Ended Dec. 11, 1940. HO 3.8 27.3 5.0 5.0 3.4 36.1 30.0 6.1 6.2 8.0 1.3 7.5 2.6 7.9 0.6 2.5 3.6 6.7 6.5 2.1 4.6 4.6 6.8 31.2 27.3 0.2 0.4 14.3 16.7 0.3 1.9 8.7 10.1 3.7 34.4 3.1 3.0 3.9 2.5 1.4 1.5 - 1,9 14 -0.2 -2,2 0.9 - Dec. 31 11 8.2 10.8 5.4 - - - Dac. A 12.2 33.3 10.8 10.8 21.4 14.4 0.5 21.4 5.4 5.8 2.9 +21.1 1.1 0.4 0.7 0.7 9.6 0.7 2.6 1.1 0.1 1.0 0.2 +10.6 O.E 01 4.5 4.1(a +9.0 0.8 0.8 0.8 0.7 - - 27 29.7 - NOT. 20 12.2 8.2 - ekly Average of Total Debits Since Outbreak of War (Canada alone) million $6.6 Through December 11 (a) or which $4 million transferred from a New York bank by order of a large Canadian bank, - 0.3 - - - COX ENTED 0.7 -044 O. 0.1 -0.7 0.3 -0.9 -0.5 TREASURY DEPARTMENT 273 INTER OFFICE COMMUNICATION DATE December 20, 1940 THE SECRETARY OF THE TREASURY Through the Under Secretary FROM THE COMMISSIONER OF THE PUBLIC DEBT Agreeable to your request through Mr. Graves, I have the honor to submit the following account of the popular public debt issues during the War, which I am making as brief as possible, together with some presentation of the present facilities for popular issues. Preliminary At the time of the declaration of War, April 6, 1917, the Secretary of the Treasury had authority to issue (1) $300,000,000 certificates of indebtedness ($50,000,000 issued to Federal Reserve Banks on March 31) and (2) by recent Acts, about $500,000,000 bonds (including unissued Panama 3's) for special purposes connected with the National preparedness and defense (none issued, the authority later being merged with the War Loan authority). The Treasury organization then handling public debt securities included the Division of Loans and Currency in the Secretary's Office, and the Office of the Register of the Treasury, two small offices adequate for the conduct of the usual transactions in a static debt, but wholly inadequate for those of great popular issues. The Federal Reserve Banks, as fiscal agents of the United States, were available as a field service, although up to that time their contact with public debt transactions was negligible. The first action taken by the Secretary was to secure appropriate loan legislation, resulting in the First Liberty Bond Act - April 24, 1917 (later superseded by the Second Liberty Bond Act - September 24, 1917). Following the enactment of the First Act, certificates of indebtedness were issued thereunder to place the Treasury temporarily in funds, and meanwhile plans went forward for the First Liberty Loan. And almost immediately, in appreciation of the great task confronting the Department, the Secretary secured Mr. Russell C. Leffingwell as Counsel (later Fiscal Assistant Secretary), and Mr. Lewis B. Franklin to head a sales organization as Director; such was the genesis of the War Loan Staff (special assistants), and that of the War Loan Organization (publicity and sales). The Five Liberty Loans The War Loan Organization, under the Secretary of the Treasury, conducted the five Liberty Loan campaigns. To quote from The Story of the Liberty Loans: "Under the Secretary's direction, and the supervision of R. C. Leffingwell, Assistant Secretary of the Treasury, the War Loan Organization composed of the sales, publicity and speaking branches carried on the active work of the campeign. Headquarters for this work were established and directing heads stationed 274 in Washington. This work was decentralized in great part, subcommittees being formed down through the twelve Federal Reserve Districts of the country end the States and where practical counties, townships and COMmunities." The organization outside of Washington was along the lines of the Federal Reserve Districts, with the Governors of the Federal Reserve Banks heading the district organizations. Under Liberty Loan Committees the districts were organized by State, and all political and geographical units, and largely subdivided into social, industrial, racial and other groups. Under the Liberty Loan Committees was a vast volunteer Army of speakers, solicitors and other workers. It was realized that the bonds would not sell themselves and so every possible means of publicity was employed, together with personal solicitation. The quota system was largely availed of and variously applied, and localities, organizations or other units reaching their quotas received honor flags, or other commendation or recognition. Badges and certificates were conferred on workers. Through the War Loan Organization the banking institutions of the country were mobilized for handling subscriptions, and, almost without exception, they extended every possible facility both to the Treasury and to their customers and others for the receipt of subscriptions (largely turned over to them by volunteer workers) for the receipt of payments, and for subsequent delivery of bonds. Banking institutions generally supplemented the Treasury offerings with partial payment plans so permitting the purchase of bonds through small weekly payments in units of 31. Through this cooperation of the banking institutions subscriptions were aggregated and conveyed to Federal Reserve Banks, where they were again aggregated and conveyed to the Treasury. Payments followed the same course, and the bonds were delivered in reverse order. Accordingly congestion at any point was avoided. Data regarding the five Liberty Loans appear on a separate page at the end of this memorandum. War-Savings Certificates War Savings Certificates, authorized by the Second Liberty Bond Act September 24, 1917, were issued for two purposes: (1) to give persons of small means an opportunity to participate in financing the War, and (2) to inculcate thrift and economy. The War-savings campaign was organized in the fall of 1917, with Mr. Frank A. Vanderlip in charge. From headquarters in Washington a country-wide organization was effected along State lines (under State directors) subdivided by counties, towns, etc., with local committees in charge, over a host of workers. An intensive campaign followed with all possible publicity, and the whole country was mobilized for thrift and saving, their importance being stressed. Thrift Clubs and War Savings Societies were formed in every community and circle throughout the country. -3- 275 War Savings Stamps, in the denomination of $5 (maturity value) were issued on a discount basis with a 5-year maturity. A new series was offered each calendar year, the issue price in January being $4.12, advancing 1 cent each month until the end of the year. At the average issue price for the year the return was 4 percent per annum, compounded quarterly if held to maturity. At the time of purchase of the first stemp 8 folder was furnished for affixing the stamps, with provision for 20 stamps. The folder, with affixed stamps evidencing payment, became a War Savings Certificate. Optional registration at post offices was provided. The certificates were redeemable before maturity at fixed prices, during the year of issue at the issue price, and thereafter increasing 1 cent each month, with a considerable jump at the end. The approximate return if redeemed before maturity was 3 percent. Supplementing the War Savings Stemps, 25 cent Thrift Stamps also were provided, and a thrift card, accommodating 16 stamps was furnished. A filled card plus odd cents was exchangeable for a War Savings Stamp. War Savings Stemps and Thrift Stamps were placed on sale at every post office in the United States, the sale even extending to rural mail carriers. In addition two classes of sales agents were appointed by the Secretary of the Treasury: cash agents and collateral agents. Cash agents received stamps against cash payment, while collateral agents received stamps against acceptable collateral deposited with a Federal Reserve Bank. Banks, department stores, and innumerable industrial concorns and others qualified as agents. The agents so appointed numbered 233,287 on October 31, 1918. The War Loan Organization and the War Savings Organization were independently organized and independently administered, subject only to the Secretary of the Treasury. The former was tied up with the Federal Reserve System; the latter was not. In order to bring the two organizations into closer coordination of effort, the War Savings Organization was changed in the summer of 1918, the State organization being abandoned in favor of the Federal Reserve District organization, with the Governors in charge under the direction of the War Loan Organization. Treasury Savings Stamps, in the denomination of $1, were later provided, but little demand followed. There being some demand for a similar security which could be purchased without the intermediary of stamps, after the first year Treasury Savings Certificates were offered, the first series on July 1, 1919, in denominations of $100 and $1000, maturity value. They were issued on a discount basis, with a 5-year maturity at prices corresponding to War Savings Stamps. For later series the denomination of $25, maturity value, wes added. Four series of War Savings Stamps were issued for the calendar years 1918, 1919, 1920 and 1921. The sale of these stamps and the sale of Thrift Stamps terminated December 31, 1921; the sale of Treasury Savings Certif- icates continued until July 15, 1924. For the full period the cash receipts -4- 276 from War Savings securities were as follows: War Savings Stamps, 1918-21 Thrift Stamps Treasury Savings Stamps $1,062,148,062 137,084,815 Treasury Savings Certificates 1922-24 Total cash receipts 423,949,723 $1,623,682,800 500,200 Includes Treasury Savings Certificates through 1921 - less than $35,000,000. The total expenses of War Savings securities to December 31, 1921, follow: Series 1918 (Sept.24,1917-Dec.31 1918) Series 1919 (Calendar year 1919) Series 1920 (Calendar year 1920) Series 1921 (Calendar year 1921) Advance to Post Office Department during period $4,653,231 3,536,752 1,178,058 446,688 175,000 Extracts from the Secretary's Reports for 1917 and 1918, covering the first year of the War Savings Movement, are appended to this memorandum. Bureau of the Public Debt The War financing (particularly that relating to the popular issues) had two principal aspects: (1) sales promotion, and (2) the formal acts connected with an issue; these two natural divisions were adhered to. For sales promotion, two great organizations functioned: The War Loan Organization and the War Savings Committee, and their activities were limited to publicity and promotion matters. For the formal acts,- preparation of official circulars and related documents, preparation of bonds and other securities, the receipt of payment, the delivery of securities and the conduct of subsequent transactions therein, and generally for the conduct of all aspects of an operation other than publicity and sales promotion, the established Treasury organization took over. In April 1917, the existing organization in the Treasury charged with the conduct of public debt transactions included the Division of Loans and Currency in the Secretary's office (82 employees, including 32 officers and clerks, with annual salaries of $89,850), and the Office of the Register of the Treasury (21 employees, with annual salaries of $29,800). These two offices, and particularly the Division of Loans and Currency, were greatly expanded, and the whole procedure was largely modified and new procedure was devised for the Liberty Loan and War Savings issues of unparalleled size and of new character, and for the subsequent conduct of transactions therein. At the same time, and paralleling these activities, the Federal Reserve Banks, as fiscal agents of the United States, were utilized to the fullest possible extent as a field force. From the small 1917 beginning the Public Debt Service (now the Bureau of the Public Debt) was evolved. Other branches of the -5- 277 Treasury service were involved, and contributed their part on a greatly enlarged basis. The organization evolved during the War, to some extent since modified, was found adequate subsequently, for handling the refunding of the five Liberty Loans, for the issue of Adjusted Service bonds, and, during the past