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The Papers of Eugene Meyer(mss52019)
117 01 001-
Subject File, Federal Reserve Board, F.R. Bank of NY — Correspondence,
1931
11404-R4L. RESh-leVe BOARP
pzif
X/e. 04.44C OF*Y - Cooe.csmv
/93Y
• Si3.2°111 9-29
FEDERAL RESERVE BAK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE_April 24 1931
To
Governor Harrison
SUBJECT:
FROM
Mr. Snyder
_Nad_Prices 111 tbelast year_or mom,
MALRelations of Tradep_CTILIdit* _
THEORY.
It has been the custom to consider Reserve policy largely
in terms of interest rates and, what amounts to nearly the same thing, the
volume of Member Bank borrowings.
No doubt the cost of money is an important
consideration to the merchant borrower, but the total of merchant borrowings
has within the last generation sunk to relative unimportance.
Roughly, the
total of bank credit is now constituted as follows:
Member Banks' own investments
Loans on securities
Loans on real estate, etc.
Merchant borrowings
30 per cent
50
10
50
"
"
It follows from all this that so far as the total volume of bank
credit is concerned the disposition of the merchant, and the rate he pays for
money, is of little consequence.
Moreover, it is a very interesting fact
that in the Member Banks of the System "all other," or so-called Commercial
Loans, tend in normal times to increase very steadily at close to the normal
rate of growth of trade itself, that is, at a little less than 4 per cent per
annum. Lpirther, as was clearly shown in the recovery from the depression of
1921, meiEhant loans follow and do not precede the revival of business. Therefore, they cannot be the cause of business revival but are clearly an effect.
THE EVIDENCE. What does seem of vital effect, aviii..inflonbel as is
now clearly demonstrable, both as to the volume of trade and the price level,
is the volume of total bank q:edit, or, if one prefers, of total bank,deggillip
And here the cleai.-rAnCi-iemis to be that the increase in this total bank
credit precedes somewhat the recovery of trade and very distinctly precedes a
trade depression.
How closely the price level follows the variations in the volume of
this bank credit, without regard to any other factor, is set forth in the accompanying graph.
This graph shows simply the variations of the actual increase of bank credit from a rate of 4i per cent per annum, and the variations
in our index of what we term the General Price Level, as contrasted with special
indexes like that of wholesale prices alone.
the
It will be seen from this graph how closely / variations in prices
followed the variations in credit.
The only marked exception was in the latter
part of 1922 when, as is well known, the extraordinary rise in the rate of turnover, or so-called "velocity" of bank deposits, due to the prodigious wave of
speculation, affected these normal relationships. 1,Lt will be seen how quickly
these normal relationships were restored as soon as the speculative mania had
passed and the average rate of deposit turnover had returned to the ordinary
or usual proportions.
•
4
411.
MIA'a 3.24 9-29
0-
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE: CORRESPONDENCE
DATE
April 21, 1931
The Relations of Trade, Credit,
To
Governor Harrison
SUBJECT:
FROM
Mr. Snyder
and Prices in the last year or aore-2
COMODITY PRICES.
This relationship between the volume of credit and the general price
alone,
level cannot, of course, be demonstrated for wholesale commodity prices
prices
Commodity
be.
could
it
that
and there never was any reason to suppose
in
prices
of
structure
broad
at wholesale represent but a slender part of the
attributed
generally
is
general, and in no wise possess the importance which
to them meff by the older economists.
Wholesale commodity prices are the widest variables known--that is,
the most mercurial types of prices; and in their movements often swing far above
There seems no reason to suppose a
or far below the general level of prices.
very close relationship between these prices and the volume of credit, any more
than, say, between cabbages or cottage cheese. /The high variables in the
familiar indexes of commodity prices are food and farm prices, and these are un—
questionably deeply affected by cops and worldwide market conditions, and by
other influences little related to the conditions of business or the volume of
credit.
THE RECORD FROM 1875. On the other hand, we have now clear trAcl"law,
questkanable evidence, covering a period of more than half a century, that
there is a very close and practically invariable relationship between this
general price level and the volume of credit; and that, in turn, the volume of
trade and of employment, that is to say, the "condition of business," is also
closely related thereto. LAn expansion of credit has accompanied, and usually
preceded, every sustained recovery of business from depression of which we have
clear record in the last hnlf century, and every business depression has been
heralded by a rise in interest rates which, in turn, always brings about a check
sooner or later, and a decrease in the volume of trade.
to credit expansion
e j
This relationship has likewise been thoroughly established.
demonstrated
t‘ tt if 4. 0144400,144
Next, it may be /that this expansion ofbank cre-ali:0,in the last quarter
of a century" at least, WA not been due to the increase in merchant borrowings,
and distinctly has not been the result of initiative from the side of business,
This was as markedly true of the business re—
but from the banks themselves.
covery following the crisis and depression of 1907—'08 as it has been since the
establishment of the Federal Reserve.
M.,
THE CASE OF 1908. The crisis of 1907 involved as sharp a banking and
as anything experienced since the Civil War, and a sharp business
panic
currency
The prostration of railroad traffic was, if anything, more general
depression.
Yet the remarkable fact is that within five or six
than at the present time.
months of the panic,business was vigorously on the road to recovery, and this
This business recovery was
recovery continued for well over a year thereafter.
credit, as is revealed by
bank
distinctly preceded by a remarkable expansion of
MOW
•
•
M 9-29
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE_April
21, 1931
To
Governor_Harriso
SUBJECT: The
FROM
Mr. Snyder
and Prices in the last year or more--5
Relationa_of Trade, Credits__
the returns for National Banks, then a more important part of the banking system
than at the present time.
And this expansion was not due to merchant borrowIt was due wholly to the initiative of the banks themselves and resulted
ing.
from a heavy return flow of currency from circulation and the hoarding which
had followed the panic of 1907.
Likewise the fall in commodity prices averaged only about 6 or 7 per
cent.
In other words, were about the same as the fall in commodity prices in
the four or five months following the market crisis in October of 129.
THE CASE OF 1921.
The crisis of leal involved the sharpest contraction of bank credit
and the most violent fall in commodity prices,..4arei-lat-Cur-getaleetNerstae.aevell
since the Civil War, up to that time. It resulted from or was preceded by the
highest commercial interest rates which had been known since the panic of 1875.
The fall in prices continued to the and of 1921, about a year and eight months
from the peak point reached in May of 1020.
But from the fall of 1920 there was the beginning of a very heavy
inflow of gold, and in the fall of 1921 the Reserve Banks began heavy purchases
of securities. Likewise throughout 1021 there was a large return flow of currency from circulation, and these three forces led to a reduction of 'ember Bank
borrowings from a peak of 2800 millions to a little over 1000 millions at the
end of 1921.
All this led to a drastic fall in interest rates and bank deposits began to increase by the end of the year.
By the .spring of 19'42, or within eix months of this remarkable change
in the loPnking and credit situation, business was, on our broad index of trade,
back to normal.
This latter was not true of the pig iron type of indexes which
useelly show a lag of from three to six months, at least in periods of business
recovery.
AND IN 1924. Almost identically the same thing in 1924.
The business recession continued through the first half of the year and up to July. But
at the beginninc of the year the Federal rxserve Banks had again been baying
heavily of securities, end by the middle of the year there was a marked increase
in the total of bank credit. Llts again was not due to merchant borrowings but,
exactly as in 1908 and in 1921,
heavy purchases of securities by the :ember
commercial
Again, within six months of the time this
banks.
Banks and other
credit expansion was well under way, business was likewise well on the road to
recovery.
AGAIN IN 1927. The experience of 1927 was a curious one. In the
earlier part of that year business was in good volume and all of the business
indexes stood at a high level, though there had been some small decline in
commodity prices.
But towards the end of the year, distinct signs of business
recession, so much so that by December Senator Wagner, in Congress, asserted
that there were three million men out of work in this country.
.•
qp.‘
ige
e vigC. 3.0m 9-29
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE
AprIl 21, 19:51
To
Governor Harrison
SUBJECT:The
FROM
Mr* Snyder
and Prices in the 1aat_year_or_sore---4
Relatimumf_Trada,_Grodit.____
As is well known, for quite other reasons than to arrest such a
business decline the Federal Reserve Banks, early in the summer of that year,
began a renewed purchase of securities, amounting to about a quarter of a
billion dollars.
Again a corresponding increase in commercial bank credit, and again
within six months therefrom a sharp revival in business.
FOUR CONSECUTIVE INSTANCES. Here then were four consecutive instances
within a period of about twenty years, which revealed this striktng parallelism
between the expansion of bank credit and the recovery of trade. In not one of
these instances did the expansion of bank credit proceed from the side of the
merchant borrower, but from the initiative of banks themselves utilizing the
funds they could not loan in an ordinary business way, for the purchase of securities.
is striking that the instance of 1908, before the establishment
of the Federal Reserve System, was as vivid as any of the three cases which followed, and could not, therefore, be in any Ivey related to Federal Reserve policy
or the existence of the Federal Reserve System.
THE NEGATIVE INSTANCE. These four consecutive instances seem to show
a positive relationship. It remained for the present depression to indicate
the negative evidence. It is now a year and a half since the crisis of 1929,
and commodity prices have been fallinz almost continuously through the last
twenty months.
There are no signs as yet to indicate that they have reached
bottom. The decline has been as sharp and continued in the last three weeks or
three months as in the preceding twelve months or more. Business also has
shown, co far, only the faintest signs of recovery.
Parallel to this we have had since the fall of 1928 no net expansion
of commercial bank credit, Wring all Umber Banks of the System as evidence.
On the contrary, some contraction of credit within the last eighteen months.
The difficulty in most econothic investigations, and especially in
this particular field, is the slender number of instances available for study.
But here, at least, are five consecutive instances, four positive and one negative, which seem to establish pretty clearly that the condition of business recovery from a depression is an expansion of bank credit; and further, that this
expansion of credit is meow initiated by merchant borrowings from banks.
AQ't
COMPARISON OF FOUR MAJOR DEPRESSIONS
4.
MARCH 1893 TO AUGUST 1895
MINIMUM JUNE 1894
, PERCE*r4TA3E -OEvIATIONS
+ 20
+
0
NORMAL 0
28.6%
OfCL/NE
— I0
— 20
—30
4- MONTHS
/4 MON rhfs
-r
MAY 1507 TO JULY 1909
MINIMUM JUNE 1908
+ ao
+
^
0
NORMAL 0
29.7%
CL/He
— I 0
— 20
— 30
MONTH
/3 MONTHS
1
MARCH 1920 TO OCTOBER 1922
MINIMUM JULY 1921
+ 20
2.
+
.1111a--•-••
7
2.
to
NORMAL 0
33.9%
DeCL/NE
— I 0
— 20
4
.
— 30
/5 MONTHS
MO/V TH3
JUNE 1929 TO
MINIMUM JANUARY I93I
+ 20
f
19 3
+
0
NORMAL 0
—
I 0
PECL/NE
— 20
— 30
— 40
/9 MONTH.?
(Arch /ndex Estimated)
(55/9 -/5-41
-y
MISCe 3.2 GOM 7-30
FEDERAL RESERVE BANK
OF NEM/YORK
June 25, 1951.
OFFICE CORRESPONDENCE
To
DATE__
lir. Burgess
SUBJECT:___
F RomX_e
Ft
rough
CHTLEIS FOREIGN DEBT PAMENTS
Chile is one of the few countries of South America where a change of
government by revolution during the depression of the past eighteen to twenty months,
has not occurred. In comparison with other South American countries, Chile has a
government which is basically more sound, a national administration which is more
efficient and better managed, (under the control of a strong and able dictator, President Carlos lbaries) and a population composed predominantly of more stable and superior
racial elements. Therefore, Chile has not been subject to the irreatible pressure for
revolution that has obtained in practically every other South American country. In addition, it has a more diversified national economy than neighboring countries so that
the well-being of the population is not so utterly dependent upon the export trade as
is often imagined by foreign observers. Finally, the financial organisation and
equipment of the national government is far superior to that of the other leading
countries, notably Argentina and Brasil.
Nevertheless, there have taken place in Chile during the past year a marked
contraction in business activity and sustained declines in prices of export and domestic
commodities. The strati: measures which the government has had to adopt to balance
income and outgo, including cuts in the salaries of government mnployees, the levying
of new taxes and raising of rates on old taxes, have been a strain on the people.
Official statistics show that there has been little if any unemployment. Two incipemt
plots of political 'outs" to overthrow the Government have been discovered and the
organisers, exiled or imprisoned. It in understood, however, that the political
situation is now more clouded than it has been thus far during the depression.
