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Institute. ter A .1 tanc' am . e or W- oo^ 1:ria Rome: Worcester, Mass. Died Nov. b. Phila. igi.41,64N, James Addison Jr., banker; Elizabet and 0.0. 11. 1879: s. Judge James A. Coll. 1 Ye. --......,leurtnand) L.; student Haverford (Pa.) Haverford, 1925 "Val Y War Coll., 1912; LL.D., ' Pvt. Bat11l. Esther Tone Griswold. May 22. 1925. capt. vols. 7,7,..k. P1. Vols., Spanish -Am. War, 1894; U.S. Army ,apme Insurrection, 1399-1900; entered 1901; chief Am. MI). Mission with French Staff, asst. Sept. 1914 -June 1917; col. Gen. Principal asst. to Her :-?-f of staff G.11.9.. A.E.F. after Ar- bert 1"- .iiec; In relief operations In Europe European rep. U.S. Grain Corp , also In advisers to rrze codrelinating operations of tech. Europe; new states of Central and Eastern Council, fep . financial sect., Supreme Economic same; adviser to Am. 7, or communications sect. Administration In connection with Rime an Re- t from Army, July) -', June 1921 -June 1923; resigned 741 del. to Reparstint 1m. unofficial 19=1. Asst. 1923; Am. unofficial del Commn.. Dee. 1919-July 1. 1925; Am. tmofficia 1923-May 31. to same, Aug. I. Ministers. 1974. Fl rep.. London Conf. of Prime Associated with Dillon. Flom Ministers' Conf.. Paris, 1925. '13. Read & Co., bankers. Bala. Montgomery June 1925-. Protestant. Co., Pa. Deceased. ASSISTANT SECRETARY OFTHE TPEASURY WASHINr.;TON May 24, 1921. My dear Governor: MAY 3 1 1921 Referring to our telephone conversa- tion, I enclose for your information a copy of the Secretary's letter of this date to the Secretary of State with regard to the telegram of May 17, 1921, from the Unofficial American Representa- tive. on the Reparation Connission as to the elan to realize in dollars on gold and foreign currency received from Germany. Very truly yours, Beniamin Strong, 3sq., Governor, Federal Reserve Bank, New York, 1 enclosure. Y. COIY May 24, 1921. Dear Mr. Secretary: 1 have the honor to acknowledge receipt of the Assistant Secretary of State's letter of May 2c, 1921, transmitting for the information of the Treasury a paraphrase of a telegram dated May 17, 1921, from the Unofficial American Impresemtative on aration Consnission with regard to the Rep- the plan of the Commission to nandle certain reparation payments received from Germttny by trans- mitting gold to the United States for sale for dollars and with ing other currency for dollars, the United States. resulting 1 have given careful exc.h,ng- dollar denDsits in consideration to the sub- )ect of this telegram and discussed it with the Federal Reserve Borrd and kederll ,teserve Bank of New York. suggestions to offer, but wishes to transmit The Treasury has no for .your information and attention an infoanal suggestion received from the Governor of the reder^1 '.eserve Bank of "AV York that if the foreip-, cur- rencies which are to be exchanged for dollars involve any substantial sales of South Iaericsul and Central 'merican balances 'blab may be available to Germany, the operation of exchanging 14A-(1,14 these balEzees for dollars 'kw V further disrupting the South Ameri can and Central ;mat-lean exchnnres with this country. In view Y -2of this suggestion, it may be that the State Derrtasent will wish to exercise sufficient supervision over the exchange operations proposed. in the .separation Commission's pinn to safeguard the foreign trade of this country against undue disturbance of the exchanges. Very trul j yours, (Signocl) A. W. Mellon Secretary. The Honorabl e The Secretor-, of State, Washington, D. C. COPY CABLE MESSAGE FROM THE DEPARTMENT OF STATE. TO THE AMUICAN AMBASSADOR AT PARIS, May 24, 4 p. m., 1921, No. 268. PARAPHRASE Communicates for Boyden a message B-240. Reference is made to the Embassy's cable message of April 6, B-444, and the message of the Department of State of March 26, 1921, B-218. Message is marked urgent and in confidence. The Department is advised by Speyer and Company that they are considering a proposition to lend money to Germany to be expended in the purchase of products of the United States. They ask that you will express your personal opinion on the points mentioned below: One. Would it be proper that the firm should apply directly to the Commission on Reparation for the purpose of obtaining the Commission's consent that priority should be granted to an issue of treasury notes, which issue would have priority over the obligations of Germany resulting from the stipulations of the peace treaty? Two. Would it be proper for the firm to transmit this application through the delegation of the United States? France residing in Paris. him? Three. The firm has an agent in Should the application be made through If suggestion three is thought best and the application shall be made through him, should he and the United States delegation cooperate in making it? Four. What position would the Commission be apt to assume as regards the proposal of the firm, and what lbo - 2 - procedure should properly be adopted with a view to obtaining the assent of the Commission? Five. To whom should the application be addressed, and what form should be used? The details of the plans of the firm are not within the Department's knowledge and the fact that the Department forwards their request must not be taken as indicating that the United States endorses it. If, however, you find that you can discreetly and with propriety obtain the information desired by the firm, you will transmit it by cable. Di-JT/ECD-SS (COPY) PARA2BBASE OF TvIYaitha. From: The Unofficial American Delegate on the Reparation Commission, through the American Embassy, Paris. Dated: Yay 31, 7 P. id. Received June 1, 5.47 A. L. No. 360 - B-469. This is supplementary to my B-482. Commission convinced that it is necessary, if possible, to find another method of protecting itself against exchange risk, because of effect of recent transfer German payment to the United States, also fear of effect of similar transfers in the future, and later retransfers to Europe. It is now planned to deposit payments in Belgian, English, French, and perhaps Italian banks, government where money deposited to assume exchange risk, and profits, if any, to go to such government. BOYDEN. dA.LLiLas COPT CLBLE LEFEAGE FROM AUFRICAN MISSY, MEIS LILY 31, 7 p.m., 1921. No. 360 PARAPHRASE Communioatesa message from Boyden B-485 cent ss a supplement to his message B-482. The Commission has become convinced that, if the change is found possible, they must find a way to avoid the risk of loss by exchange in the matter of G,.rmany's reparation payments. This conviction has resulted from the change produced by the recent payment transferred to the Untted States in Eettlemeat of Germany's reparation debt. The Commission appreciates that similar transfers in the future and re-transfers to European countries may damage the latter. The Commission has now under consideration a plan that the German payments should be deposited in banks of Belgium, Great Britain and France and possibly in those of Italy. In this event the Govornment of the country in whose banks the payments are deposited will take the loss by exchange itself, if there be a loss, and the gain, if there be a gain. Di -JT/all -SS May 31, 1921. Dear Vr. Gileert: Thane you for your note of Lay 24, enclosing a copy of Secretary Vellen's letter of lay 24, addreeEed to the Secrotery of State, on the cubject of the tcheme for making reparation payeents. My only euggeetion in regard to this letter ie that the oomment should not be confined to South American and Central American coentries alone, although there,probably,greater difficulties would reeult from large trans,- actions than in European markets, where the exchanges ere broader and more active. *e will need a little elperieace in handling this matter before it is caajbie to gaga the effect of the eoheme now propeeed. There has been a very sharp decline in the rates fur sterling, and a less important decline in 60i4.6 of the other exchanges, which -Jaw caused by large pun:hat:leo of dollare by Germeny, or by those representing Germany in arranging these payments. A few wonthe ago, 415 millions: was paid into us, one-half for the credit of the Eaak of Englead, and one-half for the credit of the &sae of France, but really for account of Lae Re-pazition Commission, and we have within the last day or two received further paymante aggregating *35 millions for credit of these two institutions. It iv currently reported that the German Government has deliver- ed treasuri tills indorsed by certain German banks, aggregating the equivalent of ;'.200 eeillieee, 430 eillione of which will be payable in sterling, e60 millions payable in franoe, and 00 eillione payable in dollars, within a period of sixty days (unless renewals are arranged). To what extent these payments, predicated lay elf 1921 12 upon previous accumulations of dollar Tay disturb the exchanges, cannot now be forecast, but it seems to me that the Department of State, and especially our representatives in Paris, should have a careful eye upon the situation, and should especially keep us promptly informed of proposals before they are actually consummated in af,J.esments. Yours very truly, Benj. Strong, Governor. Honorable c. P. Gilbert, Jr., Assistant Secretary of the Treasury, Treasury De:Art.qent, Washington, D. C. TREASURY DEPARTMENT Washington ASSISTANT SECRETARY June 8, 1921. 4. JUN 1 3 1921 My dear Governor: I transmit herewith a copy of another paraphrase 6IN.5)3$ of a cablegram froVm L. . Boyd , the Unofficial American Representative on the Reparation Commission, with regard to possible changes in the procedure for handling German reparation payments. of this date. I enclose also a copy of my reply The Treasury will be glad to have any comments or suggestions which the Federal Reserve Bunk of New York may be willing to offer in the matter, in order that the Department of State may be further advised as to the views of the Treasury and the Federal Reserve Bank. Very truly yours, vo yieituk9\ Benjamin Strong, Esq., Governor, Federal Reserve Bank, New York, N. Y. 2 enclosures. 231.1vR Crilli-X77033 GOVERNOR'S SEC'Y. JUN 1i) ass "r:i2 1 4 June 8, 1921. The liassralils The Secret&ry of State. Biz: By direction of the ecretary, aleknewlodcp receipt of your letter of June 4, 1221, with the enclose. paraphrase of a telegram dated Uay 31, 1921, from hoyden (Ye. 489) statinv that 1he Reparation Commdssion is endeavouring to find a different method st headliag the reparation payments received from Germany in order to protect itself against the exchange risk. There is no doubt that the recent transfers of reparation payments to the United states And the prospect of similar transfers in the future have had a disturbing effect on the exchanges bet -aeon this country and Europe, gal the Treasury is much interested in the suggestion that the Jommission proposes to make deponits of future reparation payments in Belcian, English, French, and nerhaps Italian banks, in order to avoid the rick of loss by exchange. Copies of the tele Aram in question, to- gether with a copy of another paraphrase of Ur. Boyden's telegram No. 3-489, hews teen sent to the Moral Reserve Bank of New York with a request for its comments and euggestione. Upon receipt of advioes from the 1.e.dera1 Reserve Bank of -,7sw York, the Treasury will communicate fu-rther with the Department of Aate in the matter. Respectfully, (Mined) S. P. Gilbert, Jr: ., .ssistant Seeretery of the Treasury. %It asions other than those on questions relating r article 260, part er consideration. n questions relating er discussion. sommission delegates on commis ion so provizionallai appoints st members uomaittee nalities and to set as Sub-paraEraph. Seat may be transferred with ce including Germany. rection commission first. TO secure treaty. second. To of bonae prescribed th,i,t may be proportion- male by vermany in ule as folloze: (a)- land custome duties port and export duties; on value all aerman evy of not less than 25 per cent TREASURY DEPARTMENT Washington, ASSISTANT SECRETARY June 9, 11214 JUN 1 3 1921 My dear Governor: In connection with our correspondence as to the German reparation payments, I enclose for your information 311ea copy of ri cablegmrar the American nnbassy at Paris, No. 360, transmitting a message from this Government's un- official representative on the Reparation Commission, as to possible changes in the procedure for handling the reparation payments. It would appear from this message that the effect which the transfers have had upon the European exchanges has not been altogether satisfactory from the point of view of the Commission and the European Govern- ments involved, and that on this account there is some nros- pect of relief from similar transfers in the future. Very truly yours, BenlEurtin Strong, Governor, Federal Reserve Bank, New York, N. 1 enclosure. Y. or* 921 ality WT. 113-50-1-20 TELEGRAM FEDERAL RESERVE BANK YORK WIRE TRANSFER DIVISION PRIVATE WIRE INCOMING '4 JUN 1 3 1921 29bd mq Washinoton Dc 9th 444p F-trong. State Dept has transmitted following paraphrase of a cablegram from Boyden, this governments unofficial representative on the reparations cornmistion; "the commission has become convinced that if the change is found possible, they must find e. way to avoid the risk of loss by exchange in the matter of Germany's reparation payments. This conviction has resulted from the change produced by the recent payment transferred to the US in settlement of 'Thrnianye reparation debt. The commission appreciates that similar transfers in the future and re-transfers to European countries may damage the latter. The commission has now under consideration a plan that the German payments should be deposited in Banks of Belgium GreatBritain and France and Possibly in those of Italy. In this event the Government of the country in whose banks the payments are deposited will take the loss by exchange itself , if there be a loss, and the gain, if there '.-)e a gain. l'ouid be " glad to have statement of your views. Letter follows. 937a Gilbert OrEoLEE.RGRAPH ' '4 TOR F2 /Ai 0-1U1V -, 4 2 5 1921 JAM ES A. LOGAN 13. S. Jr. Paris, 7 rue de 2ilsitt. 6 July, 19a1. PERSONAL dear Ben, I have been in Berlin fol.:, the last month. Upon my return to Paris I found your nice letterhich I read and immediately destroyed. I cannot tell you, old man, how much I appreciate your kindness and good advice in this matter. Frankly, I was very much touched by the tone of your letter which I really appreciate. while I felt very much the same as you did about the gentleman in question, I nevertheless was getting a little bit restless. I definitely made up my mind some months ago that I would quit the Army at the first favorable opportunity. It now looks as if we would have some official connection with the Reparation Commission, and while I may be fooling myself, I am inclined to think the Authorities will want me to stay on as Assistant Delegate. If the situation develops as I see it, and if As I am offered the job, I will immediately resign from the Army. Assistant Delegate I woulq4st a good salary and would be in a good tactical position to v,ork7447somethinE else. resignation at any time. I can caele -1/V/11 I had a most interesting time in Berlin as an obseyveflth the Committee of Guarantees. For your personal and oonf ential information I enclose herewith draft of a cable repor to the State Department concerning the work in Berlin. I believe this will interest you. I also enclose copy of the Schedule of Payments which you will need for reference when reading the draft cable. Again all my thanks to you and with warmest personal regards, I remain, Faithfully yours, itto.._ 4 The Honorable Benjamin Strong, Governor Yew York Federal Reserve Dank, New York. ab.'- Croak 157.. NtkallitYLES ISO:* 4.1, 7.4. (Flit , ; Ze 27)zra 1111111111111NEW" Charge 'tote /Prepared hys dimes A, Logue,. Jr. 4 Jay. 19 .=holuanes,.. Committee Marmatees after two weeks Sittings Euld bearings 4armans Berlin retursad via Coblens Jame twenty Math. Purpeey of rayttag arrange pr ketical details of schedule of kayments BR/LC=7J rzepsratio Commission Amex 908 Bi....A.C1C13(4: Olsoussios was frank. -uood spirit both sides. PAUGRAM Following brief Lam Uses rvport. germeme Berlin wanted discuss new index Ile suggested subheading (a) ploopmmOk Ise article four Sohedule PArnents, heyesatica Commission solely dismgelemt. V' Committee rotemed ste.ting Dear equivalent in MIMOSAS", (a) stake beestMNIMMmitairily mikes Mu Was depeedent an old Ledge, to measure Gummys economic prosperity. lesi plepese Is is If amp satisfactors mesemee tam diseefeeedy this Imaimsge most be Amapa before sem be adopted, but fact that present inaSit autarchy Sande restrict German experts so hompering her °commie prosperity immorally remaielsed, SUSVISMAPH L., (Mormons requested definition word *exports* wobisuJihyi (a) article four :chilkoule claiming fallacy using "total eagort Mere as When prosperity or as bAsis is astual 46./ unual payounts, Pointed out that bites peustic:aly results tax an each class experte with result imports which osemot bear lowilea will automatically oesse to disadeustege not gals germser but Axe countries from whisk latter buys r.nd to which Germomy sells. asp argued nhilitp *sports suer not determinable by viewing industry eelleetively or Lesragieg wide =rein indulArioe with Barrer margin .finishing eemelesion business. Committee as result of this dissuasion' referred to Asportiom Commission following questions admits motorail yield two immured, milliom gold marks. Timally tecnty five percent export levy-predmeen rams milliard We tersdrent fitly million gold mixts per annum leas Recovery 2.ct reeeipts or tem lorired, seventy five milllen gotl a's*. per quarter which figure lerovielonlly Maitre". B. IRSPAUSIAPSI are GOWN For year mimeteel treaty MO mdastsua treaty *yeas Obileatieem (a) tour instalments rive Moire& alines soli roakey mad (b) Ivo quarterly instalments variable searaavitr it fitteema VOOPMMOM said diStesall Pespowdy aorta provisionally estimated an above basis at three Ihnotred teemty film million gaol* marks eaab, dbligotion to thirtieth Veil niseterm treaty We therefore two milliard six hundred fitly million gold marks, geld marks article flee liebedals; deliveries hind; To be savored tor (a) area milliard (b) ass milliard tee hundred million gold marks (e) soy Modred fifty million gold masks framevery Acts This bases %Armee three he mtard minim gold marks reqaircd secured hp resaurees syseiriodi ortiele seems rehedmie. Oemmittee asoordingly eonsidero payment ouster effective from fifteenth ihrisabor meat and pwlyient levy Weal, five payment seaports ofteotta, from rirtetalth ieesembousext will yield three losmired sillies sod requests me, Germane Ws aseessary arrowroots, Provided above estimates realisedireseseary retort year rimless trimly ere nineteen Wooly two to other ~moos those Opeeitied article seism 30hedmle+ WirsBASRAPIt 0. Far future years impossible essotly estimate ',raspy's obligations but provisionally asssmed as throe milliard Wee hada* million geld smirks. Tots aware& trg(a) deliveries kind omit milliard two bmaarod (b) 1speretier ReseVeirg Ast reesipta wad Went five persent expert le, sae milliard two homired fiftralnions (e) oustoms two In aired Mal two milliard pis hundred fifty million leaving aerial% six hundred fifty willies gold marks, 31,ThilreGRLPH D, .ftrerant &Klett must be covered revenues. asNlcred Proposed tam revel's's, as revised by Committee, yield one milliard three hanared million sari mares cr doable mmemmt required, Committee williatg swept fifty percent ybld provided sin kealovell eat fiftp million gold swedes aotually realised reserving right