five years, for the issue of United States Savings Bonds. Together with the Federal Reserve Banks and the Postal Service, constituting a field service, the Bureau of the Public Debt is prepared to handle future popular issues. As indicated, the Public Debt Service has been concerned with the more formal acts, and has not been concerned with sales promotion activities, though recently since the Division of Savings Bonds was placed in the Bureau there has been some contact with this related work. Present facilities for popular issues The Secretary now finds the Department in quite a different position of preparedness for major popular financing than was the case in 1917, for he has available: (1) the members of his Staff, and the General Counsel and his assistants, constituting an organization similar to the former War Loan Staff; (2) the Division of Savings Bonds, a well established and efficient publicity agency, which may be expanded to the extent necessary; (3) the Bureau of the Public Debt, as now constituted, which is equipped to handle the formal issue and resultant public debt work; (4) the Federal Reserve Banks, through their developed organization and their fiscal agency departments, which are in position to render almost any required degree of assistance, either along sales promotion or Treasury lines; (5) the Postal Service, which because of its past experience with Treasury issues is in position to render efficient cooperation; (6) the Postal Savings System, which can be utilized as an important tie-in; (7) the Treasurer's office, which is organized to take on additional activities; and (8) the Bureau of Engreving and Printing, which can now produce securities with dispatch and certainty. Some disabilities The Postal Savings System, through the sale of Postal Savings stamps (10, 25, 50 cents, and $1) may be utilized for the accumulation of small amounts (not beering interest). When these stamps, affixed to cards fur- nished, to the value of $18.75 have been accumulated, they may be exchanged for a $25 denomination Savings Bond. These stamps may now be purchased at postal savings offices (over 7,000), and the sale may be extended to all post offices selling Savings Bonds (about 16,000) - possibly to all post offices in the country. The proceeds of the sale of these stamps are postal savings receipts, and do not become public debt receipts until, in units of $18.75, the stemps are exchanged for Savings Bonds. In some respects, special Treasury stamps, or some other convenient facility, for partial payments of small amounts toward the purchase of Savings Bonds, might be considered more desirable, for the proceeds would be deposited as public debt receipts; moreover, a Treasury issue might receive more popular -6- 278 acceptance as a means for participating in defense financing. But a special issue would lead to duplication of material and effort, and of accounting, greatly increasing the cost. No change in the law governing the issue of Savings Bonds is necessary if Postal Savings stemps (or deposits) are used as an intermediary for the purchase of the bonds, but if special Treasury stamps, or other Treasury facilities for partial payments are offered, 8 change in the law probably will be necessary. In the case of War Savings certificates, an actual public debt security was delivered on payment of the issue price of a $5 stamp, and if Thrift stamps were used, it was necessary to accumulate only 16, or $4 worth, before acquiring an interest-bearing obligation. If Savings stamps are used for partial payments, it is necessary to accumulate $18.75 before an interest-bearing security may be acquired. I doubt if this is a disability. The same disability would exist were Treasury stamps provided unless there was some provision for crediting interest - which would lead tc no end of complication when exchanged for A bond. Present law fixes $25 as the minimum denomination, and makes no provision for partial payments. However, the law permits purchases through Postal Savings deposits. War Savings certificates, to be issued on a discount basis, with a meturity not exceeding five years from issue date, payments on account of which may be evidenced by stamps, were authorized by the Second Liberty Bond Act. The issue of War Savings certificates, in the form of Treasury Savings certificates, was finally discontinued July 15, 1924, and the law has been obsolescent since. Moreover, War Savings certificates are not included in the so-called statutory debt limitation, and there is 8 general understanding that such certificates will not again be issued under existing law; and, the title "War Savings Certificates" is herdly suitable for present requirements. In any legislation proposing amendments to the Savings Bond authority, it would probably be desirable to include certain provisions now relating to War Savings certificates not provided for United States Savings Bonds. The Second Liberty Bond Act provides an indefinite appropriation for expenses of loans, computed at 1/10 of 1 percent of the amount of certificates of indebtedness and 1/5 of 1 percent of the amount of bonds and notes issued under the Act. However, in recent years the Congress has limited the amount that may be obligated each year. For this year (1941) $4,000,000 is allowed, including 3692,076 for sales promotion of Savings Bonds (the same amount for the same purpose being included in the 1942 estimates). For an intensive campaign, if conducted this fiscal year, the limitation must be raised through a deficiency; if next year, the proposed amount should be increased in the Appropriation Act for that year. 279 -7- One of the important facilities developed since the War that should largely be used for any popular or intensive campaign is the radio. In connection with the refunding of the Second Liberty Loan, radio broadcasting time was purchased, and the Comptroller General later suspended the vouchers, holding that radio advertising was a modernism not known when the appropriation was authorized in 1917. He finally passed the vouchers, and Congress authorized further limited expenditures. But the disability remains and legislation will be required to remove it. Paid advertising, particularly in magazines, has proven its worth, but a change in the attitude of the House Committee and provision for additional funds would be necessary before paid advertising could be resumed. Mrs $11,999,891 June 30,1919) (Apr.1,1919 to $10,722,415 $13,757,817. Sept.30,1918) Mar.31,1919) (Oct.1,1918 to (Apr.4,1918 to $3,061,825 $6,306,963 Apr.3,1918) (Sept.24,1917 to Sept.23,1917) (Apr.24,1917 to excluding War Savings Certificates) Expenses (including Certificates of Indebtedness, 11,803,895 18,308,325 22,777,680 9,400,000 4,000,000 Estimated Number of Subscriptions $4,495,373,000 17,486,132 $6,964,581,100 33,024,444 $4,175,650,050 24,156,821 $3,807,865,000 14,938,273 $1,989,455,550 3,704,850 542 1,488 711 497 652 598 872 888 4,394 3,622 77,353 62,086 113,001 99,829 45,589 47,516 52,918 55,703 1,464,893 864,713 7,693,669 14,039,132 1,808,135 859,026 6,213,767 8,464,726 2,523,531 1,227,548 11,276,017 17,782,378 May 20, 1919 Oct. 24, 1918 May 9, 1918 39,076 Fourth 4-1/4's Third 4-1/4's 100,000 50,000 10,000 5,000 1,000 32,821 499,901 220,618 500 4,674,418 7,770,074 1,173,193 1,731,225 100 $50 Nov. 15, 1917 June 15, 1917 1,661,849 721,551 (Interims) Victory Notes Total amount Total pieces Second 4's denomination, and total amount Original issues - by number of pieces of each FIVE LIBERTY LOANS First 3-1/2's Denomination Extract from Secretary's Report - 1917 281 WAR-SAVINGS CERTIFICATES. In order that every man, woman, and child in the country, however small their means, may be given an opportunity to assist the Government in the financing of the war, I have determined upon an extensive campaign for the sale of war-savings certificates. The issuance of these securi ties was authorized by the act approved September 24, 1917, in an amount not to exceed $2,000,000,000. In addition to assisting the Government in the prosecution of the war it is confidently expected that these certificates will greatly encourage thrift and economy among the people of the country. Liberty bonds are offered in denominations of $50 and upward. They do not present a convenient form of investment to those who wish to accumulate savings in small amounts and put their funds in obligations of the Government. There are many mechanical and practical difficulties in the way of issuing bonds in large amounts of denominations below $50. The demand for such securities will be met by war-savings certificates. The simplest possible plan has been evolved for the issuance of the certificates to the public. Under it any person may invest amounts as stall as 25 cents at a time at post offices, banks, or trust companies, and at many places where accredited persons will act as selling agents. The campaign will be inaugurated on Monday, December 3, 1917. The certificates will be dated January 2, 1918, and will mature January 1, 1923-that is, five years after date. These obligations of the United States will be evidenced by a warsavings stampcosting from $4.12 to $4.23, according to the month in which purchased and have a maturity value of $5, and thrift stamps costing 25 cents may be accumulated towards paying for a war-savings stamp. During December,1917, and January, 1918, war-savings certificate stamps will be sold at $4.12 each. At the beginning of each of the succeeding months of 1918, starting February 1, the cost of a stamp will increase 1 cent per month. The difference between the purchase price paid at any time during 1918 and $5 represents the interest the Government will pay the holder. This interest is at the rate of 4 per cent per annum, compounded quarterly on the average price of the stamps during 1913. with the first war-savings stamp bought, the purchaser will obtain a war-savings certificate, containing blank spaces for 20 such stamps. If the 20 spaces are filled during December, 1917, or January, 1913, the cost to the purchaser will be $4.12 for each stamp or $82.40 for the filled certificate, and on January 1, 1923, the Government will redeem the certificate at $100, giving the holder $17.60 for the use of his money. Thrift stamps, costing 25 cents each, are from time to time as purchased to be affixed to thrift cards, which will be supplied without cost. Thrift stamps will not bear interest, but a thrift card, when filled at a cost of $4, may be exchanged for a war-savings stamp bearing interest at 4 per cent, compounded quarterly, merely by turning the card into the post office, bank, or other sales agency and paying the difference between $4 and the current price of a war-savings stamp. -2- 282 The privilege of surrendering a certificate to the Government and re- ceiving the cost thereof, plus interest at the rate of about 3 per cent, has been provided for the convenience of those who may have bought certificates and later find themselves in need of their money. Upon 10 days! written notice after January 2 next, postmasters will pay all certificates at their cost to purchasers, plus an increase of 1 cent a month on each war-savings stamp on the certificate surrendered. The Treasury Department is receiving the cordian cooperation of the Post Office Department in the sale of these certificates. The Postmaster General, at the request of the Secretary of the Treasury, has prescribed regulations requiring employees of the Post Office Department and the Postal Service to give effective assistance and cooperation to carry out the plan. The details of the offering of war-savings certificates are set forth in Treasury Department Circular No. 94 (Exhibit E). Extract from Secretary's Report - 1918 283 WAR-SAVINGS CERTIFICATES. The sale of United States war-savings certificates and thrift stamps has been continued throughout the year without interruption. Not only have these securities given every man, woman, and child in the country, however small their means, an opportunity to invest in the obligations of their Government, but they have been the means of carrying the message of thrift and economy into every city, town, and hamlet, and, it is hoped, into every home in the country. In addition to yielding over eight hundred millions of dollars to assist the Government in the prosecution of the war, the warsavings certificates and thrift stamps have been the means of showing the people a way to save, and how rapidly, by the habit of thrift, the accumulation of small sums increases their prosperity. This war-time experiment has been so successful that it is hoped that war-savings certificates will become a continuing feature of the Nation's financing even after the restoretion of peace. The campaign for the sale of war-savings certificates and thrift stamps opened on December 3. 