Although Chile has, for the reasons given in the first paragraph, withstood
the strain politically and financially far better than other South American countries,
her export trade has declined heavily as a result of the depression in world markets.
The usual, large favorable balance of trade so vital a factor in the maintenance of
equilibrium in the Chilean balance of international payments, has disappeared and as
sufficient new loans have not been forthcoming, commercial banks and the Government
have gradually leaned more and more on the resources of the Central Benk of Chile as
the source of foreign exchange to make payments abroad. In its latest monthly bulletin
of Business Conditions, the Central Bank describes the existing business situation,
in part as follows:
'The development of our foreign trade continues unsatisfactory. Exports
as well as imports increased in Marchl imports predominating with a surplus
of 2 miliien pesos. There was a favorable trade balance of 8,8 million
pesos for the first three months of the year, which however is too low a
figure to appreciably assist in bringing about the equilibrium of our
balance of payments.
The stringency in the monetary market has become more accentuated. The
volume of bank credits has continued to drop in March., and in a larger
proportion than in the previous three months. Advances in current accounts
is the item most affected this time.
The circulating medium augmented in the first half of March owing to
an issue of notes against gold purchased by the Banco Central. During the
second half of the month, however, the circulating medium again dropped,
due to the continued unfavorable balance of payments, the equilibrium of
which, in the present prevailing circumstances, can only be obtained by means
of sales of gold by the Banco Central.'
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE
To Dr. Burgess
FR0I!
June 25, 1951.
SUBJECT:
.2
F, Lamb
CHILE'S FOREIGN DEBT PAIMLITS
The outlook for the continued payment of services by Chile during this coming
half year can best be studied by examining her balance of international payments,
the present status of her foreign trade and the credit and financial position of the
Government and of the banks.
BALANCE OF INTERNATIONAL PAYMENTS
. Last year in August the results of study on Chile's balance of payments
prepared for the National Statistics Department of Chile by Alejandro Bunge, the
Argentine economist, were published. This vas the first time that such an investi—
gation had been carried out in Chile. Thc report vas 'riven out with the proviso that
the analysis included only principal items entering into the international balance,
the period covered being the firrt six months of 1950. The items as Mom in the
monthly bulletin of the Banco Central, follow:
TADLr t.
v-EsrmATE OF THE IMPORTANT
ACCOPNTS IN TEE CIIILFAN BALANCE OF PAMIlliTS*
First Semester 1950
(In millions of dollars)
Acqounts
Debits
Yoreiaalrade
78.8
&ports
Imports
Goverzynemt Loans
57.4
Foreign Loans and Advances (net)
Foreign Advances cancelled (i.e. paid)
10.2
Municipal and other loans
XAtereet and Dividepgs
Service on external, direct fiscal debt
Service on external debt municipalities, railroads
and other entities
Service on Foreigm Debt of the Mortgage Bank
Interest (and dividends) on foreign capital
invested in Chile
Payments to employees and institutions abroad
Paymmnts of Fiecal Agent of Govt. (mostly naval equipment)
2.0
Consular fees
1.8
Tourists and immigrants
Nitrate industry propaganda
4.8
New foreign capital investments
Balance owed by Commercial Banks to correspondents abroad 14
Lose in gold reserves of Banco Central
Totals
165.5
5iredit9
92.5
13.0
14.8
2.0
5.5
55.6
1.5
5.4
1.0
2.4
1.5
170.8
*Amounts given in Chilean pesos (par st 12.17 cents); converted at average rate of
exchange for pesos.
MISC. 3.2 GOM 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Dr. Burgess
FROM
al
DATE ;WO
25, 1931.
SUBJECT:
3
F. Lamb
CHILE'S FOREIGN DEBT PAYMENTS
The compilers made one important observation, namely, that it had been
found necessary to ad.inat the official figures of foreign trade due to the fact that
the two principal items in the export trade, sodium nitrate and copper, (shipments
of which comprise about SO% of total exports) were overvalued for the purpose of the
study, while imports were somelehat undervalued. Without entering into an analysis of
why the official valuea were not suitable, a comparison of the two sets of valuations
is essential as it is more than likely that the 'same discrepancies exist in the current
figures of foreign trade and similar allowances must be made:
First Semester 3.9§0
(In millions of dollars)
Official valuations
Bunge's adjusted figures
Difference in amount
Percent Bungee figures below (-)
above (*) official figures
Exports
Imports
85.7
70.6
88.0
92.5
- 6.9
+ 4.5
Unfavorable
Balance
- 2.5
- 13.7
Or
- 0%
5.1%
Although the debits and credits in Table I do not *prove", the figures being
incomplete, the outstanding feature of their balance of payments, and one which is
common to all South American countries, is Clears positive equilibrium in Chile's
balance of international payments is possible only if the dead weight (or fixed) '.mfavorable invisible items are covered by two favorable items, an excess of commodity
exports and imports of new capital both of which are variables.
YORK= TRADE
In 1950, the official value of Chile's total merchandise exports was approximately 15% below the average for the three previous years while imports were 8% above
the average for the same period. As a result of the extraordinary decline in exports
(which was mainly due to a drop of 40 in the price of copper during the year and
heavily curtailed nitrate shipments) without a corresponding contraction in imports
which continued almost constant throughout the year, the usual and essential large
favorable balance of trade was replaced by a sizable excess of imports. Actually,
the unfavorable balance of trade was considerably larger than shown by the official
figures. Whereas the official figures showed an unfavorable balance of 8.5 million
dollars, it is believed that the deficiency as far as settling international balances
are concerned, may be safely placed much higher. Using the sane percentages as those
shown above, the unfavorable balance would be 22 millions.
Exports in 1950 were valued at the lowest figure since 1922 while imports
were larger than for any other year during the past decade with the exception of
1929:
•
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Dr
. Burgess
DATE June
25, 191.
SUBJECT:
,
-4.'
F Romig, F. ZOO
CELLE'S FOLUGN DEBT PAYMENTS
TABLE I;
FOREIGN TRADE
(In zillions of dollars, =averted at average exchange rates)
Balance:Fav. (+)
Imwrts
qgfavorable (-)
!gida
1920
1921
1922
1925
1924
1925
1926
1927
1926
1929
1950
Sources
214.0
125.2
110.2
184.5
199.5
225.6
196.3
201.7
258.7
275.5
180.2
125.1
110.1
78.8
115.0
120.3
147.7
156.2
129.5
145.8
193.1
168.7
+ 88.9
+ 15.1
+ 31.4
+ 71.3
+ 79.0
+ 77.9
+ 42.1
+ 72.2
+ 92.9
+ 82.2
- 8.3
Yearbook Department of Commerce, 19501 Monthly Bulletin, Banco Central de
Chile for March, 1951.
During the first quarter of this year, the latest period for which figures
are available, no commensurable improvement occurred in the foreign trade situation.
Prices of the principal export commodities were very weak and exports of nitrate are
believed to have diminished further (no official figures have been given out since
October of last year) while foreign demand for copper continued stagnant with shipments correspondingly light. Imports during the first quarter were valued at 21%
less than during the corresponding period of last year but were still at a such
higher level than would appear to be desirable. Late in March, import duties on a
list of about fifty important items were advanced substantially, the increases
amounting to as much as 250% of the previous rates in many instances. This measure
presumably will discourage imports to a considerable extent, without upsetting the
Government's calculations of revenue.
TABLE III
FOREIGN TRADE IN THE FIRST THREE !ONUS OF 1953,
(In millions of dollars)
norti
First Quarter 1950
First Quarter 1931
48.1
38.5
Import
47.4
37.3
Favorable
Balance (t)
+ .7
+ 1.0
POSITION OF BUDGET
Since the adoption in 1926 of a modern budget system under a budget law
which was drawn up by an American (Kemmerer) Commission of Financial Advisers, the
national finances of Chile have been administered much more efficiently than was
I
MISC. 3.2 COM 7-30
FEDERAL RESERVE BANK
OF NEW YORK
June 25, 1D31.
OFFICE CORRESPONDENCE
Dr. Burgess
DATE_
To
SUBJECT.
5—
E. F. Lamb
FROM
MILE!S IDTIMGIN.1 DEBT PAYMEIITS
previously the case. Financial results in the year 1927, the first under the new
lax, showed a small surplus uheroao the period 1919 to 1926 showed a cumulative
deficit of total actual expenditures over revenues of 161 million pesos ($19,300,000).
In 1928 and 1029 substantial surpluses were shown, offsetting with a small margin
to spare the accumulated deficits. Notwithstanding the business depression and it
inevitable effects upon revenues, the year is said to have closed with the budget
approximately in balance. Revised estimates of Ordinary Expenditures and Expenditures
for last year, and the corresponding estimates for 1931 as passed by Congress,
follows
TABLE IV
NA 0
B
OF
Urn
ORDINARY WENDI,TURES JIX950 and 1951.
JAM
(Revised Estimates)
Ordinary Revenues
Ordinary apendituree
Anticipated Deficit
Pesos
Dollare
(Amounts in Millions
1,151.7
.8
140.5
140.6
.1
Ordinary Revenues
1,040.0
126.6
Ordinary Expenditare3
1.039.6
126.6
Surplus
.4
* D epartment of C-ommerce cable, December 1930.
During 1950, the revenues from nitrate did not fall below the budgetted
fiaure which vas placed at 170 million pzaos (20,700,000). Tradition has it that
the nitrate industry has always paid the major part of the costs of Government in
Chile and indeed, during the SU year period 1880 to 1930, 43% of the average costs
were pz.id by the industry. Bowyer, as a more modern system of taxation has been
gradually developed, le6s and less dependence has been placed on revenue from this
source. The direot contribution of the nitrate industry to the Government in
1930 at the rate of approximately 41Z.00 per ton of nitrate shipped, was only 18% of
the total estimated ordinary revenues.
In the budget for 1931, passed late last year, with estimated ordinary
expenditures and revenues approximately in balance at $126,500,000, the nitrate
tax does not appear at all. Under the rationalization plan for the nitrate industry
of Chile, passed by Congress creating the Compania Salitre de Chile (Coach) with an
authorised capital of $375,000,000, and embracing more than 94% of the productive
capacity of the industry, the government receives in exchange for its loss of
revenue from the nitrate tut mentioned above and as compensation for handing over
valuable concessions to the combine, half of the capital stock in the form of
15,000,000 fully paid common shares of 100 pesos each, equal to about $185,000,000.
r
•
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
Dr. Burgess
To
FROM
Z. P. rata
DATE
June 25 1931.
SUBJECT:
- 6-
CHILE'S FOREIGN DEBT PAIIIIENTS
For the first three years under the new plan, "Cosach" guarantees minima returns
to the Governnent of .22,500,000 in 1931, #20,000,000 in 1932 and $17,500,000 in
1933. The payment for this year which is in the fora of cash, dollars and pc-funds
sterling, has been provided for by recent financing.
The principal groups of itens in the revenue estimate for 1931 compare
with the original budget of revenue for 1930 as under*
TABLE
A. National properties
B. National services
C. Direct and indirect taxes:
Import duties
Income taxes
E/port tax on nitrate
Other revenues
Total direct and
indirect taxes
D. Various revenues
Total Al B, Op and D
Surplus from previous
year
General Total
1931
1930
Ito*
(a)
52,950
80,550
225,410
$5,990
500,000
123,500
274.900
325,000
210,000
170,000
292,500
997,500
58,650,
1,169,650
(b)
698,460
44740
(b) 1,039,610
i ,
45,0Q9
1,214,650
1,039,610
(a) The quota of 180,000,000 pesos ($22,500,000) which the National Treasury received
from the Compania de Salitre de Chile in 1931. is included in this item.
(b) A discrepancy will be noted in the summation of the items.
Source: From Annual Report of Minister of Finance of Chile, as reprinted by
Department of Commerce, Special Circular #3441 (January, 1931)
It is observed that import duties account for less than one third of total
revenues, a considerable lover ratio than in most South American countries, the
remainder being distributed among various sources, including income taxes, national
properties, "national services' and miscellaneous taxes.
t
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
DATE Jun
Dr. Burgess
FROM!.
F. Lamb
252 1931.
SUBJECT:__
— 7 _
.