require Langer poseeoftes if peeeeeosp mei any deficit ;.;chedele Payments, Tborotere starting first two Coma/Use will motive la) customs .ew nineteen West, lb) twenty five ferefrut lel, opperte anti (a) in adiAtion such permutes* as noccecary of assigned revenues propound and accepted by GassAttes. tAmpaAssa,S Ovoilltee reserves rights under article tro forty eight Wroaty to pretest oerlos booth papciewilAm P, Wes WUXI: oircumittnres UN UCC1 NOM MFO ORIEL - Materpregatim or *sports dud shafts See paragraph one iAna slalompraph A this cable. a. YOWE THEM - Levy on Emporia, Refers to Genesee presentation econsode Pond political difficulties manning direct export levy twenty five poroent paragrt.ph b article seven Sobedolo. elates levy fthatmle Payments net mop sense ten but oolhol preourIn nessosorp foreign values, willing swept alternative reeemrees committee it asourIng tionotrog fore tam v-, rues but no seisms yet Moonset tolfille this oendition6 der oircunstmoes onnnet respoom, sopert levy end requests Normans prepare measures neeesrary to molt levy operative, Ceestttee hemmer West estoal opertion system defered subject Palming reserves estemomietoes, viz 001111 ?w este quarterly payment under Schedule Comae* will detersieo see representing teen* the pereent value exports durimS preeims quarter with islostieno iiscovery Act solleetions arime period. Gormomo to pop this ma first two nose, Wesel aittraes iu Um equal instfilne, te viz e t the seems 0110 Meath WW1 wog Wares as gliegrtillj date timed by Sebedmie. cc6regmede semismdi peer, Committee eimounmo seams deliveries mind etfeelled ehenemnp first last waffle:lent o.k, dme februsep firtommtilimmol se abeeesseenpmment will &ray is po e. dee letrreery fifteenth ami Met hollmleest jpifeidellossolbor riftposta, Osmoittoo reeeMes right put direst levy in eperstion mit mmunedie tom/ dose not free SeMesse bum Obligation notifying Committee glaftir pialegoilklifkit article *ma sor preposel Wass altiedishirc taw rereest litAutV, SIMPAIttettailtis IMOM YIN Q140 eleteme, reeeipts teem* retie Sermon difficulties aesimmost Omport emit leper% &sties sl Wedefilees vibes tariffs is tommeitionsl stage BRACUTS ONINNINN SOW Nils eft negedlettogw, etunercial trenties mni Ibis prevision embpruomMheg volt/ moults Iron poropepb illIONVIMAr COMM more, owethortsotima eight article MOM .chedule, eabotituto other rawness far proseede tistese Wassweetto vitt osavolgies wives pliwaraglA 0 /Article iota lisboisie. dermitsee ~owls coif dememit but roDeuMeee provisiomally rtthts meetve prior mottoe of yalropegabo ottoottog weft penal bat Gamow Mit Waal egalmittee orroogoosst whoa lode, Rommotatios kolas until Noy first obiotowei twooty two olbleet removal lout Committee swarm right terminating win, emmont, Permute abiemni customs strt November fifteenth. deposits being effected monttly. Deposits held to trust until &Atom voten parents beers. due under nrtiole four ale UR UJE. ODUSIASIAPI T. mon pre wort Cortrol or Committee emenfte peewees, ielegstion *write function to verify Semen etatisties &matte, pepeeste under Soltoule, Committee soutempletea Amtlettcl control #ith occasional verification Lie data et mines by restricted number tremens* isepeeters UN U(Vg Cummittes beard (*mans Jrne twenty troth after delivery abate notes, Latter offered only two ob:eettons, vie moo (a) question neeeesitt of committee 11/1111-1-1-1-- ! Note one. ecC taking fifhlf psrsonS receipts all Issas listed ss sentamplatod AottOR Heienstag feeilitated it list ntesSed. Cssmittee asked written (a) 4nentiened extensive olitSrol implied This Ms as dal asrmnn public opinion. Committee agreed moped mpplisatisa sastemplateissutrol except PrePsesist ereation Berlin Delegatiam, salmi Gamma la tom to draft piss control inoffensive public opinion but coverlet reepeamsbilitiss Committee under lichednle. - AIIISMIessse, PtnAGWPX fai.. Plalmeismd. dermas semplaissdumjastified 0Ontinuntion SOOSSois enaction, Clairdes RhimelaisiCamodssims lisassing imparts to value betvssa five Imbed sallies sad ems milliard peer mums monthly lasludiag luxury rms other articles Gomm prohibited list. Drew satsatioa to lielkalSO *Persia Imiertotims spirits for Alnslami east refusal permit bigortstion into none %writer, iris lases surplus German stooks, else paroul pest peabsges to eleven pseuds permitted aster without inv;:ootion Or OS.. deramas pointed to effect ,111 fort:vane on exchange and ability meeting pspsemts sus lee bends. committee on invitation Amine lard Otelmiasielt easferredwith latter coblems Jens thirtieth, During Conference British. Magian 041111140.101MWS sni Italian OSOnereita observer gpmak, asgrseced views that OOMMIMIO SOM0,100. WO edmimisterad parslg as sanctions remariless *osmosis eons'sOISTIOSS. COnmiSsioll stated orders Council Ambassadors direeted OM 001% to use 1 utmost liberality graatimg licenses wherever possible giving preforms, importation Allied commodities mum shish liketristiess they wort following with no mmtbarity disregard. Cora lesion stated demsasifIgurso value licensed imports iodate amaggow rated but real effect would to felt wins formidable deliveries water three assure, lisonssc gk alrea4 Wonted aotually sasmsasa, commission Stated their instrustiame contemplated sedirSament Utc,vamamstama regulations and in oddities lissnsing import. prehtlinsi bp itsismairsgslaidamm, isgardimg spirits it aw, shartags suppl-:? Ltinelaad instructions contemplate making geed Shortage by foreign Import mtber th Commission stated limMes wanted by import from aermng. valid three months irres_peetive continuation sanctions, fstariG114.141 presente Britt*, Belgian and. Italima Member* Committee comrsatsss jointly resolution proposing Committee advise Allied Ueversments ti. mommlo stv,,hdpeint l taking t execution Lich*aluls rInyments considers t aiming snly it micht te point out that-tobsule cayments might be mere songletely executed and bonds prosortbed by that 5Mbedule more fully pteed if economb sanctions at present In force in Rhino twerillatims were suppreased 111;,IL French member declined joining but speed with action Committee to t full extract including resolution be sent officially t Anatol; basielssy Comittee to oath membor requesting latter %Renault IMMO his Government whisk was adopted, 241AGW.PH Above report refers say aorssn payments unser $ohodule. Dees not include Arne:zits cost Armies Osompatim at present estinatei between We bumdred forty and five hundred million gold marks per year mai sisarkes wigs commitments approximating Ms hundred million gold merles within next two poems latter questions not falling-within purview committee, PA2AGIUPB LIGHT. Copies aorman proposal and -::otes Cowittee including Committee's iltineland resolution left condidentially with Dresel, full text cf :dotes with sem coments. vereMnsx. moiling -2.21 2L,Yal,; JUILISSIOD 1W. 973 :otter the ZrietIslastenkommission coActerning the: currencies in which "Arman7 should effect her payments. JTI,LAJLL ris, ji.ne 11, 152 he 161st :Leetini-: of the Finance 3ervioe' omAiission, held on Lai 2E, 1921, I beg ]ore the unuesirable consequences to the he coAltries concerned if 3erulan7 is co ollars all the instalments necessary drafts handea over by the sermon. nti-al e,D,ration :o emission. x a.: possible to obviate these conse layinil the following proposals be signif7 its willingn ,nt; ot.r.:,r el/1.re .cies, to be aetermi It'm ...;ouission inform me at once '::i. it desires to receive the payments u_,J to the end of tLis uonth. cp_rati.3n state between July, ..,uEust 1 and 5, the currencies in whi, the uarrents to he r- to the end end .f 7.ro,:reflient .JaknJt at present state eve aeproximata approximately the maximum ay pants that it will be able to make to the Reparation Commission in the various months. The amount of suah payments depends absolutely on the state of the ourrenoy market in each case. The German Government pan therefore only propose that the communications requested in paragraphs and 3 be made, so ac to indicate t'ne per- centage of the total payments to be effected up to the end of the month in question which the Reparation Commission would be willing to receive in currencies other than dollars. tr- Aw '*7;',V ' 54- In re'ara to the rate of exchange at whch the vari- gold marks, the ,;erman Government considers that the rat - 4- a to be; adopted must be the rate current in on which-Abe payment is actuall7 made. In regard to pay:.,ents soon to be made the German Govern- ' ment would desire to effect a certain percentage, to be deter mined by the Reparation commission, in Italian lire. The German Government has now 45 million lire in the Banoa d'Itali at Rome, the proceeds of auvajaces on coal. This sum might be put at the immediate disposal of the Commission as a pa ment on the rparation account. I should be extremely obliged if you ooula give me an early reply to these proposals. ,:icnea: Von .'ertnen ' - .riti 0:1 Jommission. d"41-771/ ALI/2X .;0. a. rep17 to th 974 letter from the .._rildt.-1.1orraission r',..lutive to the currencies in which ;,:,rmanj should effect her paj,dents. b. Draft decision concerning the currencies in which Germany should effect her pa;T:ienta. _ote. The two drafts ,ere adopted without amendments at the 196th and 199th meetings. (Decisions 1366 and 1369). 4,ItiTAX 974 a. DROPT. ?rom the separation ;ommission. To the Eriegslastenkommission. :ehe Reo,ration Uommission has the honour to refer to the letter 4.3171 aduressed to it on the 11th June b, the LriegslastenLomlission and received on June 16, on the suit.iect of the currencies in which the lommission desires to accept paywent in redemption of the crafts issued by the German ,:,overwlent unuer ,Irtiele 5 of the Soheaule of Pay,aar.ts. orumr to avoid any uisturbance of the exchan7es, the ..:Ozi:Assion considers that during the month of June no further . 2urchases of dollars should be made. (spot It is prepared to ao- Tient .Luring this month as follows: 2ounds sterling to an amount of ;10 million; fr .nos to frLtno8 or ai,onnt emivelent to n5 dllion Fold ounuz eterline within the limits indi- cated to an amount equivalent to a total o a, within this total of 100 million r a,the Reparation Jommission is prepared to accept: o a total of 35 iiliion 3wiss francs; to a total of 30 million dutch florins; ?owns to a total of 30 million Scandinavian total of 15 million pesetas. se the Jonimission would be clad to ob at 20 million :miss francs. The JomMission finds it necessary to adopt as the of exchanrw for oalculaVng the gold credit to German these ,:ay tints, not the actual rate of tYe uzij of f.u- whick -a Jgent but the averaile of the rates of, effected and of the rip v.(5 preoed The rates taken will b i144i FOr pounds sterling: the aver__-,.e rat: cated. and certified by the Bank of _,Inr7 the dollar on the ..ondon market. or Trench francs: the o,:ficial rate of ! of t4e Yrench franc to the dollar in __iris. For Belgian francs, the official rate of exit 11111 Belgian franc to the dollar in Brussels. ?or 1)a; ent in crowns :Inu pectuJ, the in the follo,Jin n,e of" The value o 2rench francs at the <AV rage rate of exchange prevailing between them and the franc on the Paris Bourse chi the da of pa anent and of the two preceding The franc value thus obtained. wi I be 'translated dollars at the average rate of el-change of the into franc to th dollar on the Paris Bourse for the same da It is obvious that this system ha giving an opportunity for the manipul In the event of any such manipulation mission reserves to itself the right to .cent that may appear to it ,pore desirabl In accordance with the desire expres c;Jvern ent anu the 5th it VI of the se uc t to in 1:-.a.-ment in the course a J.C3 .3 0 ...)nthe idake a 1.re s arose on is abl_ ua..naent, in _Italian lire and hopes to hurt;: :;r com,Lunication to the :::xieRslaste the near futu 6-Lio i114i.,LX .,:teparati974 b many shoun effee orc: 2'..urbai1.)e. in the to bra. aJe b JO I1-2-10 http://fraser.stlouisfed.org/ u ,llars to Federal Reserve Bank of St. Louis _cot `t,,,e r. .:-.Yrrian7 of arge q Jue -Lrauct the 301- eut,le 0 _ manta ding the adou len Governments, wh'.ch is b I the Jonference of the Al- meet short17, of definite concerning the definite distribution of s, it is decided to adopt for the month of June 1921 the arrangement, described below, on the understand - 'at the Jommission reserves the right to have recourse to ther arrangement should difficulties arise in the execu'at tentatively adopted for this month. II omission takes note of the agreement of the Governments eat Britain, France and Belgium to assume the risk of 100se8 and gains on exchange resulting from pajments made by Germany in certain ii:uropean currencies and up to certain definite limits. An7 loss or ,i]ain on exchange resulting from these opera- tions will be carried to the debit, or the credit (as the eas . may be) of the lower guaranteeing the currency, in the books of the Reu_iration Jommission. Great Britain agrees to guarantee sterlinp to an amour of L10 million. Belgium agrees to guarantee Belgian francs to an amour equivalent to 25 million g. m. France agrees to guarantee Drench francs, sterling and other currencies within the limits defined below to an amount equivalent to 100 million gold marks. The limits to which France is prepared to guarantee currencies other than French francs and pounds sterling are. Swiss francs, 35 mil:ion. Dutch florins, 30 million. Jiorwegian, Swedish or Danish crowns: 30 million. 2esetas: -5- PesetaS: 15 million. France aesires, with regard to the currencies mar teed by her, that payments should be made by preference over all other currencies in 'Swiss francs up to a total of 20 million Swiss francs. The Commission decided to accept payuaats made by Ge many in the currencies indicated above provided tha fall within the limits stated. The Governments of Great Britain, ?canoe and Belgium will have a orior claim to take the risk on exchange resulting from payments made by Germany in their respecti national currencies up to a li dt of 10 million pounds sterling for Great Britain, 100 million gold marks in Prench francs for ?canoe, 25 million gold marks in Belgian francs for Belgium. The payments t%-us made will be deposited to the aoo of the Reparation .:.mmission in the national bank of the guaranteeing Power if these payments are made in the currency of that Power. If they are made in another money, they will be deposited either to the account of the nation bank of the Power concerned in a bank chosen by it and sit ted on the territory of the lower, in whose ourrenay the'p rent Ills been mane, tie State national bank remaining respon- sible vis a vis the Reparation Commission, or directly to the account of the Renaration Commission In a bank chosen O7 the Conn fission acJL situated un the territory of the P in whose currency the payment has been made. sacra of the guaranteeing Governvients will receive from ti :e RenJaration Commission full authority to convert at an' tiwe into other Zuropean currencies tle stuns in connection, with -6- with which they assumed the risk of exchange. The .govern mente oonoerned will notify the Reparation (;ommission with out delay of any such operations as it may undertake. No. oonversion into dollars will be made except after an acre meat between the various guaranteeing Powers. In order to calculate the credit in o_ld .aarks g1ven to Germany for payments in _uropean currencies effooted in virtue of the present arrangement, the Jommissio decides to adopt not the rate of exchange of the dal of payment but the average of the rates of the .:a7 of pa:Tment and of the two receding days. The rates adopted as th._? basis of conversion will be the followinE: For pounds sterling, the average rate of exchange ind oated and certified by the Bank of ::n gland of the pound t the dollar on the London market. For French franca, the official rate 3_,exchange o the French 'franc to the dollar in Paris. For Belgian francs, the official rate of exchange of the Belgian franc to the dollar in Brussels. For payment. in swiss francs, Dutch florins, icandinacal-. vian crowns and pesetas, the gold mark credit will be culated in the following manner: The value of these currencies will be calculated in French francs at the average of the rates of exchange breBourse on vailing between them and the franc on the Paris uaT of ouyInent and oo the two mrecedir? ua-rs. dollars franc value thus obtained will be translated into fr.J.nc to the dollar on the average rate of exchange of the the raris Bourse for the same uays. ICI June 13, 1921. Deer Mr. Gilbert: I em in receipt of your telegram of the 9th, together with your letters of the 8th and 9th, with the enclosures mentioned, all relating to a possible change in the plan now in operation, by which the German Government is +s king reparation payments throTlh this market. e have assumed that the method so employed is practically unavoidable for the following principal reasons: (1) The Allied governments would naturally select dollars for a large part of the peyeents because of the ameeet of the indebtedness 'wing by the Allied governments and their citizens in this country. (2) If the burden of mating payments in dollars is placed upon Germany, Germany mseumes the risk of loss 3f exchenee in furnishing needed dollere to the Allied governeents. 7t,) the United StRteR being the only country which is free to ship gold, our exchange would naturally be preferred over others. (4) Dollars are available for making payments in all parts the world, and the possible lose due to a decline below gold parity is ediskiaated by the fact that we ship gold. It is difficult to see how any arrangement can be worked out which will be satisfactory in operation, and which will relieve the Allied governments of possible exchange losses, due to the conversion of their own currency into dollars, in case dollars are required or making payment in this country. it seems to re that the Allied countries are somewhat in the position of e creditor collecting from a debtor and requiring the debtor to furnish checks upon a bank which is free from the restrictions of from such restrictions. a moratorium, and upon which they can draw with freedom 12 - Mr. Gilbert June 13, 1921. eI/had assumed that the reported delivery by the German Government of three easury bills, of which 00 millions were payable specifically in dollars, o tee eemend of the Allied governments, and arose from the fact that they ed needing that &mount of dollars. epeoulating somewhat upon the future developments of theme payments, it ear that as Germany is forced to accumulate foreign currencies in order tc e payments, the mark will decline, due to very excessive issues of their ncy. A further depreciation in the mark, unless accompanied be corres- ncreases in wages, simply increases the advantage which Germany now seems over other industrial nations in the cost of production. IL Amaj, there- that Germany will enjoy an aovantage in exporLing manufactured articles to countries of Europe, and the rest of the world, and that payeent for those will actually be made by drawing upon the dollars already paid to the credit lied countries by Germany. If this operetiOn is a continuous one, it ply mean that Germany, as has all along Peen expected, would meet her n obligations by exports of goods, and tha.,; Lae banging treastutions cover- reparation payments and exports would be conducted is dollars with our tha!,e If, on the other hand,/exports pecowe a menace LO the industrial recovery generally, we might expect the Allied oeuatriea, by the imposition of n their own imports, or export duties on German exports, te the flow out of Germany, in which event Germany would default. It might be furtber suggested that the industrial stimulation would result in r being fully employed, and would lead to unrest among the laboring n, demands for higher veees, better standards of living, and gradually production would ap,roach production costs in other countries. These suggestions are made simply to indicate the probability that these ents by Germany may lead to far-reaching, and possibly disturbing, develop- the world's trade and in the foreign exchanges, as great even as those the financing of the war itself. June I!, 16,21. 