1917, under the immediate supervision of the National War-Savings Committee appointed by the Secretary of the Treasury. State, county, city, and town committees were organized throughout the country and a campaign in the interest of thrift and economy was begun on a nation-wide scale. At first progress was slow. The gospel of thrift had not as yet been preached in any systematic way. The principle of "business as usual" was the antithesis of the principle of thrift during the war. The opening of the campaign resulted in much passive and some active opposition. The message of war-savings, however, slowly but steadily gathered increasing momentum. The clamor for "business as usual" was heard less and less until it entirely faded away. The appeal of the war-savings campaign was gradually understood and it exercised a great influence in the readjustment of the economic life of the Nation. From the beginning the Treasury has received the cordial and effective cooperation of the Postmaster General and the entire Postal Service. In addition to being on sale at every post office and by every rural carrier, warsavings certificates were placed on sale throughout the entire country by agents appointed by the Secretary of the Treasury. numbering on October 31, 1918, 233,287. All of these agents patriotically offered their services with- out compensation. Up to November 1, 1918, 151,361 war-savings societies had been formed to foster the spirit of thrift and economy among their members. It is hoped that these socieities will perform an increasingly important role in the work of stimulating savings. The cash receipts in the Treasury from the sale of war-savings and thrift stamps by months from December. 1917. to October. 1918, were as follows: December. 1917 January, 1918 February, 1918 March, 1918 April, 1918 May, 1918 $10,236,451.32 24,559,722.15 41,148,244.22 53,967,864.49 60,972,984.12 57,956,640.12 June, 1918 July, 1918 August. 1918 September. 1918 October, 1918 $58,250,485.00 211,417,942.61 129,044,200.62 97,614,581.48 89,084,097.31 284 -2- Up to November 1, 1918, the cash receipts totaled $834,253,213.44 representing an average maturity value estimated as slightly in excess of $1,000,000,000. The total redemptions up to September 30, 1918, were $7,552,839.44, being only 1 per cent or the cash receipts. After several months of education in the necessity of saving for the war and in the advantages of the war-savings certificates it seemed desirable that the country give concrete evidence or its support of the war-savings movement and a nation-wide enlistment campaign was inaugurated, culminating on June 28, 1918. In that campaign the people were asked to pledge themselves formally to save and economize and to invest during the year a specified amount in war-savings certificates. Early in September, 1918, it was determined that the organization which had charge of the war-savings campaign should, if possible, be brought into closer coordination with the efforts of the Liberty loan committees under the supervision of the War Loan Organization of the Treasury. This change was suggested by F. A. Vanderlip, chairman of the National War Savings Committee. The correspondence between Mr. Vanderlip and the Secretary, setting out the reorganization in detail, follows: August 29, 1918. Dear Mr. Vanderlip: Since our conference last week, I have received your memorandum concerning the war-savings organization, from which the following is a quotation: "Present organization.- The Secretary of the Treasury appointed a National War Savings Committee, consisting of a chairman and four members. Upon their recommendation, he appointed six Federal directors, each having general supervision over two Federal reserve districts, and fifty-two State directors, each of whom has complete charge of war- savings activities in his respective State or district. "The progress of the campaign to date has shown the desirability of a modification of the present organization, to bring about a greater coordination of existing war-loan organizations, and a closer supervision of war-savings activities by the Treasury Department. "Suggested Changes. "Federal reserve district.- It is suggested that the war-savings organizations be reorgenized to conform to Federal reserve district lines, the governor of the Federal reserve bank in each district to have general supervision over all war-savings activities, occupying the same relation to the war-savings organization that he now does to the Liberty loan organization. "It is believed that by placing the war-savings organization under the supervision of the Federal reserve bank the activities of the warsavings and Liberty loan committees can be coordinated and eventually consolidated into one war-loen organization, thus eliminating existing duplication of effort, and perhaps decreasing the expense incident to operation. 285 "Director of war savings for Federal reserve districts.The appointment by the governor of each Federal reserve bank of a director of war savings for the district is suggested, this director to have supervision, under the governor, of all war- savings activities in the district. He will pess upon matters of policy, publicity, expenditures and routine management." The suggections thus made by you follow the lines which were agreed upon between us in our talk and have my hearty p proval. We are agreed also that the national www-savings activities must be assumed by the Treasury Department. I am, in accordance with your recommendation, advising the governors of the Federal reserve banks of the future policy as outlined above and suggest that meetings of the State directors of war savings with the governors of their respective Federal reserve districts be called by the National War Savings Committee to discuss and evolve plans for the harmonious carrying out of the foregoing arrangements. Realizing, as I think we both do, that the work of the National War Savings Committee is now nearly completed and, upon the consumma- tion of the plan above outlined, will be quite completed, I can not omit to say to you how profoundly I appreciate the service which you have rendered to your country and to the Treasury Department in creating and directing the war-savings organization. I have not been unconscious of the sacrifice of your personal interest which this involved, more particularly in recent months since the death of Mr. Stillman and later of Mr. Sterling have made indispensable your attention to the affairs of the National City Bank, and I want to express to you, for myself and my Treasury staff, our appreciation of the spirit of good will and hearty cooperation in which you entered upon and fulfilled this great service. May I not ask you to express to the fellow members of your committee, and the Federal directors also, my deep appreciation of the loyal and patriotic service which they have rendered during the months since the war savings movement was initiated. The organization in Washington, built up by the National War Savings Committee, I hope to retain as part of the national organization in the Treasury Department. From the members of the war-savings organization throughout the United States I know I can count upon a continuance of the same enthusiastic, efficient and unselfish service which they have rendered through the months past, and to all members of the organization I address the earnest request that they give their hearty cooperation to the measures of reorganization which you and I have determined will make most effectively for the continuance, growth and development of their work. With assurance of my high regard, I em, Cordially yours, W. G. McAdoo, Secretary. 286 September 5, 1918. Hon. William G. McAdoo, Secretary of the Treasury, Washington, D. C. I beg to acknowledge your cordiel letter Dear Mr. Secretary: of August 29. I em truly appreciative of your words of commendation, and I shall treasure your generous acknowledgment of what service I have been able to give. The plan which you have approved I believe will meet with the commendation of everybody concerned in the war-savings work. It puts the movement on a permanent basis closely related to the Treasury and properly supervised by the directors of the Federal reserve banks. It will bring it into harmony with the Liberty loan activities, and it makes a happy and proper analogy in the methods of administration with the Liberty loan work. I feel confident that the work will go forward with steady improvement. In accordance with your suggestion I am sending copies of your letter to the other members of the national committee and to the Federal directors. I am also ascertaining from the governors of the Federal reserve banks a date that will be agreeable to each to meet with the State directors of their district, and will, on behalf of the National War Savings Committee, ask the various State directors to meet with the governors of their respective districts to discuss and evolve plans for carrying out these arrangements. With the turning over of the responsibilities of the work in accordance with these plans, the duties of the members of the National War Savings Committee and the Federal directors are con- cluded. In bringing these duties to a conclusion I can not refrain from saying that one of the most inspiring experiences of my life has been the wonderful response to the call to voluntary service which has been made by practically every person called upon by the War Savings Committee. Men and women with important responsibilities upon their shoulders have laid aside their work and have given unstintedly of their time and the best that was in them to forwarding this movement. The association with my coworkers has been an inspiring privilege. We have all tried to cerry out the plan which you conceived when you asked Congress to authorize this issue of securities, and we have had a deep belief that of the many constructive measures which you have advanced, this movement will remain as one of the most permanent monuments to the widdom of your remarkable administration of the Treasury. Sincerely yours, F. A. Venderlip. -5- 287 For the purpose of carrying out this plan of reorganization the governors of the Federal reserve banks held meetings with the State directors of warsavings in their respective districts during the month of September and dis- cussed plans for the closer coordination of their loan activities. The governors will assume supervision of the war- savings campaign under the direction of the War Loan Organization of the Treasury. By the act approved September 24, 1918 (Exhibit 8), the issuance of an additional $2,000,000,000 in war-savings certificates was authorized, making the total authorizations of these securities $4,000,000,000. The same law repealed the limitation contained in the original act of September 24, 1917, making it unlawful to sell to any one person at any one time an amount of warsavings certificates exceeding $100, and authorized the holding by any one person of war-savings certificates to an aggregate amount not exceeding $1,000, maturity value, of each series. I In accordance with this authority, the Secretary has determined upon the issue of a new series of war-savings certificates in 1919, maturing January 1, 1924, and in practically all respects to be issued on the same terms and in the same manner as the series of 1918. A new $5 war-savings stamp, blue in color, bearing the head of Benjamin Franklin, is in preparation for this series. The same thrift stamps and thrift cards now in use will be continued in 1919 and will be exchangeable into the new series of 1919 war-savings stamps, payable January 1, 1924, in the same way as the exchange has been made during this year into the series of 1918 war-savings stamps. The details of the appointment of agents and regulations supplementing those published in the annual report of the previous fiscal year are set forth in Treasury Department Circulars Nos. 95, 96, 101, and 108, attached as Exhibits 40, 41, 42, and 43, respectively. 