The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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Hon. W. J. Bryan,
Secretary of State,
August 14, 1914.
and
Hon. Wm. G. McAdoo,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:-
Referring to our conversation this morning, Mr. W. L.
Kidder, Peabody & Co., and kr. Benj. Strong, Jr.,
the Bankers Trust Company, submit the following memorandum statement of a proposed method of opening necessary credits
at various points in Europe for the benefit of American travellers
who are unable to obtain cash on their letters of credit and travellers' checks:
Benedict, of
President of
The Bankers Committee of New York will direct the Bankers Committee of London to set aside out of the three million dollars gold shipped by the bankers on the Cruiser Tennessee, such
specific sums of money as are required to protect guarantees given
by the United States government through Ambassadors or Consuls at
various points, for the purpose of furnishing cash at those points.
The amounts so set aside in London out of the three milbe held subject to the control of
Ambassador Page at London, under instructions from the State Department, and will be in addition to the government fund applied
to the relief of those whose resources are exhausted.
lions of gold shipment, will
The State Department could then cable to the American
Ambassador at Rome, or to other Elnbaseies or Consulates, directing
that the government give its obligation for the amount of money desired at that point for payments on travellers' checks and credits
which would be disbursed by the Ambassadors or Consuls, of ir preferred, through suitable banking agencies appointed by the bankers.
As payments are made out of the funds placed at the disposal of Ambassadors and Consuls or banking agencies, the evidences
of payment in the shape of drafts, letters of Credit, or travellers'
checks, will be transmitted to the Ambassador at London, and he, in
cooperation with the London committee, will reimburse the government out of the fund set aside in London for that purpose.
We are informed that the office of the London committee
is well organized with skilled clerks, and in charge of experienced bankers, the chairman being Mr. F. I. Kent, Vice-President
of the Bankers Trust Company, New York City, who has had many
years' experience in handling foreign exchange and letter of credit transactions. Our committee feels every assurance that on the
scheme above outlined the government will be fully protected, and
these payments can be promptly made.
Respectfully submitted,
BENJALLIN STRONG, JR.
Chairman,
Committee of
New York Bankers.
August 20, 1914.
Hon. W.J. Bryan,
Secretary of State,
Washington,
ky dear kr. secretary:It has not been possible until the present time for me to
write, as I had hoped to do, making some explanation of the urgency which developed in regard to the protection of travelers' credits held by our countrymen in Europe, and furthermore the reasons
for my assuming that no effective measures for their protection
could be undertaken without cooperation of our Government.
Travelers' Cheques and Letters of Credit which are issued
by American banking institutions and bankers total many millions
in the course of one season; some institutions which make sales as
high as $30,000,000 or $40,000,000 annually have outstanding at one
time from $5,000,000 to $15,000,000 of these credits which may be
cashed at the election and convenience of the travelers in any part
of the world. The banks which issue them are unable to anticipate
in what volume
they may be cashed at any given point, and they are
accordingly issued under banking contracts, by the terms of which
the foreign institutions which make the payments on the credits receive reimbursement by drawing drafts on London at the rate of exchange current at that place on the day the drawing is made. Without this method of London reimbursement it would be necessary for
the banks issuing these credits to carry very large balances in a
great many cities, the total being far in excess of the total credit outstanding, and naturally the business would be unprofitable,
as it would absorb too much capital if conducted on
that basis.
soon as the crisis in foreign exchange occurred and it
that London reimbursement was likely to be disarranged
be absolutely discontinued, it was apparent that those
Continent which were in the habit of employing London
reimbursement under these contracts might in many cases discontinue
cashing cheques. In order, therefore, to meet this situation (quite
unprecedented in the history of banking) two methods of procedure
only were possible; one was to ship gold directly to all points
where travelers were congregating and would be without funds, and
the other, to establish banking credits at these points, through the
agency of the United States Government, which would enable the local
banks to make payments on cheques and drafts.
As
became known
and poasibly
banks on the
The procedure which has been followed of
shipping gold to
London as the base from which these credits might be established at
different points on the Continent, has, I believe, been effective
in relieving a situation which might otherwise have become so distressing as to have caused intense suffering on the part of our citizens in Europe. In fact, the mere knowledge that a shipment of
gold was being made in a United States war vessel had an instant
effect in releasing money to our travelers even before special credits had been established. It has been possible in some places to
establish credits against reimbursement out of the gold shipped to
HOn. W. J. B. 2.
London, and in other places, against deposits in New York, muai
more readily than would have been the case had a mere promise of a
gold shipment been held out to these foreign banks.
Prior to the writer's first trip to Washington, when he
had the pleasure of meeting you, a number of the leading institutions and firma in New York were asked to make verbal commitments
to furnish gold for the purpose of protecting these credits and
insuring relief payments under such plan as might be developed.
The response to this appeal was an immediate pledge of about
$7,000,000, which could have been largely increased had it been required, as some thirty-four firma and institutions have now participated in the fund. All of this fund was contributed with a view
to cordial cooperation with the Government in relief plans.
The bankers who participated in this fund realized that
although there are probably hundreds of institutions in the United
States issuing letters of credit and travelers' cheques,it would
be impossible to secure their cooperation in relief plans of this
character in time to make them effective, and they therefore furnished the fund, not, as has been once stated, for the protection
of their own credits, but for the protection of all American credits issued by responsible concerns, irrespective of whether those
firms were contributors to the fund or not. Subsequent developments
have disclosed the fact that a large number, if not all of the ten
original contributors who practically underwrote the funds, were in
little, if any need of taking measures of this character for the
protection of their own credits, as the larger institutions, better
known abroad, had much less difficulty in making direct financial
arrangements.
We will, of course, hear of many cases of hardship, and
possibly many complaints, but the course pursued has, I believe,
reduced these to a bare minimum, and a continuance of the policy
of opening credits where necessary, either against deposits made
in New York, as will probably be necessary in some cases, or against
the gold which has been shipped to London, will gradually furnish
all travelers who have credits with means of paying absolutely necessary expenses and obtaining transportation home.
It now seems apparent that the three great objects to be
accomplished, namely, to relieve the distress of our friends abroad;
to demonstrate the ability of our Government to afford relief to
its citizens in such a crisis as the present one, and to protect
the credits of American institutions which were obliged to meet the
obligations to their clients in Europe, are all in the way of accomplishment, and in behalf of many of the bankers in this city, who
have felt a grave responsibility in this matter, I now beg to convey
to you our warm thanks for your hearty cooperation and the repeated
evidence of your confidence in our plans and purposes.
With cordial regards, believe me,
Respectfully yours,
(Signed)
Benjamin Strong,
Jr.
President.
/9/11elif
DEPARTMENT OF STATE
WASHINGTON
January 12, 1916.
To the
Diplomatic and Consular Officers
of the United States of
America in England and France.
Gentlemen:
At the instance of the Honorable Wilbur J. Carr,
Director of the Consular Service, I take pleasure in
introducing to you Mr. Benjamin Strong, Junior, Governor of the Federal Reserve Board of New York, who
is about to proceed to England and France.
I commend Mr. Strong to your attentive considera-
tion, and shall appreciate any courtesies and assistance which you may find it possible to extend to him.
I am, Gentlemen,
Your obedient servant,
CB
ve.
Jantulry 17-, 1916.
'y dear Mr. Secretary:
Ur. Carr has just sent me the note you were
good EtioukTh to IsAlte,-s to our Ambassador at Paris, which
I shall take great pleasure t., pre3emtin3 to him, and
now write to think you for your co1rtes7 in oroviaIng
me the opportunity of meeting him.
I anticipate beinr in London abo.ut - week or
en days and substantially the sIme 1ew7th of time in
_xis,
If I can be of any service to you or your -as-
sociates in connection with my trip, I trust you will
not hesitate to commang
With oerooml L-egards, believe me,
Very truly yours,
jonorable Robert
Department of State,
WashinAon, D. C.
BS Jr/VOU
.RICAN MISSION, Paris
S S S Washington 121 102/100 1/"72/70
2629 Legri for Ginn from Rathbone Treasury
115a
Following is for Benjamin Strong quote Two
Have received the following cable dated 17th from Netherlands
Bank quote First lot approximately 20,000,000 gold marks completed gross
kilograms 7943 grams 9(76 ounces 2,71r2.3 coins are genuine are weighing
second lot quote This was confirmed by State Department
l.
from?
The following cable dated 19th 5,*2x Netherlands Bunk quote
2.
your cable 16 gold Germany said to contain 52-07,6950,0D0 marks 1,554,5op
sovereigns 18,3('.0,-00 Austrian crowns 5,500,00C' roubles 1,799 barrels
fine weight 21,837 (moahg not moahc) ki/agrame total 440,,Ir,0 gold
marks We can roughly weigh total in 30,402 margin 1/20 obwos for obwoh)
our reepon ibility stop pending your instructions we continue accurately
weighing gold coins as heretofore and will telegraph result every lot
approximating value 20,000,-.00 marks unquote
5. Have not replied to this cable but hold it in abeyance -waiting
instructions from you.