GUILEIS FOREIGN DEBT PAYMENTS
PUBLIC DEBT
'The debt is divided into direct and indirect obligations. The former is
that contracted directly by the National government and the service of which is a
charge against the ordinary revenues and is included in the budget. Thr: indirect
debt is composed of debts of cities, railroads, mortgage bafts, etc., which are
guaranteed by the National government, but the service of which is attended to by
the entity directly interested and from their own income.**
The following official figures showing the public debt of Chile up to the
latest date for which figures are available do not include the floating debt. One
short term obligation, however, has been treated by the Government as though it were
a funded loan: an Josue of five year notes sold to Kuhn, Loeb, which are a part of
the external direct debt. The principal is $10,000,000 and the maturity date is
July, 1931.
TABLE VI
FUNDED NATIONAL DEBT
(In millions of Chilean Pesos)
1950
1929
1928
1927
1913
( as of December 51)
Direct
External
Internal
2,482.6 2,289.3 2,138.5 1,758.2
322.9
256.9
104.6
457.8
Indirect (Guaranteed)
External
Internal
Grand Total
1,183.6 1,068.5
962.3( 899.5
64.3
61.9(
49.9j
4,174.1 3,745.0 5,419.6 2,762.1
In millions of
Dollars
500
450
410
1,556.5
51.7
4MP
1,406.2
536
169
From the above, it is seeu that the Chilean funded debt, internal and external,
increased between the end of 1927 and the beginning of 1931, $164,000,000 (about
$55,000,000 per annum), the percentage increase for the period being no less than
51%.
Tho total sum set aside for service charges in the 1951 Budget was
$35,500,000 against $31,600,000 in 1950. Although the national debt hem groin
rapidly,total estimated service charges in 1951 were equal to only 28% of total
estimated revenues or expenditures, which is not a high ratio for a South American
Country.
*Banco Central de Chile, 'Monthly Bulletin' (January, 1930, Page 8)
MISC. 3.2 60M 7-30
FEDERAL RESERVE SANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE
June 25, 1931
Dr. Burgess
To
SUBJECT:
$
CHILE'S FOREIGN DEBT PAYMENTS
FROM E. F. Lamb
The external funded, direct debt as of December 51, 1.950 was divided up
by currencies as followss
Pounds sterling
Dollars
it 29,682,112
$140,894,615
Pr.84,005,000
Swiss Francs
The total floating external debt, estimated as carefully as possible with
the aid of information obtained frost various private sources, is believed to be about
$50,000,000 at the present time, including the Kuhn Loeb notes mentioned above.
The table which follows lists all short term indebtedness incurred abroad
by the Chilean Government in 1950. Apparently the notes and advances maturing in
the first quarter have all been reneged.
TId3LE VII
SHORT TERM
pomp= xxcupRED II 1940
Wawa Discplait
Maturities For.
(thousands
National City Bank
National City Bank
National City Bank
Rothschild & Sons
Rothschild! & Sons
Anglo Fr. Bkg. Corp. & Others
Caja Rao. de !Morro*
Jan. 216 1951 $ 5,000
2 0.
6%
Zan. 28, 1931 10,000
Jan. 15, 1951 2,000
6%-1,t
Jan. 27, 1951 2,000
111-1/0% Nov. 27, 1931 1,000
5 5/4-1b.a. S200,000),
400
8/51 £200,000)
1st Qtr.'51
0 Commission
* 11,000,000 deposited with Rothschild & Sons
In dollars
Pesos
(thousands)
41,250
12,500
16,500
80,00041
40,000
18,000
________
501,250
56,000
To the above should be added, the Kuhn Loeb notes due next month ($10,000,000) and
a further advance of $8,000,000 which Chile is believed to have obtained from the
sane firm, giving as previously mentioned a grand total of approximately $50,000,000.
Chile has done no long term financing this year.
CURRENT FINANCIAL POSITION OF conamiT
Lacking detailed first-hand information, it is difficult to say definitely
how closely this year's actual revenues and expenditures are coincidimg with the
budgetted estimates.
During the first quarter, receipts from imports duties, according to the
official returns amounted to 70.1 million pesos or *lightly less than one fourth of
f
•
MISC. 3.2 OM 7-30
FEDERAL RESERVE BANK
OF NEW YORK
DATE 1!C 25 1931.
OFFICE CORRESPONDENCE
Dr• Burgess
To
FROM
-•
SUBJECT:
- 9-
Lamb
CHILE'S FOREIGN DEBT MIMS
the figure in the budget for the entire year. A comparison of certain other official
figures, indicating the current fiscal movement during the first quarter of 1929, 1930
and 1951, is given below%
TAW VIII
CURRENTAECEIPTS BY GOVERNMENT
First Quarter
1931
1950
142.
of
pesos)
millions
(In
Receipts, total
Expenses, total
292.6*
209.0
,
290.0*
272.4
204.7
198.4
Customs Revenues
62.2
99.2
7.2,
51.1
70.1
15.2
159.6
136.4
11.9
19.8
From Exports
Fi.ort Imports
Other Receipts
Total
Direct Taxes
Income taxes
Other taxes
66.5
45.4
Total
from
1928.
over
*Including surplus of 77.6 millions carried
**Including 54.0 millions carried over from 1929.
Source: Nonthly Bulletins of Banco Central de Chile*
Anticipating a drop in income, the Government has planned a reduction of
115 million pesos in this year's expenditures, representing marked economies in
administrative costs, which include decreases in the pay of government employees and
officials, ranging from 3% to 25%, and also reductions in personnel. Regarding
revenues, it appears that certain classes are running somewhat behind the budgetted
amounts although slow collections may be partly to blame. 'Mile the internal situatinn
of the government has been affected by the general depression, it has been handled
firmly and does not suggest instability. It seems fairly certain, on the whole that
the financial position of the Government is sound even though current revenues may be
running somewhat behind current expenditures at the present time. The extraordinary
budget, which embraces the authorised credits and the destination of the proceeds in
connection with an ambitious long-term program of public works construction, has been
so adjusted that the country will not be obliged to seek new loans abroad for this
purpose in the current year.
.14
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
. OF NEW YORK
OFFICE CORRESPONDENCE
To
DATE_
Dr. Burgess
16
FROM__
11% Lamb
June 25,A,931.
SUBJECT.
-
10 -
CHILE'S FOREIGN DEBT PAYMENTS
Nevertheless, the Government faces two serious problems, first, the
disposition of the floating debt: $10,000,000 in notes due next month; approaching
maturities of obligations already renewed at least once; second, securing foreign
exchange to meet service charges on external debt.
EXCHANGE SITUATION
Insofar as the settlement of international accounts is concerned, exports
during the first quarter of 1951 must have failed to cover imports by a considerable
margin because, although the official returns show a small excess of merchandise
exports over imports, it has been pointed out in an earlier paragraph that habitually
exports are overvalued and imports, undervalued. However, assuming that the international payments on account of foreign trade, are in balance and that no demand
exists for foreign exchange for the transfers of interest and dividends on foreign
private capital, funds of tourists immigrants, diplomats etc., Chile must nevertheless
secure foreign exchange in 1931 at least to the extent of $40,000,000 in payment of
service charges on external borrowings of the national government and political subdivisions. However, the amount required may well reach a much greater sum, depending
upon whether or not certain short term obligations must be paid cdff at maturity.
It is not known definitely what arrangements the Government has made so far this year
with regard to fresh credits. However, the Government did receive a payment from
the Cosach, of $22,500,000 in dollars and pounds sterling in April.
During last year, the °deficiency" of exchange was met largely by the
Central Bank whose bills sold during the year exceeded bought bills by 117.4 million
pesos and also by the commercial banks which at the end of the year owed foreign correspondents 21.5 million pesos. In freely supplying all demand for foreign exchange
in 1950 as it did, the Central Bank reduced its reserves about $14,500,000 from some
$55,500,000 to $59,200,000. Notes in circulation were not retired in the same proportion, the shrinkage amounting to the equivalent of but $5,500,000. The reserve
ratio of gold and sight deposits abroad, to note and deposit liabilities dropped
from 59.1% at the beginning of the year to 52.8% at the end of December. The minimum legal ratio is 50%, although, of course, it can be permitted to fall much lower,
a payment to the Government on the deficiency as a penalty, being provided for in
the law. (If time deposits abroad, $15,500,000, at the latter date were included in
the reserves, the ratio 'would be 86.5%). With the balance of international accounts
still unfavorable, the foreign exchange situation this year has remained as in 1950:
a restricted supply of foreign funds, derived from payments to Chile's credit, in
relation to a more or less normal demand for such funds. Speculation by banks and
flight of capital do not seem to be important factors. The burden of supplying
buyers with foreign exchange has continued to fall on the Central Bank whose position
on the latest date for which figures are available,follows:
(See Page 11)
AP.
P
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Dr. Burgess
FROM
L1. Lamb
DATE Altle 25, 1931.
SUBJECT:.
CHILE'S FOREIGN DEBT PAYMENTS
TABLE IX
RESERVES OF BANCO CENTRAL
Last Weekly
itatement in
Legal Reserve
Time Deposits
Total Reserve
(In Millions)
EAL
39-1.
June
June
Jan.
Apr.
May
1929
1950
1951
1931
1951 (15th)
Pesos
222.4
138.2
78.5
84.7
57.7
278.6
252.2
225.5
211.6
181.9
Pesos
501.0
390,4
501.8
296.3
259.6
P-oLut-rs
62.1
47.5
36.7
56.1
29.2
Meanwhile, the amount of notes in circulation has not changed appreciably
during the year. Between the last of April end mid-May, the Bank lost almost
$7,000,000 in foreign exchange and the resdrve ratio fell about 10% to 55.6%. The
Bank has hitherto maintained the ratio by converting its secondary reserves into
dollars and pounds sterling, as required. As these reserves had been reduced to
$6,900,000 by the middle of last month, it is quite possible that the Central Bank
has already exhauste its ordinary resources for supporting foreign exchange.
While the commercial bmks of Chile have aprently not suffered from a
withdrawal of their credit lines abroad, they have nevertheless not freely used
their foreign balances 7hich have risen considerably during the past twelve months.
TABLE X
FOREIGN EXCHANGE POSITION OF COMMERCIAL BANKS
laa
2/28
4/14
8/27
11/5
Own
Due to foreign
Foreign Balances
Correspondent
(millions of pesos)(millions ofpesos)
Balance
(In Millions)
Pesos
Dollars
182.1
238.8
142.5
162.9
110.0
81.2
53.2
59.0
+ 72.1
+157.6
+ 89.3
+ 105.9
+
+
-1+
8.6
18.9
10.7
12.3
258.5
237.6
157.8
127.5
120.7
90.7
70.4
64.9
55.7
67.5
(Continued on Page 12)
+
.
167.8
+ 167.2
+ 72.9
+ 71.8
+ 53.1
+
+
+
+
20.1
20.1
8.6
8.6
6.4
1928
3/2
5/5
9/1
10/51
12
/31
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRFSPONDENCE
DA-rE_Inne_24_1931.
D. Burgess
To
FROM
SUBJECT:
- 12 -
Aria_lfrifarab
CHILE'S FOREIGN
Dar_piammams_
(Continued)
TABLE X
FOREIGN EXCHANGE POSITION OF COMMERCIAL BANKS
Own
Due to foreign
Foreign Balances
Correspondents
(millions of pesos) (millions of pesos)
Balance
(In Millions)
Po5
Dollars
1929
3/12
5/2
6/30
9/5
11/14
10/31
159.4
141.8
119.1
168.6
137.5
66.9
85.9
85.4
82.5
170.7
151.1
116.5
+
+
+
-
75.4
56.4
56.7
2.1
13.6
494
+
+
+
-
8.8
6.8
4.4
.5
1.6
5.9
74.5
70.3
67.4
95.2
111.2
101.3
95.7
122.1
-
56.7
51.0
28.5
28.9
-
4.4
3.7
5.4
3.5
112.5
105.2
110.8
116.1
138.8
136.5
154.6
117.7
- 20.1*
- 51.5
- 23.8
- 1.6
1030
Jan.
Apr.
July
Oct.
1951
Jan.
Feb.
Mare
Apr.
- 2.4
- 3.8
- 2.9
- .2
* Corrected
CONCLUSION
Due to the heavy drain on the gold reserves of the Central Bank as a result
of the abnormal situation prevafling in the country's balance of international payments, the reserve ratio has declined close to the 1ga1 minimum of 50%. The note
circulation had already reached by the arid of last year the lowest level in the Bank's
five and one half years of existence. The volume of currency could undoubtedly be
reduced still further, since business activity as measured by check clearings, is running about one third below last year for the corresponding period.
Nevertheless, the Central Bank is fast approaching the end of its ordinary
resources for supplying the demand for foreign funds. Unless fresh short tern credits
•
.7.. 3.2 60111 7-30
(
3.1IS
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE
Dr. Burge09
To
25, 1931.