4(5 .- +gym not prepered to earth.t it would to dse for us to protest agAmst the employment of our banking machinery for the conduct of these transactions. 14, must not overlook the fact that the dollars paid into this market must be spent here, and if not employed in paying interest to our government on loans made during the mar, it is quite likely that they will be employed in purchasing American goods by the Allied goverwleate J7 their oitiens; or if employed in curchaeing goods from Germany, they .ill ;irascibly in turn be used by Germany, to some extent, in buying ram materials ir this country. It is, however, importvnt that we should know just what is planned by the Reparation Commission, and I hope that Mr. Boyden will cable as soon as anything new develoi:s. Thanking yeu for 1;eepin4,: us informed, I beg to remaie, Your very truly, Strong, Governor. Honorable S. P. Gilbert, Jr., Assistant Secretary cf the Tre.a.eury. Treasury Department, Washin6toa, D. C. BS: M61 t -2He pointed out that, before the war, Great Britain and Germany were the largest exporters of manufactured and partly manufactured goods. Fran all manufacturing countries of the world, the total exports of the above mentioned articles in 1c12 aggregated ;1,300,000,000 of which the two countries named were responsible for b700,000,000. The effect of the 26 per cent tax on German exports and shipping. On this point he stated that while the tax v.tuld compel Germany, in future competition, to produce goods at 74 per cent of the cost of corresponding goods in Great Britain, this would not be difficult if wages now current in Germany were not raised, - particularly of those goods manufactured from her own home produced raw materials, and fin- ished articles on which the charge for labor is a high proportion of the whole cost. Anotherrresource to which Germany could turn for means of payment is contained in profits on shipping, and international clanking and insurance, - all of which are not affected by the 26 per cent tax Moreover reduction in wages, owing to the tax, would not be limited to German export trades; it would affect her shipping industry, and while ships would be built and manned on the German basis of cost, freight and passenger rates would be on the international level, - in other words the tax would constitute a bonus or preference to that amount in favor of German shipping, and also to banking and insurance. British Trade in danger. Mr. lIcli-nna proceeded to say: "The conclusion to which I am driven is that if Germany is able to ne et her obligations she will in doing so gravely impair our own international trade. Her highly developed manufacturing and commercial power brings her into di rect competition with us mom than any other nation in the world, and, whether she pays through visible L,r invisible exports, it is our trade that will be mainly affected. If on the other hand, she fails to meet her - 3 - obligations, we shall be thrown barn; again into the condition o f political unsettlement which is so perilous to European peace and so harmful to a trade revival. It will perhaps be seid, "Here's a paradox: If Germany rays her debt to us, it is argued that it will benefit German trade and injure ours. It has always been urged that it is good for our trade that we should buy in the cheapest market." For my part I think the paradox is capable of a simple explanation. IT IS NOT TEE PAYLIENT OF THE GERMAN GOODS WHICH CaiSTITUTES AN INJURY TO OUR TRADE. BUT THE GERMAN CAPACITY TO PAY US. LABOUR CCEDITIONS ON THE GERAN PEOPLE WHICH ENABLE WE FORCE THEM INCOLIPITITION WITH US TO PRODUCE GOODS OF EVERY HIND CHEAPER THAI WE CAN. THUS WE CCLTEL OUT TRADE RIVALS TO LIVE UNDER CONDITIONS WHICH ENABLE THEM TO UNDERSELL US III EVERY FOREIGN LitallT. shall rece ive, i t is true, our share o f the German indemnity, which at i is maximum would be about 1a80,000,000 a year, but the con- ditions which enable Germany to pay us this amount will enable her to imperil- our export trade, which, including invisible exports, is now well over f.1,100,000,000 a year." Means of recovering indemnity from Germany. "Germany ought to pay to the utmost limit of her power to repair the damage she did in the war. "Interest on the prewar debts due to the creditor countries was paid by the export of raw materials and food. Nothing stands in the way of Germany being required to send to this country and France and the rest of the allied countries, to each according to its requirements, articles such as coal, timber, potash, sugar, all of which Germany produces in great quantities. It would mean undoubtedly that much German capital and labour would have to be withdrawn from manufacture and devoted to the pro- - 4 - duct ion of the materials recuired by the countries to which she is indebted, but this is a penalty which German industry might very properly be called upon to pay. GERMANY'S MANUFACTURES AND SHIPPING, SO FAR FRC?! BEING BENEFITED, WOULD BE AT THIS DISADVANTAGE IN COL1PETITION V;ITH OU1 - THAT ABILITY TO DEVOTE CAPITAL AND LABOUR 10 TIaLi L'OULD BE LARGELY RESTRICTED. The Reparations Commission have power to call for payment by Germany of any kind of goods to the value of L100,000,000 a year. I propose that this pomr should be exercised, and that Germany should not be left at liberty to provide this sum by selling all over the world such goods as she pleases." 711.AN.BC ALFRED NUTTING, Clerk, American Consulate General, London, England. 3 - by unscrupulous speculation. In 1920 this organization bought 24 milliard paper marks' worth of foreign money, that is, about 2 millards a month, equivalent to 170 to 180 million gold marks' worth. These 24 milliards were used for account of reparations payments, Clearing Offices, International Postal, Telegraph and Railway settlements, essential food supplies, and minor governmental commdtments. The German government hopes by means of a prudent policy to procure the necessary foreign money to pay at the dates fixed, but it must do this without entirely ruining the rate of the mark. The foll shows the purchases in terms of paper marks, for 1920 and up to June 17, 1921: 1921 1920 January February L.arch April Lay June July August 6eptember October November December 636,751,000 1,919,516,000 2,954,626,000 2,129,001,000 1,644,641,000 1,446,445,000 1,154,366,000 1,075,295,000 2,353,726,000 2,717,262,000 3,164,607,000 1,612.057,000 23,012,717,000 January February )arch April Lay June 1 to 17, 2,439,310,000 1,625,134,000 2,366,366,000 2,499,717,000 3,654,670,000 2.104.040.000 14,691,257,000 YEVDRApDUE CN THE Mitt-.A.N SITUATION I - Schedule of Reparations payments For 1921-22 the schedule calls for four installments of 500,000,000 gold marks each and two quarterly installments of the variable annuity due November 15, 1921 and February 15, 1922, provisionally estimated at 325,000,000 gold marks each. to April 1922 is, therefore 2,650,000,000 gold marks. The obligation This is to be covered by 1,000,000gold marks payable in accordance with the regular quarterly schedule and 1,200,000,000 gold marks deliveries in kind, and 150,000,000 geld marks payable under the Recovery Act. This leaves a balance of 300,000,003 gold marks required secured by resources includ- ing the proceeds of all German maritime and land customs dues, and in particular the proceeds of all import and export duties, the proceeds of a levy of 25 per cent. on the value of all exports from Germany (with certain exceptions), and the proceeds of any direct or indirect taxes as may be proposed by the German government and accepted by the Committee of Guarantees in addition to the specified taxes. The Committee of Guarantees decided that the payment of customs should be effective from November 15 and the payment of the 25 per cant. export levy should be effective from December 15, and should yield 300,000,000 gold marks. For future years the Committee of Guarantees has stated tnat it will not be possible to estimate Germany's obligations, but provisionally assumed the annual sum as 3,300,000,000 gold marks, this to be covered by 000 1,200,000gold marks deliveries in kind, 1,250,000,000 Reparation Recovery Act receipts and 25 per cent. export levy, and 200,000,000 customs receipts, a total of 2,650,000,000 leaving a deficit of 650,000,000 gold marks to be covered by additional assigned revenues. Proposed tax revenues as made by the German government and accepted by the committee yield 1,300,000,000 or double the amount required. The Committee has stated it will accept 50 per - 2 - cent. of the yield of these tuxes reserving the right to require a larger amount if necessary to meet any deficit in Reparation Payments. These payments include only the actual reparations and do not include the cost W_kA.4.1/,;,9 5-1") of the armies of occupation estimated at 245,000jo00 gold marks per year and clearing office commitments estiEated at 500,000,00J gold marks within next two years. IL - German Exchange Situation. In order to provide the exchange for the reparations payments the German government has made use of the Central Exchange Office, a limited liability corporation organized in 1914, guaranteed by the commonwealth, which works very closely with the large banks through the medium of the Reichsbank baying foreign money with paper marks. Since this foreign currency is the normal produce of commerce it is to the advantage of the banks to sell the surplus currency at their disposal. The government has attempted to prevent the banks from buying such currency and reselling it as a speculation and has also tried to force the people to declare their holdings of such money, but the purchases of exchange by the Central Bureau has had a disturbing effect on all the exchange markets mainly because of the active and powerful speculation in Germany and other countries. Speculators buy foreign exchange, preferably U. S. dollars, with Raichamarks knowing that the German government must in tarn buy this exchange from them in order to be able to meet its reparations payments. The continuous rise of foreign exchange in Germany us compared with the Reichsmark has induced everybody to hold back in offering foreign exchange, thereby practically closing the exchange market to the German government. According to Herr Bergman, Financial Representative of the German Government in Paris, the German government is in a "corner" formed TREASURY DEPARTMENT ASSISTAMrSECRETARY Washington, JUN 2 0 1921 June 17, 1921. Dear Ben: AL\11% Herewith is a copy of cablegram outlining the provisional plan of organization of the Committee on Guarantees, formed in connection with the carrying out of Germany's agreement to pay reparations. There is a good deal of information in this which is not of importance but I thought you might like to have the Whole thing as a record in case of matters turning up in the future regarding the activities of this Committee. Please treat as confidential. Very truly yours, Honorable Benjamin Strong, Governor of the Federal ReF,erve Bank, New York, N. Y. Enclosure. ASSISTANT SECRErARY or= THE TREASURY WASHINGTON June 17, 1921. dear Governor: 1 have received and read with great interest your further letter\14 June 13, 1921, in regard to the reparation payments, and hav\e/transmitted a copy, together with a copy of your letter of :,lay 31st, to the State Jetartment for its information and attention. I am glad that ;roc took this occasion to outline your sug- gestions and to emphasize the important bearing vtich the need of the Allied Governments for dollars has on the situation. The special attention of the State De- partment has been called to the importance of prompt advice from Mr. Boyden whenever there are any develop- mnts in connection with the reparation payments. I shall, of course, arrange to send you copies of any further cablegrams and other advices in the matter as soon as they are received by the Treasury. Very truly yours, Benjamin Strong, Esq., Governor, Federal Reserve Bank, New York, Y. ":",. ASSISTANT SECRETARY OF THE TREASURY WASHINGTON June 17, 1921. Pt. CONFIDMTILL JUN 2 0 1921 My dear Governor: In connection with my earlier this date about reparation pa-Tments, letter of 1 enclose for your confidential information a copy of a raraphrase of a cablegram transmittinE a message from the State Department to Mr. Boyden, dated May 24, 1921, as to a proposition to lend money to Germany to be spent in the nurchase of goods in the United States. The Treasury has just received copies of this message and it occurred to me it might interest you. Very truly yours, itilAcztk Benjamin Strong, Esq., Governor, Federal Reserve Bank, New 'Cork, N. 1 enclosure. T. 17.751. G73" trr , 777/. SAON83A00 Copy UNITEL, STATES UNOFFICIAL DELEGATION REPARATION COLLEISSION. 462.00829/837 7, rue de Tilsitt, Paris, France, 17th Juno, 1921. my dear Er. Secretary; I beg to acknowledge Ilssistant Secretary Fletcher's letter of June 3d with enclosures. I called the attention of the Department to this matter because it was obvious that purchase by or for the Reparation Commission of dollars in considerable amounts would add a disturbing factor of importance to the exchange situation. This actually proved to be the case and the Commission received protests from bankers and from governments. The difficulty was not confined to the original purchases, because it will later be necessary to bring the money back to Europe, which involves the same sort of disturbance, reversed. The result has been an effort by the Commission to protect itself against the risk involved in holding payments made in various currencies other than the dollar, and for the present at least this has been accomplished.. The arrangement involves the assumption of the risk by various governments interested in reparations and in view of their assumption of the risk, the Reparation Commission gives the:a the profit, if any. The arrangement is provisional and may be terminated by each government or by the Commission at any time, No govern ment has yet been willing to assume the risk beyond a definite amount, so that if the payments by Germany should reach proportions now unexpected, the scope of the arrangement would have to be enlarged or else the Commissi:m would revert again to the purchase of dollars. I enclose a copy of the arrangement which is now in force with Great Britain, France and Belgium. It is possible that Italy may make the same arrangement. The deposits still remain deposits to the credit of the Reparation Commission. England confines its guarantee to sterling; France extends its guarantee beyond francs to currencies of certain other countries. There is a definite advantage -2- to the governments in making available to the banks, which are connected with governmental operations, larger deposits than would otherwise be available, and Prance at least sees an advantage in having part of these deposits available in currencies of countries other than France. As the proceedings of the (;ommission are confidential, the document enclosed is also confidential and it may perhaps be undesirable that the details of these governmental arrangements should go beyond the Department itself. Yours very truly, (Signed) The Secretary of State, State Department, Waahington, D. C. R. W. Boyden. Copied by EH/ Annex 974 b. 16th June, 1921. DRAFT mcisior. 1. In order to avoid disturbance in the dollar exchange in consequence of the purchase by Germany of large quantities of dollars to meet the payments due under the Schedule of Payments and pending the adoption by the Conference of the Allied Governments, Itich is to meet Shortly, of definite recommendations concerning the definite distribution of reparation funds, it is decided to adopt for the month of June 1921 the arrangement described below, on the understanding that the Commission reserves the right to have recourse to any other arrangement should difficulties arise in the execution of that tentatively adopted for this month. 9 The Commission takes note of the agreement of the Governments of Great Britain, France and Belgium to assume the risk of losses and gains on exchange resulting from payments made by Germany in certain European currencies and up to certain definite limits. Any loss or gain on exchange resulting from these operations will be carried to the debit, or the credit (as the case may be), of the Pober guaranteeing the currency, in the books of the Reparation Commission. Great Britain agrees to guarantee sterling to an amount of Ta 10 million. Belgium Belgian francs to an amount equivalent to 25 million g.m. France .7) 4 .11=1 France agrees to guarantee French francs, b sterling and other currencies within the limits defined below to an amount equivalent to 100 million gold marks. The limits to which France is prepared to guarantee currencies other than French francs and pounds sterling are - Swiss francs 35 million Dutch florins 30 11 Yorwegian, Swedish or Danish crowns. 