Your cables 2 and 3 received (ivwep) in plain English we understood you would use Bentley's code and test word.
Duplicate of this cable sent to London
Federal Reserve Bank
unquote
LANSING
et/
September 24, 1921.
Dear Mr. Secretary:
Sir Charles Addis
During the few weeks when Mr. Montagu Norman and
were visiting this country, one of our own officers, Mr. Pierre Jay, was
ing abroed and. had occasion
to make a short
stay in
He has been fully
Vienna.
acquainted with the substance of our discussions in Washington on
of the very desperate
conditions no developing
this situation be has just sent me a
Secretary
Hoover that'we
this matter I
have finally received. word.
can expect no &finite statement from the Adminis-
that the Federal Reserve Bank of New York
should join with
proposal
insti-
other si
character being
later rendered.
I hesitate to suggest encroachment upon your time \then I
I am in Washington
which we made
L. study of conditions in Austria with a view to sore
assistance of a non-political
closely engaged, but
subject
in Austria, and. bearing upon
tration, either affirmative or negative, in regsrd to the
tutions of Europe in aseing
the
cable of which a copy is enclosed.
Following our discussions of
from
travel-
if it is possible for me to see you for a
this week or it week I should greatly
Snow you are
few minutes when
appreciate- an opportue
nity to discuss this matter a little further.
With assurance of we esteem, believe me,
Faithfully yours,
Honorable Charles E. Hughes,
Secreteryof State,
Benj. Strong
Governor
Washington, D. C.
BS/RAH
P. S.
from the
Since dictating the aboie I have received. a
Governor of
the Bank of EnglaLd, copy of which is
confidential aabld
also enclosed.
.=
.
3o1tenber 20, 1921.
ki dear Lr. Secretary*
our
in.L note of Ceptaber 26 hao just readied me, and
I hasten to advise you that friday aftanwon at
ot ()look
suit re entlzely, and
sLall call at Ietir off.loe at that Lour.
nth asec.rance o
teer.., I wh,
Very truli yo1.4.8,
4stki. 6trouis
Governor.
Honorable Chrles E. linahess
Secretary of :itate,
"ashinGton, D. C.
Alan
0
C-7-7
THE SECRETARY OF STATE
WASHINGTON
September
voco
000
S..?
(4 6
14 dear Ir. Strong:
Your letter of 6eptember 24 has been
received.
It will give me much pleasure to see
you, and if it will suit your convenience, I
shall be glad to have you call on Friday afternoon, September 30, at 4 o'clock.
With high regard, believe me,
Very sincerely yours,
Honorable Benjamin Strong
Governor, Federal Reserve Bank of Lew Yor
Room 181, Treasury Building,
Washington, D. C.
\92\
October 31, 1921.
Dear Mr. Secretary:
Referring to our
confidential conversation in regard to certain
Japanese matters, I have recently been advised that my friend, Mr. Eigo Fukai,
Deputy Governor of the Bank of Japan, has been appointed financial adviser to
the Japanese Delegation to the Conference on Limitation of Armament.
Mr. Fukui is one of the ablest and best informed men that I met in
Japan.
He speaks English perfectly, was financial adviser to the Japanese
Delegation to the
Peace.
Conference in Faris, and has occupied important
positions in the Haat of japan, both at home and in foreign countries.
Matzukata, who, as you will
a young mau he was private secretary to Marquis
recall, was
As
the economist and financial expert of the Genro and one of the
two living member of that body.
I have such confidence in his frankness, good judgment and integrity
that I am taking the liberty of inquiring whether you might find it interesting and profitable to have
a talk with him personally during his visit in
this country, and if so, if you would permit me the privilege of giving him a
letter of introduction to you.
That may not indeed be
thought I have in
mind, and you
necessary as this letter conveys to you the
doubtless will
see him during the sessions of
the Conference.
Permit me to refresh your memory with regard to the relations between
this bank and the Bank of Japan, which I described to you
with which tin. Fukai is fully goquainted.
in your office, and
I beg to remain,
Faithfully yours,
Honorable Charles E. Hughes,
Secretary of State,
Washington, D. C.
http://fraser.stlouisfed.org/
BS:Mm
Federal Reserve Bank of St. Louis
November 7, 1921.
My dear Mr. Secretary:
This note will be presented to you by tr. Eigo
Fukai, a warm personal friend of mine, and Vice Governor
of the Bank of Japan.
gr. Futai is financial adviser Co the Japanese
Delegation attending the Conference on Limitation of
Armament.
If time permits you to receive a call from him,
I feel sure that he will be much honored and greatly
appreciate the opportunity of meeting you personally.
With assurance of my esteem, believe me,
Faithfully yours,
honorable Charles E. Hughes,
S,acretary of State,
Department of State,
Washington, D. C.
BS:MM
March Q, le22.
PRIVATE
Dear Mr. Secretary:
Ybu will duubtless recall our conversation in regard to
a
banking relationship of importance which had been established tvc or
three years ago by this bank- with a state bank of an important nation.
I thought you would be interested in learning that our
correspondent has advised us of their intention to withdraw one-half
of the balance maintained with us, which will be gradually done over
a i:eriod of :leeks or months.
This refers only to the balance main-
tained with this institution.
The transaction has no special significance.
The withdrawal
is due to the fact that the balance of trade has been running rather
persistently against that country, and it is necessary for Cue state
bank to furnish dollar exchange to their importers in order to avoid
an increasing discount on their on currency.
4ith assurance of my esteem, I beg to remain,
Yours very truly,
Governor.
Honorable Charles E. Hughes,
Department of State,
fashington, D. C.
ES. MM
TH E SECRETARY OF STATE
WASHINGTON
March 16, 1922.
my dear Governor Strong:I have received your letter of March 9t44/
/
and I am indebted to you for sending me thie in-
formation with respect to the withdraw42of a
part of the balance to which you refirred in
your conversation with me.
I shap be glad to
have any information which you/ban give me from
time to time in relation to /the matter.
With high regard, believe me
Very sincerely yours,
Benjamin Strong, Esq.,
Governor, Federal Reserve Bank of New
New York, New York.
o
TH E SECRETARY OF STATE
WASH I NGTON
March 16, 1922.
my dear Governor Strong:-
I have received your letter of March 9t4/
and I am indebted to you for sending me
formation with respect to the withdra
tkis// inof a
part of the balance to which you re4Arred in
your conversation with me.
I shall be glad to
have any information which you/tan give me from
time to time in relation to/the matter.
With high regard, believe me
;Very sincerely yours,
41*
Benjamin Strong, Bsq.,
Governor, Federal Reserve Bank of New irk,
New York, New York.
S.
April 3, 1922.
Dear Mr. Secretary:
I am leaving for Olashington to-night, and hone that during
the few days that I shall be there it may be possible for you to
spare me a fee minutes.
Of course I know how closely engaged you are, snd if it
would be more convenient, I would be greatly honored if you are
able to lunch with me snd thereby save your ofPice hours.
I shall take the liberty of calling your secretary sometime to-morrow.
pith cordial regards, believe me,
Yours sincPrely,
Honorable Charles E. Hughes,
Donartment of State,
lashington, D. C.
BS.1114
00
THE SECRETARY OF STATE
WASHINGTON
November 3, 1921.
My dear Governor:
I thank you for your letter.
It will
be a pleasure to meet Mr. Fukai, and I shall
be glad to have you give him a letter of introduction.
You may be assured that I shall
not forget what you told me with regard to
the relations between your bank and the Bank
of Japan.
Faithfully yours,
Honorable Benjamin Strong,
ederal Reserve Bank,
New York City.
November 7, 1921.
My dear Mr. Secretary:
it is very kind of you to permit me to send a
note of introduction to Wir. Fukai, which I am taking the
liberty of doing to-day, a.,nd he will no doubt communicate
with your secretary in regard to an appointment.
Trusting that I am not encroaching unduly upon
your busy days, I beg to remain,
Yours fai thfully,
Honorable Charles F. Hughes,
Secretary of State,
Department of State,
'Washington, D. C.
BS:MM
Enc.
April 14, 1922.
Dear Mr. Secretary;
There has been, I regret to say, some unavoidable delay in preparing
and sending to you the enclosed memorandum./which I
you in 4aehington.
promised to do when I last EAN
It is, of course, a matter to which I expected to give
considerable further thought before writing.
Permit me respectfully to make
the following
comments in regard to the
vies contained in this paper:
In almost every discussion of this
important matter which I have had
with various people, it developed that some special interests tend to influence
the opinions of those who are inclined to criticise one policy
or another.
It
may be a banker vho desires to realize commissions on foreign loans; it may be a
manufacturer vho has
lost an export order, and is thinking of his on foreign
trade; or again it may be a merchant, exporter or banker who has unfortunately
been unable to collect debts owing for goods
countries.
You will, I hope, realize that
heretofore exported to foreign
no interest of this character has
influenced the views which we hold at the bank in these important
matters.
It
is our earnest desire to see the American banking system and the wealth of this
country
of the
make a
world's
just, effective and even a generous contribution to the restoration
trade, upon
which the prosperity and happiness of so many of our
k'S
eel"
own citizene depends.