SUBJECT._
— 15 —
FROM
E. F. Lamb
CHILE'S FOREIGN DEBT PAYMENTS
can be secured by the government or unless relief can be obtained abroad through
some other method, such as a central bank credit, it appears that the Bank will
be unable to prevent the ultimate depreciation of the peso. It is believed,
however, that the Bank can continue for some time to lend its support to the
Government by supplying it with the means for making debt service payments. Gold
reserves can still be reduced to the extent of say $10,000,000 (sufficient to cover
at least half the demands of the Government for the second half of this year) by
decreasing the note circulation some 25,000,000 pesos (now around 500 million)
the reserve ratio falling to 45%. Chile takes pride in its debt record of 100
years without a default, and although the Central Bank has often maintained that
its raison dletre is to maintain the international value of the peso, there seems
little question but what the Bank will decide to concentrate its efforts on the
transfer of service payments, as the only thing to do under the circumstances.
Thus, for the next few months, it is likely that Chile will not find it
impossible to continue paying interest and sinking fund charges on the foreign debt.
However, if world business conditions do not improve materially within a few months
with corresponding benefits to Chile's export trade, or if credits cannot be secured
abroad, it is fairly clear that the difficulties of continuing to remit will be so
great as to force the Government to suspend payments temporarily.
Lr
•••".
IF
MISC. 3.2 GOM 7-30
FEDERAL RESERVE BANK
#
OF NEW YORK
OFFICE CORRESPONDENCE
To
riles
DATE
SUBJECT:
nine 29
1931.
The Chilean Nitrate Industry
FRomIA_r_v__LaMb
Chile has, in its narthern desert or "pampa" country, the world's only
known deposits of nitrate of soda.*
They extend for a distance of several hundred
miles in an irregular belt five to forty miles wide.
The nitrate-bearing layers
vary in thickness from a few inches to many feet, carry in their richest form as
much as 40% of nitrate, and maybe either on the surface or below it down to a
depth of 25 feet or more.
The deposits being worked are for the most part rich in
nitrate, the "caliche," as the superior type of ore is called, being found about 3
feet below the overburden.
There are no definite statistics on the quantity of ni-
trate remaining in the ground.
A large part of the unproved ground remains in the
hands of the government which,
under the rationalization plan drawn up in 1930,
agrees to hand over large tracts to the industry.
/titer a hundred years of exploita-
tion of the nitrate fields, the evidence is that the quantity of nitrate still untouched is sufficient for generations to come.
RISE OF INDUSTRY
A comparatively small part of the nitrate fields was originally in Chilean
territory but in the early years of exploitation, Chile received most of the benefits,
as the nitrate was shipped from Chilean ports.
After the "Bancos Associados" of Peru
gained control of the industry, they began to consign all shipments in vessels which
brought in fuel as ballast, causing a loss in trade to Valparaiso.
This development
was the principal cause of the war of the Pacific with Peru and Bolivia.
!Nitrate and sodium combined; occurs in natural state mixed
pounds, principally chloride of sodium or common salt. The
time is as fertilizer since nitrogen, most important single
by crops, when in form of sodium nitrate, occurs in a state
for restoring this element in soil and nourishing plants.
After its
with various other comprincipal use in peace
element taken from soil
in which readily available
•
MISC. 3.2 GOM 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Tiles
DATE
sUBJ ECT.
Ain* 29, 1951•
_The_Ohtleall_ntrattindUSin
FROM_ E. F. Lamb
2
victory in 1883, Chile took as indemnity from Bolivia, its strip of seacoest and
from Peru, a portion of its Southern coast.
This territory added to what Chile
previously owned to thE south, gave it the entire nitrate district.
About 1,000 tons of nitrate is reported to have been tPken out of the
region in 1809.
By 1830, the production was 9,000 tons and from that date up to
1900 the rate of increase was such that output approximately doubled every ten
years. Between 3.900 and 1913, production increased approximately 1005, reaching
2,772,000 tons during the latter year.
During the Lax, annual output was irregular
and lower, but between 1921 and 1928 the trend was upward and in 1929 production
reached a new all time high of 3,238,000 tons.*
SPECULATIVE ASPECTS
A significant feature of the development has been the irregularity in
production due to the nature of the industry. It has been highly profitable to
certain companies and disastrous to others.
At one time 125 "oficinas" or plants
were going concerns but between 60 and 70 of them now account for practically the
entire production which annually varies between 2 and 3 million tons, valued at
100 to 125 million dollars.
It has been an erratic industry attended with many
risks as well as possibilities of high profits.
Although the manufacturing proc-
ceases are simple in principle, the nitrate business in its modern aspects demands
for successful operation over a period of years, great technical skill in all phases
of production, management and marketing as well as unusual foresight in the development of new processes and methods in all stages from the handling of the raw material
*The pure nitrogen content is about 15% of the sodium nitrate as prepared by
the Chilean industry.
•
MISC. 3.2 COM 7-30 •
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Files
FROM
11. 7- Lamb
DATE June 29, 1931.
SUBJECT-AnUL Chilean Nitrate Tyubletry
3
down to the final sale abroad.
Naturally, there have been widely varying degrees
of success among the companies depending upon the many variable factors involved,
particularly management. In recent years a great
of the less ably-managed
comenies have abandoned operations and only thc.. stronger conpanies now remain,
five of which produce 85% to 90% of the nitrate.
The world-wide depression in agriculture in 1930 accentuated a condition
which had been the cause of growing concern among the producers of Chilean or natural nitrate for several years:
the increasing production of nitrogen by synthetic
methods and as by-products in the manufLcture of coke and city ges. "By-product
nitrogen" production had been expanding rapidly long before the ;iorld War while the
synthetic product was developed by Germany and produced on a large scale during the
War as an ebsential material in explosive mantfacture.
Due to the abnormally large
demand for nitrate during War-time and in the two years immediately following it,
the Chilean industry was not adversely effected by manufactured nitrates until the
period of readjustment began in subsequent years.
synthetic nitrate manufacture continued to expand.
By-product nitrate and especially
Large plants devoted to the manu-
facture of ammonium nitrate by the extrction of nitrogen from the atmosphere, the
so-called synthetic nitrogen, were erected in other European countries.
The leading
companies which came into the field, in addition to the I. G. Parbenindustrie of
Germany, are the Imperial Chemical Industries, Ltd. of Emgland, the Comptoir de
l'Azote of France and the Montecatini of Italy.
The remarkable increase in synthetic
and by-product nitrogen, both of which are adapted to the same uses as the Chilean
product, is shown in the following table of estimated annual world consumption of
' MISC. 3.2 GOM 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Files
FROM
K. FA___Lamb
DATE
:tine
29, 1951,
NiVate
SUBJECT:
Industry
4
pure nitrogen for the five years ended Tune 50, 1930:
TAAL.] I
ESTIMATED CONSUMPTION OF FORMS OF NITRATE
(reduced to equivalent of pure nitrogen)
(Thousand tons)
By-Product
Synthetic
Chilean Nitrate
1930
1929
1928
1927
1926
425
1,175
363
405
1,075
415
390
825
390
310
735
271
300
585
323
1,963
1,895
1,605
1,316
1,208
While Chilean nitrate appears to command a special market to some extent (since
even in Germany, Chilean nitrate of soda conaumed there between 1926/27 and
1929/30 increased from 16,500 tons to approximately 120,000 tons), the Chilean
industry was at a great disadvantage in the market as a whole, since it could not
satisfactorily meet the prices of European producers.
RATIONALIZATION AT HOME AND ABROAD
It appeared inevitable that as the high cost producers by a considerable
margin, the Chilean companies would eventually be forced from the field.
However,
the entire competitive aspect of the nitrate business changed last year when it was
demonstrated that a more economical process for recovering nitrate than thc one in
use had been developed, and could be employed on a commercial scale.
With the new
process as the basic factor in their favor, the leaders in the industry undertook a
fundamental reorganization, affecting all aspects of the business. lAthin the Chilean
111SAD. 3.2 6011 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE
SUBJECT:
FROM
nine liltAka
The Chilean Nitrate Industry
B. F. Lamb
5
industry itself, the plans* called for a merger of all companies, into a single
corporation "Compania de Salitre de Chile" (Cosach), with the Government sharing
as a holder of half of the total capital stock; the centralization of operati
ons at
five huge plants, invrlving the scrapping of all old plants numbering from
60 to 70
and the introduction of new handling and routing methods in the fields
and "oficinas."
Externally, the Chilean producers entered into a cartel, the membership
of which included all producing countries except the United States and Japan,
output, shipments
and prices being fixed by agreement, in accordance with world market
conditions and
the capacity of the producers.
TM. GUGGENHEIM PROCESS
The competitive situation described could not have been met by the "old,
'
Chilean industry, since even at the established price of approximately
$40.00 per
ton, most companies lost money under the Shanks process which was the
one in use.
It was apparent years ago to the Guggenheim Brothers who have had spectac
ular success in mining low grade copper ores on an immense scale in Chile, that
the salvation of the Chilean industry lay in evolving a more economical process
for the
recovery of nitrate. Under the leadership of E. A. Cappelen Smith, an exhaust
ive
investigation of the problem was undertaken and after almost a decade of painstaking work in the laboratory and experimental plants, a "cool" process for treatin
g
"caliche" was developed.
Briefly, the theory of the Guggenheim process is that sodi-
um nitrate is more readily soluble in hot water than cold whereas sodium
chloride with
*The new company has been formed and the rationalization plan is in process
of being carried out, as two of the new plants, "Maria Elena" and "Pedro Valdvie
"
are understood to have been brought into production.
MISC. 3.2 601‘,1 7-30
FEDERAL RESERVE BANK
OF NEWYORK
•
OFFICE CORRESPONDENCE
TO
Files
FROM
Z. F. Lamb
DATE 7=0 SIOAL 1951*
The Chileanaltrate Industry
UBJECT
S:
6
which it is found in greatest abundance is only equally soluble in hot water or
cold and is much lees soluble if that water already contains sodium nitrate.
Thus when a saturated solution of nitrate and salt is drawn off at atmospheric
temperature and then cooled to freezing, it drops the nitrate of soda which is
then treated physically by several simple processes to put it in a form suitable for
packing.
The Shanks process is a "hot" process and consists of treatment of the
crushed rock by counter current leaching. Due to the fact that sodium nitrate's
solubility increases with rising temperature at a much higher rate than does that
of sodium chloride, a solution in the presence of "caliche" at the higher temperature, will precipitate sodium chloride and take up additional nitrate.
nitrate solution is then drawn off, clarified and allowed to cool.
The rich
As the tempera-
ture falls, nitrate crystallizes out, the other salts remaining in solution.
The
excess solution is then drawn off and the liquor sent back for re-use.
The principal features of the Guggenhetm process are:
(1) The ability to extract nitrate efficiently from rock
of a lover grade than considered economical for use
in the Shanks process.
(2) The conservation of all heat wastes.
(3) The employment of about 1/4 of the men necessary for
similar production under the old process.
Were specifically the advantages claimed for the Guggenhetm over the Shanks process
(which is used today altered only in details from the form in which it was introduced by Humberstone 45 years ago) are:
(1) It is possible to introduce (a) mechanical methods
for handling material and manufacturing (b) on a
larger scale than heretofore;
•
MISC. 3.2 603d 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Files
FROM
Z•
DATE
SUBJECT
Tune 29,; 1931.
The Chilean Nitrate Industry
F. Lamb
7
(2)
the available reserves of nitrate are greatly enlarged;
(3)
the output per unit of fuel consumed is materially
increased and
(4)
a better quality product is produced.
The Guggenheim interests began commercial operations in Chile on an important
scale with the acquisition of nitrate deposits at Coya Norte in the north near
Tocapillo and later, with the purchase of the Anglo-Chilean Compan7's nitrate
grounds at Coya Sur.
On these properties the factory "Maria Elena," the largest
plant in Chile, was put into operation in 1926 at a capital outlay to the AngloChilean Consolidated Nitrate Corp., of $55,000,000 which was said to have been 20
millions more than the Guggenheims had originally planned for this plant, the first
of the five central units to be built under the rationalization plan.
COSTS UNDER GUGGENHEIM PROCESS
The Guggenheim interests have published no figures of costs for the
"Maria Elena" plant but it is said in some quarters that the unit production cost
Is about 40cS less than under the Shanks process.
