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BOARD DF GOVERNORS

DF THE

FEDERAL RESERVE SYSTEM

Office Correspondence S C
E CRET
To

Chairman Eccleg

Frnm

Mr* Knapp .»!*

Date November 21. 1917

Subject! National Advisory Council
meeting this afternoon•

The following matters are listed for discussion at the National
Advisory Council meeting this afternoon.
1*

8 million dollar Export-Import Bank credit to Turkey

The Turkish Government desires a credit of 8 million dollars from
the Export-Import Bank to finance the remodelling of surplus ships which it
is purchasing from the Maritime Commission* In view of the small size of
this proposed credit, no objection has been raised in the Staff Committee•
2.

Guarantees for private American investment under the European Recovery
Program

The Staff Committee has agreed that there is no need to give the
Administrator of the European Recovery Program any general authority to
extend guarantees to private persons* It is divided, however, on the question
of whether the Administrator should be granted any special guarantee powers
with respect to direct investments made by American business enterprises
as an integral part of the European Recovery Program. The State and Commerce
Departments and the Export-Import Bank are opposed to including any such
provision in the ERP legislation, although they suggest that study should
be given to the general problem of government guarantees for private investment abroad (Commerce Department seems to be inclined favorably toward some
such general system of guarantees)•
However, I am joining with the Treasury Department in recommending
that the Administrator be given limited authority to guarantee the recovery
of dollars invested by American companies in restoring or expanding their
existing direct investments in "Marshall Plan11 countries, provided that such
restoration or expansion would constitute part of the recovery program of
the country concerned, and that such guarantee is necessary to avoid discrimination against the American-controlled enterprise in the local governmentfs administration of its recovery program* Such a guarantee would
not cover ordinary business risks, but would simply guarantee to transfer
into dollars of local currency derived from the investment, whether through
earnings from or sale of the properties (including sale to the local government in case of nationalization) up to the amo\mt__sf^^
in-^
vestment. It would further be provided that the aggregate amount of^ScST^
guarantees would be limited to 5 per cent of the funds authorized for the
European Recovery Program (say 300 million dollars for the first year).




To: Chairman Iccles

SECRET

¥hile I am not very happy about extending any guarantees for private investment abroad, I think it may be necessary for political reasons to avoid the
charge that we are ignoring the interests of American companies and lending
money to foreign governments to carry out investment projects which would
squeeze out existing American enterprises in the countries concerned* (I
have just received from you Milo Perkins1 letter enclosing a statement by
Congressman Dirksen concerning guarantees to private American investment
under the "Marshall plan". Mr. Dirksen!s proposal is much broader than
the one put forward above, since it would guarantee the transfer into dollars of earnings on the investment as well as recovery of the initial
capital invested, and since it would cover new investments in addition
to the restoration or expansion of old ones. It further calls for the
collection of an "insurance premium" on such guarantees which Mr. Dirksen
suggests might be one or two per cent* I shall offer you further comments
on this proposal, but wy first reaction would be that the more limited
suggestion made above is the absolute maximum that I would recommend.)
3* U.S. Assistance to "Marshall Plan" countries in mobilization of their
private dollar assets in the United States
There may be some two or three hundred million dollars of blocked
assets in the United States held by residents of "Marshall Plan" countries
(especially France) which, while known to this Government, are not known
to the foreign governments concerned. These assets remain blocked because
under our unblocking procedures the private owners must obtain certification from their government that no enemy interest is involved; this they
are naturally unwilling to do. The question has arisen of whether the
United States should reveal to the foreign governments concerned the names
and holdings of these foreign private owners. While such action could not
be taken on the basis of the previous census of blocked assets (since assurance was given by the Treasury that the results of this census would be
kept confidential) a new census could be taken with or without specific
Congressional approval of its purpose.
The argument for disclosure of these assets is, of course, that
it would enable the foreign countries concerned to make more effective use
of their dollar resources and hence to reduce the required amount of U.S.
aid. The principal argument against such action is that it would violate
traditional banking secrecy and would put the United States in the position
of helping foreign countries to invade private property rights. Some people
are worried about the fact that as a minimum the foreign owners would be
given inadequate compensation for their dollar holdings because of the
over-valued exchange rates in European countries and that they might become
subject to very severe penalties as a result of the U.S. action.
While this subject has received some preliminary discussion in
the Staff Committee, the Treasury Department has not yet presented a paper




To: Chairman Eccles

-3-

on the subject as it has promised to do. I understand that Secretary Snyder
was responsible for putting the matter on the N.A.C. agenda today and that all
he expects to get is a preliminary discussion of this very complicated and
controversial question. Pending receipt of the promised Treasury paper, I
have not focused on this question in detail, but I have from time to time
suggested to the Treasury that they consider very seriously whether there is
not some middle way which would both avoid the outright disclosure of these
hidden assets to the governments concerned but would at the same time assure
the use of these funds to those governments. I had in mind an arrangement
under which the foreign holders would be required to lend their dollar holdings to the U.S. Government (possibly the E3cport-Import Bank) for relending
to the foreign governments. This idea may be half-baked, but I think it
deserves careful study before any final action is taken.
You may recall that Mr. Sproul recently sent you a copy of a letter which he had written to Secretary Snyder expressing the view that some
way had to be found to make these hidden foreign assets available to the
foreign governments. He was not able, however, to present any definite
plan for accomplishing this purpose which would avoid the ticklish question
of actually disclosing information to the foreign governments concerning the
holdings of their nationals.
A* Proposed Export-Baport Bank credit to Belgium




(To be covered by a separate memorandum)