288 DEPARTMENT OF STATE Washington In reply refer to EA 641.5331/26 December 20, 1940 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses herewith a copy of despatch no. 6263, dated November 19, 1940, from the American Embassy in London, with its enclosure, transmitting copies of the Anglo-Portuguose payments agreement and the Anglo-Rumanian transfer agreement. Enclosure: From London, no. 6263, with enclosure, November 19, 1940. EMBASSY OF THE UNITED STATES OF AMERICA London, England, November 19, 1940. No. 6263. Strictly Confidential Subject: Transmitting Anglo-Portuguese Payments Agreement and Anglo-Roumanian Transfer Agreement. The Honorable The Secretary of State, Washington, D. C. Sir: I have the honor to refer to the Embassy's strictly confidential despatch No. 6252, November 14, 1940, with which was enclosed the Anglo-Uruguayan Payments Agreement, and to transmit herewith, in the same manner, the Anglo-Portuguese Payments Agreement and the Anglo-Roumanian Transfer Agreement. Respectfully yours, Herschel V. Johnson Charge d'Affaires ad interim Enclosure: Sealed envelope addressed to Dr. Herbert Feis, Department of State, containing two Agreements, as noted above, in duplicate. KAHE/mos. eh:copy 289 -3COPY ANNEX 290 10th September, 1940. My dear Senhor de Sousa, To complete the arrangements made at our last meeting, I write to inform you that we are willing to agree that, as from the date of the coming into force of the Anglo-Portuguese Payments Agreement and as an experimental measure, payments between the escudo area (as a whole) and the Belgian Congo may be effected in sterling through Special Accounts. I suggest that this arrangement shall be regarded as provisional only and shall last until the 31st December 1940, and that, before that experimental period expires, we shall consult together to see whether the arrangement is to continue, and, if so, to confirm it in a simple form of agreement. I shall be glad to know whether the aforementioned suggestions meet with your approval. I also take this opportunity of saying that the definition of the sterling area as contained in paragraph 19 of the Payments Agreement is the one laid down by His Majesty's Government for the purposes of the Defence (Finance) Regulations, 1939, with additions of Iceland and the Faroe Islands for the special purpose of our agreement. If, however, any variation should be made by His Majesty's Government in the aforesaid definition, such variation will be notified to you and will be regarded by us as applying automatically without the necessity for any supplementary Agreements. With kindest regards, I remain, Yours very sincerely, (Sgd.) H. ELLIS-REES. Excmo. Senhor Alvaro de Souga, Banco de Portugal, LISBON. An Agreement Between the Bank of England and the Bank of Portugal regarding Payments between the Sterling Area and the Portuguese Empire 1. All trade and financial debts between the escudo and sterling areas shall be contracted in sterling. In the case of debts due to the escudo area, necessarily payable in escudos, such as ships' disbursements, etc., from persons resident in the sterling area, escudos may be purchased from the Bank of England through the usual channels. 2. The Bank of Portugal shall open an account in sterling at the Bank of England to be entitled "Bank of Portugal Special Account". The Bank of Portugal the and other banks in the escudo area may, subject to prior agreement between 291 Bank of England and the Bank of Portugal and also to registration at the Bank of England, open sterling Special Accounts with their banking correspondents in the United Kingdom. The accounts referred to in this paragraph shall hereinafter be described as Portuguese Special Accounts. Suns standing to the credit of a Portuguese Special Account may be freely transferred to another Portuguese Special Account but may not be transferred to the account of a non-resident in the sterling area except to a Portuguese sterling area account or in respect of the import into the escudo area of Newfoundland codfish or stockfish under such arrangements as may be made between the Bank of England and the Bank of Portugal. 3. The Bank of England shall open an escudo account at the Bank of Portugal. 4. All amounts expressed in sterling payable by persons resident in the sterling area to persons resident in the escudo area in respect of trade and current financial transactions between the sterling and escudo areas shall be paid. to a Portuguese Special Account. 5. To the extent that the Bank of England requires escudos for the purposes referred to in paragraph 1 of the present Agreement, the Bank of Portugal will provide them at the middle sterling/escudo rate of exchange ruling on the date of purchase against sterling credited to the Special Account of the Bank of Portugal at the Bank of England. 6. Sterling balances standing at the date of coming into force of this Agreement to the credit of persons resident in the escudo area may be transferred to a Portuguese Special Account. Escudos earned by persons resident in the sterling area arising from commercial and current financial transactions shall be freely convertible in Lisbon into sterling at the official rate and passed through a Portuguese Special Account. 7. Notwithstanding the foregoing provisions of this Agreement, the Bank of England may authorise the opening or maintenance of accounts with banks in the United Kingdom to be denominated "Portuguese Sterling Area Accounts" in the name of persons resident in the escudo area but having close connections with any territory in the sterling area. Moreover, the Bank of England will authorize the opening of such accounts at the request of the Bank of Portugal. These accounts would be available for use in accordance with the regulations for the time being in force regarding Sterling Area Accounts. Payments from a Portuguese Sterling Area Account may not be made to any other non-resident Account and transfers between one Portuguese Sterling Area Account and another will not be permitted. 8. Amounts in excess of 150,000 standing to the credit of the Special Account of the Bank of Portugal at the Bank of England may be transferred at the option of the Bank of Portugal in multiples of 125,000 to a Special Money Employed Account. Amounts so credited will be employed at interest by the Bank of England on behalf of the Bank of Portugal. 9. The balances on the Special Account and Special Money employed Account of the Bank of Portugal at the Bank of England and outstanding forward contracts in sterling made by the Bank of Portugal under this agreement shall earry a guarantee based on the official middle price for gold in London (at present -- 292 168/6d per fine ounce). Should any alteration in the official price of gold in London occur, the sterling balances on these Accounts shall be adjusted accordingly. 10. All amounts due in sterling by persons resident in the escudo area to persons resident in the sterling area shall be paid from a Portuguese Special Account. The Portuguese Authorities in co-operation with the United Kingdom Exchange Control Authorities shall take steps to ensure that no other payments are made from Portuguese Special Accounts except as provided in paragraphs 2 and 7 of the present Agreement and that all payments and remittances to the sterling area are made from funds standing to the credit of those Accounts and not otherwise. 11. If at any time the balance on the Special Account of the Bank of Portugal at the Bank of England shall be temporarily insufficient to meet the needs of the Bank of Portugal for trade and current financial commitments due to persons resident in the sterling area, the Bank of England shall sell sterling to the extent that it is required by the Bank of Portugal at the middle sterl- ing/escudo rate on the day of sale against credit in escudos to the escudo account of the Bank of England at the Bank of Portugal. 12. The balance on the escudo account of the Bank of England at the Bank of Portugal and outstanding forward contracts in escudos made by the Bank of England under this Agreement will be guaranteed by the Bank of Portugal on the basis of the London official middle price for gold and the official middle sterling/escudo rate at the time the balances were acquired or the contracts made. 13. To the extent that the escudos held on the Bank of England's escudo account at the Bank of Portugal are at any time in excess of the requirements of the Bank of England, such excess amounts shall be offset at current rates against sterling held on the account of the Bank of Portugal at the Bank of England. 14. The Bank of England and the Bank of Portugal may give to the Government of the United Kingdom and the Portuguese Government respectively such information as to the use of the Sterling Special Accounts and the escudo Accounts as may be required. 15. Upon the termination of this Agreement there shall be transferred to the Special Account of the Bank of Portugal the balance on its Special Money Employed Account. 16. Notwithstanding the termination of this Agreement (a) the guarantee of the Bank of England shall continue to apply to the balance held on the Special Account of the Bank of Portugal at the Bank of England and to forward contracts made by the Bank of Portugal under this Agreement before the date of its termination; (b) the guarantee of the Bank of Portugal shall continue to apply to the balance held on the escudo Account of the Bank of England at the Bank -- 293 of Portugal and to forward contracts made by the Bank of England under this Agreement before the date of its termination. 17. (a) After the conclusion of the hostilities in which His Majesty's Government in the United Kingdom are at present engaged and before the termination of the present Agreement the Bank of England and the Bank of Portugal shall consult together with a view to determining the dates at and the conditions under which the balances referred to in paragraph 15 and subparagraphs (a) and (b) of paragraph 16 of the present Agreement shall be settled by the delivery of gold in London at the current middle official price for gold in London as regards the sterling balance of the Bank of Portugal at the Bank of England, and as regards the escudo balance of the Bank of England at the Bank of Portugal the delivery of gold in London shall be effected at a price calculated on the current official middle price for gold in London and the official middle sterling/escudo rate; the contracting parties may, at their option, take delivery of gold in a centre other than London in which case due allowance for shipping expenses from London to the centre concerned will be taken into consideration. It is agreed that such delivery of gold shall be made as soon as circum- stances permit and within a period of five years after the date of the termination of the present Agreement. (b) A fter the termination of this Agreement and pending the conclusion of an agreement as to the settlement of the balances referred to in the preceding sub-paragraphs, the balances remaining on the Portuguese Special Accounts and the amounts of any outstanding forward purchases of sterling made under this Agreement shall be utilized only for the payment of amounts in sterling payable by persons resident in the escudo area to persons resident in the sterling area and such payments shall be made only from the Portuguese Special Accounts, while any balances remain on those Accounts. 