However, an analysis which was
approved by the Chilean nitrate authorities and published in the magazine "Fortune"
last Lutumn, is less definite on the matter of costs, saying that "savings are still
a little difficult to determine after three years but it is fair to say that they
are not less than $6.00 and may be as much as $9.00 per ton.
drawn up in the "Fortune" analysis mentioned as follows:
Comparative costs were
MISC. 3.2 COM 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
DATE Tune 29, 1931.
Files
FROMRA_
SUBJECT:
ZA Lamb
8
Shanks Process
(Per short ton)
At Plant
Bags, freight,
lighterage, etc.
Ocean Freight
Gurgenheim Process
(Per short ton)
012
it 4
6
5
5
5
tiff
115C
To the actual producers costs under the Shanks process was added a lump sum of
012.00 per ton, representing a flat charge before rebate in the form of an export
tex paid by the companies to the National Government.
Since the earlydays of the
industry, the Government had found in the proceeds of this levy, its major source
of rcvenue, paying during the fifty year period from 1880 to 1930, according to
"Fortune," 43%, on the average, of the costs of Government.
In 1929 when condi-
tions were depressed, the industry paid over 23% of its costs.
The tax of 0.2.00
per ton added to the total primary costs, gave a total cost to producers of approximately 035.00 per ton. Under the rationalization program, the Government
agreed to abolish this tax.*
ORGANIZATION UNDER RATIONALIZATION PLAN
In May of last year, a law was passed by the Chilean Congress, sanctioning the concentration of the various nitrate companies into one huge corporation,
a revolutionary move which was strenuously opposed by certain
Chilean public.
elements of the
The nemotirtions with the Government by the nitrate interests
(with which the Guggenheim interests have become prominently associated) might
not have had a successful culmination but for the deplorable situation of the
*It is understood, however, that a InaliMUM charge of $7.30 per ton of
nitrate exports has been established to cover the service on Cosach's
bonds (034,000,000).
P
1
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Tiles
FROM
E. F. Lamb
DATE Ame 29, 1931.
SUBJECT:
The Chilean_Nitratei_luda-stry
9
industry under the old conditions and the personal popularity of President
Ibanez. Later it was announced that plans were under way for the formation of
the Chile Nitrate Company ("Compania Salitre de Chile") or "Cosach" with a capital of $375,000,000 (U.S.) to take in more than 94% of the productive capacity
of the Chilean industry. Formed primarily to knit the industry into a single
unit which can benefit to the fullest extent from centralized management and operation and which can meet foreign competition, the company naturally acquires ownership of the Guggenheim process, the use of which will gradually be extended to all
its subsidiaries and plants.
In compensation far the loss of revenue which would
occur through the elimination of the export tax, the Government receives 15,000,000
Series A Shares of 100 pesos per value each or $185,000,000 (U.S.), representing
half the total capitalization.
According to most recent information available, the
company guarantees minimum returns to the Government for those years beginning with
$22,500,000 this year and then 020,000,000 in 1932 and $17,500,000 in 1933.
There-
after, the Government is limited to dividends on its stock and the proceeds from a
8% income tax.
Another feature of the plan as mentioned previously, is the provision
that all of the Government owned nitrate lands are made available to the company.
Four of the twelve members on the Board of Directors are appointed by the President
of the Republic, the position of the Government b_ing that of a partner in the enterprise.
FINANCING THE MERGER
Several months ago a Chilean Government Commission came to the United States
to arrange jointly with the Guggenheim interests a plan for financing "Cosach" which
it was reported would try to secure $100,000,000 in "new" capital.
La a result of
1
MISC. 3.2 COM 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Piles
DATE ;line 29, 1931.
SUBJECT.
The Chilean Nitrate Industry
FROM_.F. Lamb
10
the negotietions, however, it has been announced within the past few days by
Pablo Ramirez, the head of the Commission, that a proposal has been received for
an issue of t45,000,000 in bonds of which .-,34,000,000 will be offered in New York
and London.*
of th
These bonds, according to Sr. Ramirez, will not bear the guarantee
Chilean Government, as previously rumored.
OBSTLCLES TO CHILEAN INDUSTRY
The rationalization plan (which has been characterized as the most
thorough yet devised for any industry) undoubtedly offers a solution to many of
the most pressing problems facing the industry.
However, it is still in an ex-
perimental stage with many difficulties yet to be solved.
The most dangerous of
these is competition from the United States. In 1927 this country's production**
of synthetic nitrate was confined to laboratory quantities.
Since that time the
Hopewel3 plant of the Allied Chemical and Dye Corporation, one of the largest chemical companies in the world, has been constructed and is now in partial production.
If full production is reached by 192, .the output of this company would be sufficient
to fill approximately half the demand of this market.
*"The Cosach financing was floated in Europe in the amount of ;.34,000,000
of bonds, but great success did not attend the sale of these securities,
most of which were reported to have been left in the hands of London banks."
"Herald Tribune," Nay 12, 1931.
**"Last year (1930) American production rerdstered a further gain to 140,000
tons and the estimate for 1931 calls for 300,000,"”1. of C." February 21, 1931.
•
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
File*
FROM
I*
DATE rune 29,_1931.
SUBJECT:
The Chilean Nitrate Industry.
F. Lamb
11
TABLE II
WORTS OF NITRATE INTO II. S. FROM CHILE
1925
1926
1927
1928
1929
1929 (11 months)
” )
1930 ( "
(Tons)
(Value)
1,112,000
014,000
749,000
1,033,000
930,000
864,889
532,382
02,531,000
42,781,000
30,132,000
36,901,000
34,913,000
32,618,431
20,119,203
If the Allied Chemical and Dye Corporation, should be successful in entirely displacing the Chilean product, Chile would lose its largest single ctstomer or about
1/3 of it3market.
Aside from the fact that United States laws do not permit price
agreements, the American Company is opposed to entering into combinations of this
kind.
It would appear that a struggle for control of the United States market
between this potentially huge domestic producer and the "Cosach" accompanied by
severe price cutting, might well ensue as a result of this situation.
Another
country that did not enter into the price-fixing conferences last summer was Japan
where production of fixed nitrate is small but growing.
An a result of the conference mentioned in which "Cosach" announced that
it could deliver nitrate of soda at a profit to meet any synthetic competition,
the production of each country in the group, was drastically reduced, the decreases
ranging from 10% for France to 50c4 in the case of England while prices were fixed
for each country.
This severe imposition was effected as an emergency measure and
doubt may well be expressed as to how long European countries will submit to their
MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
To
Meg
FROM
E. F. Laub
DATE Tune 29, 1931.
SUBJECT:
The Chilean Nitrate Industry.
12
respective quotas, as plants met be operated at far below capacity.
Another unfavorable factor in the outlook is that "Cosach" will begin
operations under the handicap of a huge stock of surplus natural nitrate which
has accumulated since 1928, largely in Chile despite the efforts of the Nitrate
Producers Association to control the situation.
market remained unsatisfactory in 1930.
The statistical position of the
During 1928 and 1929 average monthly
production was about 265,000 tons, shipments from Chile averaged 237,000 and
consumption, 216,000, causing a steady rise in unsold stocks both at home and
abroad.
On January 31, 1930 they stood at 2,732,000 tons which is considerably
larger than consumption during the year 1929 when a record quantity of nitrate
was, nevertheless, consumed. Seasonal increases in sales during the early part
of L30, reduced stocks slightly but between July and October with demand poor
due to the depression, production was maintained, varying from 180,000 to 203,000
tone whereas 130,000 tons was the maximum average output necessary to prevent further accumulation of nitrate.
It appears, therefore, that at the beginning of
this year, the industry is burdened with an inventory practically as large as
that of the preceding January.
FUTURE OF CHILEAN NITRATE
The ultimate recovery of the industry will occur when the long time
trend in demand has caught up with that of production.
Ninety per cent of the
pure nitrogen consumed in the last 6 years has been for agricultural purposes and
the trend in consumption in the future probably depends largely upon the demands
of this industry.
An indication of the possibilities in the ultimate expansion of
( MISC. 3.2 60M 7-30
FEDERAL RESERVE BANK
A
OF NEW YORK
OFFICE CORRESPONDENCE
To
r)ATE AMID 29, 1931.
SuBJEc-r_The galean Nitrate Industry
Files
FROM
13
the market is indicated by estimated figures prepared by a New 'York investment
house,* showing the impoverishment of the soil by crops:
"World consumption of pure nitrogen for agricultural purposes has been
Increasing yearly, but, nevertheless, the agricultural industry is consuming only
a small fraction of the amount it should.
It has been estimated by competent
authorities that the annual removal of (pure) nitrogen from the soil of the
United States alone is more than 3,800,000 metric tons, and that only about 375,000
metric tons of this nitrogen is being replaced in all forms of nitrogen-bearing
fertilizers, resulting in a net loss of approximately 3,400,000 metric tons,
equivalent to about 22,000,000 tons of Chilean Nitrate of Soda, or nine times
the present torld consumption of this product.
The European countries use much
more nitrogen in fertilizer per acre than does the United States.
As the soil
of this country becomes more impoverished, consumption of nitrogen for agricultural purposes will continue to increase at a much greater rate than in the past."
The annual rate of increase, in world consumption has been estimated by
the Chilean Government, in its report accompanying the project of law mentioned
above for rationalizing the industry, at T% which is considerably less than the
rate calculated by the Imperial Chemical Industries, Ltd. in its annual report
of last year.
During the first year under the international agreement, Chile
can ship out the equivalent of approximately 2,500,000 tons of nitrate of soda
which is approximately 100,000 tons more than the average exports from 1926 to
1929.
If world consumption increases at the percentage given, exports of nitrate
*The Kissel Kinnicutt Review, Kissel Kinnicutt and Co., September 2, 1930.
.40 mtsc. 3.2 60M 7-30
FEDERAL RESERVE BANK
OF NEW YORK f
OFFICE CORRESPONDENCE
To
MOOS
DATE Xune 29, 1031.
SUBJECT:_
The Chilean Nitrate Industry
FROM E. 1. Lamb
14
from Chile could be doubled within 10 years, reaching 5,000,000
tons by the
end of this period.
(Memorandum for Files dated February 20, 1931 with notati
ons to bring up to
'date)
0e
2y/0-04(
ft%
•
July 9, 1931.
COITFIDE:,TL1L
Dear Governor rcDougal:
In view of the complicated and serious European situation in which we have been invited to participate from time to
time through the extension of credits to various European central
banks, it has occurred to me that you may be interested in a
resume' of the situation as we see it, especially in so far as it
relates to those credits.
The most important of these is, of course, the credit
which was granted to the Reichsbank on June 26, to mature July 16.
The total amount of that credit was for
1.00,000,000 and the par-
ticipation of the Federal reserve banks was '7:25,000,000.
of
The Bank
ngland, the Bank of France and the Bank for International
Settlements each participated in an eque1 amount.
For your infor-
mation, the table below shows the dates upon which the Reichsbank
drew upon its credit and the share provided by the Federal Reserve
banks:
Total
June 27
29
30
July 1
2
6
4,000,000
8,000,000
16,000,000
20,000,000
28,000,000
16,000,000
8,OCC,CC0
100,000,000
Federal Share
1,000,000
2,000,000
4,000,000
5,000,000
7,000,000
4,000,000
2,CCO,000
25,000,000
Shortly after the President announced his debt proposal,
withdrawals from the Reidiasbank, which up until then had been
2.
Governor McDougal
July 9, 1931.
proceeding with increasing momentum, were temporaril:/ checked
but owing to delays in negotiations in Paris and the misapprehension arisinE from those delays, withdrawals in the Reichsbank
recommenced and were proceedinE at a rapid rate up to the latter
part of last week and the early part of this week.
Having used
the last of the central bank credit on July G and facing a statement date on July 7 with a depleted reserve, the Reichsbank
throueh the Golddiskontbank, which it in effect owns and controls,
called upon the private bankers to provide
50,000,000 under a
credit granted to the Golddiskontbank a number of years ago.
The
whole of this amount has now been utilized and withdrawals from
the Peichsbank yesterday Lnd the day before continued in fairly
substantial volume.
Governor 17:5rmen indicated to me on the telephone yesterday, after his talk with Dr. Luther, President of the Reichsbank,
that in the face of these conditions the Reichsbank would likely
not only ask for a renewal of the present credit, but miht ask
for an additional central bank creditvery large amount.
Dr. Luther leaves London today and goes to Faris this afternoon
on his way to the meetine of the Bank for Internation 1 Settlements
at l'asle on llonday.
Fo formal request for such a credit has been
received, but for your information I am enclosing a copy of a confidential cable which I sent to Governor 1:orman last niElit after
my talk with him on the telephone.