30 11 Pesetas 15 France desires, with regard to the currencies guaranteed by her, that payments should be made by preference over all other currencies in Swiss francs up to a total of 20 million Swiss francs. The Commission decided to accept payments made by Germany in the currencies indicated above provided that they fall within the limits stated. The Governments of Great Britain, France and Belgium will have a prior claim to take the risk on exchange resulting from payments made by Germany in their respective national currencies up to a limit of 10 million pounds sterling for Great Britain, 100 million gold marks in French francs for France, 25 million gold marks in Belgian francs for Belgium. The payments thus made will be deposited to the account of the Reparation Commission in the national bank of the guaranteeing Power if these payments are made in the currency of that Power. If they are -3- are made in another money, they will be deposited either to the account of the national bank of the Power concerned in a bank chosen by it and situated on the territory of the Power in whose currency the payment has been made, the state national bank remaining responsible vis a vis the Reparation Commission - or directly to the account of the Reparation Commission in a bank chosen by the Commission and situated on the territory of the Power in Whose currency the payment has been made. Each of the guaranteeing Governments will receive from the Reparation Commission full authority to convert at any time into other European currencies the sums in connection with which they assumed the risk of exchange. The Governments concerned will notify the Reparation Commission without delay of any such operations as it (sic) may undertake. No conversion into dollars will be made except after an agreement between the various guaranteeing Powers . In order to calculate the credit in gold marks to be given to Germany for payments in European currencies effected in virtue of the present arrangement, the Commission decides to adopt hot the rate of exchange of the day of payment but the average of the rates of the day of payment and of the two preceding days. The -4- The rates adopted as the basis of conversion will be the following For pounds sterling - the average of exchange indicated and certified by the Bank of England of the pound to the dollar on the London Market. For French francs - the official rate of exchange of the French franc to the dollar in 7aris. For Belgian francs - the official rate of exchange of the Belgian franc to the dollar in Brussels. For payment in Swiss francs, Dutch florins, Scandinavian crowns, and pesetas - the gold mark credit will be calculated in the following manner The value of these currencies will be calculated in French francs at the average of the rates of exchange prevailing between them and the franc on the Paris Bourse on the day of payment and on the two preceding days. The franc value thus obtained will be translated into dollars at the average rate of exchange of the franc to the dollar on the Paris Bourse for the same days. The Commission reserves the right of the Italian 3. Government to make a proposal analogous to those which have been made by the Governments of Great Britain, France :end Belgium. to. June 20, 1.921, Dear Eliot! I f1:444 enclosed ain pleased to have the copy of cab e , in your letter of June 17, outlining the provisional plan of organization of the Committee an Guarantees, formed in connection with the carrying out of Grmanyle agreement to pay reparations. I shall appreciate your keeping me advised e.s to these tatters, and shall Lraut the inforvlatiGn btriotly colfidential. lith many thulks, Yours very truly, Honorable Eliot ladsworth, Assistant Secretary of the Treasury, Treasury Department, Washington, D. C. Gain June nt 1921. Dear Eliot! I am pleased to have the copy of cab e alr, enclosed 114 in your letter of Juno !7, o.itlining the provisional Dian of organization of the Oomaittee an Guarantees, formed in connection with the carrying out of Garwany's agreement to pay reparations. I shall appreciate your keeoing me advised as to these matters, and shall Lreut the informatiGn strictly confidential. With many thmks, Yours very truly, Honorable Eliot Wadsworth, Assistant Secretary of the Treasury, Treasury Department, Washington, D. C. GBtIM June 20, 1921. Dear Eliot: Formal 5cknowledgment of yours of June 17 his been forwarded. This is just a personal line to suggest the Aisdom of having Boyden and i..ogan impressed with the need ,f transmitting information regarding poesibi, pending decisions by both the COMMibrA311 and the Committee in all matters relating to Germany's borrowings abroad, and Germany's reparation payments, before those decisions are made, or policies are adopted by either bAy. I suppose it is superfluous emphasize this, but whenever it is pcesibe for them to convey such inforRstion in time to have it studied over here before action is taken, we will certainly find it an advantage to us to have it in advance. Yours very truly, Honorable Eliot Wadsworth, Department of State, Washington, D. C. BStlilt June ?O, 1921. My dear Mr. Gilbert: I um auteful to yuu fur cull of parphraFe of a cablegraqi tranr,mitting a Nesevtige from the State Depart- ment to Mr. 3oyden, dated May "4, which you co kindly enclosed in your letter of .june V7. Yours vary tfuly, Honorabl S. F. Gilbert, Jr,, Aseistaat Secretary of the Trep_Pury, Treasury Department, Naehington, D. C. GBIMM June 20, 1921. My dear Mr. Gilbert: I thank you for your note of the 17th, enclosing s. co-2y of a paraphrase cable-dram transmitted by the Department of State to which arrived during my absence, and has been Mr. Boyden, dIted May acknowlek;ed by my secretary. can hardly express an opinion in regard to the purpose of the communication to Mr. Boyden. without some further knowledge of the amount and terms of the proposed loan. possibly you will be able to keep me further informsd. The comment might be made, howovei, thAtt certain of the Allied governments may sot view with favor a proposal contemplating priorities of this character. At any rate, so long as the firbt reparation payment stipulated t/.1 b. rude by Germany before September first is still most uncertain as to conclusion. Yours very truly, Benj. Strong, Governor. Honorable E. P. Gilbert, Jr., Assistant Secretary of the Treasury, Treasury Department, Washington, D. C. BS:MM ASSISTANT SECRETARY OF THE TREASURY WASHINGTON My dear Governor: I received your letter of June 20, 1921, with regard to the cablicram frcm the Depultent of State to Mr. Boyden as to the proposition made by certain New York bankers for a loan to the *man Government, with certain priorities over reparations. If I receive any further information in the matter, I shall be glad to you. Very truly yours, Benjamin Strong, Esq., Governor, Federal Reserve Bank, New York, N. Y. -Iill,1 , 0°7 ,... -5.- -)s ),:D ASSISTANT SECRETARY OF THE TREASURY WASH I NG' ON June 30, 1921. Dear Ben: 0\11/12 114 You wrote me a little while ago about the desirability of having prompt information as to decisions of the Reparation Commission about payments and other matters. I took this up with the State Lepartment and now have a letter saying that they have cabled Boyden asking that such information be forwarded. 1.1ways yours, Honorable Benjamin Strong, Federal Reserve Bank, Iew York, N. Y. A04.` 9 -* alio° 6 sr." COPY) *A- PT Green Paris Dated July 6th, 1921 Recd. 7th, 525pm, Secretary of State, rashington, D. C. Section one. 431, July 6th, 9 pm. B-51I. Committee guaranteed after two weeks sittings and hearings Germans Berlin returns of via Coblenz June 29th, purpose of meeting arrange practical details of schedule of payments (reparation commission annex 908). Discussion was frank, good subject both sides. Following brief Logan -Heel report. One. Germans Berlin wanted to discuss new index as suggested sub-heading B, paragraph two, article four, schedule. refuwed stating reparation commission solely competent. Payments committee Word equivalent in sub- heading B unfortunate because necessarily makes new index dependent on old index. prosperity. Real purpose index is to measure Germany's economic If any satisfactory measure ever discovered this language must be changed before con be adopted but fact that present index naturally tends restrict German exports eo hampering her economic prosperity generally recognized sub-paragraph A. Germans resistance to definition of vcrd exports- sub-heading A, article four schedule claiming f &llacy using (total export figure) as index prosperty or as basis of annual payments, pointed out that index practically results in actual 26 per cent tex on each class exports with the result exports which cannot bear burden will automatically cease to disadvantage not only Germany but also countries from They argued ability from which latter buys and to which Gemany sells. exports bear 2E, per cent not determinable by viewing industry collectively or averaging wide margin commission bold attempt. to Reparation Commission industries with narrow margin finishing and Committee as a result of this discussion referred following questions relating to valuation of exports for the purpose of applying 26 per cent indes: (A), whether value imported raw material should be deducted from export value manufactured product; (B), should value goods manufactured outside imported by Germany merely for the purpose of resale outside Germany be included in exports; (C) same question goods foreign origin subject only in Germany to commission operations; (D), should value reparation deliveries like coal be included in exports; (E), various articles are both imported Should gross exports and exported by Germany, for instance coal, wheat. be reckoned or merely excess Two. exports over imports these articles. German proposal for payments assumed German exports 1920 at five milliard gold marks, thus total annual three hundred million gold marks. obligation Also assumed value three milliard deliveries in kind. (B), also tvo hundred (A), one milliard three hundred and fifty million. sixty million allied collections by reparation recovery acts assumed follow British example reducing collections to 26 per cent. (C), foregoing leaves one milliard six hundred ninety million gold marks to be other source for which they obtained offered committee guarantees receipts following revenues totalling 25 milliard paper marks (figures revenues below expressed paper marks), viz., tax on capital revenue one milliard four hundred million, tax on sugar one milliard two hundred million, brandy monopoly one milliard five hundred million, tax on tobacco two milliard seven PT -3sever hundred million, tax on coal four milliard five turn over tex (unsatze Tener) thirteen milliard seven Sub-paragraph (A). Foregoing revenues represent impor present receipts same sources. In certain cases laws drafted and before Reichstag, in other cases laws not calculations based on exchange rate approximately 15 p one gold mark. Sub paragraph (B). As method obtainin Germans proposed continuing present method foreign exch through central exchange office (deviser. Zuteilungen). operates as semi -governmental agency purchasing quietl and bourses. This office lust year purchased over 23 marks foreign exchange. During January-May 1921 forei purchases approximated 13 milliard. This exchange use reparations clearing offices, international postal tel way settlements essential food supplies and minor gover commitments. Food control to be released shortly, pur open market. Three. View obvious exchange uncertainties limits delinquent on Germany to gold mark values. Four. Committee after hearings communicated 28th, its decisions in (?) notes briefed as follows: su A, note one "general principles". Ihile appreciating substitution other resources than those specified para article seven schedule committee cannot prosent stage a base excepted schedule primarily on resources specified alternative revenues proposed only require consideratio rT -4Note specified resources not sufficient to guarantee full obligation. deals separately with; (A), obligations of Germany for year 1921-1922; (B), obligations of Germany future years. Distinction due fact first installment variable annuity due only November 15th. Committee provisionally willing to accept German estimate 1920 exports value five milliard gold marks. Committee provisionally admits value deliveries kind current year one milliard two hundred million gold marks. As reparation recovery act present only in force United Kingdom committee provisionally admits only 150 million gold marks. customs yield two hundred million gold marks. Provisionally admits Finally, 25 per cent export levy produces one milliard two hundred fifty million gold marks per annum lose recovery acts receipts or two hundred seventy-five million gold marks per quarter which figure provisionally admitted sub-paragraph B. For year 1921-1922 obligations are: (A), four installments five hundred million gold marks, and; (B), two quarterly installments does not affect annuity due 15th, November and 15th February next provisionally estimated on above basis at 325 million gold marks each. Obligation to 30th April 1922 therefore two milliards 650 million eeld marks. To be covered by (A) one milliard gold marks article five schedule, (B) one milliard 200 million gold marks deliveries kind, (C), 150 million gold marks recovery act. This leaves balances 300 million gold marks required secured by specified article seven schedule. Committee accadirely considers payment customs effective from 15th 4446,111040°-:-- November next ill yield /J necessary arrangements. .J il: 0,000,000 ar. 12A-4--,rb4Uests :3 4/ any make Provided above estimates realized not necessary resort PT - 5- A resort year 1921-1922 to other resources those specified article seven schedule. Sub-paragraph C. For future years impossible exactly estimate Germany's obligations but provisionally assumed as 3,300,000,000 gold marks. To be covered by (A), deliveries kind 1,200,000,000; (B), reparation recovery act receipts and 25 per cent export levy 1,250,000,000; (C), customs 200,000,000, total 2,650,000,000 leaving deficit 650,000,000 gold marks. Sub-paragraph (D). must be covered by additional assigned revenues. Foregoing deficit Proposed tax revenues as revised by committee yield 1,300,000,000 gold marks or double amount required. Commit Ate willing to accept 50 per cent yield provided 650,000,000 gold marks actually realized reserving right require large percentage if necessary meet any deficit schedule payments. Therefore starting first May 1922 committee will receive (A) customs; (B) 25 per cent levy exports and; (C) in addition such percentage as necessary of assigned revenues proposed and accepted by committee. Sub-paragraph (E). Committee reserves rights under article 248 treaty to protect service bonds in all circumstances. (F). Note two "interpretation of exports and change index ", see paragraph one and sub-paragraph (A), this cable. 300 ( Sub-paragraph ) levy on exports. Sub-paragraph (G). Note (Ranking?) Germans presented economic and political difficulties resulting direct export levy 25 per cent paragraph B, article seven schedule. States levy schedule payments not any sense tax mut method producing necessary foreign values. Committee willing to accept alternative resources if assuring required foreign values but no scheme yet advanced fulfills this condition. Under the circumstances cannot renounce export levy and requests Germans prepare measures necessary c 7 1(7!," \OWLEDGED THE UNDERSECRETARY OF THE TREASURY JUL 1 WASHINGTON July 11, 5 1921 1921:11S' NON141°) "I\ 11y dear Governor: I enclose for your confidential informtion a copy of a cablegram dated July 6, 1921, which has been received from the American Embassy at Paris, with further reference to the ue marl reparation payments. Very truly yours, Benjamin Strong, E sq. , Governor, Federal Reserve Bank, New York, N. Y. 1 enclosure. DEPARTMENT OF STATE Washinzt on July 11, 1921. In reply refer to TA 462.001129/637 Tha Honorabla Tha Sacratary of the Treasury. Sir: Rafaranca is made to your lattar of May 24, 1921, regarding Via interest of the Traasury and of tha Fadaral Reserve Bank of Naw York in reparation paymants made or to ba made by Germany. A copy of your lattar was transmitted to Mr. Boyden, the Unofficial American Dalagata on tha Reparation Commission, and ha has now transmitted to tha Department furthar details in ragarl to the arrengemants male by tha Paparation Commission to protact A copy of Mr. Boyden's lattar and itself against exchanga risks. enclosure are forwarded har3with. You will nota that tha enclosura is transmittad in strict confidenca. I hav3 the honor to 6a,Bir, Your oba'iiant sarvant, For the Sacratary of State: (SGD.) F. M. DARING, Assistant Secretary. nclosura. Copy of latter of Tung 17, with anclosura. July 1S, 1921. Dear Mr. Gilbert: I thanx you for your letter of July 11, enclosiL copy of cable,:ram, dated July 6, 1921, received from the American Embassy at Paris, in reference to the German reparation payments, which you forwarded to us for our confidential information. Yours very truly, Benj. Stron,7, Governor. Honorable S. F. Gilbert,Jr., Undersecretary of the Treasury, Treasury Department, Washington, D. C. CONFIDENTIAL July 15, 1921. Dear kr. Gilbert: Referring to your favor of July 11, enclosing copy of cablegram dated July 8, on the subject of German reparation payments. It contains so many references to previous communications and to documents to which ts1 have not access, that much of it I cannot understand. It appears that the proposals now under consideration contemplate three general methods of payments: (1) Deliveries in kind. (?) Peymente which will be made abroad to the Allies under the head of"reperation recoveries." (8) Payments which will originally be assembled c/ Germany in marks, and which must be converted into foreign currescies either by Germany before payment, or by the Allied governments after receipt. It is with this fund that we are more concerned than any other, as the process of conversion is what disturbs the exchanees. Do you feel that we are udequately advised by experts on the ground on this particular phase of the matter, SO tiv.t unnecessary ex- change disturbances, detrimental to the interests of this country, may be avoided. on the whole, and in the long run, I do not think it will be to our ultimate disadvantage to-have these payments "bankedm(Eo to speak,) in this country. it is during the process of accumulation of dollars thA we suffer the"growing pains." Once the dollars are accumulated, however, they must be employed in this country by the Allied governments, or by those to whom they ere transferred by the Allied governments in the purchases ef go de, er in the payment July 15, 1921 The probable ultimate effect, under existing conditions, will be to of dente. facilitate our exports, or where debts are °wind: in this country to facilitate their collection. It seems to me that our policy should be directed towards regulating the methods employed so Lh,t a minimum of fluctuation in exchange pill result, recognizing all the time that the intermediate exchange disturbances, while u disadvantage, will ultimately lead to our own gain. If there matters are reaching a point of decision, I further take the liberty of suggesting the advisability of a conference of well posted foreign exchange men, who might indicate a course of procedure aa a guide to the Treasury in keeping track of tbie affair. Yours verf truly, benj. Strong, loverncr. Honora'ole S. P. Gilbert, Jr., Undersecretary of the Treasury, fre.--sury Department, Washington, D. C. b.9:1111 COPY. Green Paris Dated July 16, 1921 Recd. 9;15 P.M. VHL Secretary of State, Washington, D. C. 449, July 16, 5 P.M. B-515. Bergman today in a conversation with Logan regarding German payments stated: First. Germany paid to date three hundred million account first milliard leaving seven hundred million gold marks payable before August 31st. This balance partly already covered but Germany still short four to five hundred million gold marks foreign exchange. This fact common knowledge results in wholesale selling of paper marks by speculators who buy foreign exchange, preferable dollars. Second. There is a real explanation of the present rise in dollar exchange as compared with all foreign exchange though in the beginning this rise probably attributable to dollar purchases under instructions Reparation Commission in connection with first payments. Exchange rates other European countries follow movement of paper mark relation dollar. From May to middle July cable rate pound sterling fell from $4.00 to 3.65,guilder fell from .33 to about .32. When mark rose lately New York from 1.28 to 1.35 correspond- ing improvement reflected other European rates; no other explanation is possible except speculation. Third. This situation will be aggravated, perhaps result in crisis affecting all European exchanges unless remedied. Suggests as remedy extension - 2 - of time, say three months for payment. Ordinarily German Government easily secures 150 gold marks monthly therefore extension would permit purchases, but more important still would hamper speculators who now have absolute certainty to work on; thinks therefola effect of formal extension would be to permit Germany to fulfill obligation by August 31st without taking advantage of extension. German Government for political reasons cannot request extension but hopes Reparation Commission may in interest not only Germany but in general interest suggest foregoing remedy". Ber7lanls foregoing views as to result of extension probably too optimistic. Believe British, French, and Belgian treasurys considering proposal and that question will probably come before Commission shortly. Suggest our Trea3ury and Federal Reserve be immedi2tely and confidentially advised of situation. Boyden. HFI1RICK HS UNITED STATES UNOFFICIAL DELEGATION REPARATION COMMISSION 7 rue de Tilsitt Paris, France, July 18, 1921. Hon. Benjamin Strong, Governor, Federal Reserve Bank, New York City, U. S. A. 1,1r dear Ben: I have gathered from seeing copies of your recent letters to the Treasury Department that you are quite interested in Boyden has asked me to forward the German exchange situation. you some additional data on this subject, which I do with great pleasure. 