Permit me also to invite your attention to the enclosed listAhich is
fairly complete, exhibiting the foreign loans placed in this country during the
past fifteen months, and to call your attention to the evidence therein contained
of the careful discrimination with which these loans have been sifted out by our
bankers before they have been offered for sale.
There seems to be no evidence
April 14, 1922
#2
of a reckless plunging into new fields.
proportion of the loans extended to
It is especially notable
that a large
France are for refunding purposes, and
vith the exception of the French, and possibly
that,
the Belgian loans, there seem to be
none to 'blob restrictions, such as are discussed under Heading II of the memorandum, vould apply.
As I have had occasion to discuss these matters
with both Secretary
Mellon and Secretary Hoover, I am taking the liberty of enclosing two spare copies
of the
memorandum in case you desire
sending another copy
directly to
to send copies to them, and I an likewise
Assistant Secrt:tary Harrison at his request.
Apologizing for asking you to read this long document, and with assurance
of my esteem, I beg to remain,
Respectfully yours,
Benj. Strong,
Governor.
Honorable Charles E. Hughes,
Secretary of State,
lashington, D. C.
ES. M?
Enos.
'
L.)
OTTIFTGATION
OF DOCSIFTIT H7RFIrITT-1:
This is the memorandum prepared by Governor
Strong and submitted to Secretary of State Charles
Evans Hughes as an enclosure with his personal letter
fated Anril 14, 1922, copies of mhiela were forwarded
y Hughes to the Secretaries of the Treasury end
Commerce (Mellon and Hoover).
kra
6/9/60
The purpose of this memorandum is to discuss restrictions or partial
restrictions upon foreign loans in the American market, designed to
Influence or require the borrowers to expend the proceeds for goods
produced in the United States; or
II.
Influence the borrowers (when governments) to bring their national
budgets into balance and reduce unproductive expenditure.
Many of those Who object to opening our market without restriction to
foreign loans claim that "the 'money' is beinc spent elsewhere than in the United
States," and frequently refer to these loans up "exports of
American capital."
They believe that by requiring the borrowers to purchase American goods our exports
Consideration of present
will be increased.
of the objection are fallacious; and that our
conditions discloses that the grounds
trade would suffer rather than improve
as a result of such requirement.
lhen
a
foreign government or its citizens borrow in the United States, the
credit of the
proceeds of the loan are placed at the
citizens in American banks.
foreign government or its
There are only three possible uses which may be made
of that credits
(Under normal conditions) gold might actually be withdrawn
from
the
United States by the
borrower;
Debts already contracted and owing in this country may be
repaid out of the
proceeds;
and
qoode produced in this
country, or the services of kmerican
organizations or individuals, or American investments, may be paid
for out of the proceeds.
As to (a).
The export of gold.
So long as foreign currencies are at a
discount and American dollars at a premium, it is impossible, without loss, physically
to withdraw gold and export it.
This may be shown by considering the position of
2.
H.-
the French, (a more extreme case than the Faglish), with the franc at a discount of
50% measured in dollars.
If the French Government borrowed a million
dollars in
the United States and withdrew the gold to France it would get a credit at the Bank
of France equal to only one-half of the number of francs for which the million dollars
would otherwise sell In the exchange market.
In other words, that amount of gold,
if coined into ten and twenty franc pieces would only produce at legul tender value
one-half of the number of francs which could be realized by selling the dollars in
the market at current quotations.
EV621 the French Government, or the Bank of
France, could not afford under present conditional to import gold
or build up a gold
reserve by such loans because of the large loss involved; nor can any other nation
(Or
Its citizens) afford to import gold from the United States so long as their
currencies are at any considerable
planation of
the shipment of
to this country.
discount expressed in dollars.
the entire current gold mine
That is the ex-
production of the world
It may in fact be definitely and safely concluded that there can
be no such export of "money" in the form of gold or of American currency which is
redeemable in gold.
The other rasa= (b) and (c) of employing the proceeds of such
loans must be ensinined if justification for restriction (1) is to be found.
As to (b).
The payment of debts already contracted.
Those Who have
entered into commitments in the United States for the purchase of goods or for any
other purposes, are enabled as the result of these foreign loans to buy dollars
(exchange) in the markets which otherwise would not be available.
This does not
mean necessarily that the nations, or their citizens, which borrow in the United
States are the only ones who are thereby enabled to pay debts in the United States.
A foreign government which borrows
and obtains a credit hero umay indeed have its own
debts to pay in this market, but if it has no such indebtedness to pay, it may have
debts elsewhere
and in order to employ the credit in paying debts due elaewhere, it
must draw upon that credit.
This is a normal process in banking:
In case,
say,
3.
the French Government had debts to pay in London, it would probably sell dollars
in London (or in Paris) in exchance for sterlinc, in order to repay indebtedness
there.
It would simply sell to London bankers checks drann upon New York and the
London bankers would thereby secure
the transfer of the credit to their own accounts,
and would be in position to furnish their own customers with dollars with which to
ppy what they owed in our country.
The mechanism of exchange is so effectively de-
veloped and operates al promptly that but very few days would be
required to enable,
say, the French Government to realise in London upon a large dollar credit obtained
in New York, and so enable British
debts in this country.
traders to make equally prompt payment of their
The proces might be further extended if the British em..
plowed the dollars to pay debts In some other country, which country was in the market
for dollar credits with which to pay for goods purchased here, or to pay their debts
owing in this country.
From the standpoint
of
liquidation of debts, a restriction
upon foreign loans mould operate directly to reduce the amount of dollars otherwise
placed at the disposal of foreign
indebtedness now
borrowers, and thereby defer liquidation of so much
or hereafter owing to our merchants and bankers by the world at large.
As to (0). The purchase of goods in the United States.
operates in the case of credits
the borrower
to purchase
The same prOOOSO
resulting from loam which are not directly used by
goods and services in the United States.
Such
credits are
promptly sold by the borrower and converted into the currency of some other country
where purchases are in fact made.
Assvam again that the 'Preach Government borrows
a million dollars in New York to enable it to buy goods abroad, but not in the United
If the goods are purchased, say, in Argentine, the dollars are sold in the
States.
exchange market and the proceeds are invested in pesos so as to pay for Argentine
wheat.
The French bankers who buy the dollars and furnish the pesos then dispose of
the dollars to French importers who do purchase eoodii in the United States, or they
may again, as in the cane cited under (b) be sold in other markets, as, for instanos,
-- in London, when again the British importer has dollars for the purchase of American
eotten or other goods.
The fact is that credlt, speaking strictly, cannot be exported from the
United States.
(f
The only things which can be physically exported are cold, (when the
exchanges are operating normally) or, under present conditions, goods and services.
There is no possible moans, except the exchanges permit gold
American producer can be deprived ultimately of the
exports, by which the
advantage of the application of
such borrowed dollars or credit to the purchase of American goods, or to the payeent
of debts
owing in America, unless, as
is quite unlikely, the borrowed funds are in-
vested in America In one or another form by foreign
investors.
It is claimed that
In the absence of restriction the indirect process of transfer, above described,
operates slowly, is obscure, and may not be ultimately accomplished.
Is not a sound conclusion.
Ws, however,
nth.dollars at a. premium throw/lout the world, those
having dollar balances in this country earning
nominal interest geala
unless they
are willing to suetain heavy loss, employ them at once in paying debts or buying
geode.
They may be, and
frequently are, tqpporarilv
invested, pending other use.
The interest charges on loans are heavy and the interest alloyed on bank balances
are (mall.
Furthermore, foreign currencies are now
appreciating relative to the
dollar and the retention of idle dollar bank balances by foreign borrowers is liable
also to result in exchange losses, making an added inducement to their prompt
cation either in paying
appli-
debts or In buying goods; or inducing their prompt sale to
others for such AIMS.
It is claimed that eases are frequently cited where orders for American
goods have been lost because of the failure to stipulate in loan agreements "for.
expenditure in the United States."
It is well to examine the effect of the require-
ment generally upon the trade of the country if these pleas are to be regarded.
The
exports of the United states are not only manufactured goods, they are grains, food
stuffs and ram materials as well.
Furthermore, it is not the exporters alone VDO
5.
A
are interested in the question of free borrowing versus restricted borrowing.
policy of restriction affects
export.
all producers - those who export and those who do not
It also affects American creditors including the Government of the United
Lace of purchasing power on
States, which itself has debts to collect from Europe.
the part of many countries to-day contributes considerably to the existing depression
in the United States and Europe, and it is by such credits as are now being extended
11
to inrope that this purchasing power is
slowly being restored and the cycle of pro-
duction, exchange of goods, and consumption is being rebuilt.
If eemplaint is made that the manufacturer of electrioal machinery loses
an order for a power plant to
be erected in so ne foreign
country because of no re-
striction, it may with equal force be claimed that a restriction
requiring the power
plant to be purchased in the United States might indeed result in no loan being
placed here at all.