This cable fairly well reflects
my present views in thc rqatter, and I understand from another talk
I have had with Governor Lorman this morning since he received this
cable that he is in complete agreement with me with respect to it.
In spite of all the steps which have been taken externally
to aid the Reichsbank, and in s5ite of whatever efforts they therselves
3.
Governor :cDougal
July 9, 1931.
might have made, its position remains fairly serious today,
but I feel most earnestly that we should not be asked to participate in another credit at this time or, indeed, until we
have definite evidence that the Reichsbank has taken more
stringent steps than it has yet taken to limit or control the
export of capital by German nationals.
I cannot but believe
that at the present time this is more a cause of their difficulties than the withdrawal of foreign funds.
As to the position in Austria where we have, as you
know, participated in two credits to the Austrian National Bank,
I understand that the situation has improved since
President Hoover's debt plan was announced.
The first credit
has been used in full to the extent of about .:;14,000,000, of
which our share was
1.,083,000.
The second credit., which was
likewise for about !)14,000,000 and in which weiarticipated for
4,150,000, has not been used although a private bank credit
is
for 07,000,000 was procured and/now in use and is subject to
liquidation out of the proceeds of the second central bank credit.
Following the difficulties in Vienna which started as
you will remember with the Credit ,Amstalt reorganization, the
trouble spread to Uungary, and the National Dank of Hungary required accommodation from abroad.
In the first instance the Bank
for International Settlements went to the assistance of the National
Bank of Hungary.
This was followed by a central bank credit of
010,000,000 in which we participated to the extent of :2,000,000.
Subsequently a second central bank credit was arranged including
the Bank for International Settlements, ourselves and other banks
of issue, the total amount of this credit being about c':,10,000,000,
4
.
Governor 7,7cDouga1.
July 9, 1931.
of which the Bank for International ;
- ettlements, the Bank of
England and we took
3,000,000 each.
Both of these credits have
now been used to the null extent, our share of f3,000,000 under
the second credit having been paid into the account of the Dank
for International Settlements yesterday for the purchase of bills
from the National Bank of Hungary.
The Bank for International Settlements has recently sent
a man to Budapest to keep in touch with the situation there and
their representative has been accompanied by a Frenchman,
Mr. R. Charron, who is a well known economist with special
of
knowledge/and experience in central Europe.
Our understanding
is that he As an excellent man for the job, and the funds drawn by
the National Bank of Hungary under this second credit are being
used only with his approval.
The position in all three of these countries is more
or less a comuton problem and, while we had hoped that a year's
postponement of intergovernmental debts would do muell to help
these and other countries out of their present difficulties, it
is no doubt true that the delays, and doubts caused by the delays, in the final negotiations of the debt agreement, together
with some uncertainty as to what may be decided by the experts at
their meeting in London next week, has minimized to some extent the good effects of the original announcement. 'de are hopeful, however, that conditions may suddenly right themselves as
soon as all the doubts and confusion incident to all the discussions and negotiations that have been going on shall have vanished.
In my own rin, it is now most important for each of
these countries to exercise the most rigorous self-control, for
5.
Governor I,:cDougal.
July 9, 1931.
it is becominF increasingly clear that their present difficulties are more largely a flipht from their own currencies by their
own nationals, than a withdrawal by foreign creditors.
In any
event, we are being kept fairly closely informed and I shfill be
glad to krep you posted from time to time of developments as we
see them.
In the meantime, please do not hesitate to ask any
questions which you may have in mind.
Faithfully yours,
George L. Harrison,
Governor
.71.. I. B. 7JcDougal,
Governor, Federal Reserve Bank,
Chicago, Ill.
Enc.
CONFIDENTIAL
Copy of cable sent to Bank of England, July 8, 1931.
Confidential for Norman
ONE
At various times during the past week you and I have
discussed on the telephone the possibility that the
Reichsbank might ask (a) for a renewal of the present
central bank credit and/or (b) for an enlargement of
that credit
TWO
But I was surprised and concerned to learn this
afternoon over the telephone of the huge amount which
after talking with Luther you now feel may be necessary
to hold the situation
THREE1hile you know, I am sympathetic with taking any
reasonable steps that may really be necessary to avoid
a collapse in Germany and perhaps throughout central
Europe as well and while furthermore I agree with the
general principle that if another credit is to be raised
for this purpose it should be adequate rather than inadequate, nevertheless I should reiterate what I told
you on the telephone:
that it would be difficult if
not impossible for us to consider taking any steps
looking toward further credit accommodation here unless
we have some most definite evidence that the Reichsbank
has itself first done everything within its power effectively
to protect its own position
FOUR
I am confident that the principal New York banks who
are creditors of Germany have maintained their lines
at about the amounts outstanding at the time of the
President's announcement.
In some cases indeed I know
-2 D
that those lines have been actually increased in that
interval.
On the whole the evidence available here
indicates pretty clearly that much of the loss of foreign
exchange by the Reichsbank dpring recent weeks must be
due to a flight of Genman capital which it seems to me
might well have been limited or restricted through
a firmer credit policy of the
FIVE
eichsbank
RationinE of credit is of course a drastic and disagreeable procedure but it has been applied effectively in
Germany in the past without proving to be fatd.
On the
contrary in each other instance it has been most helpful
in repatriating Gennan capital and in checkinE further
outflows of funds and I cannot see wh y it might not be
equally effective at this time if applied with equal force
SIX
So on the whole I personally do not feel free at this
time to advocate any further credits here until I am
convinced that the Reichsbank has done all that it has
in its power to do to protect its own situation and this
I think should be done immediately
SEVEN
In other nords:
Is it not zi mistake for any of us
seriously to be talkinE about extending further credits
which at best would be difficult to raise until we know
tIlat they have first taken firm corrective steps on their
own part and until we have had an opportunity to see their
effect
EIGHT
I realize the importance of the time element but the
fact that the statement day comes on ne;:t Tuesday does
not really seem controllin[ because after all in this
•
.
•
-3-
great emergency is there any reason why they should
not show a deficiency in their prolortion with a consequent increase in the bank rate as provided by the
bank law
NINE
Indeed this together with strict rationinc may well
turn the tide not only by checking a further flight
from the reichsmark but by drawing back exported capital.
least it seems reasonable that they should make the
effort hard as it may be before rightfully e.vecting, the
cooperation of the central banks or private banks in
maintaining present credits or extending further credits
which would only facilitate a continued flight of German
capital
TM'
I shall however continue to think alon( the lines we discussed on the telephone today and call you tomorrow
before you leave London.
You are perfectly free to show
this to Luther who I am sure will realize full well the
friendly and helpful spirit in which it is sent
HARRISON
CENTRAL HANOVER BANK AND TRUST COMPANY
COPY
July 23, 1931.
George L. Harrison, Esq., Governor,
Federal Reserve Bank of New York,
New York, N. Y.
My dear Governor:
At my suggestion Mr. Whittlesey spent some
time this afternoon discussing with Mr. Kenzel a plan which
we think might go a long way toward restoring the confidence
of Germany's creditors by amplifying and giving permanence
to the assistance afforded by the so-called gentlemen's
agreement to maintain credits in Germany by American banks.
The essence of this plan is that it gives
Germany an opportunity to help itself out of its difficulties.
Without going into all the details of the
plan, which frankly we have not attempted to work out at this
stage, it consists in providing what we believe would be an
acceptable substitute not only for such particular outstanding
credits as individual American banks might not wish to renew,
but a credit which by reason of its greater security and selfliquidating features might prove more attractive than many of
the acceptance credits which banks are now granting and although
I do not wish to seem optimistic, it might be the means of
providing additional credit for Germany if this in the future
should prove to be necessary or advisable. The plan should be
equally adaptable to London and other financial centers as well
as to New York.
We would propose that through existing or if
necessary by a supplementary decree of the German Reich that
part of German export business which will be required to carry
out the plan be mobilized through the Deutsche Golddiskontbank
in order to serve as a basis for a revolving eligible acceptance
credit to the Golddiskontbank. Under the proposed decree German
exporters would be obligated to hand over to the Golddiskontbank,
or to some other agency to be appointed as trustee which we will
discuss further on, drafts arising from their export shipments,
.101.
George L. Harrison, Esq., Governor
July 23, 1931.
or should this not be in every case practical, legal assignment
of the proceeds arising from their sales abroad. The German
exporter would also furnish to the Golddiskontbank or to the
trustee a direct obligation to be held for the pro rata benefit
of the participants in the credit.
We would suggest that to provide greater
security and more adequate control some agency of an independent
nature be provided to handle the export documents and the receipts
therefrom and the obligations of the users of the credit in
Germany. It occurs to us that the Bank for International Settlements might be prepared to act in this capacity, appointing subagents in Germany and other countries to handle documents and
funds received in liquidation of export shipments.
To achieve its purpose to the fullest extent this
credit should preferably not be limited to a three months' period
and we believe that owing to its self-liquidating character there
might not be the same objection to confirming this credit for a
fixed period of time as there would be to the ordinary acceptance
credit to individual banks. However, we foresee the necessity
of tying up some way the maturity of this credit with the expiration
of the so-called gentlemen's agreement.
We feel that banks should be under no compulsion
to participate in this credit. If the banks that are parties to
the gentlemen's agreement would agree to accept a participation
in this credit to the extent that they wished to recall any of
the credits that they have at present on their books, or to the
extent that borrowers in Germany could not supply them with new
eligible bills for acceptance, the credit would be effectively
underwritten and its purpose achieved.
Pardon me if I have been somewhat sketchy in
setting out our ideas, but it seemed essential that I outline the
principal points so that you could, if you thought it worth while,
put the idea before the Bank for International Settlements.
6
Cordially yours,
(Signed) GEORGE W. DAVISON
FEDERAL RESERVE BANK
OF NEW YORK
July 30, 1931.
Dear Governor Meyer:
You will be interested in a cable which
we have received from Dr. Luther, President of the
Reichsban14 today, copy of which is enclosed.
We
have sent copies of this cable to the New York banks
and bankers and to the Governors of the Dther Federal
reserve banks with the suggestion that they would
probably wish to communicate its contents to those
banks in their districts which transact business with
Germany or are interested in the subject of German
credits.
Faithfully yours,
J. E. CRANE
Deputy Governor
Honorable Eugene Meyer,
Governor, Federal Reserve Board,
Washington, D. C.
COPY
JULY 30, 1931
Berlin, Germany
Federal Reserve for Governor Harrison Now York
The committee composed of German bankers and Reichsbank has tonight completed its
suggested proporsals to foreign bankers for carrying out the recommendations of the
London conference
stop , Here follows the text of these proposals of German bankers
committee to Germanys foreign banking creditors
stop
With a view to giving effect
to the proposal of the London conference of July 1931 that foreign banking crodits
to Germany be continued without further reduction the committee of the German banks
proposes to the foreign bank creditors and is prepared to recommend to all their
German debtors if accepted by the foreign bank creditors the following conditions
for the continuance of such credits pending a more permanent solution of the German
short-term indebtedness problem the period now contemplated being at least six
months stop
The committee of the German banks proposes that: each foreign bank
creditor shall agree to maintain visavis his German credit and deposit takers
(including foreign branches subsidiaries and affiliations of German banking institutions and commercial and industrial firms and companies) called the "German
Credit Takers" all credit lines deposits and credit balanaces (whether in foreign
currencies or in Reichsmark) as availed of or held on July 13th 1931 stop As far as
credit commitments have been arranged for a certain period of time for which a
commitment charge has been and is being paid the credit commitment will remain in
force
stop
In consideration of the foregoing agreement the foreign bank creditors
shall have the right to demand from the German credit takers compliance with the
following conditions it being understood that in no event shall the position of the
-2foreign bank creditor in connection with any security he may have under arrangements
existing prior to the present agreement with the German credit taker be changed by
his expressing such demand except by the terms of this agreement
stop
1. As far as acceptance credits are running for account of
German banirs and bankers:
A) The German banks shall obtain from their clients
legally valid acceptances or promissory notes
(Eigene Wechsel) in negotiable form with corresponding amounts currencies and maturities and
shall transfer such acceptances and/Or promissory
notes (Eigene Wechsel) for the security of the
respective foreign bank creditor by holding them
on deposit endorsed without recourse for the
account of and as collateral for the respective
It is agreed that
foreign bank creditor stop
nothing in this clause impairs the primary liability of the German bank or banker stop
B) The German banks shall place all encashments in
Reichsmark which cannot immediately be applied
to the reduction of existing claims of_the foreign
barOr creditor concerned to a separate account in
the name of such foreign bank creditorto be released against the remittance to the foreign bank
creditors of corresponding amounts in foreign exchange as and when foreign exchange becomes
available stop
C) The German credit takers will without having to
undergo a reduction of the total credit held at
their disposal cover in due time at maturity the
acceptance either by cash payment or out of the
proceeds of new drafts (Replacement drafts) stop
D) Each foreign bank creditor shall be entitled to
demand that the Deutsche Golddiskontbank shall
take over individual acceptance credits or parts
thereof in an amount equalling 10 per cent of the
total amount of his acceptance credits which have
been granted for account of German bftnks and
bankers stop
2.