140 A,. In the previous lette , in which I sent you a copy of our cable report to Thshington, the German exchange situation was However, I am enclosinL herewith copy of fairly well covered. a report from the General Secretariat of the Committee of Guarantees on the account given by 17r. Ritter of the German Government, on June 18, of the functioning of the Devisenbeschaffungsstelle. This latter office was referred to in our cable as the Central Exchange Office. As Exhibit B, I enclose a list, showing the amount of paper marks used by the Central Office in the purchase of foreign exchange during the years 1920 and 1921 from January to the seventeenth of June. Exhibit C will show the detailed transactions of this same office, from January to May, 1921. Ls Exhibit D, I enclose copy of a memorandum, which was prepared for me by Herr Bergman, following a conversation I had with him on July fifteenth, relative to the exchange situation as he sees it. This memorandum served as a basis for the dispatch We sent to the State Department July 16, 1921, a copy of which you probably now have. -2- Hamburg. Bergman is a confrere of Melchoir Warburg et al lent in He is the Financial Representative of the German Gove Paris, and it is thru him that the Reparation Commission maintains I am inclined to general liaison with the German Government. think that Bergman's views as to the immediate situation are I am, also, inclined to think that the somewhat pessimistic. results of his proposed extension of time are somewhat optimistic. However, it is interesting. I am sending the foregoing letter to you by safe hands, and I know you will appreciate the confidential character of the information. Faithfully yours, JAL /SR Dear Ur, Wadsworth: Replying to your note of July 18, enclosing a copy of Ambassador Herrick's cable of July 16, B -516, the following comments occur to me: First: It is, I believe, common knowledge that Germany is still or.ort a very large but unknown amount in balances available for reparation payments. It puts the exchange market and exchange dealers generally in the position of being able to trade against a very large short account in exchange which must be covered and does create a somewhat hazardous situation in the exchange market. Second: Any considerable movement in the major exchanges (that is, in the rate for sterling in Nov York or dollars in London) will be reflected under present conditions to a more or less corresponding degree in all other exchanges by reason of the arbitrage. Third: As to dollars already accumulated and those which may be hereafter accumulated in an orderly fashion without Um due disturbance to rates, there will be an ultimate advantage to this country because those credits once established here must ultimately be employed in this country, either in paying debts to our Government or our citizens, or in the purchase of goods in this country. The disturbance to the exchange market resulting from the use of these dollars by the foreign Governments which control them will be much less and much easier to oontrol than will the disturbance occasioned by the enforced accumulation of dollars by Germany at a rate beyond what the normal development of exchange permits. Fourth: Avoidance of extreme and violent fluctuation in exchange is the object to be attained by regulatibn. Regulation necessarily implies that accumulatien shall not be attempted by Germany at a rats greater than exoharge would normally be created by trade or than can be erected by the floating of loans and the arrangement of similar credits in currencies Which Germany seeks to accumulate. LLy personal belief is that Germany cannot and should not be allowed to mak() payments at a rate greater that,. that which is possible under exioting world trade conditions and credit conditions. This means slowing down the rate of reparation payments and probably deferring to same extent the conclusion of the immediate payment now pending. There is some fares in the suggestion that, if an announcement of an extension is made, the extension will be less needed than if no such announcement is made. 41- The whole sublest of the reparation payment opens up 1.14 vista of speculation as to possible consequences, *J oh 1 believe, in the interest of our own commerce, should be studied and understood and, 'hen understood, effort should be made to influence a reasonable control of the operation. yni,rm vary truly. Honorable Eliot Wadsworth, Assistant Secretary of the Treasury, Washington, D. C. THE UNDERSECRETARY OF THE TREASURY WASH I NGTON July 20, 1721. Ly dear Governor: In connection with my previous correspondence as to the reparation payments rm,de or to be made by Germany, I enclose for your confidential inforrration a copy of a letter dated July 11, 1921, from the assistant Secretary of Jtate, together with copies date of June 17th from of the enclosed Lr. Boyden, and the draft decision of the Reparation Commission, dated Jam 16th. The Treasury will be glad to have any comnents which you may wish to offer. Very truly yours, Benjamin Strong, Esq., Governor, Federal Reserve Bank, New York, N. Y. Enclosures. 4 July 2i, 192'. CONFIDENTIAL Dear Mr. Gilbert: Thank you for your confidential note of July 20, enclosing certain correspondence on the subject of German reparation payments. ' I had opportunity tc read this in Washington yesterday, and my leVtter addressed to Assistant Secretary Wadsworth, of which I handed you a copy, contains comments which it seems to me are justified, both in regard to this correspondence and Ambassador Herrick's cable No. 5-518, on the same subject, which was sent to me by Assistant Secretary Wadsworth. Yours very truly, Benj. Strong, Governor. Honorable L. P. Gilbert, Jr., Undersecretary of the Treasury, Treasury Department, Washington, D. C. ES: MM aT? July 2C, 19P1. Dear !Ir. Gilbert: Thie is to aoknowled7e letter of July 7.6, enclsain thaaks receipt of your for :ur c.-)nfidaatisl inforiatio7: v I jc4714 copies of Annexes No. 97,5 srld 974 a, and b f the fu Com:lesion, with respect to the currencies in --:hif,th the German Govtirnment is to motke reparation paynentF. Yours very truly, ben,. Strong, Governcr. honorable S. P. Gilbert, Jr.,' Undersecretary of the Treasury, Troftaury Department, Washington, D. C. JAMES A. LOGAN Jr. Paris, 7 rue rAlsitt. 26 July, 1921. PERSOKLI dear Ben, I am enclosing herewith, for your confidential information, the following documents, viz: -/. 1,-"meriorandum the fro el Delegation of the Committee of Guarantees at Berlin", dated July 4, 1921, This memorandum encloses copy of a German Note prepared by the German binis try of Finance on the German Budget for the year 1921 etc. The covering memorandum is explanatory of certain parts of the German rote and was prepared by the representatives of the Committee of Guarantees at Berlin. re., 9_0 2.- "Finarcial program of theCerman Goverment", dated July This paper has been prepared by the representatives of 15, 1921. the Committee of Guarantees at Berlin and should be read in connection with copy of our cable to the State Department, B-511, dated July 6, 1921, which I forwarded to you in my letter of July 6, 1921. - 71-0 This paper has 3.- "Balance Sheets of the "D" Banks or 1920". been prepared by the representatives of the Committee of Guarantees at Berlin. 4.- "Draft report from the Committee of Guarantees to the Reparation Commission concerning the interpretation of the word "exports" in the Schedule of Payments." The Committee of Guarantees, during its recent visit to Berlin, was instructed by the Reparation Commission to ascertain the views of the German Government regardim the definition of the word "exports" as applicable under the Schedule of Payments, and upon the total value of which the Index referred to in Article 4 of the Schedule of Payments (copy of Which I have sent This question is referred to in the above you) should be based. mentione cable to the Mate Department. This pater is the Committee's report to the Reparation Commission but has not as yet been passed on. 5.- "Report of a conversation ;ith Herr Bergman" concerning the possibility of raising an internal loan within Germany to meet immediate payments on Reparation ac ourt. i 6.- Extracts from astatimeL a re,,art made to the state Department concerning recent conversations between Loucheur and Ilathenau JAMES A. LOGAN Jr. regarding suggested method for "Deliveries in Kind" to erance. You will of course ai;I:xeciate the confidential character of all the foregoing. I hope you will find them interesting. Faithfully yours,. Ciel""'""" Incls. The Honorable Benjamin Strong, Governor New York Federal Reserve Bank, New York City. 443111. COPY OREM Paris, Dated July 27, 1921. Rec'd 10:14 P. M. i 164.* AUG 1 1121 Secretary of State, nDR m Mom' IWOr Washington. of my/ Yon 462, July 27, B-519. 9 P.M. Reparation Commission carries deposit sixty-four million dollars Federal Reserve credit Bank of England and Bank of France. Bank of !hgland reports communication Federal Reserve July 11th in substance: "View conditions of money market prefer not guarantee in advance rate reinvestments. Will reinvest best rate of interest obtainable and reserve one quarter one per cent per annum from such rate compensation our services guarantee and commitment purchase fifteen ''.ays notice of the (?) charge one quarter one per cent yiel'ing one hundred and sixty thousand dollars annually considered high. Bank of Englary' carries three million sterling account much more active Whose fifty thousand pounds free deposit yielding commission ore sixteenth one per cent. Finance service they represent one eighth of one per cent sufficient. Suggest Department discuss matter Federal Reserve finance service suspending action pending reply. Boyden. HERRICK HPD COPY CIRvEN Paris, rated July 281921. Bec'd 2:43 P. M. Secretary of State, Washington. 463, July 28, noon. R 520. Your B 259, July 26. Arrangement for guarantee against e,:change risks by flovernments continued for July. change for August. Boyden. FIFIZRI7,TC LM Do not expect any Cs THE UNDERSECRETARY OF THE TREASURY WASHINGTON CMFIDFNTIAL July 28, 1921. My dear Governor: I enclose for your information a copy of a cablegram from Mr. Boyden, dated July 25, 1921, as to the reparation payments which the Geraan Government expects to make this week wad the first week in August. Very truly yours, 3` Benjamin Strong, Fag., Governor, Federal Reserve Bank, Ferieral Reserve Station P. 0., New York, N. Y. 1 enclosure Fillu,ti-Af THE UNDERSECRETARY OF THE TREASURY WASHINGTON AN vv ERED JUL 3p July 29, 1921. 1921 WA Dear Mr. Case: I transmit herewith a copy of a cablegram dated July 27, 1921, from Mr. Boyden on the question of the compensation of the Federal Reserve Bank of New Tork for its services in connection with Reparation Commission deposits for account of Bank of England and Bank of France. I understan3 that Gov- e-nor Strong has alrea'y seen a copy of this cablegram in Washinvton. Very truly yours, J. q. Case, rag., Deputy Governor, Feri_eral Reserve Bank, Federal Reserve Station P. 0., New York, N. Y. 1 enclosure. i TRANSLATION OF A REPLY FROM THE GERMAN GOVERNMENT OF THE FIVE NOTES OF THE COMMITTEE OF C ,GUARANTEES SENT 28th. June, 1921. CONFIDEN1 IAL 12.3.1-11T, 29th July, 1921. The Chairman of the jeutsche Xriegslastenkommission. Sir, In the name of the German Government and with reference to the letter of the Imperial Chancellor, N°. V.L. 5533, of the 1st July, 1921, the German Kriegclastenkoramission has the honour to make the following reply to the notes transmitted on the 28th June, 1921: The German Government has no objections to raise to the estimates drawn up by the Committee of Guarantees in Note 1, under Article IV of the Schedule of Payments of the 5th May, 1921, in respect of the payments to be made by Germany in 1922 and the following years. In regard to the dates of payment, however, attention is drawn to one point, which still requires explanation. _According to the scheme of the Committee of Guarantees, the marterly annuities, Which under the Schedule of Payments, fall due on the 15th May, 16th Jugust, 15th November and 15th February, shall be paid at the rate of one third two months in advance, and another third one month in advance. Should this scheme be literally applied, the German Government would have to pay 4 x 1/3 of 275 millions two months, and 4 x 1/3 of 275 millions one month before the date provided for in the Schedule of Payments, Which would amount to a charge of roughly 4,625 millions mold marks per annum. The German Government is of the opinion that this charge is not provided for in the Schedule of Payments of the 5th May, 1922, and recuests the Committee of Guarantees to confirm that, if GerMany aarees to the method of payment laid down in Note 1, she will be credited with interim interest at the rate of 5% in the usual manner on the sums paid in before the due date. The Committee of Guarantees further requires that the Customs receipts shall continuously be paid in foreign currencies or gold at such a place as shall be indicated by the Committee of Guarantees. Government, therefore, would be obliged continuously The Garman to procure currencies for Customs receipts said mould lose its necessary freedom of action owing to the necessary general procuring of currencies. The Gerean Govern- ment is of the opinion that the spirit of the Sohedule of Payments would be complied with if the Customs receipts were paid in quarterly instalments, vie. if the, corresponding value of the Customs receipts for the next but one preoedine German financial quarter were paid on the 15th January, 15th !pril, 15th July and 15th October. In the opinion of the German Government, however, it is not necessary continuously to Change the Customs receipts into foreign currencies; it will be quite sufficient if they remain attached fer the purposes of the Committee of auarantees until the payment of the qaarterly instalment of the fixed aunuity has boen covered by deliveries in kind, or by some other moans. II. In accordance with of Payments of the rticle VII, f2, Sab-Para, c of the $chedu.1e 5th May, 1921, the German Government has offered to transfer the revenues of sex different taxes, makine a sum total of 25,000 million paper narks, as security for that part of the German debt vhich is not covered by deliveries in kind or the receipts obtained in Great Britain through the "German Reparations Recovery Apt", provided that the claims to the import and export duties and revenues arising out of a tax on expert values, under Article VII, r2, Sub-Peras. a and b are reneunced. On the Other hand the Committee of Guarantees has declared that it amid not for the moment renounce the claim to the Custeme receipts, which were assessed at 400 million Bold marks, nor to the revenues arising from a tax on export values, provided for in 'art. 7, /e2,Sab-loarae b of the Jchedule of Payments. The Committee is merely willing to allow the revenues from the six other taxes to rank as a supplement, and claims 64 of these by way of guarantee. S (3) The German Government is therefore face to face with an entirely new situation. The offer ofthe revenues arising out of 6 taxes and amounting to 25,000 millions, as a substitute for the eurcos of revenue required under Art. VII, 2 sub- paras. a and b, and supplementary to them, was made for the purpose of covering a sum of 1690 million gold marks. Since the Committee of Guarantees considered itself for the time being unable to renounce the sources of revenue mentioned in Art. VII, § 2, sub-paras. a and b, either in point of fact or on a question of principle and particularly demanded the payment of the equivalent value, it is now necessary to offer a supplement to the funds mentioned to the amount of 650 million gold marks. Under these oircumetanoeo the Geyman Government can no longer keep open its offer of the lEsth June. It also greatly reerets that it cannot comply with the suggestion o_ the Committee of Guarantees to the effect that half of the revenues arising out of the 6 different taxes should be treated as a supplement. The German Government i obliged to take steps to ensure that its financial and political freedom of action is not restricted any further than is made absolutely necessary through the direct application of the Schedule of Payment::. Ueneceosary work and expense world also result from the transfer of the revenues of 6 different taxes. The Gorman Government therefore proposes to the Commitece. tee of Guarantees, as security for the sum of 65u,gold market - the revenues of the turnover tax (exeluding luxury tax) up to the amount of 12,600 million marks. In doing so, the Gorman Government acts on the supposition that the bill for an increase of the turnover tax will become law and come into force as from the let April 1922. Should this supposition prove false, the German Government reserves trio right to/ submit other proposals immediately. The Committee Of Guarantees is hereby requested to accept this proposal as,supplement to the other funds allooated. With regard to the assignment of Customs receipts, the German Government, in order to avoid any possible misunderstanding, explicitly states that under Customs duties which are assessed at 200 million gold marks, in conformity with the German statements made at the morning Sitting of the 18th. July 1921, only those taxes should be understood which are levied on the import of goods in accordance with the German Customs tariff and German law upon the payment of Customs duties in gold. ill. with regard to the suggestion of the Committee of Guarantees as to the desirability of stabilizing the rate of exchange of the mark by balancing the budget and by stopping any further note issues, the German Government begs to point out that at the present moment a large financial programme is being prepared in aocord- ance with which existing taxes will be considerably increased and new taxes introduced. By this means it is hoped to balance the receipts and expenditure of the ordinary Budget. Expenditure necessary to the execution of the Peace Treaty, which will be required for a longer period, and in particular expenditure in connection with the execution of the Schedule of Payments and the cost of the Armies of Occupation, will be verged - CIO (5) into the ordinary budget, eo that out of the expenditure occaoioned by the Peace Treaty, only those amount which may be expected to be reduced in the near future, will remain on the fytraordinary budget. The right of examining in detail the teuVrewel mode of payment is aeolenved until the seearate figures have been fin aly established. The opportunity is hoevver now taken of pointing out that the expenditure of the ordinary budget is increased by more than 100,000 milliene, and that this finan- cial prognems makes very heavy calls indeed upon German This transformation of the budget will only taxpayers, come into full effect in 1922 and the following years. It rill therefore only be possible gradually to restrict new note issues. In hoe ar the attempts to arrive at a balancing of the budget and the suspension of the issue of ne, notes are capable of realisation will furthermore de end considerably upon the facilities granted to Germany to ro-trict unproductive expenditure under the Peace Treaty. The German Government is ready to supply the Commitee of Guarantees, ueon