In this event an American cotton, steel or copper or other ex-
porter might lose the opportunity to export his product to some foreign country.
the exportation of cotton or copper, and all other goods,
With
generally facilitated by
these foreign loans, the electrical manufacturer might well be called upon to
erect
aower plants in the South or 'Witt which would otherwise not be ordered if American
cotton or copper was not exported, and the cotton or copper industries were languishing.
ltat has been taking place during the last lb months becomes apparent when
all the circumstances are examined'.
lb have imported sines January 1, 1921, seme
t800 millions of gold, and In addition have extended loans to foreign
gregating about t1000 millions.
countries aga
tale aum of these two plus the Value of our imports,
of our remittances largely for American
travellers, or
by our alien population, to-
gether with other items of less importance, have in total supported our export trade.
Any restrictions imposed upon these foreign loans, which would require the foreign
borrowers to buy certain goods in this market at higher prices than the same :Imes
ould be purchased in other markets, will simply have the effect of reducing loans
6.
in our markets, (declined as the result of such restriction) and to that exact extent
will reduce the amount of our prospective exports of other goods or will defor the
prompt collection of current unfunded debts which would otherwise be paid here,
It must further be borne in mind that a restriction upon the amount of
foreign loans placed in our markets will
payments made
to us in gold.
have a tendency to increase
The extension of credit to
the amount of
a foreign borrower is in
effect the employment of that amount of credit upon the basis of existing gold re
It is a consumption of existing lending paver rather than (am in the ease
serves.
of gold imports) the creation of new lending power.
cold reserve and to our lending Dover, and
imports of gold add to our
increase the
danger, of possible future
excessive expansion of credit, with all of the evils of speculation, extreme fluctuation of prices, and consequent disorder in the commodity markets, such as have been
recently witnessed as the result of the mar inflation.
In the general interest of
the country as a *hole, and entirely apart from considerations of the
relative effect
on foreign countries needing credit, it would be better for us to increase our capecity to sell goods abroad by use of our already immense power to extend credit, rather
than still further to increase (but not use) that lending power by the importation of
mare gold.
It is my belief, therefore, that a restriction of the character now being
discussed will result in a reduction of our export trade just to the extent that the
restriction attempts to require borrowers to buy goods in this market at higher
prices than they can be obtained elsewhere, and so defeats the negotiation of such
loans.
Prices control where trade goes.
A lower price, even of 1/2 cent a bushel
for wheat will result in a borrower of American -dollars buying wheat in Argentine;
but the purchaser of the dollars will in turn buy cotton or some other commodity here'
which can be had at prices competitive with other torld markets.
the dollars can be made, save to pay
debts.
No other use of
lbuld it not be a sounder policy
to
enlighten those -who complain of the lack of restriction, rather than to answer their
complaint by enforcing a policy which will restrict the total, of Arerican exports.
11
The imposition of the restriction for the purpose of influencing foreign
governments to reduce budget expenditures for military or other unproductive purposes,
is, of course, a political question upon which American
business men will
be reluct-
ant to express views, especially as it involves the political relations of our govern
sent with other governments.
All of the arguments, however, as to theefect of such a restriction upon
our export trade apply equally
to restrictions imposed for the purpose
of influencing
foreign governnents in their domestic policies, and here again, I believe, a misconception has arisen as to just what happens in connection With such loans.
For purpose of illustration, let us assure that the loan to the Department
of the Seine, France, was admitted to have been made for the purpose of balancing the
budget of 'the City
of Perin, and that the expenditure causing the budget excess over
revenues was due to the maintenance of an abnormal and uneconomical payroll by the
City of Paris, which could not he defended
loan from the tandpoint
American trade.
of
upon economic grounds.
the American trader vas nevertheless
to the advantage of
The City of Paris could not meet that payroll by teporting.dollars
from the United States and paying them to civil employees.
dollars
The result of the
It had to convert the
into francs by selling the dollars in the Paris market, and those W30 pur-
chased the dollars had to expend them in the United States, or sell them to others
) would do so.
From the standpoint again of our
export trade, a
requirement that credit
borrowed in the United States must not be employed for unproductive purposes by the
foreign governments
might well mean that all foreign governments with unbalanced
budgets 41142 which are spendin6 money for unproductive purposes *i11 be unable to
B.
borrow in this market, and in consequence the American export trade will be cut down by
the exact amount of all such loans as are thereby prevented from being placed here.
It is in effect stating to suet foreign goverment, that, unless they put their financial houses in order, we will not sell goods to them or even to those to whom they
mny sell the dollars they borrow in this rerket.
This will certainly check the in-
crease of our export trade, that is, prevent its expansion by the amount of such loans
as would otherwise be negotiated in this country.
All of those general/7 familiar with the budgets of certain foreign nations
know that conditions of trade and finance throughout the world will continue to remain unsettled until expenditures by certain governments are reduced, the printing of
currency ceases, and the foreign exchanges return more to normal and are less exposed
to violent fluctuations.
But can these most desirable objects be accomplished by
declining to sell American goods abroad, or in any way restriction loans which enable
the sale of American goods abroad?
Certainly any foreign government with an un-
balanced budget would view with consternation a policy by our goverment of restricting
our imports from that country.
tehe most effective method of influencing a foreign
government would, in my opinion* be to call for a prompt payment of debts which it
say owe to our government, unless it spates more energetic and successful measures
to the reduction of unproductive expenditures and to general financial and monetary
reform.
Yet here again the requirement that a foreign nation shall begin paying
us large sues each year for interest and principal operates to reduce its ability by
just so much to buy goods here, that is, reduces its bnying power.
7ithin the last six months a notable change has occurred in conditions in
areat Britain which has a direct bearing upon our policy.
Solvent foreign borrowers
in good standing, both government and private, are now able to borrow money on long
time in the London market at at /east 1/2 of 1% below the rates of interest that are
being asked for similar loans in the United States, and for short time banking loans
they are able to borrow in London fully 1% or more under our rates.
Restrictions
9.
Which tend to close our markets to loans at this time, when dollars are at a premium
may indeed result in permanent loss of markets by our exporters, for the loans will
Largely go to London.
The existence of the premium on dollars is an almost over..
whelming inducement for foreign governments to borrow here, and so further develop our
export trade.
To illustrate, with francs at 50% depreciation, or, say, at the rats
of 10 francs to the dollar, a French loan of a million dollars in this market
to-de
will produce, when the dollars are converted in France into francs, a total of 10
million francs.
with the franc appreciating in value (measured in dollars) the
amount of francs required every nix months to pay the dollar interest on such loans
is not only
constantly being reduced but
should francs appreciate to par by the time
the loan matures only 5 million francs will then be needed to buy the American Exchange
million dollars originally borrowed here.
in the market with which to repay the
nations now suffering
from a serious
Those
discount in their dorestic currencies will there-
by be later relieved of the heavy burden of
repayint:
depreciated currencies, ehloh must later be repaid
borrowings made now in their own
in an appreciated currency, ahen the
value of the domestic currency in later years is restored.
You will observe, therefore,
that far-sighted finance ministers will naturally seek to borrow as much as possible
in the American market in order that in later years the budget requirements (that is,
tax requirements) to meet the loan will decline in correspondence with the up reciation
in the value of the domestic cUrrency.
Speaking broadly, herein lies the great oppor-
tunity for the development of American export trade, the eapansion of which must from
now on for a period, and possibly to a large extent, be financed upon credit.
These
borrowings may be made by nations which have no occasion to spend any money whatever
for the purchase of goods.
to
others Who will use
thee
They will nevertheless dispose of
in purchasing American goods.
the dollars so borrowed
10.
It is frequently claimed that the British loverneent iriposes some re-
striction similar to that diacuseed under (1).
This I understand has never been
the case, except during the ear, and is confirned by the following cables exchanged
with the Bank of England:
"It is being repeatedly asserted here that your Government
has for sure time past influenced or required bankers to stipulate
that proceeds of foreign loans placed in your market be expended
Can you inform re if this statement is wholly
for British goods.
or partly correct or wholly incorrect? Personally believe principle
is bed and would like expression of your views. Strong.*
"Your #74. Firsts Statement is wholly incorrect as regards
last couple of years.
principle is bad.
I entirely agree with your opinion that
Second:
Blackett conarne this. Third: This
does not apply to loans which ray be guaranteed by British
Government under trade facilities act for relief of unemployment
but no such loans have been issued to public.
Bank of England."
What happens in London has been generally undarstood by Americans engaged
In trade in the Past and elsewhere, and is the natural development of the extension
of British banking into foreign lands in close association with British mercantile
establishments.
then applications for loans are made to the London market by
foreign borrowers, it is not =core= that the London banker endeavors to secure
some sort of an understanding that the proceeds will be spent there, as one of the
considerations for the placing of the loans In England.
It is not the result of
government requirement, can hardly be said to be even a custom, but is simply the
result of better cooperation after nany years of experience between that department
of the British business organization which supplies credit and another department
which nanufactures and export goods.
11.