18. In view of the possibility that changes in world conditions may render it necessary for some revision of the provisions of the present Agreement to be made, the Bank of England and the Bank of Portugal agree that in such circusstances either Bank may raise with the other contracting Bank the question of modifying the terms of the said Agreement. 19. For the purposes of this Agreement (a) "The sterling area" shall mean the United Kingdom and the Isle of Man and any of the following territories, excluding Canada, Newfoundland and Hong Kong, that is to say: (1) any Dominion; (ii) any other part of His Majesty's dominions outside the British Islands: (iii) any territory in respect of which a mandate on behalf of the League of Nations has been accepted by His Majesty and is being exercised by His Majesty's Government in the United Kingdom or in any Dominion; -7- 234 (iv) any British protectorate or protected State: (v) Egypt, and Anglo-Egyptian Sudan and Iraqu, and (vi) Iceland, and the Faroe Islands. (b) "the escudo area" shall mean Portugal and the Portuguese Empire. 20. This Agreement shall come into force on the day of September, 1940, and remain in force until three months after the conclusion of the hostilities in which His Majesty's Government in the United Kingdom are at present engaged. Done in duplicate this On bahalf of the On behalf of the BANK OF ENGLAND BANK OF PORTUGAL Governor day of September, 1940. Governor SUPPLEMENTARY AGREEMENT BETWEEN THE BANK OF ENGLAND AND THE BANK OF PORTUGAL Notwithstanding the provisions of paragraph 19 (a) of the Anglo-Portuguese Payments Agreement of this day's date in accordance with which Newfoundland is excluded from the countries and territories comprising the sterling area, the Bank of England and the Bank of Portugal agree that sterling sums credited to a Portuguese Special Account may be utilised for the payment of amounts due by persons resident in the escudo area in respect of the price of Newfoundland codfish or stockfish imported or to be imported into the escudo area. 2. This Agreement shall come into force on the day of September, 1940, and shall remain in force until the thirtieth day of September, 1941, or the date of the termination of the Anglo-Portuguese Payments Agreement of this day's date, if the said date of termination is before the thirtieth day of September, 1941; and thereafter the Bank of England and the Bank of Portugal shall consult together with a view to determining whether the aforesaid arrangements shall be continued. Done in duplicate this day of September, 1940. On behalf of the On behalf of the BANK OF ENGLAND Governor eh:copy BANK OF PORTUGAL Governor 235 ANGLO-ROUMANIAN TRANSFER AGREEMENT. The Government of the United Kingdom of Great Britain and Northern Ireland and the Royal Roumanian Government, in further pursuance of the arrangements contained in the Agreement signed between them this day with a view to facilitating payments between the United Kingdom and Roumania, have agreed as follows:- Article 1. (1)(a) All debts falling due on or after the date of the coming into force of this Agreement from the Government of the United Kingdom or from persons acting under their authority or control to persons in Roumania in respect of the price of Roumanian goods imported or to be imported into the United Kingdom; and all debts falling due on or after the said date from any person in the United Kingdom to a Roumanian Oil Company in respect of the price of Roumanian oil imported or to be imported into the United Kingdom, not being debts which fall due in respect of the price of Roumanian goods or Roumanian oil exported from Roumania before the 17th June, 1940, shall be paid in sterling to an account at the Bank of England in the name of the National Bank of Roumania, to be called the "National Bank of Roumania Intermediate Account" (hereinafter referred to as the Intermediate Account). (b) Any debts falling due on or after the date of the coming into force of this Agreement from the Government of the United Kingdom or from persons acting under their authority or control, or from any other person in the United Kingdom to persons in Roumania in respect of the price of Roumanian goods, other than debts which are required to be paid to the Intermediate Account in accordance with the provisions of subparagraph (a) of this paragraph or other than any debts which fall due in respect of the price of Roumanian goods or Roumanian oil exported from Roumania before the 17th June, 1940, may, subject to agreement between the two Contracting Governments, be paid in sterling to the Intermediate Account. (c) The competent authorities in the United Kingdom and in Roumania shall take steps to ensure as far as may be possible that all other payments falling due on or after the date of the coming into force of this Agreement from persons in the United Kingdom to persons in Roumania shall also be paid to the Intermediate Account, provided that such payments can be proved to be in respect of the price of goods, freight, insurance, or financial transactions of a revenue nature. (2) Where a debt is expressed to be payable in a currency other official than payment shall be made in sterling at the Bank of England rate for selling sterling, or, failing such a rate, at the London market selling the Intermediate drafts rate, for such currency, ruling on the date of payment to be Account, sight and thereafter the debt shall be deemed to be expressed to pay- able in sterling. 236 -3- (3) Where the price of Roumanian goods or Roumanian oil so payable includes an amount in respect of freight or other similar charges, such an amount may be deducted from the sum payable to the Bank of England and may be paid direct to the person or persons to whom it is due. Article 2. Sums credited to the Intermediate Account in accordance with the provisions of Article 1 of this Agreement shall be allocated as follows:- (1) As regards any payment received in respect of Roumanian oil:(a) Twenty-five per cent., up to a maximum amount of 133.333 in each month to an account to be opened at the Bank of England entitled the "National Bank of Roumania 011 Account"(hereinafter referred to as the Oil Account), to be utilised in accordance with the provisions of Article 3 of this Agreement; provided that, if in any month the sums credited to the Intermediate Account in respect of Roumanian oil are not sufficient to provide for an allocation of 133,333 to the Oil Account, the amount of the deficiency shall be carried forward and added to the amount to be allocated in the following month or months; but the amount to be allocated to the Oil Account in any month shall not exceed 25 per cent. of the sums credited to the Intermediate Account in respect of Roumanian oil during that month, (b) Twenty per cent, to an account to be opened at the Bank of England entitled the "National Bank of Roumania No. 1 Account" (hereinafter referred to as the No. 1 Account) to be utilised in accordance with the provisions of Article 4 of this Agreement. (c) The remainder to an account to be opened at the Bank of England entitled the "National Bank of Roumania No. 2 Account" (hereinafter referred to as the No. 2 Account) to be utilised in accordance with the provisions of Article 5 of this Agreement. (2) As regards any payment received otherwise than in respect of Roumanian oil:- (a) Eighty per cent. to the No. 2 Account. (b) Twenty per cent. to the No. 1 Account. Article 3. (1) Sums credited to the oil Account in accordance with the provisions of paragraph 1 (a) of Article 2 of this Agreement shall, subject to, and in accordance with, the provisions of the following paragraphs of this Article, be reserved for the use of the oil companies concerned, and be utilised to pay such sums to persons in the United Kingdom as may be necessary to enable the said oil companies to meet their sterling requirements in the United Kingdom. 297 -3- (2) The National Bank of Roumania shall authorise payments from the oil Account after the competent authorities in Roumania have given express approval of the purposes for which the payments are to be made, and such approval shall be granted freely and without delay for reasonable payments in respect of the following purposes:(1) Materials imported for the Companies' own requirements, cost of transport, insurance and handling of materials and other similar expenses; (ii) Royalties on production and for the use of patents and licences and other similar charges; (111) Contributions to research laboratories, technical consultations, registration of patents and other similar expenses; (iv) Salaries and pensions, provident funds, contributions to pension funds; (v) Insurance of plant and of materials of all kinds; (vi) Costs of travelling, living and representation expenses; (vii) Current expenses of administration, fees due to foreign members of Boards of Directors and other similar charges; (viii) Interest, commissions; (ix) Dividends. (3) In so far as 50 per cent. of any sums standing to the credit of the Oil Account at the close of business on the last day of February and August in any year commencing with the 28th February, 1941, exceed 110,000, such excess shall be transferred from the Oil Account to the No. 2 Account. (4) Sums may also be transferred from the 011 Account to the No. 2 Account at any time at the request of the oil companies concerned. Article 4. Sums credited to the No. 1 Account may be converted by the National Bank of Roumania into gold to be delivered in London at the Bank of England's selling price for gold, and the Government of the United Kingdom undertake to place no restrictions at any time on gold purchased under the provisions of this Article. Article 5. (1) Sume standing to the credit of the No. 2 Account shall be at the free disposal of the National Bank of Roumania. (2) Notwithstanding the provisions of the preceding paragraph, the Roumanian Government undertake to provide for the payment of the financial and commercial obligations referred to in paragraph (3) of this Article, out of the first sums credited to the No. 2 Account, and they will make arrange- the ments for an allocation to be made for this purpose in each month out of first sums 80 credited up to the amount shown in the said paragraph (3) for each class of obligation. 298 (3) The following sums shall be allocated in accordance with the provisions of the preceding paragraph in the order of priority indicated in this paragraph:(a) 140,000 in each month, from the date of the coming into force of this Agreement up to the 31st May, 1941, and thereafter 180,000 in each month to be utilised in accordance with the provisions of Article 6 of this Agreement. (b) 18,400 in each month to be utilised in accordance with the provisions of Article 7 of this Agreement. (c) 130,000 in each month from the date of the coming into force of this Agreement up to the 31st December, 1940, and thereafter 40,000 in each month, to be utilised in accordance with the provisions of Article 8 of this Agreement. (d) 18,400 in each month to be utilised in accordance with the provisions of Article 9 of this Agreement. The allocations under (a) and (c) may be altered at any time by agree- ment between the two Contracting Governments. (4) The remainder, after the monthly allocations have been made in accordance with the provisions of the preceding paragraph, shall be allocated in the proportions of:- (a) 30 per cent. to be utilised in accordance with the provisions of Article 10 (1) of this Agreement, (b) 30 per cent. to be utilised in accordance with the provisions of Article 10 (2) of this Agreement, and (c) 40 per cent. to be utilised in accordance with the provisions of Article 11 of this Agreement. If an amount allocated in accordance with the provisions of sub- paragraph (a), (b) or (c) of this paragraph is, in the opinion of either of the Contracting Governments, excessive for the purposes to which it has been allocated, that Government may raise with the other Contracting Government the question of reallocating that amount or of modifying the distribution specified in the aforesaid sub-poragraphs, (5) If in any month the