request, with fuller details as to the amount of what, in its opinion, constitutes unproductive,expenditure, together with ieformation regardine the object of such ee9enditure. Opportunity is now taken of drawine eoecial attention to the cost of occupation of the Ilineland, the expense c).' the Interallied fissions of Control, and to certain military measures taken by these Bassions. IV. The second Note of the Committee of Guarantees exhaus- tively summarises all the r marks which helve been made on the German side in regard to the meaning of "3xDort" and improve.. rents to be made with regard to export statistics. V. As has been pointed out meny times by the German representatives at the joint meetings, considerable hesitation is felt in regard to the direct collection of 25% of the equivalent value of German eports. sary on thi, It does not appear neces- occasion to go once more in detail into the 46) difficulties.which stand in the way of direct collection. The German Government maintains its polt of view: in fulfilmant of the r?quest contained in Note 3 it will AoTever prepare a system for the direct collection of a certain percentaGe of the equivalent value of exports. The German Government however reserves the right of getting into touch once more with the Committee of Guarantees on this matter. VI. i Lo far as the organisation of a system of supervision concerned, reference is made to the verbal statements of lerr Schroeder at the interview of the .9th June. The German Government has the honour to state once more th:A it regards the prescribed measures of supervision as too 1E1.r-reaching. It is of the opinion that these measures will prove a source of difficulty and/ (7) friction of all kinds Which would be calculated to endanger the material aims of the control. The r_ason for providing securities in accordance with Art. VII of the .,chedule of Payments is to provide the holders of the bonds to be issued with security that the service of interest and amortisation will be carried out correctly and punctually. Au exact dates of payment are prescribed under Article IV of the Schedule of Payments, and as the individual payments are to be maaa by a number of instalments during the intel'ost year (aiAgenjahr), this alreaay amounts to a guarantee for the proper functioning of the bond service, and the secarity required under Article VII of the Schedule of Payments should be regarded as additional thereto. In other words recourse ehould only be had to the Guarantees if, and as soon as, the current obligations are not fulfilled correctly and punctually. long as the individual payments ar punctually effected, there Therefore so correctly and no necessity for the establishment of an organisation to control the matter in detail. The proposed Lazpervisory Organisation demands much more than that which has hitherto been expected of other States on the taking up of foreign Financial cont;o1 has so far only been exercised over :hates, the administration of which at critical moments should really not be compared with that of the present German 1L:aUnistration. In Germany the Finance Aiministration con ucts its business in an S 40 (8) appropriate and orderly manner, strictly observing all the regulations of its service. The Committee of Guarantees requires:- (a) Control over the correct entering-up and classification of export values by the Imperial Statistical Bureau (Statistische "eicheamt); (b) Control over the finance administration in general, and over the correct entry classification and delivery of the Customs receipts and receipts from the various taxes which h -ve to be h :nded over as security for the remainder of the interest which is not otherwise covered. The following remarks are made in connection with (a):The German Government agrees to an of_icial of the Committee of Guarantees being attached to the Imperial Statistical Bur eau (Statistisohe iteichsamt), ior the purpose of studying the methods employed when establishing trade statiAics, so th-A he may a :ure himself of the manner in which these methods arc applied, and of their Luccess, and report thereon to the Committee of Guarantees. The Imperial Statistical Bureau (Statietisches 1lichsamt) will be instructed to supply all information required to this end, and to grant permission for the examination of the official files. This permission however is granted subject to only ouch information being required as may be really necessary for the fulfilment of the objects of the Committee of Guarantees; and (9) also that the Imperial Statistical Bureau (Statistisches Reichsamt) will not be called upon to :Jve information beyond that which it may susely under the legal provisions governing its relations with the public Who are undr the obligation to furnish such statistics. Officially speaking, the German Government acts on the supposition that Buell information can only be required as a matter of principle from the President of the Impsrial ',:;tatistical Bureau (StatiAisches iteichsamt). In order to simplify work, the President will appoint senior official to whom the representative of the Committee of Guarantees must apply for assistance. The representative of the Committee of Guarantees will rceive all possible assistance within the above. mentioncs:' limits. The German Government also agrees to an occasional inspection of the Declatation Offices (Anmeldestellen), where the representative of the Committee of Guarantees can assure himself of the manner in which the export declarations made, and of their regular transmission to Berlin, The German Government however considers it necessary that this suervisor should always be accompanied by an official of the Imperial Statistical Buy.eau (Statistische i:eichsamt). The German Government is of the opinion that only by such means will it be possible for any objection which may be raised by the representative of the Committee of Guarantees, to be qaickly and adequately ;salt with and misunderstandings avoided. There will be difficulties in the mky of the quarterly convoction of the Trade Statistics Board (9) also that the Imperial Statistical Bureau (Statistisches Reichsamt) will not be called upon to give information beyond that which it may supply under the legal provisions governing its relatione with the public Who are undr the obligation to furnish such statistics. Officially speaking, the German Goverment acts on the supposition that such information can only be required as a matter of principle from the President of the Imperial eeatistical Bureau (Statiitisohes Iteichsamt). In order to simelify work, the President will appoint senior official to whom the representative of the Committee of Guarantees aunt apply for assistance. The representative of the Committee of Guarantees erill receive all possible assistance within the above. mentioned limits. The German Government also agrees to an occasional inspection of the Declatation Offices (einemeldestellen), where the representative of the Committee of Guarantees can assure himself of the manner in which the export declarations are made, and of their regular transmission to Berlin. The German Government however considers it necessary that this supervisor should always be accompanie by an official of the Imperial Statistical Bueeau (Statietischee ileichsamt). The German Government is of the opinion that only by such means will it be possible for any objection which may be raised by the represent' tive of the Committee of Guarantees, to be qeickly and adequately salt with and misunderstandings evoided. There will be difficulties in the way of the quarterly convocation of the Trade Statistics Board (10 (Handelsstatiotieche Beirxt), as the Zact should not be overlooked that it will in many cases be impossible for the honorary active members to accept the invitation to the quarterly meetings. The re.:_rman Government there- fore suggests th.A the representative of the Committee of Guarantees shall by virtue of his work at the Imperial Statistical Bureau (Statistisches Reichsamt), -ecide whether it will be necessary to call the quarterly meeting of the Trade Statietics Board (Handelestatistische Annex I. eiret). Annex I with 10 sub-annexes contains - classified and explained - the regulations governing trade statistics. The foibwing explanation is given in connection with (b):... According to Note a, N° 2 the Committee of Guarantees wishes to depute to the Imperial Ministry of Finance a special representative belonging to the Delegation of the Committee in Be:elin, to whom Shall be accorded the right of examining all documents (instruction;, circulars, etc.) relative to the assessment and collection of the sources of revenue. The representative shall also be empowered to demand that the monthly summaries of receipte from the allocated sources of income be submitted to him. A number of supervisors attached to his service are to obtain explanations from the district and local officials of the Imperial Finance AJministration, and chock their account.ikeeping. in this way there would be the special supervision of the Delegation of the Committee of Guarantees in addition to the existing German control over the actual / entry of ell Uleetome duties and tax amounts which are legally payable, their entry in the preeoribed receiptbooks; the correct transfer of the entries on the reeeipteregistere of the Colleotion Depots, the eeoeipt Registers of the Oberfinanaleausen end the: Of icial eceip :.eporto of the Imperial Aetistry of Finance, whieh have to bo published monthly. In addition to the Gore= control there would also be the further su,:ertition of the Dele6etion of the Committee of Guarantees, exercised in one way or another. such oupervieion would only appear justifiable in the eyes of the Gertean Government if eeirean methods were ina equate or insu:ficient. Annex II. Annex 11 with il sub -annexes, eiveo an exact eeplanation of the organisation and adminieration of receipts, and particuleely of the organisation of the correct and complete method of dealing with such receipts. According to thie every poceible_guarantee ie furnished that all eum legally due for Cuetome: 7)utiez or Tax amounts and all other '.1 ",20 :Till be collected; that the ',mounts lend thus collected will be entered in the this ceipt :..00ks;/from ill be transferred ':v:ry month etel quarter on the leceipt4-egieters and 6tatements of it coipte, ethich have to be handed in to the Imperial Aceounto G.iLice of the Imp xial Itinistry of Finance, To b gin with, prellianary books to the Roceint peaks are kept. The prescribed eertifice stating thet the data contained in the iteoeipt elegietere of the Collecting Ofeices reeree with those of the Aeoeipt Books, ero made out in the Local Administrations by senior of-Ticials of the l'inance (10 Administration who have not been concerned in the collection of the ,..cceiptu nor is tao kossoing of thu aoceipt-Buoks. The certific.?,t.:s concerning the 00=0ot-tie:is of the ,reports drawn up by the "uberfinanzkasoon" are issued by the senior :Directors of Accounts is the district administration, ,hich are ov r the Gborfinanzka;sen". In this manner there is complete contrail and Guarantee in rot:meet of the acurate tr:,nsaription of the :taxes legally due into the eoeilyt Looks, and thoir correct transfer from these 4,oceipt, ooks into the ,ceeipt- .ogisters and solApt.,eports. In addition, provision i s made for a fu thor control of the books by the Accounts Of ices of the Lanaeefinannanter. Finally, the hie host Accountancy Service of th:: himpire, the Accountancy Department (.echlun3ihof) in Pot,dam, verifies the individual accounts to be presented to it by the "Obarfinanzkassen", and the g.noral account to be drawn un by the Imcrial Paying-in Office (reichAuptkaSse). In addition to this, the prescribe.1 ordinary and e traordi.nery gua-antee, mnd revenue rovisions off r a still furtber In the opinion of the Gorman Goverment, this well-trou-ht out, porfeete.,1 systIm of control, rhich has stood the t,:st for more than 100 yer , offers every guarantee which the Committee of Guarantees could desire in view of ita responsibility in the matter. The iiormaa Uovornment taereforJ requests that aupervioora shoula not be sent to the ..ijis'c,rict and Local Offices to collect information aaj examine the books and accounts kept in those oficos, It would also appear unaoceusary to the German Government for an official to be aermanonday, W.taehed to the Im.vrial Ministry of Finance, and for him to be (supplied) (13) anpplied with ell the 6;eheral decrees and documonts relating to the prescribed sources of revenue, rrom which the monthly receipt reports are prepared by the Imperial ;einitity of finance. The general orders in connection with Wetoms :Mies are regularly published in the weeichezoliplatts, and those referrine to taxes in the "Aeichesteuerblatt". These two oeeicial pepere, of which copies are attachou to Annex II at; emb-annexen 12 and 15, will be LeeLaazaz supplied in as many copies ae r ouiredto the eJelegation of the (krmetittee of Guarantees. 4iurthermore, Vie Delegation of the Committee of Ceerentece will receive eeverai copies of the monthly ecaipt eeporte drawn up by the Imperial XiniEery of '2inancee (Oub-Annex 7 to Annex II). oho ld the Cometittee fuether desire to send a representative to examine the doeumento (monthly an' quarterly eeceipt sports of the Nebertineezkaeeena) upon whioh the totl monthly iie;ures for the revenues accruing out of the Gu.tams euties and Taxes lo the whole empire, ere estebliehed by he imperial Aceountency =epertment of the Lini try of einanoa, the Geretan Goverment is willin8 to give tne neoetesary instructions to this effect. It is however requested th..,t the officiel thus 7.ieleeuted ehoul- only conduct such examination and verification of the total monthly return of Cueteme duties en,:, turnover tax, wren the finl .figures hove been eatabliehed and published in the eleidiel heccipt oporte. The Receipt eenorte of the uuberfinenzkaueon" contain, as may be seen froa aubunnexes ti and a of Annex II, not only the nonthly or quarter y receipte flean Cu tome, including; extra chergee and also the receipts free the numeroun other branches of Imperial Texes. They met therefore bo passed through the (14) Imperial Accountancy Department so that the total figures for the separ-to in;:eo may be worked out, an can only be eubmittod in a elaseified form when each montios work has been completed, i.e. when the Official -eceipt 1eport has been drawn up, or the same reaoon it ie not po.eible IVO supply the zoresentative of the iieleeneion of the Commitee of Guarantees with these eeceipt 1:oports, ae only one copy eC oaoh is forwardcj to the Imperial Aceountency Department. These lieporte can be examined in the Imp .vial Aeeountanoii Department it .pelf. The Imperial Linietry of elnanco will appoint a ienior off iceal who ;-111 tranreait the wishes ol the represen- tetive of the CeeemiLtee of 'euaranteee to the proper quar- ter, and the services of this Official Alould be employed in each matters, The bove observations furnish the Committee of Guarantees with a complete explanation of the existift Gexman reeulatione eoveenine the correct collection and eeeploymnt of the eevenues of ehe eutur neeotiations with the Commiteee of Guaran- teee would, in the opinion of the Geeman Government, be conoiderably facilitated, if one or more representatives of the Committee of Guara7Itees were deputed to visit the competent offices and convince himself or themselves of the correct working of the organisation as explained above, on the basis of the doe-temente and regulations which have been transmitted. The Carman Government is always willing, upon request, to eive the required instructions to this effect, arc l to Brant all necessary facilitiesee I hove the honour to be, LA.r, Imperial eeinietry of iinenoe Geheime IAiZL Si,, Aiwa 1 LIST OF LAWS IN FORCE TIM REGARD TO TRADE STATISTICS. lub-unex la_ Regulation relating to statistics of trade with foreign countries dated 7th. February 1906 (Reiche-Gesetzbl. 2nge 109), Exeoutorj ord,-rs and service regulations in Sub -Annex s I Connection therewith dated 9th. February 1906 (Ccntralblatt fur des Jeutsche Reich no.9, .'age 137) Decree of the Bundesrat dated 5th. April 1909 Sub-Annex 13 with regard to alterations in Para. 20 of the executory orders regarding the statisti.cs of trade with foreign countries dated 7th. February 1906 and Annexes (&) and (C) of the statistical trade list (increase of those goods for which in certain trade indices, beside the statistical number, the usual trade term is rlso to be included, and the extension of the obligation of declaring export value to 1336 Nrn. and with regard to import to 32 Km. (Zentralblatt fir dab Deutsche Reich, gage 141) -Lkinal Decision of the Rundesrat dated 9th. Lebruary 1911 with regard to rlterations in the executory orders and service regulations regarding the law in respect of 4 the statistics concerning trade with foreign countries dated 7th. February 1906 and also '=nnexes A and C of the statistical trade list (increase of those goods for which in certain trade indices, beside the statistics' number, the usual trade term is also to be included and the extension of the oblige tion of declaring export value to all goods and as regards import to 61 lime of the statistical trade list). (Zentrar.bl. fir des Deutsche Reich, ?age 41) Au u r P TAWS IN FORCE !VI TH REGARD TO TRADE 3TATISTICS, T.1"7,11 Sub-Anne:z 1. S jib - Anne Z I Lt. Regulation relating to statistics of trade with foreign countries dated 7th. February 1906 (Reiehs-Gesetzbl. rage 109), Exeoutory orders and service regulations in connection therewith dated 9th. February 1906 (Centralblatt fiir des .0eutsohe Reich 1 o.9, .Wage 137) Sub-Annex I3 ao Decree of the Bundearat dated 5th. April 1909 with regard to alterations in Para. 20 of the executory orders regarding the statistics of trade with foreign countries dated 7th. February 1906 and l'ernexes (A) and (C) of the statistical trade list (increase of those goods for which in certain trade indices, beside the statistical number, the usual trade term is "lso to be included, and the extension of the obligation of declaring export value to 1336 urn. and with regard to import to 32 Urn. (Zentralblatt fiir dee L'eutsehe Reich, Wage 141) Su47-Anne I Decision of the Bundearat dated 9th. February 1911 with regard to rlterations in the executory orders and service regulations regarding the law in respeot of AL the statistics concerning trade with foreign countries dated 7th. February 1906 and else annexes A and C of the statistical trade list (increase of those goods for which in certain trade indices, easide the statistical number, the new)l trade term is also to be included and the extension of the oblige tion of declaring export value to all goods and as regards import to 61 Urn. of the statistical trade list). (ZentraLbl. fur des Deutsche Reich, ,'age 41) Annex II Statement with regard to existing German reCulations concernins the assurance of returns, exact statistics and payment of customs receipts and the turnover tax. (1) ORGANISATION OF STATS; FINANCA ADMINISTRATION, A, General: The central administration of the whole of the financial administration of the State is the State L- inistry of Yinance (Reichsfinanzministerium). Below this come the Provincial Finance Bureaux (Landesfinanerater)(26), from which again depend the finsncial offices for the ndministration of direct and trede taxes and the Chief Cu toms Offices for the administration of the Customs and sxcise (Verbrauchssteuer). Under the Chief Customs Office come the ordinary Customs Offices (several thousands) which are entrusted Tith the levying and collection of the Customs and