In respect of cash advances time deposits and credit
balances due to foreign bank creditors by German banks
and bankers each foreign bank creditor may demand that
the Deutsche Golddiskintbank shall take over individual
credits or parts thereof in an amount equaling 5 per
cent of the total amount of his credits stop
3.
In the case of acceptance credits and cash advances
-3-
given directly without the guarantee of a German bank
by a foreign bank creditor to German commercial and
industrial firms and companies each foreign bank creditor
may demand the guarantee of the Deutsche Golddiskontbank
for individual credits or parts thereof in an amount
equaling 10 per cent of the total amount of his acceptance
credits and cash advances together with a further 10 per
cent in respect of all credits given directly to such
commercial and industrial firms and companies which are
not obliged to publish balance sheets and to all these
commercial and indistrial firms and companies which
publish balance sheets but owing to their size do not
belong to the guarantee syndicate for the Deutsche
Golddiskontbank stop But in no case shall the total
amount for which the foreign bank creditor may demand
the guarantee of the Deutsche Golddiskontbank be less
than an amount equaling 15 per cent of the total amount of
his credits under clause 3 stop
In so far as acceptance credits for the account of German commercial and industrial
firms and companies are involved the provisions of Clause 1 (E) above shall apply
stop
4.
In the event that the Deutsche Goldiskontbank within
the limits set out above (in paragraphs 1, 2 and 3)
declines to take over or guarantee a particular claim
the foreign bank creditor concerned shall no longer be
bound to the agreement to maintain such credit but shall
be free to ask for actual cash repayment thereof when
due stop
5.
If and when the Deutsche Golddiskontbank takes over or
guarantees credits time deposits or credit balances the
Deutsche Golddiskontbank wishes it to be understood that
it will probably require an arrangement under which it
can only be called upon to repay such credits time deposits and credit balances in three equal yearly instalments unless a more favorable arrangement is arrived at
for Germany repayments stop
6.
The expenses incidental to the preparation and execution
of this agreement and of the carrying into effect of
these proposals will be for the account of the German
debtors and will be dealt with by the committee of the
German banks stop
The Committee of the German banks is fully aware that it is of the greatest importance and of primary interest to the foreign bank creditors accepting this
proposal that the Danatbank and the J. F. Schroeder Bank be reopened that the bills
endorsed by the said institutions be again made marketable and that the stability
of the German banking position must be maintained intact stop
In this connection
it may be mentioned that the "Akzept und Garantiebank A. G." (Acceptance and
Guaranty Bank) has been founded with a capital of 200,000,000 reichamarks subscribed for by the Government and leading banks and bankers
stop
It is understood
that this arrangement will only come into force if the principal foreign bank
creditors of Germany will join in this agreement
stop
Berlin July 29th 1931* (See
footnote)
*Footnote
It is proposed that upon agreement letters
embodying and giving effect on their part
to these proposals shall be sent by each
German banking institution and credit taker
to its foreign banking correspondents
Berlin July 29th 1931 stop
Agreed by the committee of the German banks to be presented
Memorandum
as an annex to their proposals to foreign bank creditors to the central bank
governors of the countries respectively concerned and for the benefit of the bankers committees in those countries
stop
Pending the conpletion and carrying into
effect of agreements in connection with the proposals offered by the committee of
the German banks the latter undertakes to see that by the necessary means:
decree or otherwise:
There shall be no distrimination on the part of
German banks bankers commercial and industrial
firms and companies (i. e. German debtors) in
payments of or ,n obligations as between foreign
bank creditors anywhere stop
b) That there shall be no discrimination on the part
of German banks bankers commercial and industrial
firms and companies (i. e. German debtors) in the
offering or the giving of collateral or other
security in respect of foreign bank creditors
Berlin July 29th 1931
1. e.,
-5-
I would request you kindly acquaint your bankers with our proposals and
and
request their acquiescence stop I undertake in cooperation/in agreement with
the committee of the German banks and in conjunction with the commercial and
industrial firms and companies of Germany that measures will be taken where necessary to bring acceptance credits as soon and as far as possible into conformity
with the rules of eligibility in your country.
Reichsbank President Luther
I• 1.F.,
lir.-:•*4 York,
A meeting cf the 1-tecutive Committee of the
TIL RE
OF Mr47 YORE: was held at its office at 3 o9clock p. m. thi3 day,
•
PRESENT:
mr.
Young, Deputy Chairman,
Messrs. Mitchell, Rayburn, Stephens, Warner,
Woolley and Burgese,
Messrs. Gilbert, Kenzel, Logan,Rounds and
. Sailer, Deputy Governors,
Mr. Roelse, Manager, Reports Department.
One hundred and fifty-two applications for advances. 2n1
counts, numbered 8013 to 8164 aggregating .20,113,000, which had been
approved by the officers of the bank since the opening of business
september 10, 1931, were presented and schedules listing the aforesaid
Prplications and those enumerated below were distributed among those
;resent at the meeting.
Mr.Rounds reviewed the applications.
ing 'eports were submitted:
The fcliow-
the money market report, a summary of eL.rninr
assets acwing large borrowers, etc., and statements showing the banks continuously in debt one year or more, the banks borrowing in excess of capital
and surplus and the borrowings of banks on our special list.
Whereupon it
was duly
VOTED
to ratify and approve the action of the officers in mak-
ing the above described advances and rediscounts.
Eight applications for advances and rediscounts, numbered 1331?
to 13324 aggregating $1,341,600, which had been approved by the Buffalo
Branch Committee and by the officers of the bank, Were presented.
4here-
upon it was duly
VOTED
to ratify and approve the action of the Buffalo Branch
Committee in making the above described advances and rediscounts.
t;11.7:toir
Mr. Rounds reported upon banking situation!! which have been receiving the special attention of the officers of this bank°
Mr. Burgess informed the committee that the special Treasury
Certificate of Indebtedness to be issued to this bank in connecticn with
the Treasury9s September 15 financing would be for approximately
0100,000,000 and would bear a rate of 1/2 of lciL
He said that arrangements
bad been made to participate approximately $90,000,000 of this certificate
among New York City member banks.
mr.
Burgess reported that the officers had agreed to purollace and
00.0
hold temporarily approximately•Wre@eleftof Federal Intermediate Credit
Bank debentures, being issued today% consisting chiefly of six months maturities, bearing interest at 2 3/4%.
There was a discussion of the effect
of these purchases on the money market and as to whether or not this bank
should offset such purchases by sales of an equivalent amount of Government
securities.
It was understood that this matter would again be discussed Lt
the meeting of the board of directors on Thursday, at which the Governor
would be present.
Mr. Kenzel summarized conditions in the bill market.
W. Sproul reported the receipt of & cable No. 543, from the Bank
for International Settlements, setting forth a change in the proposed terms
of renewal of the central bapk credits to the Hungarian National Bank which
mature on September 18, 1931.
mr.
Mitchell informed the directors of the receipt of a request on
behalf of the Swedish Government for arrangement by the National City Bank of
e $50,000,000 credit in th s market. Be said that despite the hi
--c4A-L9C
standing of Sweden, h.
that thec=could be an_
!Alt
•
Awith/7
out central bank participation, and he asked the directors for an expression
of their views concerning the matter.
There was a discussion of this question
A
C 0P Y
TRANSLATION
FINAL
cm
Cable to Governor Harrison of Federal Reserve Bank, New York
Personal
Basle, Nov. 20, 1931
654 The Presdat cable is sent in several motions.
This is section
one*)
Rave just officially received following memorandum in German
which constitutes the official text of the German Government's
request for convocation of the Special Advisory Comrlittee provided
for by exnerts plan:
"The German Government requests that the Bank for International
Settlements in Basle convoke the L;necial Advisory Committee as
provided for in the new plan of The Hague agreement of January
20, 1930
STOP
To show cause and purpose of this request, the
German Government wishes to cite the following facts:
In June of the current year the German Government had already come to the conclusion that in spite of the severest reduction in Governmental expenditures and repeated increases in
taxes it would be unable to continue the annuities payable under
the new plan.
The economic and financial situation of Germany
appeared already at that time most seriously endangered.
There-
fore the German Government has decided to draw the neoessary
conclusions from this situation.
This decision was followed on June 21 by a declaration
of the President of the United States of America suggesting a
*) Disregarded in final copy.
-2postponement of one year in the payment of all inter-governmental
debts, reparations, and reconstruction debts.
The purpose of this
farsighted initiative, as pointed out in the proposal, was to
contribute towards reestablishment of confidence thereby promoting
political peace as well as economic stabilization throughout the
world; the debtor states were to receive time to regain national
prosperity.
The hope that this proposal would bring about a de-
cisive turn in the world crisis has proved vain.
Further events
showed that the hoover debt holiday alone wasunable to avert
the danger of a collapse.
Therefore, the British Government took
the initiative in July in calling the London Conference, which
resulted in the recormendation that the centrql bank credit to
the Reichsbank be extended, and also in tlIc conclusion of the
Basle standstill agreement and in the report of a committee of
experts appointed by the Bank for International Settlements.
No matter how important these measures were to bring relief more
quickly, they were in their whole nature of a preparatory oharacter only.
The London Conference stated in the final sentence
of its resolution that the measures recommended were only the
first step and should merely form the foundation for more comprehensive action.
Accordingly, the experts who cooperated in carrying out
the reoommendations of the London Conference kept ever in mind the
provisional character of all these measures.
For instance, it says
in the standstill agreement that the contracting parties consider
the adjustment pro7ided for therein effective only "until a permanent solution of Germany's Short term flebt shall have been found."
-3..
The report of the Basle Committee of exneets closes
urgent recommendation
ith the
not to lose any time in taking the necessary
measures to create a situation which will make possible financial
transactions designed to bring to Germany and thus to the world the
relief so urgently needed".
In the months since passed the
economic and financial situation in Germany has grown extremely
acute.
The facts Whidh characterize the present situation are
generally known.
The pressure of the crisis has also had the
most serious effect in other countries.
The world is realizing
more and more clearly the close connectior between the various
individual financial problems created by the present situation
and the necessity of handling them as soon as possible in their
entirety.
In considering how this task might best be handled,
the idea to call the Speeial Advisory Com ittee has recently
come to the foreground.
Since according to the provisions of the new plan
the conv(ration of a Special Advisory Committee depends upon
the request of the German Government, the German Government
has decided to make this request so that e-v.e ything has been
done on its part to clear the way for comprehensive joint measures of the Governments.
According to the new plan a statement
by the German Government is required to the effect that "in good
faith it has arrived at the oonclusion that Germany's currency
and economic structure are seriously endangered by further tranafer in part or in full of the postponable annuities".
In making
this statement the German Government feels obliged to say that
this statement does not do justice to present conditions.
Since
the new plan was drawn up, the economic and financial situation
throughout the world and particularly in Germany has been fundamentally changed through an unprecedented crisis.
As the
new plan assigns to the Special Advisory Committee the task of
investigating the situation from all angles, the committee must
examine the problem in its entirety and with due consideration
for all factors involved.
It must particularly take into
account that the question of Germany's private indebLedness
must be newly regulated before the end of February 1932 by
means of an agreement to be reached between foreign creditors
and German debtors.
As
the present situation requires immediate decision
on measures to be taken the Germtr Government suggests that
the Special Advisory Committee convene immediately and complete its work as soon as possible so that a conference of the
Governments concerned may be called in the near future which
will then take a responsible decision in the matter.
Berlin, November 19, 1931
UNQUOTE
Fraser
COPY
COEFIDENTIAL FOR HARRISON
1.
Ve have been instructed by the British Government to hold in
Nem- York at the disposal of the American Government on Thursday, the
fifteenth of December, gold to the value of $95,550,000.
2.
It will take about five to six weeks to ship the required amount
and we are, therefore, compelled to ask you whether you will cooperate with us
in the following manner:
3.
voi
That you will place at our disposal as of December fifteenth
gold in New York to the value of $95,550,000 against an equivalent amount
of gold to be earmarked for your account by us in London.
4.