Viewing these complicated subjects of
disordered exchanges (Which are en
impediment to the restoration of trade), of the impaired purchasing power of many
nations teach is likewise an impediment to trade), of the excessive gold reserves
In the United 5tates (which may become an inducement to speculation rather than
aid
development of production and cortexes), as a whole the world problem to-day Is
clearly how to restore conditions to such degree of stability so that international
trade and inter-change of goods and credit will again return to normal.
reater
NO
contribution to this end nay be made by any nation than by ours through the free
extension of credit to sound borrowers
by American investors and bankers.
It will
gradually bring the foreign exchangea of many countries back to a normal and stable
level.
To that end I believe the energies of the American Government and its
citizens should now be directed.
e.
cs-).
P1/4\\00,43,
THE SECRETARY OF STATE
WASHINGTON
April 20, 1922.
My dear Governor:
I am greatly indebted to you for sending me
your memoranda in relation to foreign loans.
I
have sent the copies ,which you were good enough to
furnish me to Secretary lellon and Secretary Hoover.
You may be assured that the matter will receive
the most careful consideration.
Very sincerely yours,
Benjamin Strong, Esquire,
Governor,
Federal Reserve Bank of New York,
New York, N. Y.
k.1
I
7
Department of Commerce
Office of the Secretary
Washington
April 29, 1922.
Hon. Charles E. Hughes
Secretary of State
Washington, D. C.
My dear Mr. Secretary:
I am in receipt of the very able memorandum
prepared by Governor Strong upon the subject of foreign
loans.
I do not think anyone disputes Governor Strong's
economic premise that foreign loans made in the American
market will be represented by the ultimate export of goods
or gold to some destination - either to the borrowing
country or otherwise.
It can at once be agreed that in
principle foreign loans are vital in the present situation
of the world and of our commerce.
I am not', however, prepared to accept Governor
Strong's implied conclusion that no standards should be
set up in the placing of foreign loans in the American market.
I believe these standards can be developed in the banking
community itself.
I am convinced that unless they are so
developed Congress will, sooner or later, impose control on
the placing of such obligations, as there are other and larger
considerations than those enumerated by Governor Strong.
It appears to me that the Federal Government has certain
7
2
unavoidable political and moral responsibilities toward these
operations and that our bankers have certain internal responsibilities to our commerce.
POLITICLI RESPONSIBILITIES
In the political category it may be stated that credits
from our citizens to foreign governments or municipalities
have a different complexion from either internal credit
operations or even of credits to private persons abroad, in
that there is no method by which failure in payment of such
loans can be prosecuted, except by the diplomatic intervention
of our government.
There rests upon the Federal Government,
whether desired or not, an implication that it will assist
our citizens in relation to such transactions.
To impose
such lines of conduct on defaulting governmental creditors
as will recover to our citizens their due is a path which
has led to infinite complexities in international relations.
It is Perfectly possible to carry an argument against foreign
loans to an extreme, but even a moderate view should certainly
go to the extent of creating some concern in the Federal
Government that the security and form of these loans Should,
at the outset, involve a'fair hope that the Federal Government
will not be required to enter upon intervention.
A further political interest lies in finance which
lends itself directly or indirectly to war or to the maintenance of political and economic instability.
We are morally
and selfishly interested in the economic and political
recovery of all the gorld.
America is practically the
final reservoir of international capital.
Unless this
capital is to be employed for reproductive purposes there is
little hope of economic recovery.
The expenditure of American
capital, whether represented by goods or gold in the maintenance of unbalanced budgets or the support of armies, is destructive use of capital.
It is piling up dangers for the
future of the world and While it may bring temporary values to
the lender of the money, or the exporter'of goods, it makes
no contribution to the increase of economic stability and in
fact contributes directly toward the continuation of instability,
and thus indirectly robs both the lender and the exporter of
goods of the real benefits that would otherwise accrue.
Broadly, the reproductive use of export gold or goods
means an increased standard of living, increased demand for
further goods and. increased social stability, whereas the
unproductive use is the negation of these ends.
The most pertinent fact with regard to Europe today
is that the whole political and economic life is enveloped in
an atmosphere of war and not of peace.
Restrictions on loans
made from the United States to reproductive purposes will at
least give the tendency to render impossible that form of
statesmanship which would maintain such an atmosphere.
MORAL RESPONSIBILITIES.
In the second category, that of moral responsibilities,
the problem is also much involved and argument can be carried
to extremes, but again some middle ground does exist.
Our
citizens have had but little experience in international investment.
They are not possessed of the information with
regard to the security of many of these offerings Which is
possessed by the Government or such offerings would not be
entertained.
A serious question arises in my mind as to whether
the Federal Government has the moral right to withhold this
information from its citizens.
For instance, a vast amount of foreign currencies, and
securities in foreign currencies, have been sold to the American
investor, Which have resulted in a national loss of probably upwards of five hundred millions of dollars in the last three years.
It may be contended that it is the duty of the different state
governments to protect their citizens from such frauds, but in
the international field it seems to me improbable that any action
of the state governments would be practical, and if once undertaken under the various investment control laws of the different
states, might lead to a large amount of international complication.
Even in the field of more respectable finance, the loan
history of some of the nations who are borrowing freely in these
markets for the first time could not be familiar to the American
investor or there would be less facility in placing these loans
with other than speculative investors.
Another instance of these moral responsibilities lies
ill loans to countries already indebted to the United States
Government in large sums and who from every apparent prospect
will not be able to meet these obligations to the American
,
people.
Our Federal authorities must have some responsibility
in not informing our citizens (or the promotors to them) that
these nations will probably have to confess inability to meet
their creditors.
Unless some such action is taken the citizens
from whom such information has been withheld would seem to me to
have the moral right to insist that the Federal Government
should not press its governmental claims to the prejudice of
their investment.
The only justification for allowing loans to proceed to
countries already unable to meet their liabilities, would be th.21
the resources obtained from such loans would be applied to re-
productive purposes Which would increase the assets of such a
borrowing nation in such manner as to strengthen its ability
to meet its obligations to the United States Treasury.
There-
fore, the Federal Government must from this reason alone be at
once interested in the purpose to which such loans are to be
applied.
The whole of these problems or moral responsibilities
are perfectly capable of dialectics in ethics to their total
obliteration, but the test of action of the Federal Government in these particulars should at least be the standard that
would be expected of a reputable business man dealing with
6
his own customers.
RESPONSIBILITIES OF OUR BANZERS TO DOLESTIC
COMMERCE
The great complaint that has arisen in the West against
the flood of foreign loans is largely concerned over competition
raising interest rates.
Foreign Government loans floated in
this market are offered on terms which yield from
gro to 3;1, per
annum in excess of the amounts which many of our domestic in-
stitutions can prudently pay for such credits, and in a market
Where there is not unlimited capital, must measurably decrease the
ability of our domestic institutions to secure credits.
There can
be no question that the foreign competition has maintdired interest
rates against our domestic industry.
It is, of course, contended
that these loans support our export trade and thru the eaployment
gf our workmen, etc., tend to impel domestic recovery.
But when
we consider that 94% of our activities are domestic, the burden
is against the domestic situation.
It is but partially true to
say that goods exported as a result of foreign credits are an addition to our prodUctivity and employment.
They may quite well
displace goods that are needed in our own domestic development.
For instance, in the present situation of our railways, these
institutions cannot afford to pay in excess of 6% per annum for
credits with which to increase their equipment.
They are, there-
fore, unable to compete with foreign railways offering 2% to 3%
higher interest.
There isno addition to the productive capacity
of the United States when an American railway is unable to secure
such equipment because it cannot compete with a French railway
- 7 -
in offering higher rates of interest.
I am not disposed to state that any restriction should be
applied for these reasons.
I state it in refutation of the
superficial view that "there is nothing in such contentions".
It is undoubtedly bad economics to attach compulsory purlIase of American goods as a condition of loans in our markets,
as the Shipment of goods ultimately follows in any event.
It
is however a fact that such conditions are applied in foreign
countries, as a matter of practical negotiation both of British
bankers and others, particularly in the following directions:
Establishment of the conditions that specifications
for public works expenditure from money borrowed
shall at least give their contractors and builders
of equipment an equal chance to compete on equal
terms with other foreigners;
Where construction is of public type that will necessitate continuous subsequent purchase of spare parts
and supplies of the country Originating the system,
insistence is strongly made for selling the initial
plant to the borrowing country.
For instance, there is scarcely a China railway loan on
the London market that has not embraced one or both of these
considerations.
These reservations on loans could Where possible,
be carried out by our bankers as well as others.
Yours faithfully,
Herbert Hoover
HH/la
-
May 6, 192.
My dear Mr. Secretary:
Your note of May 5, enclosing a copy of a letter addressed to
you by Secretary Hoover, dated April 29, 1922, has just been received,
and at the earliest opportunity I shall ask the privilege of sending
you a brief comment upon only one or two points raised by the Secretary.
With many of Secretary
and of course you realize, as we
Hoover's
arguments I am
in entire accord,
must, that I would not venture to pass
upon those considerations which are strictly political and which more
directly relate
to the political policies of our government as distinguish-
ed from a strictly economic point of view.