vise duties. In addition, the districts of the Chief Customs Offices arc divided into suoervisory districts for the supervision of the general Cuytom. and Axcise Department. These supervisory districts are p_dministered by special officials. n the Customs 3ervjce: The Customs louses and their dependent Customs Receipt Bureaux are under the orders of the Customs Cashiers. In the case of small Cu .toms Offices these officials are the Heads of the General Customs and -Excise supervising services of the districts in Which such Customs Offices are situated. In the case of larger Cu toms Offices these officials are the suservisors (Amtsvorst5nde). These cashiers are not concerned in the administration of the current cash receipts. The cashiers are under the orders of the Heads of the Chief Cu toms Offices: These again are under the order; of the President of the Department for Cu .toms and Axcise :uties of the Provincial Finance Bureaux (Landeefinanzftter). At the head of the Divisions of the Provincial Finance it; the President. thole of the ureaux (Landesfinanzgmter The Higher Finance 'Bureau (Oberfinanzkasse) to which the Cu toms Cash Offices are subordinate is incorporated in the Provincial Finance Bureaux (Landesfinanz!Later). The Central Cash Department for the State is the State Treasury (eichshauptkasse). C. junervision of the Cash -receipts as re;:ards the Turnover The remarks made above with regard to the supervisory service of cash receipts for the Customs Administration also holds good for the State Taxation Administration which, together with the former, constitutes the State Finanoe Administration, together with the Administration for the Turnover Tax. In the place of the Chief Cu tom Offices and the Customs Offices come the Finance Offices (1'inanz5mter) an in the place of the Cu ,;toms Cash Bureaux (Zollkassen) come the Finance Cash Bureaux (i?inanzkassen). (1 cola* T ION A1ND V...AIFICATION OF TIt; CULiToikJ MCZIPT.. The import of goods from abroad according to the Customs Union Law of the let July 1869 is linked up with certain lines (Anilways) and landing places. as soon as receive All goods must be notified to the Customs Offices situated at these places. From thi moment onwards the goods ar,1 controlled while they remain in Germany uninterruptdly by a syJtem of Cu:toms papers and registers (notification of entry of goods, consignment notes and waybills) and are supervised until they pass into free coaerce, having paid Cu toms duty, or on account oi their being free of duty or until they are re-exported. The amount of duty to be paid is noted on the Cu toms papers and a note ma Se thst collection has been effected, the booking dumber in the Customs Receipt Book being given. The daily elms on account of a single customs receipt are transferred from the Cu tome ieceipt Look into the actual Cash 'Book. The declarant receives a leceipt for every payment made direct to the Cash Office. In this receipt the number of the Receipt Book also has to be given under which the amount is entered. The declarant has an actual interest in obtaining this receipt as it forms a proof that he had paid the Customs duty on the goods. The Customs Service must, as a matter of principle, be carried out by two clzicials. The management of the cash business io also on principle in the hands of two officials (Cu. toms Offices which are run by one official alone, are situated on unimportant routes where there is not such traffic, and the receipts are unimportant). The bupervisory Cashiers (Kassenaufsichabeamten) and the Heads of the Chief Customs -ffices are continuously vidting the Customs Offices for the purpose of verifying the conduct of business without any previous warnins, or for the holding or psviously-arranged ordinary or extraordinary surprise cash examinations. In the same way the Department for Customs and :;xeise Duties of the i'rovinoial :Finance Lureaux (Landesfinanz5mter) occasionally verifies the cors:uct of the Customs Offices in regard to business and cash administration. At the end of every month and quarter the results s-esssia7 of the period in question arc cstaii,leshe-d. AR.C2 These results are immediately transmitted to the "nigher ginance Bureaux" (Oberfinantkassen) in monthly and quarterly Receipt Registers (Ainnahmenachweisungen) attested by the Supervisory Sub(Annex 1) Caehiers (Kaesenaufsichtsbeamten) (compare § 98 of the annexed model of a formular for the Yinanc Bureaux (11nanzkassen) which is provisionally valid, and the proofs of the Receipt je,isters). The Higher Finance Bureau (Oberfinanzkaese) classifies the data received, enters Sub(ennexes 6 & 4) them every quarter in the Account Book kept by it, and transmits the results for the whole distridt of the Provincial Finance Office (LandesfinInzamt) in the form of monthly or quarterly Receipt Reports, to the State Accountancy Sub(Annex 2) Department (eeichsrechnungestelle) of the State .elnietry of Finance. 0 38 of the formular for the "Higher Finance Sub(Annex 4 & Bureaux" (Oberfinanzkaesen) and proofs of the 1eceipt eports). On the basis of those documente, the State Accountancy Department (eeichsrechnunesetelle)prepares a vammery from which the revenue arieing out of each individual branch of receipts, and arising out of this the Customs eeceipts for the whole State may be seen. This summary is published in the "Reichsanzeiger" and tee "Zentralblett far das Deutsche -eich". Sub(Annex 7) A copy of the eummary for the month of Lay 1921 is annexed hereto. At the end of the year, the Higher Finance Bureaux (Oberfinanzkassen) prepare in addition a epecial detailed Register (Ainzelnachweis) of the receipts as recorded in the Receipt Registers and Summaries, as per Sub} example annexed. In these detailed Registers (: Anzelnach- (Annex 8) weis) the annual results of the individual sources of revenue are given separately according to Customs Offices (eollkansen The detailed register (einzelnachweis) which forms the basin upon which the "Rechnungshof" of the Genlan State (which i s entrusted with the supervision of all revenues of the :state), can verify the annual account :, is also submitted to the Impeeial State Accountancy Department (Reichsrechnunge stone). The digher Pinance Bureaux (Oberfinanzkaesen) must in addition draw up a final administrative account (Verwaltunguab:Lchluss) with Sub+Annex 9 :Alb-,nnexe It, for the official year in accordance and transmit it to the estate Accountancy Thi.: final adminis- Department Loicherechnungsstelle). trative account must include the toal receipt., and expenditure of the Nigher Yinance bureaux (Oblrfinanzkassen). The correctness of thin account and its agreement with the books of the Hi6ner Yinance .LAireaux (Uberfinanzkassen) and the above-mentioned detailed iegister (inzelnachweis) of revenue, must be explicitly attested by the .2irst Accountant (-:rste ieollnunessclirektor) of the Provincial finance Office (Landesfinanzamt) after a thorough comparison. (3) FURTILlit 123ASUR Q PaOTZ.VION SXMLINATION OF ipOOJCS AU) 1...:.:CO4D16_, As stated above No. ( ) the Customs Offices (Lollkassen) close the Cu tome :leceipt 'Books once a quarter, and thereupon forward them with all records and preliminary books to the Provincial Finance Officee :pub-Annexes In accordance with the annexed decision (Landesfinanzmter) 10 & 11. of the Bundesrat, aced 27th -ovomber 1913 - $? 1300 of the Protocol and N 159 of the printed matter the Provincial Finance Offices (Landesfinanzamter) comparethe preliminary books and records with the entries in the Receipt Books, so that no actual receipts arc miesinL; from the Receipt Looks; check the correctness of the adc'itione in the heceipt Nooks and the accurate transfer of their total amounts to the additional Registers (detriled -o6ister of 1,eceipts (- I:inzelnachweis der Einnahme), final alministrrtive account.,: (Verwaltungsabschluss), annual accounts, deports on r.cceipto) and verify the correctne s of the records both for exactitude of subject matt-,r and accuracy of calculation. Jbjcctionn are explained and remedied. Should there be missini;; amount , they will be called in and entered on the current receipt books. In this manner every possible care 1:!, taken to prevent irregularities, which is guarantee .1 by the _act that A.1 Customs and Tax Receipts to Ahich the estate is entitled, re correctly recorded on reported to the State Accountancy Department (Reichsrechnung:etelle) every month. (4) COLL3CTION AND it.4;OUADING H. TUARVT4h TAX. Turnover Tax declarants must notify the Tax Office upon the cormencoment of their commerciial or professional business, and must surrly notes for the purpose of establish- ing the amount of the Mx to be levied. They arc subject to A.tcxt--- tm control. The competent authorities for the administration, establishment and collection of the Turnover-Tax are the Finance Offices (Finanzamter), Turnover Tax Office (UmsatzteuerF-Iter). Over these come the irovincial l'inance offices (Landesfinanz6mter). The Turnover Tax Offices must keep the most complete list possible of the Tax declarants (list of names, turnover-tax register) based upon the declarations furnished by the latter, and the information received from the 2rovincial authorities (Landoebehoerden) (i'olice authorities and those who are concerned viith the control of arofiteering,etc.) The Turnover Tax Offices must also call upon the Tax jeclarants to provide kurnwv:r ilex Jeclarut,,ione with retard to the total amount of taxes to be paid. The Turnover Tax Office controls the punctual return of these declarations by the help of the Turnover Tax ::e6isters. The Turnover Tax Office examines the declarations, assesses the tax and enters the contents of the declaration and t:se amount of tax thus assessed in a Turnover Tax List kept for each calendar year. This takes the place of a Debit '.iegister for tax tax amounts which are payable, and of Control Book for those which have been collected (Debit and net Tieceipts), and serves as a control over the punctual entries of the amount. due. The Tax Loclarent reoeivesanotification from the Turnover Tax Office, stating the result of the assessment, and inviting payment of the Tax within two weeks. In addition to the Turnover Tax List for the calendar year, a '2urniver Tax eceipt Book must be kept for the financial year. Both of thee books, together with the records belonging thereto must be forwarded to the l'ovincLal Finance uffices (LandesfinanzEmter) by the let Decdtber for examination purposes. The remarks made under (3), t. 1 also apply to the manner in Which the verifice.tion of the books, etc. must be carried out in this case. The Provincial finance Office (Landesfinanzamt) can further decree thrt officials appoint 7,d for this pur- post may from time tc time check the kee-ping of the Turnover Tax Lists and all other business records et the Head Office. When doing soy the Turnover Tax Lists and -eceipt Books are examinedAosee that they are correct find agree with each other, and the Receipt Looks and Annexes ar,.' checked as regards accuracy. iqnally, trial examinations must be made with the help of the Turnover Tax ReEisters, Lists of Names, Records, Tax :Declarations, Deports, etc., in order to see tether the Tax is being a2sessed punotually, and calculated correctly. The 'jtate Lini:ter of Finance m7y entrust other authorities than the provincial Vinanz Offices (Landesfinannamter) with this examination. When deliveries against Rlyment arc effected by persons who do not conAact 7.ny commercial lyisiuess, or when furnished slee ing or (!wellin; premises are let temporarily against payment of at least t3 _arks per day night, the Vrintims tiorko, 1411 as be r,:rperted tO the zAtIts 4aelpoitailey Dopertnent (= -10hsree_nuw-eltelle) elmry month se (*parts!. am!, be entered by the latter in the reportv 1p rtgerdinki the it 4rwoo tel .e.c.eeipti, of the State'. The nineunt it the eaoh be of th(# Ca4tome 4;ffiews (Ze114;i &;eA nuA net, as a matter of prineiples bl in exams of th IntAimme figure need. by the kronidanta nuance Offiefts (Lendeefinsesfikter), tho ilrovinola Co4teme 0fficr's (2011kn:Iser) mixt therefore transfer to the Aigh flames ( -erfinannkneson) all reyular reeol'Ite, imeadiatoly tk J1 natuol oatPA, te-c!oth??:r oath the 4iroo and adeoetoohneks t< At the and of tho may, ore in 070.1114 of the maxima meant llewed. Iva _7toention to thiii rule is only plrmIttod the monSylorneont is rmptro4 to met on :meats 'Mich 'nave b,san l'keouneorl arthAire to Vo r-de temodifttely. lad or VII year tho entire At the t tr, r ooipto Met be transferred to the Ael tiatlyloo ciffitioo (Oberfinanskessen), th4 lutu*t5 th Mae Ylima OfTioes ( fly this arfinAnakassen) *high are in recAlqr toul% with the lielehehenipthasetoil mast truomflr to the LAW all 7,11soipts without any vreePtiOus aftlr flAotion of the ordinary exponliture, iihartirl State 3' OUTGOILG Prepared by: James A. LOtgAn, Jr. B. ,. 30th July, 1921. sf CONFIDENTIAL SECaTaTi; GTOk; Further reforemoe 3 -,623 FIBS? Sub-paragraph One definition word - ,trtiole Four L.,t1024 our 1-511 July sixth STOP 1,,,ports UN,UOTE sub-heading A Sohedule Payments shortly oomes before Comalio3101; for determination STOP View far-reaohing general economic effect as well .,s effect on market our raw materials such ootton and copper deem desirable again plum sitw.tion before Department STOP -31:0014iD - Geremn exports officially oLcselfie4 as follows OMB A- OOTL General Comoros U11-40024 inoludes all goods passing out over German frontiers STOP B Value not recorded JTOP .VOTE Aotual Commeroe Illi-JIOTE same as VOTE General Commeroe UN. UOTE with exception that value non- dutiable gooey in direct trmsit thru Germany suoh as Swiss and Czasoho-lovakian deducted :ATOP eleven billion marks STOP Value such exports 1913 1;stiL.ated value 1920 including reparation deliveries in kind five billion eight hundred million cold arks - TJOTZ 4)eoial Commerce Ullf.ADVL same as ,..,UOTI; Actual Comoro, UN.102-13 with deduction following 001,11 One - Be-exported dutiable goods passing thru Germany Athout transformation .STOP :ewe - Goods bel-mging to foreign nationals brot to Gerrazny in bond for finishing and re-exported a2OP to Germany JTOP STOP Three - Gersun goods sent abroad for finishing in bond and return such exports 1913 ten billion marks excluding precious metals listinated value 1920 five billion fifty-three million fold mialcs STQP THUD - Germans propose definition JJOTa axports UN4OTB be bLsed on IOTE Special Comoros UNOOTE with following modifioations 00101: A 4xelude non-dutiable foreign goods originally deolared intended for oonsumption but actually re-exported from bend ,:7fithout trneforre;,tior: Including ootton rubber juto eta. IMP Exclude mart value formio'. goods aubleet B re-emported .52;le V.,riouts Lr slates bot;.) laa.,4rted ..ral OA:Cautati b j 4.1rata.ny for C jer):11/45 request oz, 7 va.lu, OX404a auGil jCia example ooJ1 4mt prooaa-Aztic :ind than v,tlue rfirkratton tiolivorlea 14, irizd usporte be loal...Alttal aaile /al foreign ilermman proposal leplias thot 117.4),J21: FlUZZi exortoe be Gel .Aotea irow viauu tot]. msterills sLterluti Gersuey *mother ettse czo ro-portoc: without trL il3foruution or 'A.3001 tr. ineldort to a4;ort tip, cos r*-adporte -ander 01ass ",,:; .,Ada was billion 191.1 etillioa as:4%z.: t'. iLti exports 1411 proOosooe L:oovw three buadyed ia.terti,ls finial:oat find To-expo-not cur.4 B we, million mr-rte :4)13 uo exports over Aitiowis tosui at ()Ter Cass trillion :trio Irta.dret x. commairee Illt,i;07.4 191.3 in *attest/mg 46.44eteu free ',JAM:. et%den is.turprei4sion stemiroia ty 4tarra_uns ±_brilore index ,bev. 1;obotit4le PI.Freesitsa drfifted tb7..t Zr-eitki presort lernrm outecory Somrorce Irdez upon ',Allots LV.L. tc, Iv need liotraLleas ceonocuto objeotiont oorvireed variable :aluity to be /1..mkut majority telegit-a* Commission 7.1.11 prose for awl purely A1411.01,A1 interieretaktion which is in sv.just...x3t 41(1:net - do pointed out our Cable B-61i Index realli rent-Ate 131 per -neat tax on wioil *Lila oxdort3 resalt trLa"flo Ntiloh *An 2;0, b4.a* intionittleaLly 51v.34 to ille,dv:xtz;ge ;lot 0s44 Utter Imp and eibeT3 ti,7:1101 stg soils 32'Z will interfere with 001ratrJro1/41 Ageriagi 01;11 tv.vrt7-31z ina41,01) !inaski bat ;a1110 Dour trios frnm which 1.1terprotatiam s 0::113.68.1 AA) rey judgment acrrettnmonts oonoernee. our LOIN :12tiolly,ted, totvosu nhke the laWniefirj Oluir.6-13.11 in present trilielL or better adopt eorio new indai - auct,mst attention Alpt=r taw t Ootarueroe be male& to foreoitig A0i) JAI/a Dear lir. Gilbert: I have your latter of Julys enclosing copy of :1'. Boyden's cable of July 27 regarding our compensLtion in connection with th'3 investmerit of Reparation Corriission funds on behalf of the Bank of England and Bank of France. We received a cnbleltiLrom the Bank of England on this subject, and nithough ye felt 1/4 of 1% to be a fair charge, ire have, after again carefully oonsidering the :latter, replied to the Bank of Englnnd that we geed to the Roparation °omission's suggestion of 1/8 of 1,4: as caJLE:ensation for our services, guaranty and comitzaent to purchase any or all of the securities on 15 days' notice. Very t J. II. Deputy Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Washington, D. C. 4 C warrior. July 30, 1921. CutiFIDENTIAL Dear Mr. Gilbert: V I thank vu for copy of a cnblegram from Mr. EidtAn, dated July 25o :21, r.c t the reparation payments which the Corwin Governmout expects to make this week and the first week in August, and which you e kindly sent us for our inforamtion in rur favor of July 24 Yours very truly, Benj. Strong, Governor. Hunormble S. ?. Gilbert, Jr., The Undersecretry tee Treasury; Treasury Depattmoht, Washington, D. C. GB:a c.-16(1 THE UNDER SECRETARY OF THE TREASURY WASH I N GTO N August 2, 1921. My dear Governor: I received in due course your letter of July 15, 1921, with reference to the German reparation payments. Subsequent de- velopments indicate that arrangements have now been made, with some success, for payments in other foreign currencies, rather than dollars, with guaranties against exchange risks be the Gov ernments concerned. A cablegram dated July 28th from Mr. Boy- den, a copy of which it enclosed, indicates that these arrangements have been continued for July and will probably not be changes for August. I quite agree with you as to the ultimate effect of convere sion into 'oilers, and the desirability of avoiding undue 1isturbances in the exchanges while 'oilers, or for that matter, other currencies are being accumulated. It is at Least ^oubtful whether our repraaantatives abroad understand the exchange situation, and whether they ere alive to the methods that shoull be employed to reduce exchange fluctuations to the minimum. On the other hand, the situation is largely in the ham's of the Reparation Cannission and the principal allied Governments, any so long as we are kept fully advised of developments, and so far as possible -iven advance notice, I should be discinclined to call any conference of foreign exchange men such as you suggest. woull be advisable? Do yoa still feel it After all, the interest of this Covernmnt, as a Government, in the method of making the reparation payments, is quite remote, and I should think that those directly conce-ned, including the allied lovermaents and the foreign exchange men in this country, could be expected to watch the situation and in the long run to eliminate exchange disturbances so far as possible. Very truly yours, Benjamin Strong, Esq., Governor, Federal Reserve Bank, Federal Reaerva Station P. O., No York, N. T. 1 enclosure (9 THE UNDERSECRETARY OF TH E T WASH I NGTONNC eDGel) 1921 S' August 2, 191. My dear Governor: I enclose for your information a copy of a aespat. (21i411 the American Conlulate General, at TonQ. don, Pngland, which sums arises a recent address by Mr. Re7ina1d McKenna as to the method of making the German reparation payments..