sums available in the No. 2 Account are not sufficient to provide for the allocations referred to in sub-paragraphs (a), (b). (c) and (d) of paragraph 3 of this Article, the amount of the deficiency allocated shall be carried forward and added to the amounts respectively to be subin the following month or months under the provisions of the aforesaid paragraphs in respect of which the deficiency occurred. -5- - 289 Article 6. Sums standing to the credit of the No. 2 Account which are allocated in accordance with the provisions of paragraph (3) (a) of Article 5 of this Agreement shall be utilised for the following purposes:(1) 13,000 a month shall be paid to the Ordinary Account of the National Bank of Roumania at the Bank of England. (2) The remainder shall be utilised for the External Public Debt of the Roumanian State and for Loans issued by the Roumanian Monopolies Institute, and for the amounts payable to the Caisse Commune of the pre-War Austro-Hungarian Debts: this allocation will be used, in accor ance with detailed arrangements made or to be made between the Roumanian Government and the Council of Foreign Bondholders, for the payment of (1) 7 per cent. of the contribution payable by Roumania to the above-mentioned Caisse Commune, (ii) payments in respect of securities or other evidences of title which are shown to the satisfaction of the United Kingdom Government to have been on the 4th May, 1936, in the ownership of British holders as hereinafter defined, and (iii) payments due in the United Kingdom in respect of Paying Agents' charges and commissions. For the purposes of this Agreement British holders shall mean (a) persons of whatever nationality ordinarily resident or ordinarily carrying on business in the United Kingdom; (b) holders of bonds of the 4 per cent. Consolidation (Funding) Loan, 1934, issued in London by the Council of Foreign Bondholders, bonds of the 4 per cent. External Loan, 1922, bonds of the sterling issue of the 7 per cent. Monopolies Loan, 1929, and "Sterling Bonds" of 4g per cent. Loan of 1913, to the extent of their holding: (c) holders of War Damage Bonds issued to certain Oil Companies who were signatories to Agreements mede between those Companies and the Roumanian Government in London on the 1st November, 1926, or in Paris on the 10th December, 1934, to the extent of their holdings of War Damage Bonds issued to them and to which those Agreements relate; (d) British subjects wherever resident, and corporations other incorporated by or under the laws of the United Kingdom, or of any territory under the sovereignty of His Majesty The King of Great Britain, Ireland and the British Dominions beyond the Seas, Emperor of India, or under and His Majesty's suzerainty, or protection or under mendate and Governments public authorities in those territories; and (e) persons under His Majesty's in the protection and ordinarily resident or ordinarily carrying on business United Kingdom or any other of the territories aforesaid. Article 7. to the credit of the No. 2 Account which are allocated of accordance Sums standing with the provisions of paragraph (3) (b) of Article 5 short- this Agreement in shall be utilised for payments in respect of outstanding arrangements term banking credits and bank debts in accordance with such other as exist, or as may be made between the National Bank of Roumania or competent authorities in Roumania and the Roumanian Creditors Committee. 300 Article 8. Sume standing to the credit of the No. 2 Account which are allocated in accordance with the provisions of paragraph (3) (c) of Article 5 of this Agreement shall be utilised for the payments to be made by the Roumanian Government arising out of the service of the Bonds issued or to be issued under the provisions of the Agreement relating to the giving of guarantees by the Board of Trade in connection with the export of goods from the United Kingdom to Roumania which was made in an exchange of letters dated the 12th July, 1939, and signed on behalf of the Board of Trade and the Royal Roumanian Government, respectively. Article 9. Sums standing to the credit of the No. 2 Account which are allocated in accordance with the provisions of paragraph (3) (d) of Article 5 of this Agreement shall be utilised for the transfer of balances of insurance and reinsurance premiums, balances of ship passenger fares collected in Roumania on behalf of United Kingdom shipping companies, royalties, bank interest and commission due to persons in the United Kingdom from persons in Roumania and for such other payments as may, from time to time, be agreed between the two Contracting Governments. Article 10. (1) Sume standing to the credit of the No. 2 Account which are allocated in accordance with the provisions of paragraph (4) (a) of Article 5 of this Agreement shall be utilised for the payment of all debts due and owing at the date of the coming into force of this Agreement and all debts falling due after that date from persons in Roumania to persons in the United Kingdom in respect of the price of any highly manufactured goods produced in the United Kingdom which are imported or to be imported into Roumania, and in respect of freights for the carriage of such goods between the two countries and other similar charges. (2) Sums standing to the credit of the No. 2 Account which are allocated in accordance with the provisions of paragraph (4) (b) of Article 5 of this Agreement shall be utilised for the payment of all debts due and owing at the date of the coming into force of this Agreement and all debts falling due after that date from persons in Roumania to persons in the United Kingdom in respect of the price of any semi-manufactured goods or raw materials produced in the United Kingdom which are imported or to be imported into Roumania, and in respect of freights for the carriage of such goods between the two countries and other similar charges. (3) The provisions of paragraphs (1) and (2) of this Article shall, in the case of goods exported from the United Kingdom to Roumania on or after the 1st June, 1936, apply only to payments for goods which are accompanied by a certificate, in duplicate, issued by a United Kingdom Chamber of Commerce (or other body or person authorised by the United Kingdom Government) -- 301 that the goods in question have been grown, produced or manufactured in the United Kingdom. (4) The two certificates referred to in paragraph (3) of this Article shall be delivered by the importer to the National Bank of Roumania at the time of payment of the debt; one shall be attached to the duplicate order for payment issued in accordance with the provisions of Article 13 of this Agreement; the other shall be retained by the competent authorities in Roumania, (5) Import licences shall be granted for the import of United Kingdom goods into Roumania to the extent necessary to utilise in full for the purchase of United Kingdom goods the sterling made available under the provisions of this Agreement for the purchase of such goods. Article 11. (1) Sume standing to the credit of the No. 2 Account which are allocated in accordance with the provisions of paragraph (4) (c) of Article 5 of this Agreement shall be utilised for payments to persons in the United Kingdom in respect of debts due and owing at the date of the coming into force of this Agreement or debts falling due after that date from persons in Roumania to persons in the United Kingdom or to persons in the countries or territories of the sterling area in respect of the price of goods imported or to be imported into Roumania which have been grown, produced or manu- factured in the countries or territories of the sterling area, and in respect of freights for the carriage of goods from any such country or territory to Roumania and other similar charges. (2) The provisions of paragraph (1) of this Article shall, in the case of goods purchased after the coming into force of this Agreement, anyly only to payments for goods which are accompanied by a certificate, in duplicate, issued by the competent authorities in the relevant country or territory of the sterling area, that the goods in question have been grown, produced or manufactured in that country or territory. In cases where the certificate is issued by a body or person resident outside His Britannic Majesty's cominions, the visa of a British Consul or any other person authorised by the United Kingdom Government must be shown on the said certificate. (3) The two certificates referred to in paragraph (2) of this Article shall be delivered by the importer to the National Bank of Roumania at the time of payment of the debt; one shall be attached to the duplicate this order for payment issued in accordance with the provisions of Article 13 of in Agreement; the other shall be retained by the competent authorities Roumania. Article 12. The Bank of England shall notify the National Bank of Roumania and (1) of all payments made into the No. 2 Account, the oil Account in the No. daily Account in such form as may be agreed between the two Institutions, 1 302 -8- order that the National Bank of Roumania may, on receipt of such notifications, be in a position to pay to the persons entitled thereto, in accordance with the laws in force in Roumania, the equivalent in lei of the amounts indicated in the said notifications. (2) The National Bank of Rowmania shall authorise the Bank of England to furnish the Anglo-Roumanian Transfer Office with such details of their accounts as may be necessary for the practical application of this Agreement. Article 13. (1) All persons in Roumania from whom debts are due to persons in the United Kingdom shall pay the lei equivalent of such debts to the National Bank of Roumania, and the National Bank of Roumania shall, within the limit of the sums available for each class of debt in the No. 2 Account in accordance with the provisions of pragraphs (3) and (4) of Article 5 of this Agreement, provide sterling in order that the transfer of such debts may be effected. For this purpose, debts expressed in currencies other than lei shall be converted at the Roumanian official rate of exchange for such other currency adjusted to allow for the premium or premiums at which that currency is sold by the National Bank of Roumania, (2) The National Bank of Roumania shall transmit to the Bank of England orders for payments to be made in sterling from the No. 2 Account and from the Oil Account, in such form as may be agreed between the two Institutions: a duplicate of each order for payment shall be transmitted to the AngloRoumanian Transfer Office together with such certificates as may be required in accordance with the provisions of Articles 10 and 11 of this Agreement. (3) A debtor in Roumania shall not be discharged from his liability in respect of any debt until the creditor has been paid in full in sterling. (4) At the time of granting an import licence to a Roumanian importer for the purchase under credit facilities of goods from the United Kingdom or from a country or territory of the sterling area, the Roumanian Ministry of Foreign Trade shall, at the request of the said importer, furnish him with a certificate that sterling will be available for him to pay the amount of his debt in accordance with the provisions of paragraph (1) of this Article as soon 8.8 the debt is due. Article 14. The Contracting Governments will appoint representatives to form a Consultative Committee, which shall meet at such times and places as may be agreed, to consult together on questions arising out of the present Agreement. 