I much appreciate your
courtesy in sending me his
beg to remain,
Yours sincerely,
3enj. Strong,
Govornor.
Honorable Charles F. Eughee,
Secretary of State,
State Department,
Washington, D. C.
letter, and
r
JUN 9
192
TH E SECRETARY OF STATE
WASH I N GTO N
May .5, 1922,eJ
My dear
Governor:
With reference to my letter of
April 20, 1922, acknowledging the receipt
of your memoranda in relation to foreign
loans, I beg to enclose herewith,
as of
possible interest, a copy of a letter
dated April 2(.), 1922
from Secretary Hoover,
commenting upon your memorandum.
Sincerely yours,
Enclosure.
Benjamin Strong, .E'squire,
Governor,
Federal Reserve Bank
New York City.
of New York,
Fell it
11,
JUN 9
elir 17-
1922 THE SECRETARY OF STATE
r
WASHINGTON
May 5, 1922.
1°J17-
1-v-
Mi\'{
My dear Governor:
With reference
to my letter of
April 20, 1922, acknowledging the receipt
of your memoranda in relation to foreign
loans, I beg to enclose herewith, as of
possible interest, a copy of
dated April 29,
1922 from
a letter
Secretary Hoover
commenting upon your memorandum.
Sincerely yours,
Enclosure.
Benjamin Strong, .4NquIre,
Governor,
Federal Reserve Bank'
New York City.
of New York,
THE SECRETARY OF STATE
WASWNGTON
June 29, 1922.
My dear Governor Strong:
I trust that you will pardon my delay in
acknowledging the receipt of your very interesting letter commenting on Secretary Hoover's
memorandum of April twenty-ninth upon the subject
of foreign loans.
I have sent copies of your
letter to Secretary Mellon and Secretary Hoover,
and I am indebted to you for the statement you
have Made.
With high regard, I am,
Faithfully yours,
Honorable Benjamin Strong,
Governor,
Federal Reserve Bank of New York,
New York City.
ERAI, RESERVE BANK
OF NTYORK
June 9, 1922.
dy dear Mr. Secretary:
May I ask your consideration of the following brief comments in regard
to the memorandum of April 29 ehich Secretary hoover was kind enougt to prepare,
commenting upon that I sent you on the subject of foreign loans.
Re statement
is most impreesivo, and especially so when one considers the extent and variety
of his experience.
In fact, my respect for his viEVIS has Jed me to hesitate fo r
some time before writing you again.
The in entoranduzi which I sent you ,v as purposely confined to the rather
narrow ecenoxic point of view.
Mr. Hoover's memorandum opens the door wide to
the consider tier of the politicel and meral responsibility of the officers of
our government in this important matter.
Hie concepts relate principally to
First, is it wise to permit or encourage our
two aspects of foreign loans.
citizens to Pa ali El leans to those nations now enaed in tasteful military expenditures?
And second, has our government & moral responsibility to restrain its
citizeus from making loans which may turn out to be bad and consequently involve
us in some diplomatic or like Procedure, to assist in their collection in the
event of default?
As to the first, I
fir,
most heartily in accord with the principle that
we cannot afford to lead encouragement, and should not give moral aid or comfort
to those governments which are in any way responsible for e4 continuance of the
present unsatisfactory political, social and economic conditions throughout the
world.
My doubt has been !solely as to whether our influence should be exerted
by restriction upon lending to those nations, or ehether some better or wore
effective means could not be devised.
If the only means available is to restrain
our citizens from lending, then I hope our government will employ that means.
June
Secretary Hughes.
" EDERAL, RESERVF, BANK
OF NEW...YORK
PY
it I have a strsng feeling that the isey to this situation lies in the policy of
this government towards the whole subject of intergovernment debts.
It is a subject shioh Secretary Hoover and I have frequently discussed,
and I shall not burden you in this letter with arguments.
As to the second aspect of the natter, permit me to respectfully eubmit
the followings
If loans by the citizens of one country to a foreign vvernment or to its
citizens are predicated upon the theory that at some time thee° who make the loses
say find it necessary to turn to their government to aid in the collection of sueh
loans in tho event of default, then I vould agree Ott no such loans be permitted.
They sould simply later become an added cause of dispute, dissenticn and inter-
national misunderstanding of the sort that leads to farrare.
According to my
underetaucing of t e hiatcry of interaetional credit transactions, not for a
century or mere has the collection of defaulted loans been the subject of more than
diplomatic representation of the mildest oort, end even then as a. rule only when
resort to the courts of the borrowing nation has resulted in manifest injuetice to
the lenders.
If: governmental regulation of this and all vorts of other slitters,
suet it not be borne in mind that when go vernm en t /5.8eitillEt43 any responsibility that-
ever for assent or dissent in
given transaction, it may turn out that its greatest
responsibility arises through failure to act rather than through affirmative motion.
Im other words, if our go v ertment undertekes to pass ueon the goodness of a loan,
even in a minute degree, does it not inaugurate a system of responsibility to
which there may be no termination except by the assumption of full responsibility?
Shen se conscientious an officer of our government es the Secretary of
Commerce expresses his cencern lest American investors ae loans shich 411 in-
volve losses, it seems indeed en ungrateful attitude to dissent from his sosition.
I hesitate indeed to de se, but my point is that once regulation, eupervieion,
or control is attempted, there is no limit te ohich it my develop and no limit to
the responsibility .hich our tioverneent may ultimately be called upon to assume.
FEDERAL RESERVE RANK
OF NEW YORK
June CC
ay indeed lead to responsibilitiee shich vouId involve us in the very disputee
and dissentions ohich I am eo eager tbet this nation should always sueoesefully
escape.
1111 you accept this ez;-ression la evidence of my earnest desire to eon
tribute in any way possible to the elucidation of a matter vhich is of very grave
concern to this country and its citizens, and which of course /suet in the last
analysis be determined by those vhe carry the responsibility.
Two spare copies of this letter are also enclosed in case you feel disposed to transmit thee to becretery Mellon and Secretary Tioover.
Again thanking you for your courtesy in giving a eart of your valeehle
time to considering thie correenondence, and with assurance cif r.y high regard,
believe me,
Respectfully yours,
iionorable Charles C. Hughes,
Secretary of State,
Department of State,
isehington, D. C.
June 9, 1922.
hy deer Mr. Secretary*
May I tisk your oensideration of the followius, brief comments in regard
to the memorandum of April
.?.9
whioh Secretary Boover les kind encugh to prepare,
cowsrenting upon sthit I sent you on the subject of foreign loans.
fie statement
is most imi;reesivc, and especially co when on acne' dere the extent end variety
of his experience.
In fact, my respect for hie views has led me t hesitete for
some time before oritini; you nein.
The memertuldum ;ditch I sent you was ?urposely confined to the rather
tiarroz wnocie point of view.
Or. Koover,a memorandum °pone the door wide to
_
the coneider. Lion of the political end moral responsibility of the officers of
our governeent in this ist-ortaet matter.
two aspects of fereien losnu.
}LIBcort relate princically
First, is it wise to ;erelit or enoeurage our
citizens to make loane o thoee untione now engageci in as.stmful military expenditures?
And secced, has our government a moral responsibility to retrain its
citizens from making loene shich may turn out to be bad and oonsequently involve
us in some diplometic or like procedure,
to6.%
itst in their collection in the
event of default?
As to the first, I as most heartily in accord with the principle that
vs cannot afford to lend encouragement and should not give moral aid or comfort
to thee goverimszitt ehich are in any way responsible for a oontinuance of the
present unsatisfactory 1.,oliticel, social and economic cond!.tions threughout
world.
itly doubt has been solely as to 'whether our influence should be exerted
by restriction upon lending to the nations, or *bother some better or more
ffeotive meane could not be devised.
If the only means available is to restrain
our citizens from lending, then I hoe our government wil3 employ that means.
e
Secretary Hughes.
June V, 192?.
strong feeling that the key to this situation lies in the polioy of
t I hive
ppvernment toeards the vho/e subject of inter-government debts.
It io e subject /Alia Secretary Hoover and I have frequently discussed,
and I shall not burden you in this letter with arguments.
As to the second &spnt of the matter, permit as to respectfully submit
the following:
If lotne by the citisens or one country to & foreign covernment or to its
citizens are.predicated upon the theory thet at some tittle those who make the loans
may find it necessary to turn to their government to aid in the collection of such
loans in the event of defeult, then I lould agree that no suoh loans be permitted.
They mould sieray later beenme an edded cause of diseete, diesention end international.
suriderstnd!n
underetaneingof.e
tt!.-1 sort thst lends to eerfare.
According to my
Mel-cry of intern7.tiona1 orodit transactions, not for a
century or mere has the collection of defaulted loans been the subject of more than
diplomatic representation of the mildest port, end even then as a rule only ellen
resort to the courts of the borrowiag nation has resulted in Faanifeet injustice to
the lendera.
In governmental regulation of this and an sorts of other matters,
must it. not be borne in mind that when overnment its unies any resocueibility hat-
ever for assent or dissent in e given transaction, it may turn out that its greatest
responsibility arises througts failure to act rether than through affirmative action.