That we undertake to start shipment of such earmarked gold to
New York at once commencing December fourteenth and to complete delivery
in New York not later than the end of January.
Shipments to be at our cost
and risk.
5.
That we obtaI
rr''
n from the British Goverment an undertaking not
A
to put any obstacles in the way of exporting such earmarked gold
HARVEY
171-10:Prim1741V4 cr5CTIA
It is ?ropQ3sd
.74.g=irx
Yvrtign ltmiholders,
smiwAho
simllar to tho Britiah Council uhlet has bees In existemee for over fifty
yearSe
14
The Courel would hrve the falosth
urpose
holders ar nwners of foreign ttecuritioo which ire based
assist ilneriesr,
on the taxing power,
in protecting std safeguarding their rieltu ttad intorcits In su0h securities,
or in otherwise obtaining an equitable settlement of such obligntionu. It
mould sooperato, with crsuncils in ether countries pemforming sizilar functions.
2*
The ismiher of the members at the Co!Incil would be fifteen. They
should he disinterested ow of high stAnding, not representatives af issue
houses, who will, on the one hand, give the Colman prestige at bons end
abroad and, tin the otheri *ill be tctive in carrying out the 7urpose of the
Council.
iv
3TRA4114:41
There would be a Chaim and Secretary and such other officers as
the Council might crette. lhe Chairman would be ex9ected to giro part of his
time end the Secretary all of his time, end the two together to cam on the
main work of the ieusien.
Mamma
In due aclirano Um* on British experience, the Council should
obtain its surnort from allotments set aside in etnnecti= with completed
negotiations. At the outset, it should have a guaranteed income of at least
$50,000 a year fcr a period of five years. It is toped that this Porsates
X47 be Obtained, uholl4y or la 'aro part* through disinterested sources.
11
11
Sit jkle,44113aM9itt404
Vhenevcr the Cuneil felt it ueeessary4 thrall& commitation vith
the houxe issuing a defaulted security er otherwise, it would either form A
COMMittte CT uoopfrste in the formation of o. committee in respect to a
oartioular Doeurttyt group of seammitiet or- Ionia& entilioN Such taalmittee
vonld vael6rtaXa 411.atever negetiation I'mealte noseesery es desirehle with the
debtors,
.
,441a2
1 r2
e
It iv tiP be presumod. that the Council, while wholly independent,
would **Wain acre and, whoraVor practicable, coopemtive relations with
teems
7f is beloved that its octet.** would oft= 2revent conflict-
ing comaittees tith reepeet to * startle ism or eauntry; rand that, in time,
eommittets topanted by or affiliated with the Council would be recognised
as the uppreprite committees with whiat 4 foreign tadiagpmenriM4At negotiate,
The ettAA011, in same or all C340d, eight devil* to pls.* a representative,
without ...sk -mt.* oa nagetiatims eemaittees se aeons of...keeping In toweh with
negotiations, virl xiOtt emcees fini4 eppoval at settlenents so negotiettedo.
ileZtiladaiLkliagait
Tat Council mad not seek any deposit of eecuritieso although
negotiating committAw 3ight determine to aok for dep*sits,
Deeeiber 13, 19.%
wpm.fig
JLc
;0
E. Iterfaags
7. H. takor
:
• if Dovia
ifsitar S• Griffead
Norman it• Davio
'Nary Bruer*
111e14oa Chubb
..
...
Ikaidas
Insurfattee
••
••
4./.
•,•
Public Uti'lit,
;hill.tie berries
Scrims
Insurcato.
Invited
Invited
invited
Invited
lavited
Dealinsd
Alta
T, I. Porkins
t• Ostes
tiav
Invited - AeIx-A*4
FAteatton
Invitegi
Mina
Atrevy
Lidustagai
UMW*
ViUias ibees*
SIXEfilit
Newton D. Weer
i1/311
teary tellso.
komdma
I.
Clortwas
innisigi
Invit
Deathed
t•L'rwlio
t-'471-Ac1iAl cif'1040 VINGEW GISPlang.
- of TbtiAblear NeviIq&irriitRd t:1411,66 at 449.1406
Iseik the undercignatia dastring to torn * corporation
sad testasso Uwe* oet for pecuniNry benefit, under and 14,
vino* a the
prOWieions of the Meoberchip Corporation* losi
0sin lork, United Eto.tss of America, her.*
of the
state;
I.
The same 0 the prepoeed corporation is
*Council for tho Protection of Holders of rereisis
Imo.° (hereinafter somotiees termed the Council),
to
The purpose*
which the Council is to be
Amid mires
(6.) To ocsist holders or owners of foreign
Mos (ikis tordsafter defined), irreepsettve of eny defeat
thereunder, in ascertaining, protecting, safeguerding øa
enforcing their right
nd LatereAs under, mad in ra*pset
of, mesh foreign Eecuritii
slt4 In atttAing„ coal-Arose...61u and
composig controversies relitting to each foreign securities,
emd espeolelly foreign securities public", Issued, contrmAed„
neactistod, dealt in or sold in the United
of Asterics.
gond. securitia*iLL bia deimed to be bonds,
notes, debentures, annuities, rents*, shArlp„ stoetst
deeces or indeUtodaesi and ehLkgatiens sst4
Lkavx
44CiAi'141via
of every kW, of, or Ismael, assamod or guallantwod by, or
eecured by ?ledge, lima sr charge an proTelly„ revenues or
tsxeo oi, uny government, nation, state, colony, pmfyince„
county, district,
cur, municipality, or
public, govern-
mental or political subdiwielon, bo4y, corniszion„ board or
•authority, outeide of the United Ltutel of Ame.rice, it torritorima, dependencies and possessions* .
(b) To
rvuote and assi4t in maintaining public
credit end to ivevent and Lessen loss to hold*rb or owners
of foreign securities, end to pronote jukt„ sound, clenr mnd
staple principles, coaditi.ms nnd terms of the purchases sale,
iseuenes sod negotiation of forcAgn severities and dealings
titerein4
(e) Vithset Uniting the generslity of the toroviell
(1) to *Mein, collects eaapile, prom,* sod
distribute W0101'01414 in any way relating to seek
foroign sectvitles or any govornment„ 'latticin g *tat.,
eolony, province, cw2nty, district, city,
or public, goweranenta or politica embdivisi, body,
commission, botrd or authority, or the property, tAnts
or revenue thereof, either direct4 or
2
cooperating
1,41t or <orr.tortrt oo otIAr eorportioN sitscoq.
,,t1 tnt# rt.rIretitmtin or tn6tviOuell
(P) To nelptiAtf4
ItsPist In sesplimting,
Armen*. convertition, &7013*ngo, rorunding„ eottleIftnt er ovt7retive of rights tad tt1i4t_tivIt
or in reset of, foreign mecuritioe;
() To organise, OCIlip tad edpoiot vilsidAto,
delegates 4o4 roprewAstivet 4:S the Couttell, cr
of Othors, with 1, View to oorrying ova Any of the
purposes of the Oz%Inoill
(4) To cologne meetings of boldtxs or ovnere
If foreign securities for the pnrpose of ooneetttd
4iotiorm or of orzenising oommattee0 to represent such
ilolilerst or owner*, or to vet tor tbeir bemefit;
($) To adffiadat
040400.40 in Ow eppointmoot
of committees or menbers thercof (Oho my
'
but need
net trit, otfteirs0 direolow0" spats or 1#4010ftra o(
Un Clanton) to rolowesent, or it for the benefit
of, bolder* or ovimes of foreign seourfties;
(0) 20 soopermte it
other oorporatins„ asto-
elation., Memo sdnettlonal And ottvr.r inetitutionn,
oommittes, J.nlivi
tsenolos
Ia, governmenta, g000trumentol
domArtments in. the United Ststios of
Amelia', end Davis* somattiost *took leadhswil and
others with a view to carrying oat any of the pat.
puses of the C3uncill
(7) To vapport measures, ince* statutes, reg.
intim* end cadesc of principles deemed to be :41 furtherms* of the purposes of tø Cannons
(1) To rends.r assistance, rimmed"' or othervies, to om, *lesions, dsiognteo, represontatives and
sioulto of the CoAsacil or of others, or to Any othor
omporotizA, asecciationi ftrat conaitteet edusi.
lima or other institatton, or individuel in furthorixnee of the parposeD of the Council, and to sz.
vloy, oonponsato sod mounertte its officers, directors and agents and othars for services rendered ia
furthoiranos of the purposes of the Cztmeil, And no
ruzber of the associktion shall be disqualified as
bauh from being se emploved or from receiving aunt
remuneration sr oomposso4ion;
(9) To rective remnnefttion tind conpensetian
for ;services, ren4ared and financial and other aid
given, provided that nothing 4clatained in this clause
shall prevent the CuncI1 frr.-,17 rendoring services and
giving financial or other aid witheat compensation or
remusertstion,
(X)
To accept contributions
to borrow or
reise money without Unit for agy of the par2ozes of
4
the anacil, and to scrtgaite, chPrEe, *Age or
hypothecate arr of the property g) the Ce.rancil,
poramel or (subject to the lass of the EttAo a
Him Iztrk) reel, as security for reperment of any
moneys borrored, and to issue bald*, notes, 4*bs
turô
other evidences of indebtedness ter
moneys borrowed, with or without intemitt
(11) To tmveat nad rein-via-et fund* of the
Council in
Alljr
Oiton*r and. in litigy
respective of apy restriction othtrwisis taposed
smy statute or. rule. of ltte, and to purchase,
#equire,1,hold, sell 4nd dela iu personal
8n6 (subject to the lags of the VtAte of Ni,r York)
reel property;
(14 To aplay sod devote the property of the
Councils upon esr dissolution of the. Council, first
to the pram* of claims nrid dontnds asainst the
Alowtellosed tholvt• parposmri
104111.0110 to
objects *t netrly
than* 4f
the Council i..
convlreno* threer is trust or to illAtithor etorpor*..
tions aelecistion, firm or institution* as the
Board of Directors of tho 0"unci1 shall at the time
doom ;11.A.frtioale
(4) It is not tho mirpose of tho Caunall, MAW
officer, director, nynt or member of the Council shealhift
5
any pmer or tuthority to fici7 or trwlv.fer any iropprty of
the Courcil tu svrbart cf the Council buy Inky of dividend
or distributon or atherwiz)c, tIccwt as cosponwivn or ro—
munerttiot f,r services render*d or 41.'ay of interset for
frnde tAlvtteed, ;yr to oblitate, sake IV-at, or tlal: in
61y 1 4 the lectbvra of th* C:Ivre11, r
the priv,,,te proper
iy
ttl'oeve; end
cf the sitsbRrz at2 directors mi* the
CoAlnea 0,111 in no orant be Walt for cny dabta, or obli—
gations of the C,Ancil.
3, The BaGres of Directors of tht CmcU
y,
but wded not, appaut lualvi4uR1 t:r cor7,,mt* trusteer of snir
or all. of th4
rt
r
tkg.
an& conftr on filleh
truatges c1104 of tke poiterQ, 44,tiArc. or 04144totaA id the
Itsr4 of tirctort of the Cncil 1.3. relation to the cert.,
eustot- aud manablomett of such propelty
At
ths Zr.. of
Dtrectcorl. n4y deez adviafikato ead this Dolertl ot Directors shall
bays ?aux to tppoiat the uacooeser6
or
such truAtow.
4. The territory ia rhizh the oportttikas or the
ers ;rinc1;a1ly to be c4cducted is th
nIttd ttelve
Aserizz.
14 The prlacipa Wiz* of tit* C7onc11 is to be
looetod in tee City, Cty And
t ikw Iork, %hated
States 4 isikrio*,
I. Ti. nuehir of it diroctors 13 to tor, rinses,
Tt The 43.:VJO ftnc
idc
f thc cIrectors
until the armt ounuul moetiug are os, 3:;).Lio4
AVIV.1440$,Az
(titeet naset)
$. All of the subscribers• to this certtfiette
•
A;*0
4f full 44;a*, 44141.141.014birdt, of :kuct zab7'nribere, are
eltirems of tht Unit
such sabeeriberz ta
SIMOMPIMPAimatieto
At les" ft* of
roAdect of the Siete of Stow York. Of
tsit pertons named sak dirsotorsi et least rtt to a •eitison of
the Untte0 tAxtes of America and e resident or the ttat* of
Sew !cork.
IN Ian= MORAVII, tho vaderhiped htTe =40,
mityearthe6 end eeXualetmAssi this certificat/ in *apliette
this
digr of
(At leuet five of the, persona mmAwd Re directors)
@FedFRASER