303 -9- Article 15. For the purpose of this Agreement(1) "A person in the United Kingdom" shall mean an individual, firm, or corporation ordinarily resident or ordinarily carrying on business in the United Kingdom of Great Britain and Northern Ireland, and shall include the Government of the United Kingdom. (2) "A person in Roumania" shall mean an individual, firm or corporation ordinarily resident or ordinarily carrying on business in Roumania, and shall include the Government of Roumania and Roumanian State organisations. (3) "The sterling area" shall mean any part of His Majesty's dominions outside the United Kingdom (except Canada, Newfoundland and Hong Kong), any territory in respect of which a mandate on behalf of the League of Nations has been accepted by His Majesty and is being exercised by His Majesty's Government in the United Kingdom or in any Dominion, any British protectorate or protected state, Egypt, the Anglo-Egyptian Sudan and Iraq. (4) "Roumanian goods" shall mean goods grown, produced or manufactured in Roumania. (5) "Month" shall mean calendar month. Article 16. The present Agreement shall come into force on the 17th June, 1940. It may be terminated on the first day of any month by either Government giving notice to the other on or before the first day of the previous month beginning with the 1st December, 1940. In witness whereof the undersigned, being duly authorised thereto by their respective Governments, have signed the present Agreement and affixed thereto their seals. Done in duplicate at London, this sixth day of June, 1940, in English and Roumanian both texts being equally 'authentic. For the Government of the United Kingdom of Great Britain and Northern Ireland: (L.S.) HALIFAX. For the Royal Roumanian Government: (L.S.) (L.S.) V. V. TILEA. D. N. IORDAN. RECEIVED 304 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, (Paris) Vichy DATE: December 20, 1940, 9 p.m. NO.: 1164 Reference 18 made to telegram of December 14, 5 p.m., from the Department. In accordance with the above-mentioned telegram a high official of the Finance Ministry was approached along the lines indicated. According to this official the report in Casablanca's 236 of December 13 was "incorrect", but he was most reluctant to give the reasons for taking this view. He said that the French have been moving "some of their gold from Dakar because it was feared that it might fall into British hands, and that they had sent part of it to Casablanca, part of it to Oran, and part had been shipped to a depot in the North African interior. For use in settling the French trade balance with Switzerland, a small part of the gold has been brought back to France. The British Embassy at Madrid, the official said, had asked the French Embassy there recently about the gold which was being moved from Dakar, and instructions were given to the French Embassy to reply that "it was none of England's business". This official denied that any demand for the gold reserves of France had been made by Germany, but he did admit that the Germans had asked for the Belgian gold 305 -2gold held in Africa - reference is made to telegram of November 23, noon, No. 1012 from the Embassy, containing Rueff's remarks in this connection. He was asked whether the gold allegedly shipped to France from Oran was Belgian gold which would be given to the Germans, but he evaded a reply on this question. A call was paid on Rueff in view of the negative nature of the information which was obtained from the official of the Ministry of Finance. Rueff said too that the Casablanca report was not correct, but he would not give any details. He said quite frankly that he was extremely sorry, but on this matter he could give us no information whatsoever. It was pointed out to Rueff that an unfortunate impression would probably be created in Washington through the unwillingness of the French to furnish data regarding the gold, but he replied that he fully realized that, but much 8.8 he would personally like to he was not at liberty to give any details. END MESSAGE. MATTHEWS. EA:LWW 306 December 20, 1940. ORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston Jesse Jones called me on Wednesday to ask if there wasn't some way in which the Reserve Metals Corporation could import copper from Peru without having to pay duty on it. The actual spot price here is now around 12 and since there are signs of a shortage they are fearful that it may go higher. They can now buy copper in Peru at 10$, although some Peruvian producers want 12c. The duty is 4$ a pound. They didn't like the idea of buying it at a price of 14 to 16 including duty, and then reselling it at around 12 to peg the price at that point. I told him I would look into it and give him an answer during the day and I asked with whom I could talk if more information was wanted. He said to call Will Clayton at R.F.C. The matter is one that W,R. Johnson had already men- tioned to me. I had Johnson come over in the early afternoon and we went over a memorandum opinion gotten up in our legal department. It appears that it is clearly illegal to permit the entrance of materials free of duty except materials required by the Navy for war use. The latter loophole could only be invoked if Navy were willing to submit an insincere certificate. I learned, however, that it has been the custom to release imported materials ordered by regular Departments of the Government and to bill the Department con- cerned for the duties after liquidation and release. No harm would result if the Treasury Department was unable to collect, because of lack of appropriation to pay the duties, since it would only be a transfer from one pocket of the Government to another and the only damage done would be to Customs statistics. I therefore called up Clayton and said that I would suggest one of two alternatives: (1) that the Metal Reserves Corporation import the copper, subject to duty, and allow it to remain in bond, with duties to be liquidated when it is released. This would probably not accomplish the object they sought. (2) To have the Navy import the copper for the Metal 307 -2Reserves Corporation and we could then liquidate it and bill the Navy for the duty, but the copper would be free for use. The question of payment of the duty could be adjusted later by action of Congress, either in the form of an appropriation for the amount of the duty, or a remission of the duty. Apparently Jones was satisfied with this arrangement since I notice he announced yesterday the purchase of a considerable quantity of copper in Peru. TREASURY DEPARTMENT 308 INTER OFFICE COMMUNICATION DATE December 20, 1940 TO Secretary Morgenthau FROM Mr. Haae to Attached is a list of woolen items used by the Military Service. You indicated that you wished to give such a list to the Cottonsubstitutes. Institute, in order to secure their suggestions as to cotton Attachment this green m 309 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE December 20, 1940 TO FROM Secretary Morgenthau Mr. Haas Subject: Items purchased by the Army, Navy, and Marine Corps, containing wool. In response to your request the following lists have been prepared, showing the principal items containing wool, used by the military services. These data were obtained directly from the Army, Navy, and Marine Corps. Army Blankets, wool, O.D., 31 lbs., Q.M.C. Serge, O.D., 18 OZ. Melton, O.D., 32 oz. Shirting, worsted, O.D., 101 OZ. Blankets, wool, O.D., 4 lbs., Med. Corps Undershirts, woolen Drawers, woolen Kersey, O.D., 30-32 oz. Socks, woolen, heavy Socks, woolen, light Gloves, woolen, O.D., Off., W.O. & E.M. Serge, O.D., 13 oz. Cotton & Wool Lining, 4.9 OZ. Sweaters, O.D., Nurses Sweaters, O.D., Air Corps Blankets, Suiting, Serge, O.D., O.D., Saddle, 20 O.D. OZ. Bunting, wool, 4.2 oz. Mufflers, woolen, O.D., Nurses Gloves, woolen, O.D., Nurses Flannel, woolen, gray, 28", lining for horse covers Felt, several kinds Cloth, lining, wool, knitted, O.D. 22.5 oz. Elastique, O.D., 18 oz. Cloth, lining, wool, 11 oz. Serge, O.D., 16 OZ. Cloth, shirting flannel, 101 OZ. Woolen inserts, leather gloves Toques, worsted Bags, sleeping, wool filled. Source: Lt. Col. C. A. Hardigg 310 Secretary Morgenthau - 2 Navy Blankets, wool, white, crew, single Caps, watch Flannel, blue, 11 OZ. Gloves, woolen Jerseys Melton, blue, dark, 16 oz. Socks, wool, black Socks, wool, natural color Undershirts, cotton-wool, mixed Kersey, blue, dark, 30 oz. Lining, felt, grey Cloth, blue, dark, for officers' uniforms (16, 22 and 28 oz.) Cloth, maroon Drawers, men's, cotton-wool, mixed Serge, blue, dark (14, 15, 16 and 17 oz.) Trunks, bathing Source: Commander W. B. Young Marine Corps Underclothing Outer clothing Overcoats Blankets Saddle blankets Field hats Buntings and flags. Source: Col. L. S. Swindler TREASURY DEPARTMENT 311 INTER OFFICE COMMUNICATION DATE December 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL This morning I received a visit from Mr. Phillips, whom I knew several years ago in the Nederlandsche Bank, and who is now in Washington acting as Financial Advisor to the Netherlands Legation. Mr. Phillips' specific mission this morning was to talk to me about the desire of his Government to receive a general license for withdrawals from their account with the Federal Reserve Bank in New York. We are sending a telegraphic message today to the Federal Reserve Bank of New York granting this request. Since Mr. Phillips now has the task of endeavoring to coordinate the financial and purchasing activities of the Netherlands in this country, I took the occasion to discuss with him the matter of their official bank accounts. I explained to him the system, and the reasons therefor, that we had followed with the British and French Governments shortly after the opening of the war in 1939. of setting up special accounts with the Federal Reserve Bank at New York out of which payments for war purchases in this country have been made. I told Mr. Phillips that I realized there had been numerous complications in the methods of purchasing in the United States by the etherlands, but that I thought some solution was now being reached through a unified purchasing commission. I thought it was timely, therefore, that I should suggest to him that a study be made of the possibility of the Netherlands paying for its war Laterial purchases in this country through one account with the Federal Reserve Bank at New York. It will be recalled that the Netherlands Bank has kept an important gold account with the Federal Reserve Bank for a considerable period of time and still has a large amount of gold on deposit there which is practically frozen. Dollar deposits of the Netherlands Bank have, on the other hand, been concentrated to a considerable extent with the Guaranty Trust Company. The present system is for payments to be made out of Netherlands Government funds with the Federal into an account with the Guaranty Trust from which they are further disbursed. The account of the Javasche Bank with the Federal Reserve Bank of New York is the source, on the other hand, out of which payments are made through various banks, most particularly the Guaranty, to suppliers in the United States of war materials for the Netherlands East Indies. The Netherlands Legation does not control the Javasche Bank account. Instructions come by cable from that bank to the Federal Reserve Bank of New York. A trade commissioner of Java in New York is completely responsible for the handling of financial affairs of the Netherlands Indies in the United States. Mr. Phillips is going to New York very shortly and will look into the question of a special account with the Federal Reserve Bank of New York for the Netherlands Government itself, and possibly for a similar arrangement for the Netherlands East Indies. I advised him to talk with Vice President Knoke of the Federal upon this subject. Before any specific recommendation is made to his Government in London. Mr. Phillips will discuss the matter again with me. During our conversation he volunteered to endeavor to arrange for us to receive transcripts of 312 the transactions which his Government carries out through the Guaranty, Chase and other banks. I told him that it had been our preference to have such business handled through special accounts with the Federal, of which the Secretary is permitted to receive each week a transcript for his personal and strictly confidential use. Since I have known Phillips for a good many years, I talked with him unofficially in regard to the situation in the Netherlands, and the possibility of Netherlands resources in the United States being offered for use in a British pool of Allied assets. Phillips told me that our good