In other words, if our
v rneent undertekes to pass upon the 4odnese of a loan,
even in a minute degree, done it not inaugurate a system of responsibility to
which there may be no termination except by the aseum;Aion of full responsibility?
she
eo oonscientioue sn officer cf our rvernment as the Secretary of
Commeroe expresees his concern lest Americen investors, mee loans which 4111 in-
volve losees, it seems indeed 'An ungrateful attitude to dissent from his :ositien.
/ hesitate indeed to do so, but my point is that once regulation, supervision,
or control is attempted, there is no limit to which it may develop and no limit to
the reseonsibility which our doverneent may ultimately be called upon to tiBaUTAC.
June 9, 1922.
S
It say indeed lead tA) reeNnsibilitise shich 'feuld involve us in thi:,se very disutee
sod dissentions which I
c
oazer that this nation should always successfully
eavv:e.
Iii!. you acce,A this enression eta evidence of ay earnest desire to con-
tribute i
ny 461 ,jo at bl e to the elucidation o
setter which is of very .jreve
concern to this country lind its citizens, and which of couree suet in the last
a.nalysis be determined by those
rh
cr.rry the responsibility.
Two c;are copies of this letter are also enclosed in cane you feel diepoeed to transmit tbse to L'A-tcrotery Vence end Stioretlry Hoover.
thanking vett for your courtesy in giving a part of your valuable
time tu oonsid%rtn5 tkia corree9o,adonce, and with assurance of sy high regard,
believe tle,
Ftespectfully yours,
Honorable Charles E. III:ghee,
Secretary of State,
Department of State,
hashinIton, 7'. C.
ES.tiM
October 5, 1922.
Dear Mr. Secretary:
Only today have I had opportunity when Mr. Irving T. Bush
called to see me, to gain some idea of the proposal which he has in
mind for an international conference, and to learn something of what
he is seeking to accomplish by that method.
You know bow deeply interested we have all been at the
Reserve Bank in
various proposals of that character, and I hope that
you will give me opportunity to discuss them
with you when I am in
Washington next week.
Commencing on Tuesday we have a conference which will
probably last all of the week, but I shall be there all day Monday
and will take the liberty of calling
your secretary to see whether
you are free to give me an appointment.
With cOrdial
regards, believe me,
Yours sincerely,
Honorable Charles E. Hughes,
Secretary of State,
Washington, D. C.
BS.MM
111111111111111111111111111111111
October 19, 1922.
?FeIVATE
Dear Mr. 6ecretary:
Since eriting you on the 18th instant in regard to the account of the
3ank
or
Japan, we have received the regular monthly report from
of Statistics and Research which contains the following
their Depertment
significant item:
"On the 18th of August the Government announced the program for
regulation of the ericee of coerodities
********
The program consists of
1.9 items of which the principal ones may be enumerated as follows: (1) The
reserve held abroad against note issues to be abolished;
(2) Small pa-;.er
currency to be recalled from circulation and replaced by metallic currency."
The other iteme enumerated do not relate to foreign balances.
It ehould. not, be concluded from the statement that withdraeale of
balances which may now ee held in this country by the Japanese Gcverneent and
by Japanese banes has any political significance.
The Janansee currency,
which is principally issued by the Bank of Japan,(and the 67718.11 amount of
fractional currency issued by the Treasury to replace silver, which disweesered
circuletion during the war, is covered to the extent of almoet 100 per cent.
)from
by gold or foreign gold bals.ncee.
It is this very large stoce of ppld which
has been the cause of a oertein amount of inflation and speculation in Jaean,
and really has been the fundamental reason for a certain amount of eolitical and
occial unrest becaure of the high cost o.' living.
I am under the impression that the withdrawal of foreign balances
will not be carried to the point, of imeairing that portion of
the.governme.int
October 19, 1922
2
reserve abroad, which ie really maintained in anticipation of the maturity of
bonds which were sold in the United States and England during the Husso-Japanese
war; but as to that 3.[Icl other matters suggested by the statement above quoted,
I ea writing to the Governor of the Ban of Japan for further information,
which will be conveyed to you later.
Accompanying this letter is a i7emo ranclum relating to Japanese
exchange, Japanese trade balances and the sold movement between this country
and Japan, together with appropriate comments thereon.
I beg to remain,
Yours respectfully,
jenj. Strong,
_;overnor.
Honorable Ch.irlee E. Hughes,
Secretary of State,
Wa.shington, D. C.
BS.M11
enc.
Comments
The accompanying figures indicate in a general way
That the adverse trade balance of Japan with the rest of
the world has been progressively reduced from
it has been extinguished.
January of
this year until
The figures for August and September are not
yet available.
That coincident with the elimination of the adverse trade
balance,
the discount on Japanese currency and the corresponding premium
on dollars has been reduced from the high point of 5.04 to the September
rate of 3.49.
That coincident with the general reduction of the adverse
trade
balance
there has been a fairly continuous excess of exports to the
United States over imports from the United States.
It curiously exhibits one
fact
which may be only coincidence,
namely, that the traditional timidity of the Japanese in financial matters
led them to refrain from using their American dollar balances at a time when
they were really required to meet adverse trade balances, and now that the
trade balance has been corrected and the cause of their timidity has been
removed, they have decided to withdraw some of the dollar balances which
they hold in this country.
This surmise could hardly be verified without considerable
investigation, however, and should be aaepted with some reservation.
Japan's Foreign Trade in 1922
Exports
87,270,969
101,420,192
114,978,103
129,678,785
155,481,675
147,115,834
144,659,000
Jan.
Feb.
Mar.
Apr.
May
June
July
Import
Yen)
178,806,718
197,542,917
207,344,519
188,891,084
173,786,316
159,332,771
143,208,000
Excess of
Exports over
Imports
Excess of
Imports over
Exports
91,535,750
96,122,725
92,366,416
59,212,299
18,305,141
12;218,937
1,451,000
Aug.
Sept.
Oct.
Nov.
Dec.
Currently from "Monthly Return of the Foreign Trade of The Empiie
of Japan," Department of Finance.
Source:
Gold - Im orts and exports between United States and Japan - 1922
No direct or indirect imports or exports during the period from
January to August, 1922.
Japanese Foreign Rates of Exchange - (Yokohama)
t0.4983 = 1 yen
1922
Jan.
Feb.
Mar.
Apr.
May
June
July
August
Sept.
.4762
.4732
.4747
.4742
.4744
..4783
.4780
.4779
.4809
% above or below par
-4.44
-4.74
-4.8
-4.3
-4.0
-4.1
-4.1
-5.49
Trade of the United States with Japan
Total Merchandise
,
Imports
Exports.
Jan.
$27,940,894
Feb.
/ 22,406,076
$27,984,775
18,788,029
22,851,859
14,040,654
16,050,577
16,565,395
16,024,597
----
,1922
Mar.
4pr.
/ 19,556,986
/0aY
June
iJuly
Aug.'
,Sept.
'got.
/Noy.
/pee-
/
18,990,442
29,892,987
55,825,403
20,260,639
Excess
Exports
Excess
Imports
$
$3,818,047
4,949,808
13,642,410
19,462,008
4,256,242
45,881
3,494,853
October 1.8, 1922.
PRIVATE:
Dear IV,r. secretary:
Eir.ce last I wrote you in regard to the Japanese ocount, we
have succeeded in effecting a rea.djustmant of the terms of the account
in a, ma.nner which I think will be more satisfactory both to the Bank of
Ja-.?.n as well as to this institution, the principal change consisting
in the
investment of a larger proportion of the balance of funds which
they maintain with us.
ks this will be handled in such a way as to produoe. a larger
return in interest to Um Bank of Japan and k somewhat larger income
from 3011iftiSE10136 to this bail., it i8 not unlikely that the amount of
the balance waintained with us will be increased; although 1.0seibly not
to its former proportions.
Definite advie,..e o
be sent to you whenever it occurs.
I be to remain,
Respectfully yours,
Ilenj. Strong,
Governor.
Honorable Charles k;. Hughes,
Secretary of State,
Washington, D. C.
3S.M
an
such change will
October 20, 1922.
Dear Mr. Secretary:
Referring once more to
the proposals which have
been outlined to
you by Mr. Irving T.
Bush, President of the Chamber of Commerce of
New York, I have had
5.
the State of
further conversation with him since seeing you in
Washington, and now take the liberty of adding the following comments to what
I then stated.
His proposal for a non-political unofficial conference of business
men to be held in this country is directed especially
towards the
enlighten-
ment of American public opinion in regard to the various matters, principally
economic, which so pressingly require discussion and solution.
Theracan be
no possible objection that I can see to the taking of any steps which will
create a sound public opinion in the United States upon
these
matters.
But
I have been obliged to state to Mr. Bush, rather reluctantly I confess, that
I believe his method is e mistaken one and will do more harm than good.
Possibly this view can best be
of the country it will better
expreseed
serve his
by stating that in
the present
temper
purpose to have a conference confined
to American business men than it would be to have a mixed conference which
would include representatives of foreign governments.