__., Very truly yours, Benjamin Strong, Governor, Federal Reserve Bank, Federal Reserve Station P. 0., New York, N. Y. 1 enclosure d i ;. r =fr I August 3, ',921. Dear Mr. Gilbert: I have for acknowledgment your ett,er of August 2, ea- closing for our information copy of deepatch from the American Conoul-General at London, which summarizes a recent address by Mr. heL;inald Yolienna, fis to the method of making the Germaa reparation paymente, for which please acceiA thanks. cure very truly, benj. Ctrong, Guvernor. Honorable E. P. Gilbert, Jr., Unuer Secretary of the Treasury, Treasury Department, eashington, D. C. GLI:UX c;) 1 JAMES A. LOGAN Jr. iaris, 18 rue de Tilsitt. 4 Au Lust, 1921. dear Ben, On July 26th I wrote you a letter enclosing f' certain I have not been able papers which I thought would interest you. to find any safe messenger until todaz, so you vill receive my letter of duly 46th with this letter. I au enclosing herel,ith for your confidential information viz: LOOSE IN Hot. 1.- Annex 1026, which is a general report bz- the Committee of Guarantees on its operations in Berlin during the month of June. You already have this information in a somewhat condensed form in the cable which I sent you in my letter of July 6th, This may hacever clear up some doubtful points. 2.- Annex 1027a to f. this is a printed copy of the *draft report" in typewritten form enclostd in my letter of July 26th as item Yo. 4, 3.- Copy of a cable report to the State Department, B-523, dated July 30th. Asa matter of fact, since this cable was sent the (Jlestion came before the Commission and while no definite action was taken at the time there was a consensus of opinion that "actual com_erce" referred to in Fifth Paragraph of cable aj lied, though additional consideration was to be given to whether or not the value of "deliveries in kind" should be included. 4.- Copies of documents ros. 17, 40, 41, 46, 47, 48, 50, 51, and 52, of the Committee of Guarantees which I have just received. I have not had a chance to read them all carefully but from a casual examination I believe they twill contain much of interest to you. They are all documents which have been prepared by our Information Service in Berlin. As exhibit) to my letter to you of Jul-, 18th, I sent you copy of a memorandum given me by Bergman regarding the exchange situation. 7e Lre just today in receipt of the following: confidential information from our representatives in Berlin: "Prom reliable confidential information believe that German Government will be obliged to JAMES A. LOGAN Jr. "announce about AA:ust 20th their inabilit, to Loll meet entire obligation of One narks which they must deliver Allies before They have made every effort but August 71st. Governmental Authorities doubt satisfactory results". I am now preparing a cable for the State Department with this information which you will probably see before this letter reaches I believe that the Germans are being squeezed by speculators you. today and that this has much to do with the weakening of the paper The Germand may contemplate breaking such speculation by mark. On the an announcement public or through leakage of the foregoing. other h4nd such an announcement might even further weaken their paper mark. You are a better financier than I so I will leave you to make the guess. I don't take it too seriously. You will, of course, appreciate the confidential character of all the foregoing information which I am sending you with Boyden's "unofficial" approval. Faithfully yours, C-4 JiLiTT Incls. The Honorable Benjamin Strong, tiovernor Federal Peserve Bank of Yew York New York City, Y.Y. eiq JAMES A. LOGAN Jr Faris, 18 rue de Tilsitt. 8 August, 1921. eVC Nctc ,,n14""" \ %2' PERSOVAL NV1C3 11. -....y dear Ben, I enclose herewith, for your information, copy of Annex Uo. 1045 of the Reparation Commission. This is a copy of the letter, addressed by the Reparation Commission to the German Government advising the latter of the decision regarding the interpretation of the tord "exports" which occurs in Article 4 of the Schedule of Payments. 2he same :.iuestion was referred to in enclosures 2 and 3 in my letter to you of August 4th. It is of interest to note the next to last paragraph on page 3 of the Annex. You will see that while the Commission maintains its position under the existing schedule of Payments, it nevertheless impliedly invites the German Government to submit proposals for another index, or even farther by suggesting to the Germans that they propose fixed payments disregardin the index theory. Faithfully yours, .JAI/BD 1 incl. The Honorable Benjamin Strong, Governor, Federal Reserve rank of Yew York, rev York City, T_ T, Tra i 5Lt iur ea . 3614. ci26.44,z,x._"04,-qtm,&41M 14a) ors. F roe r P THit R3' C 1; Da IDi Vita 30 TH3 ,4 ORD "IMPO3T8". In its letter of :lay 25, 1921, the Eriegslastenkoon requested the lieparati L,oininio ion to give an interpretation of the word. "exiorts", which occurs in Article 4 of the ache dale of Paymente. At the leetini; of June 14, 1921, the 2.0aration Commission directed. the ea? I (wAi--c,..tirf.,,,z.k, to take advantage of its visit to 3erl in to learn the views and objections of the German C.tovernment in regard. to this matter, so as to enable the iteparati of Commission to adopt a decision an the questiun with full .6:no..ledge of the facto. In its letter of July 21, 1921, the German ,lovernent sent to the Reparation :;o.unisaion a report on the remarks aubmittedi by the aerqian ;overnment ; the 41.esti. on ;vnich the Reparation Com- ilow to settle is whether the word. "exports" in .:srticle 4 of the :schedule of ?Yiyments is to receive the definition givech it by the Jerraans in their statistics before and since the mission Ilt.r3 war, that is, in 1913 and in 1920, or la to receive a more restriated interpretation, founded chiefly on the measure in v.-hich an export asy be considered to increase the wealth of the exporting country. The difference is iaportant, :.;ince if theseeond interprettztion is adopted the figure of 10,892 million gold marks reported by the :Lerman lovernment in its export statistics for 1913 will be reduced to 7,466 million, and -.A11 inevitably be still further reduced by t logical ,vpi.)1 luat ion of the principles underlying this interpretation. The aepare.tion Com:pies' an 0 )i; s not ignore the fact treat 3614- 2. all of Germany's itxporte are not a source of wealth to her, savoy ially not to the amount of 26%; it does not, ver, e Qua ider that it can give to the word "exports" any other interpretation thah that which the Jarman Government itself gave to it in the exl:ort statistics. The f allowing reasons are advanced in support of this point of view: 1. ehen the aeparation Commiesion drew up the euhedule of Paymente on !::y b, 1921, its purpose was to determine the ,,ethode by which Germany. migat pay off her reparation debt. It eished to postpone the t-331.1.0 of a portion of the bonds representing this debt accordirtz to an index that it has chosen. In adopting this it took as a basis the figures of the German statistics, aseiming that th3ee figures develop as prices rise and Germten induetry revives. It would .,t3 giving a false value to these basic figures ins to the index itself if the %Joni "expirts" now received an interpretation different f..-on that on vhich the calculations leers based which determined the choice of the index, and it would., by rotLicing the varlaule ennuity, indefinitely postpone the payment of interest on the entire debt and consequently the clearing up of the latter. g The 00 iecti ons urged against t hi s interpretation Eire based on a /aloe conception of the lain idea of the eohechile of Payments. eh:. Acperati on L:Otalliedi on aid not intend that the reparation debt should be paid solely from the profits which Germen industry might realise from its exports. This erroneous 2Irtiele 4, which adopts °inception arises from a confusion ah index, and i,rticle 7, which provides a guarantee by means of a levy on ex:forts. The ;schedule of i'aymente, in an essential corollary, sed on the Germ au Government the obligati on of reimbursing the exportere for this levy. It might doubtless be maintained that the index th-us 3. 3614- 3. defined would remit in a conflict of intereete between the exporters axii t.fte maze of Ger:aan taxpayers, since it is to the advantage of the latter to reduce the wtriable annuity and to postpone the payin off o.f tile reparation debt, whereas the forzer wish to develop their oiiSirlas in order to increase their profits. 1'tie se are disadvantages whicn might lead the German Government lo examine tae question and to propose new indices, or to formulate other plans for thc.3 payment of the debt ; they cannot, however, iuil.ihe e the ileparati on C °anis i on to modify the index -which hae 1' d. aS the oasis for its caloulations and its economic eetimates. The Reparation Commissi on reserves the ritat to decide later whatnot- it is neceseary to include in the index the deliver lee in kind. made by Germany to t he ,11ies, in particular those goods which Germany would not have exported by way of normal commeroe and which would not normally be included among her coatmercia i. e.Kpor t d. 4421 S THE UNDERSECRETARY OF THE TREASURY WASHINGTON (S1,11" C 01,1` . August 10, 1921. icy dear Governor: I enclose for your confidential information a copy of a paraphrase of a cablegram received from Boyden, dated august 5, 1921, as to the possibility that the German Government will be unable to meet the reparation pay/rent due in xl.ugust. Very truly yours, Benjamin Strong, Esq., Governor, Federal Reserve Bank, New York, N. Y. 1 enclosure. (COPY) PARAPHRASE, OF CABLEGRAM. PROM ..nierican Embassy at Paris, Prance. Luglmt 5, 1921, 5 p. m. RECLIOW: LIZer,USt 5, 1921, 3s37 p. INi:9d Rs 477. B-526. Referenoe is made to our cablegram B-516. The following order has been reoeived by the 0ommissiou from its Berlin representative: "It is believed from confidential end reliable information elat German Gevermmsnt will be obliged to announce about the 20th of magma their inability to moat the entire obligation of am milliard gold marks 4qich they must deliver to the Allies before the 31st of ,:algust. Every effort has beat Inds by them but governmental nut:parities dembi astisfastory results." ,bile I de not take Ike /brewing seriously, sugoast a confidential reference to toe litlers1 Bosom Board and the Treasury Department. Boyden.. K. 7, THE UNDER SECRETARY OF THE TREASURY WASH I N GTON t , 1K1. Dear Governor Strong: I enclose for your information a copy of a paraphrase of a cablegram, dated AlEust 19, 1921, from Li-. Boyden, with further reference to reparation payments by the German Government on august 20th and L.ugust 25th. Very truly yours, 0 ) Benjamin Strong, Esq., Governor, Federal Reserve Bank', New York, N. Y. 1 enclosure. (COPYi Green Paris Dated August 19th, 1921. Recd. 942 a.m. Secretary of State, 'ashington, D. 517, Atugust 14t0, luank B-649. Supplementing my Amb40. tiormma tioverament notified .Reparation uounission would pay Atuguat 20th, seoeunt Beltsiam Government twelve million seven hundred fifty thousand dollars; six million pounds sterling, twenty three zillion five hundred thousand terenah Francs; ten million 1 el6lau frame; in addition twelve million marks gold ooin (see $518) Zorwerded New Yak steadier "SUWALKI" expected to arrive august 18th. Further payments would he effected August 2:,th. One Anion two hundred fifty thousand of fore,svin, would be am:signed Morgan, New York, account British Treasury. hoyden. HERR.ICK. CABLE MESSAGE FROM TIM ALEIRICAIT AIIBASSADOP. AT PARIS AUGUST 8, 1921, 4 p. m., ITO. 516. l'ATAPIE A r, Communicates message from Boyden, 3-548, referriru to hi 8 message 3-545 and preceding messages relating to the same subject. Logan has been told by Bergmann that he has just received information from Germany that that Government will before the date August 31, Enke payment of the entire milliard, and that this payment will be made without dra.ving cm the metal reserve of the "'each 73ank'c, as had been previously expected. It vAs added by Bergoann that Germany, with a view to making the entire payment by August 31, had obtained through the Reich Bank loans for short terms from Great Britain, S7itzerltuu1 and the :Tetherlands, amounting to a total of some three hundred million marks gold. Some of these loans fall due before the rniOdle of 3eptcsaber. It was understood generally that these loans for short terms had been =ado, but the dates when they fell due were not known by speculators. Conse- quently, it was said by Bergmann that he thought the existing low value of the mark might be maintained after the last of the present month, Ira =oh as payment of these short term made. It is suggested that the Federal `reserve and the Treasury might be confidentially advised. Di-xr/ss-GE/I obligations mist be ASSISTANT S'ECRETARY OF THE TREASURY AS H I N GTO N es, August 22, 1921. AN A e .?* Lear Bens a Attached are two cable items which may be of interest to you. It is a little dangerous to send them while you are in your present company:'but still I am taking the chance. Hoping to see you tomorrow night, Yours always, EMERPT FROM CABLE B-543, Dated AUGUST 15, 5 P. M., PARIS. ) Article Six. Governments recommend Reparations Comndssion take all precaution prevent reparation payment causing exchange fluctuations. Suggest cooperation exclusively invited national banks of issue powers represented Reparations Commission and the United States and possibly German banking organization designated German Government. COPY -copy- raris, 18 rue de Tilsitt, 22 Aeeust 1821. Controller-General Lauclere, president, Committee of Guarantees, ilotel Astoria, Paris. Ly dear Controller-General: It seems clear that Germany will complete the one milliard payment by August 31. Doubt as to this point and the influence of the vacation season have led to an interval of inactivity. I take it for granted that the Committee will now promptly come to life and proceed to carry into practical effect the decisions as to the security to be obtained from Germany *Ind as to the supervision to be exorcised over Germany's finances and customs; also that the Committee will shortly hold another conference with the German Government in Berlin. But 1 wish to suggest the necessity of considering certain broader lines of policy. The appointment of this Committee as a special instrument of the Reparation Comrission for dealing with the indemnity and the bonds, and with German finances in their relation to the indemnity and the bonds emphasizes greatly the responsibility of tae h.C. :yen more than before the Powers whom we represent and world opinion will naturally and rightly look to the Reparation Commission, and the Committee of Guarantees to influence the course of events within the prescribed limits, to point out measures necessary to reach the desired ends, to warn of impending danger, to pass judgment on Germany's efforts and their success or failure. Our work should now be of more positive and constructive character than before. I believe this only a duty, but an opportunity both for the Commission and the Committee. In elaboration of the foregoing, lot me suggest two lines of policy: First. I believe that it is utterly impossible for Germany to pay the army costs, the clearing house balances, the expenses of the various commissions and the reparation commissions and the reparation annuities, unless some working scheme for large deliveries I believe also that it is necessary and in kind is arranged. practicable to use German labor in the devastated regions. Apart -3 There are plenty redly tried to fulfil her obligations'? of journalists, politicians, and partisans in Germany and elsewhere whose loud vociferations of opinion can be foretold today. But the question whici, will then be the most important ,,uestion in the vorld ought to be answered by the best authority in the v.orld. The Commission and the Committee ought to be in position to speak with that authority. I request that the Secretary General of the Committee have this letter reproduced in French and English and circulated as a regular annex. I also request that it be entered on the 4:.geuda for consideration at the next meeting of the Committee of Guarantees. Faithfully yours, (Signed) James A. Logan, Jr., Unofficial Representative of the United States with the Committee of Guarantees. August Z5, 1921. Der Mr. Gilbert: I acknowledge with thanks receipt of your letter of August 20 enclosing for our confidential information a copy of a :arnphrase of F cble dated August 19, 1921, fr:le Mr. Boyden with reference to Reparation payments by the Germnn Government. Very truly yours, J. H. CA. Deputy Go Honorable S. P. Gilbert, Jr., Under Secretary cithe Treasury, Washington, D. C. or. THE UNDER SECRETARY OF THE TREASURY WASHINGTON u vs t 26, 1913. Dear Governor Strong: I enclose for your confidenti information a copy of a cablegiam received to-day from i.r. Boyden, ,7ith fur- ther reference to the German reparation pa,yzents due august 31st. Very truly yours, A, Benjamin Stroni;, Esq., Governor, Federal Reserve Bank, leri York, Y. 1 enclosure. co A No/i S St:CY. 01LINal COPY 0 kie, Ind di e. CABLE MESSAGE FROM THE AMERICAN AMBASSADOR AT ERiL ISERIE August 25, 9 P.M., 1921, No. 523. PARAPHRASE) Communicates a message from Boyden, B-552. vious message B-549. Referring to pre- Announcement was male at 12 M, August 25, that there remains as the balance of the Milliard due August 31, gold marks two hundred forty-one million five hundred thousand. Announcement was also male that on August 26, payments would be made as follows: sterling two m'llion; dollars fourteen million seven hundred thousand; Belgian francs twenty-five million; French francs twenty-seven million five hundred thousand. On August 23, official information reached the Com- mission from the Germans that forty-two million marks in specie had been sipped to Brussels from the Reicnsbank, to meet any deficit which might exist after Germany ha: compi.etad her payments in the currencies ofthe allied nations; but at Brussels no information had been received that the specie had been really forwarded. Should the other paymente which have been notified oe completed, the additional fort! -two million would exceed the amount Germany is bound to pay. I think it likely that Germany announced the above mentioned specie shipment as a precaution in case she might not obtain some of the loans made for !short periods. As regards this, please consult my messages 548 and 545. THE UNDER SECRETARY OF THE TREASURY WASHINGTON H August 27, CONFIDENTIAL 1921. My dear Governor: I quote for your further inf...,rmation it connection with German reparation payments the following cablegram from Yr. Boyden, received to-lay through the State Department: "B-553. In reference B-552. Germans officially advise'' to August 26 that Aelgium refuses to accept 42,000,C00 gol4 and Reichsbank will ship tc Nem vork for Reparation Account between fifty to sixty million mold marks August 27 or 29." Yours very truly, Ben,iamin Strong, Esq., Governor, Federal Reserve Bank, New York., N. Y. ° August 29, 1921. Dear Mr. Gilbert: I ack7ledge nith thanks receipt of your letters of August 26 and 27 quoting for our confidential information two cablegrams received frcia Mr. Boyden in connection with German Reparation payments. Very truly y urs, (. H. CAA' Deputy Governor. Honorable S. P. Gilbert, Jr., Under Secretary of the Treasury, Washington, D. C.