friend Dr. Trip became the ranking official in the Netherlands Ministry of Finance when the Dutch Government left The Hague upon the occupation of Netherlands by Germany. It is Phillips' understanding that Trip still retains his position as President of the Nederlandsche Bank but spends most of his time in the Ministry of Finance at The Hague, leaving the active conduct of the Central Bank to his assistant, Dr. deJong, under whom Phillips served several years. Phillips expressed the opinion that the Netherlands Government would continue to spend out of its own resources with the Federal Reserve Bank at New York and pos- sibly also out of gold which it has in London for the purpose of contributing to the Allied war effort. He doubted seriously, however, if the Government would feel free to do anything with the gold held under earmark in the Federal Reserve Bank in the name of the Nederlandsche Bank. Phillips' interpretation of the decrees issued by the Dutch Government from London early in the summer is that the gold and foreign exchange assets of the Netherlands Bank and of Netherlands citizens and firms held abroad are to be conserved by the Government simply as a trustee for the duration of the war. This, he felt, did not give the Government the authority to take these over from their present owners and utilize them in contributions to the British war chest. He thought, furthermore, that the Dutch should hold on to these resources, since they 111 constitute practically the sole reserve which the Netherlands will have for reconstruction after peace comes. On the other hand, Phillips thought that the Netherlands should not attempt any borrowing in the United States for the purpose of contributing to the war. He has had much experience with the reparations problem following the last war, and does not want to see his own country emerge from the present war in a situation similar to that which obtained in Great Britain after the last war, including depleted resources and heavy war debts to the United States which could be paid only in exports unwelcome to the American market. Phillips has spent some recent weeks in Curacao. The financial administrator of that Netherlands possession will be in Washington shortly and Mr. Phillips asked me to receive him. B.M.R. 313 BRITISH EMBASSY, WASHINGTON, D.C. Personal and Secret December 20th, 1940. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, York Butter The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 314 Telegram from London dated December 18th Naval. "Acheron" sank morning of December 17th after an explosion during high speed turning trial. Some survivors picked up but the cause of the explosion at present unknown. "Newton Pine" attacked evening of December 13th has reported that she evaded torpedo from U-boat. Gun duel lasting 20 minutes followed; ship not hit but U-boat believed damaged. During a sweep night of December 17th/18th off 2. Dutch and Belgian coasts motor torpedo boat torpedoed an enemy merchant vessel off Zeebrugge. In the Near East our aircraft continued to attack Italian Libyan ports and an enemy attack on Port Sudan on December 16th resulted in few casualties but one ene my aircraft was shot down and two probably. Durasso harbour was attacked by bombers on night of December 15th. Fires started and a large explosion in dock area. 3. Military. Kenya. First South African brigade and 24th Gold Coast Brigade successfully raided E1 Wak on December 16th. 50 enemy were killed and at least 25 Italian and 50 colonial infantry were captured with 3 guns some machine guns and large quantities of stores and ammunition. Our casualties were alight. 4. Greece. Situation to 8 p.m. December 17th. In northern sector Greeks have occupied two villages level with their previous line. In the Epirus sector Tepeleni is under artillery 5. fire/ 315 -2- fire and Queparo has been occupied. 6. There is three feet of snow at 2000 feet and temperatures are low. 7. Royal Air Force, Night of December 16th/17th. 8. Egypt and Libya. on the night of December 15th/16th Tobruk was attackedby 7 medium bombers; during the daylight on December 16, 12 medium bombers attacked aerodromes and landing grounds; on the night of December 16th/17th eleven heavy bombers raided Bardia where large fire was started. 9. On December 16th Gladiators and Hurricanes continuing their offensive patrols in Bardia area destroyed 7 Italian bombers one fighter one transport aircraft and probably destroyed two more bombers. 10. All Hurricanes reported missing since start of operations have now returned to their bases except one. 11. Night of December 17th/18th. Total of 43 aircraft were sent out to attack aerodromes, U-boats and other targets at Mannheim, Bordeaux, Sonjeford, Norway and other localities. 12. No reports of results are yet available. One coustal aircraft game down in the sea (crew picked up) but all other aircraft returned safely. 13. on December 16th four Italian bombers attacked Port Sudan causing few ossualties. Our fighters destroyed one of them and probably two more. 14. Melta. on December 17th enemy aircraft ap- proached the island but our Hurricanes were sent up and no interceptions took place. 15. German Air Force. Night of December 16th/17th. 16./ 316 -3- 16. Reduction of enemy activity on this night cannot entirely be explained by the weather conditions since longrange bomber force has operated on much greater scale when conditions were less favourable. 17. Daylight December 17th. A few reconnaissances and coastal patrols only. One enemy aircraft was des- troyed by our fighters. 18. Night of December 17th/18th. Enemy activity negligible. 19. Aircraft casualties in operations over and from British Isles. One enemy aircraft destroyed by our fighters. Four British bombers missing. 317 G-2/2657-220 RESTRICTED M.I.D., W.D. December 20, 1940. No. 275 SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. 1. Air Force Operations. The German Air Force operated over England on a very limited scale by day and night. The R.A.F. was normally active over western Germany last night. The Duisberg, Cologne, Dusseldorf and Essen areas were attacked. II. Greek Theater of War. The Greeks report successful local operations at various points of the front. The heavier fighting is still in the Tepeleni- Klisura area. Greek progress is practically imperceptible. The Italians report increased air activity in Albania. III. Mediterranean and African Theaters of War. 1. Heavy fighting continues in the Bardia zone. Units of the British forces in this area have been reinforced, and the Italians, who have, so far as is known, received no reinforcements, are said to be in a precarious position. Patrol activity is again reported on the Sudan frontier in the Kassala and Gallabat areas. 2. British air superiority continues over the Libyan combat zone. Derna has been bombed. The Italians claim to have raided Alexandria. The R.A.F. bombed Brindisi fairly heavily. There was minor Italian air activity over the Sudan. 3. British Fleet activity is officially reported for the first time north of the Straits of Otranto. Valona was heavily bombarded by naval units. RESTRICTED CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 8:00 A.M., December 20, 1940 Buoharest, filed 17:10, December 19, 1940. I have been informed by the German Military Attache, Bucharest, that a motorized division, with headquarters at Timisoara, is arriving in western Rumania. In addition, an antiairoraft regiment has reached the country. My estimate is that with arrival of these new units, German troops in Rumania will number about 42,000. RATAY Distribution: Military Aide to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of War Chief of Staff - 2 War Plans Division Office of Naval Intelligence CONFIDENTIAL 318 CONFIDENTIAL Persphrase of Code Radiogram Received as the War Department at 2:38 Polloo December so, 1940 Belgrade, filed 16.00, December no. The Yegeslav Chief of Staff says in confidence that he will keep the only at a minimum of 800,000 all through the winter woths. Opposite the Dulgarian frontier especially strong foress will be stationed. The Yugoslav Army's Chief of Intelligence is leaving tomorrow for a vacation lasting ten days, This officer does not expect any immodiate German treep movement on a large seals. PORTIER Distributions Military Aide to the President Secretary of War State Department Secretary of Treasury Aest. Secretary of War Chief of Staff War Plans Division Office of Neval Intelligence CONFIDENTIAL 319 CONFIDENTIAL Patrephrase of Code Radiogram Received at the War Department at 11:30 A.M., December 20, 1960 London, filed 17:03, December 20, 1940. 1. A total of 62 British bonbers operated during the night of December 18-19. Five heavy planes bombed the Pirelli plant at Milan and 26 attacked Mannhain. From the Coastal Cam mand 19 bombed four airdress in France, striking planes and bangure, six medium bombers attacked the port of Ler- isst, and six bombed The Fighter Command dispatched two patrols during this night. 2. During daylight hours of Thursday, December 19, the German Air Force operated about 70 sorties and 197 patrols. That night German activity was limited and apparently without any definite objective. 3. One German and no British plane was destroyed. 4. In the Egyptian theater British bombers attacked troop consentrations and aircross at Denina. It is estimated that 18 Italian airplanes were destroyed and 20 damaged. On the 10th a reconniiesance revealed that there were about 500 motor vehicles within the defensesof Bardia but that there were no signs of movement on the Bardia-Tobruk road. The total Brit- ish casualties in the Egyptian operation, including killed and wounded, are should 1,000. CONFIDENTIAL 320 321 CONFIDENTIAL 5. The Methich - - Degrees reported that she was shalled w - - vaider believed to be the "pedial ADMITAL accurate about 700 miles - of Produce The ballow that as least four was Centure ( the military version of the German long renge, high 1 engined - commond plane - 0-2) are operating against shipping in the where west of the British Islan. A my has writed from Canada without loss. 6. A British mail of Termsto on December beer 18 revealed that two damaged battleships of the Courte as Conour (old 23,600 team) class were skill there but the bettleship of the Littlerie 35,000 tens) class was not seen. LEE Metallations Military Mile to The President Secretary of War state Department secretary of Treasury A Secretary of War Order of staff War Plans Medation office of Mount Inhelligence Air Garge as CONFIDENTIAL -2- CONFIDENTIAL 322 Paraphoness of Code Cablegra Received at the - Department Demember 20, 1960. - Filed December 20, 1940. A seemed reference to your cablee, 439. 440 by in officer of the foreign service was told today w a highly placed Italian that Germany must new give military add and is in that doing so. I would request that the State Da partment be advised and asked to comment. I have no information as regards the form this aid will take. FISKE Distributions Military Mide to the President Secretary of War State Secretary Department of Treasury seet. Searetary of Mar Chief of Staff War Plans Division Office of Neral Intelligence CONFIDENTIAL CONFIDENTIAL 323 Perspiranse of Code Cablegram Reserved at the The Department 22:39, December 20, 1940. - Filed December 20, 1940. In reply to your inquiries Non. 439 and 440, by eables There is nothing to confirm the idea that the Germane have in Italy any unjer contact units. Numerous German officers and onlisted personal are here. They include staff officers, various specialists, - envalements, students of police a transport crew (ate) and small combat units for instructional purposes. The Germans say they are hesitant about giving military aid of a direct sert. They do not want to w - entangial is political uphestals locally and so far there is nothing to suggest that they will de so. Pisks Distributions Military Aide to the President Secretary of Mar State Department Secretary of Treasury less. Secretary of May Chief of Staff New Please Division Office of Naval Intelligence CONFIDENTIAL