There will be
differences of opinion expressed by those coming from abroad, there is likeiy
to be a
certain amount of resentment arising from attempting to shape
American public opinion
by the introduction of the views of
interested
parties from abroad, and at the present juncture, I am reluctantly compelled
to express the view that such a meeting would do more harm than good.
#2
October 20, 1922
This is substantially what I believe I said I would .0.rite you
after seeing Mr. Bush again.
With assurance of my respect, believe me,
Sincerely yours,
Honorable Charles E. Hughes,
Secretary of State,
Rashington, D. C.
ES. MM
r-Q
0
THE SECRETARY OF STATE
WASHINGTON
October 21, 1922.
My dear Governor:
I have received your letter of the eighteenth,
with regard to the Japanese account, and am glad
to have the information which you give.
Very sincerely yours,
Honorable Benjamin Strong,
Governor,
Federal Reserve Bank of New York.
0
THE SECRETARY OF STATE
WASH I FIGTON
October 21, 1922.
My clear Governor:
Your letter of October nineteenth, with res-
pect to the account of the Bank of Japan, has been
received, and I am much obliged to you for this
information.
Sincerely yours,
Honorable Benjamin ';.Arong,
Governor,
Federal Reserve Bank of New York,
New York, N. Y.
THE SECRETARY OF STATE
WASH I NGTON
October 21, 1922.
My dear Governor:
I have received your letter of October
twentieth, and thank you for letting me know of
your interview with Mr. Bush and of your views
on the project which he has in mind.
Very sincerely yours,
Honorable Benjamin Strong,
Governor,
Federal Reserve Bank of New York.
October 25, 1922.
Dear Mr. Secretary:
When Vr. Irving T. Bush last called to see me in regard to the
conference pinn which he had proposed, he showed me a galley proof of an
article which was to ppear in the Hearst news,arers, a. typewritten copy
ec..
of whir.h I believe he bad already sent to you.
This appeared I believe in all of the Hearst newspapers on
41.
October 22, and I an enclosing those of the Washington Times, the New York
ATferican and the Herald Examiner of Chicago.
r'ossiblt this may convey a little further insight into the
progran than tp7eared from anything either Mr. Bush or I may have already
said to you.
I be to remain,
Yours respectfully,
Honorable Charlec E. Hughes,
Scretary of Statd,
Washington, D. C.
3S.TIM
en c.
THE SECRETARY (31 STATE
WASHINGTON
October 26, 1922.
My dear Governor:
I have received your letter of October
twenty-fifth, enclosing Mr. Bush's article.
which I am glad to have.
Thanking you, I am,
Very sincerely yours,
Honorable Benjamin Strong,
Governor,
Federal Reserve Bank of New York,
New York, N. Y.
THE SECRETARY OF STATE
WASHINGTON
November 7, 1922.
My dear Governor:
On returning to Washington I find your letter
of October thirtieth, with respect to the gold and
foreign exchange policy of the Japanese Government.
Thanking you for this information,
E
am,
Very sincerely yours,
Honorable Benjamin Strong,
Governor,
Federal Reserve Bank of New York,
New York, N. Y.
00
THE SECRETARY OF STATE
WASH I NGTON
November 7, 1922.
My dear Governor:
On returning to Washington I find your letter
of October thirtieth, with respect to the gold and
foreign exchange policy of the Japanese Government.
Thanking you for this information, I am,
Very sincerely yours,
Honorable Benjamin Strong,
Governor,
Federal Reserve Bank of New York,
New York, N. Y.
October
PRIVATE
19?2.
Dear Mr. Secretary:
Since writing you on Octoeer 12 in regard to the gold and foreign
exchange policy of the Japanese Government, we now have a further report dated
October 5 1,.th1ch contains the following:
"With reference to the rerovfel o the ban on the export
of gold, which has been the subject of much discussion and
speculation of' late in coenection with the rteulation of comuodity
prices as mentioned in the last report, theC.'*overnmeat made an
announcement of its views, on the 1'.ith of Seetembec to the effects
(1) that, it was not expedient to lift embargo at this eoment when
bueinese conditions, et hoe sntt abroad, are still uneettled, but
that the Government will be ready to take the step as soon as the
situation shall ecore refs visb:te and there shall be no fear of
sudden disturbances to our business and finance as the result of
such en action; (2) that, while the ban on the ex-port or geld
remains in force, it will be the policy of the Governeent in
future to Bell as much freely ee possible it fund held abroed,
so Nta not to put our import trade to too much dieadvantag,e as the
********** Our foreign
result of the unfavorable exchange.
trade has continued favorable since last July. According to the
preliminary reports, eeports exceelet: imeorte thin menth to the
amount of 41F,000,000, due in the main to a. general decrease in
imports and to heavy sales of raw silk for experte. As a result,
or exchange, which had remained at .1'47 3/4 for cable
transfers Since early :Way, improved by 1/4 to tA8 on the 7th."
our New
The above would seem to confirm the comeents which accompanied my
last letter.
I beg to remain,
Eespectfully yours,
Benj. Strong,
Governor.
Honorable Charles
Secretary of State,
Weshington, D. C.
BS. 1171
Hughes,
December 19, 1922.
CONFIDENTIAL
Dear Mr. Secretary:
Bearing further upon what I have recentl! writl-en you
in regard
the policy of the Japanese Government respecting its
foreign balances, I take the liberty of enclosing to yo. e copy
of a confidential communication which I have
from
recently received
the Governor of the Thank of Japan.
With assurance of my esteem, believe me,
11/
/ours very truly,
Beq. Strong,
Governor.
Honorable Charles E. Hughes,
Department of State,
'qashindton, D. C.
BS.'31
Enc.
THE SECRETARY OF STATE
WASHINGTON
December 21, 1922.
CONFIDENTIAL
My dear Governor Strong:
I have received your letter of December nineteenth and am glad to have the information you give
with respect to the policy of the Japanese Government
with regard to its foreign balances.
With high regard, I am,
Very sincerely yours,
Honorable Benjamin Strong,
Governor, Federal Reserve Bank of New York,
New York City.
tob
:titucm.l.
-dML
eIrT
4, - -
ocri; aol ztemloI1 cdi ovad al bri. Mt bat d4atio3
eetonagel.
9dI 0 %AA
c( td o:69q51i7 ':41W
6 '1 at blzeor iitl
A74/4 dli
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY or STATE
WASHINGTON. D. C.
DEPARTMENT OF STATE
WASHINGTON
November 9, 1923.
ny dear Mr. Strong:
Pardon me for t
)11
r,\PP*4
'delay in replying to your
letter of October 7, 1923, which was handed to me
by Mr. Harrison.
I have read your letter with great interest,
and as I understand from Harrison that you expect
to be in Washington shortly, I shall look forward to
an opportunity of discussing the matter with you upon
your arrival.
I was so glad to hear that you had completed your
cure and that you wculd be back with us.
dith kind. regards,
Sincerely yours,
Mr. Benjamin Strong,
Broadmoor,
Colorado Springs,
Colorado.
February 14, 1824.
Dear Yr. Secretary:
Having recently had occasion to make some inquiry as to the
economic dependence of Japan upon the United States, it occurs to 7Te
that the report which has just reached my hands may he of some interest
to the Department in connection with Japanese relations generally.
I am, therefore, taking the liberty of handing you a copy
on the regular office form, which you may be interested in glancing
ever. If not, doubtless You would care to
ass it on to your assist-
ant who has charge of these matters.
You will, I am sure, not hesitate to advise me if reports of
this character are really of no interest, so that I shall not bother
you by sending them.
With assurance of my esteem, I beg to remain,
Resectfully,
Benj. Strong,
Governor.
Honorable,Charies Eir-NwIree,
Secretary of State,
State Departmert,
Waal-,ington, D. C.
BS.MM
en c.
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, ID. C.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
PL - 611.94/20
March 3, 1924.
Mr. Benjamin 6trong,
Governor, kederal Reserve _Bank of Lew York,
hew York City.
My dear Mr. strong:
I have to acknowledge your letter of i'ebruary 14,
in which you were good enough to enclose a copy of a
report regarding the economic situation of Japan and
at the same time to express my thanks for your courtesy
in placing this information at the disposal of the
ik-
partment.
The report in question is highly informative and
has been read with interest; and if it is convenient
for you to supply similar reports from time to time, the
,Jpartment will be glad to receive copies of them.
I am, my dear Mr. Jtrong,
bincerely.yours,
THE SECRETARY OF STATE
WASHINGTON
June 2, 1924.
17)1
1 .1
rLXI
N
My dear Governor Strong:
,
oe
I have received yotr letter of May twenty-
ninth and thank yed for sending me a copy of
your letterAo Mr. Mellon, which I have read
with deep interest.
I should not care to make
any comment until I have had a chance to discuss
the questions with Mr. Mellon and others.
With high regard, I am,
Very sincerely yours,
Honorable Benjamin Strong,
1718 H Street, N. W.,
Washington, D. C.
@FedFRASER